2010 (9) TMI 536 - AT - Income Tax

Disallowance for non deduction of TDS - Discount versus commission - The assessee is in the business of booking domestic and international airline tickets - The issue in this appeal is regarding the income of the intermediaries earned from the assessee in the process of booking tickets for third parties - The AO disallowed the deduction claimed by the assessee on account of discount given to the intermediaries u/s 40(a)(ia) for non-deduction of TDS - Department has submitted that the assessee is passing the commission income to the intermediaries and calling the same as discount but the nature of the charges paid to the intermediaries is of commission - When there is no contract of agency at any point of time between the assessee and the intermediaries and the discount made available to the intermediaries does not fall within the term commission or brokerage, then , such discount allowed by the assessee is not liable for deduction under section 194-H - Decided in favor of assessee

Summary

Issues: Disallowance under section 40(a)(ia) for non-deduction of TDS on handling charges/discount to intermediaries.

In this case, the appellant, engaged in booking airline tickets, appealed against the disallowance of Rs. 47,78,949 under section 40(a)(ia) by the CIT(A) for the assessment year 2006-07. The appellant earned commission on booking tickets and deducted TDS on earnings but did not deposit the full amount to the government. The dispute revolved around the nature of handling charges/discount given to intermediaries for booking tickets for third parties. The AO disallowed the deduction due to non-deposit of TDS. The CIT(A) upheld the AO's decision. The appellant argued that the handling charges were discounts passed on to all customers, whether direct or through intermediaries, and not commission. The DR contended that the charges were commission, not discounts. The AO considered the payments to intermediaries as commission, not discounts, as they brought business to the appellant. However, the Tribunal held that the transactions were between principals, not principal and agent, as there was no agency contract. Referring to the definition of commission or brokerage under section 194H, the Tribunal concluded that the discount given did not fall under these categories, and hence, TDS was not applicable. The disallowance under section 40(a)(ia) was deleted, and the appeal was allowed in favor of the assessee.

This judgment clarifies the distinction between discounts and commissions in transactions involving intermediaries and the applicability of TDS provisions under section 194H. The Tribunal emphasized the absence of an agency relationship between the appellant and intermediaries, leading to the conclusion that the discounts given did not constitute commission or brokerage. The decision highlights the importance of the nature of transactions and contractual relationships in determining TDS obligations, ultimately ruling in favor of the assessee based on the specific circumstances and legal provisions involved.