2013 (1) TMI 482 - AT - Income Tax

Non-deduction of tax at source u/s 194H on Commission - default u/s 201(1) - assessee contested against that though he has accounted the discounts given under the head Commission payments in effect, they are only discounts offered by the assessee to its customers - Held that - On consideration of definition of Commission or brokerage given in section 194, finding force in the contentions advanced by assessee as it can be said that the assessee herein has not appointed any sub-agents for canvassing clients for the assessee & these small time travel agents are providing any service to the assessee herein either by acting on its behalf or during the course of sale of flight tickets. On the contrary, they act on behalf of the travelling public or their respective customers. Thus, they provide service only to their customers by identifying the best available rates for the flight tickets ordered by their respective customers. Accordingly, the commission income ceded by the assessee herein in respect of the tickets purchased by the small time travel agents on behalf of their respective customers, would partake the character of Discount only & such discount payments will not be attracted by the provisions of sec. 194H. CIT(A) agreed with the contentions of the assessee and accordingly held that the decision rendered in the case of Vodafone Essar Cellular Ltd 2010 (8) TMI 691 - KERALA HIGH COURT shall not apply to the payments made by the assessee to the small time agents as small time agents have not been appointed by the Airline companies. These small time agents have also not been appointed by the assessee herein also - in favour of assessee.

Issues Involved:

1. Non-deduction of tax at source under section 194H on commission payments.
2. Categorization of payments made by the assessee.
3. Alleged violation of Rule 46A(1) of the Income Tax Rules by CIT(A).
4. Nature of payments to retail customers and group passengers.
5. Nature of payments to small-time travel agents (non-IATA agents).

Detailed Analysis:

1. Non-deduction of Tax at Source under Section 194H on Commission Payments:
The assessee was treated as an assessee in default under section 201(1) of the Income Tax Act for not deducting tax at source under section 194H on commission payments to various persons. The Deputy Commissioner of Income Tax (TDS) raised a demand equal to the amount of tax deductible under section 194H for the assessment years 2006-07 to 2009-10, along with interest under section 201(1A) for the assessment years 2006-07 to 2008-09. The assessee challenged these orders, and the CIT(A) allowed the appeals in part. Both the assessee and the revenue filed appeals.

2. Categorization of Payments Made by the Assessee:
The CIT(A) categorized the payments into three groups: (a) payments to retail customers, (b) payments to group passengers like Haj Pilgrims, and (c) payments to small-time travel agents (non-IATA agents). The CIT(A) held that discounts given to retail customers and group passengers could not be considered as commission payments, relying on decisions such as Kerala Stamp Vendors Association vs. Office of Accountant General and Ahmedabad Stamp Vendors Association vs. Union of India. The CIT(A) directed the TDS officer to re-work the liability under section 201(1) and interest under section 201(1A) for the payments to small-time agents.

3. Alleged Violation of Rule 46A(1) of the Income Tax Rules by CIT(A):
The revenue contended that the CIT(A) violated Rule 46A(1) by accepting new evidence during the appellate proceedings. However, it was noted that the CIT(A) categorized the payments based on information available in the assessee's books of accounts and sought a remand report from the Assessing Officer. The Deputy Commissioner of Income Tax (TDS) was present during the appeal hearing, and his opinion was sought. Therefore, there was no violation of Rule 46A, and the grounds raised by the revenue were dismissed.

4. Nature of Payments to Retail Customers and Group Passengers:
The CIT(A) held that payments to retail customers and group passengers were in the nature of discounts and not commission payments. The assessee, an IATA agent, sold air tickets at competitive rates within a prescribed range and provided discounts to customers to increase turnover. The discounts were accounted for under the head "Commission payments," but they were effectively discounts offered to customers. The definition of "Commission or brokerage" under section 194H includes payments received by a person acting on behalf of another for services rendered. Since retail and group customers did not provide any service to the assessee, the payments were considered discounts and not liable for TDS under section 194H.

5. Nature of Payments to Small-time Travel Agents (Non-IATA Agents):
The CIT(A) held that payments to small-time agents (non-IATA agents) were commission payments liable for TDS under section 194H. The assessee contended that these agents were independent and acted on behalf of their customers, not the assessee. The relationship was on a "Principal to Principal" basis. The tribunal found that small-time agents provided services to their customers by identifying the best rates and not to the assessee. Therefore, the payments to these agents were considered discounts and not commission payments. The tribunal set aside the CIT(A)'s orders regarding these payments and directed the TDS officer to delete the demand under sections 201(1) and 201(1A).

Conclusion:
The appeals filed by the assessee were allowed, and the appeals of the revenue were dismissed. The tribunal upheld the CIT(A)'s decision that payments to retail and group customers were discounts and not commission payments. It also concluded that payments to small-time agents were discounts, not commission payments, and directed the deletion of the demand raised under sections 201(1) and 201(1A).

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