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TMI Blog2009 (4) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... . Advocate with Mr Prakash Kumar, Advocate, for the respondent. JUDGMENT The judgment of the court was delivered by RAJIV SHAKDHER, J. - In these batch of appeals, which have been preferred by the Revenue, there are three issues which require consideration of this Court. (i) In the first batch of appeals; the issue which arises is whether supplementary commission received by travel agents of assessee-airlines is a "commission" within the meaning of Section 194H of the Income Tax Act, 1961 (hereinafter referred to as the "Act"). If that be so, the failure on the part of the assessee-airlines would render them liable for consequences under Section 201(1) and 201(1A) of the Act. (ii) In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee(s)-airline(s) received what the Revenue terms as supplementary commission is: 01.06.2001 to 15.02.2002. It is the Revenue's case that the assessee-airline received by way of supplementary commission during the period in issue a sum of Rs 29,34,97,709/- on which it failed to deduct tax at source equivalent to Rs 2,93,49,770/-. The department was thus deprived of not only the said short-deducted tax at source but also of surcharge. 5. It is the Revenue's case that immediately after the reintroduction of Section 194H on the statute book, the Department wrote letters to the airlines to adhere to the provisions of the newly introduced Section. As a matter of fact, the Central Board of Direct Taxes (hereinafter referred to as the 'CBDT') issued a Circular No. 619 dated 04.12.1991 wherein it clarified that any retention of commission by a consignee or an agent would amount to constructive payment by the principal and hence Tax Deduction at Source (in short 'TDS') was required to be deducted under the provisions of Section 194H of the Act. The Revenue has stated that despite such instructions and communication the assessee(s)-airline(s) did not pay heed to the directives of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed special commission from the airline, the same was not passed on to the customers. Balmer and Lawrie & Co. Ltd which is an approved travel agent for public sector undertakings, however, adverted to the fact that they had obtained exemption from the Income Tax authority vide communication dated 29.05.2001 and hence tax at source had not been deducted on commission received by them. It, however, informed the Department that in the said sector incentive/commission which it received was retained and not passed on to any agency or any of their clients. As regards concessional/free tickets Balmer and Lawrie & Co. Ltd informed the Department that they were being utilized for the in-house travel and by the officers of the company who are required to travel for official work by air as per their entitlement. 7. The Assessing Officer after examining the stand came to the conclusion that the provisions of Section 194H of the Act were attracted in the instant case. The brief reasons which impelled the Assessing Officer to come to the said conclusion were as follows:- (i) the assessee-airline supply blank tickets to the travel agent in bulk. These tickets are the property of the assessee-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count have divided the commission into two parts, the first is the standard commission and the other is the supplementary commission. The standard commission is calculated at the rate of 9% or 7% (w.e.f. 01.01.2002) on which tax at source is deducted. In the assessee-airline's books of account the supplementary commission is either shown by using the same nomenclature or is shown under the head deals/incentives. Lastly, w.e.f. 01.04.2002 the entire procedure has undergone a change in as much as all airlines have started selling their tickets at net value. This according to the Assessing Officer proved the stand of the Department as being correct. 7.2 Based on the aforesaid the Assessing Officer while holding the assessee-airline as assessee in default directed calculation of interest under Section 201(1A) of the Act to the extent of Rs 21,13,224/-. The Assessing Officer of other airlines and Commissioner of Income Tax, Delhi passed orders under Section 201(1) and 201(1A) of the Act in the case of other airlines. 8. Aggrieved by the same, 12 airlines preferred appeals to the Commissioner of Income Tax (Appeals) - XXX, New Delhi [hereinafter referred to as the 'CIT(A)']. A referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fare. The assessee-airline does not have any means of knowing the price at which the travel agent has ultimately sold the ticket to the customer. The travel agent is required to pay the net fare to the assessee-airline even though he may end up selling the ticket at a price which is less than the net fare. The price which the travel agent obtains over and above the net fare is due to the travel agent's own efforts in respect of which it does not render any service to the assessee-company. It is entirely open to the travel agent to make endeavours to obtain and realize the best price. The price that the travel agent obtains over and above the net fare does not emanate from the assessee-airline . The excess fare that is the price over the net fare which the travel agent earns may have been earned by virtue of the agency with the assessee-airline. The excess remuneration earned, however, could not be regarded as one which the travel agent realized on account of any services rendered by the travel agent to the assessee-airline. The fact that the assessee-airline comes to know the price at which the travel agent ultimately sold the ticket by referring to the BSP billing analysis stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect to transaction prior to 01.06.2001, one which was decided by the CIT(A), was not considered by the Tribunal. Submissions of counsel: Revenue 10. The Revenue was represented by Ms Prem Lata Bansal, learned Sr. Standing Counsel and Mr R.D. Jolly, learned Sr. Standing Counsel. The assessees were represented by Mr C.S. Aggarwal, Sr. Advocate assisted by Mr Prakash Kumar, Mr Aseem Mowar, Advocate, Mr Mukesh Kumar, Advocate, Mr Sandeep Sethi, Sr. Advocate assisted by Ms Padma Priya; Mr Ajay Vohra, Advocate assisted by Ms Kavita Jha, Advocate; Mr P.H. Parekh, Sr. Advocate assisted by Mr D.P. Mohanty. The submissions made on behalf of the Revenue were as follows:- (i) the relationship between the assessee-airline and the travel agent was that of a principal and agent and not one of principal to principal. At this point we must point out that except for Thai Airways and Belair Travel & Cargo Ltd all other airlines have accepted this position; (ii) the supplementary commission retained by the travel agent was not a discount as claimed by the assessee-airline since it was paid for services rendered by the travel agent in the course of buying and selling of tickets; (iii) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irline; (v) the main provision of Section 194-H included within its ambit payment by cash, cheque, draft or by „any other mode‟ . Thus retention of money by the travel agent was covered by the main provisions of Section 194H. It was also contended that it was not the case of the assessee-airline either before the Assessing Officer or the CIT(A) that the travel agent was required to only remit the net fare to the airlines. It was submitted that this was not even a condition in the PSA Agreement. It was, however, submitted that the very fact that the standard commission had to be computed on gross fare and not on the net fare revealed that this was an after-thought. The Tribunal in proceeding on the lines it did had changed parameters of the case as set out before the Assessing Officer and the CIT(A). It was contended that the net fare was actually arrived at by deducting from the gross fare; tax, standard commission and supplementary commission. While standard commission was fixed by IATA the supplementary commission was variable as it was dependent on the policies of the airline vis-à-vis their agents. If net fare was the basis for the entire transaction then there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement of BSP. The said supplementary commission denotes a notional figure which is the difference between the published fare less standard IATA commission (9% or 7%). The net fare is the amount received by the assessee from its travel agents. In other words the contention is that the supplementary commission is not a 'commission' within the meaning of Section 194H of the Act; (ii) supplementary commission can only be brought within the ambit of section 194H of the Act, if it fulfills the following criteria as prescribed under the said provision - a. the sum received must be in the nature of income, b. such income must denote any payment received or receivable directly or indirectly by the payee from the payer, that is, the assessee, and c. the recipient should be a person acting on behalf of that another person, and that, the sum received or receivable whether directly or indirectly should be for services rendered in the course of buying and selling of goods, that is, tickets in the present case. (iii) the Department has not been able to produce any evidence to show that the difference between the published fare and the net fare (is the fare the assessee received from the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest under Section 201(1A) of the Act which can be levied only up to the date of payment of tax by the travel agents. 11.2 The submissions on behalf of Belair Travels & Cargo Ltd in ITA Nos 105/2008 & 366/2008 by the learned counsel were more or less similar except as noted hereinabove it was contended on its behalf that the relationship between assessee-airline and its travel agents was not that of principal and agent but that of one principal dealing with another. Furthermore, it was contended that a mere book entry cannot be the basis for imposition of tax when income does not actually accrue or is earned or is received. The counsel submitted that the tickets in issue which were sold were concessional tickets which were sold at a discounted price. The difference between the maximum price and the concessional rate cannot be construed as profit of the travel agent much less profit of the sub-agent. The trade discount is only a book entry and affects nobody. 11.3 Similarly, counsel for the Thai Airways has contended that the relationship between them and their travel agent was not that of principal and agent. Reliance in this regard was placed on Shri T.V.T.& B. Firm vs CTO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el agents account in assessee‟ s books, nor is the payment of the difference between the two paid by the assessee-airline to its travel agents in cash or cheque or by any other mode. In these circumstances it is contended that the supplementary commission cannot be construed as commission and brought within the ambit of Section 194H of the Act. OUR ANALYSIS 12. In order to come to a definite conclusion whether Section 194H of the Act would be applicable to the assessee-airline in respect of the transaction, in issue, we propose to first look at the scope and ambit of section 194H of the Act and then analyse the transaction as to whether it falls within the purview of the said Section. In this context, it would be necessary to extract the relevant portions of Section 194H of the Act. The said provision reads as under:- "194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall at the time of credit of such income to the account of the payee or at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the assessee-airline and the travel agent; (ii) the payments made by assessee-airline to the travel agent, who is a resident is an income by way of commission; (iii) the income by way of commission should be paid by the assessee-airline to the travel agent for services rendered by the travel agent or for any services in the course of buying or selling of goods; (iv) the income by way of commission may be received or be receivable by the travel agent from the assessee-airline either directly or indirectly; and (v) lastly, the point in time at which obligation to deduct tax at source of the assessee-airline will arise only when credit of such income by way of commission is made to the account of the travel agent or when payment of income by way of commission is made by way of cash, cheque or draft or by any other mode, whichever is earlier. 15. Therefore, the first question that needs to be answered is whether there is a principal-agent relationship between the assessee-airline and the travel agent? As indicated in our discussion above, except for Thai Airways and Belair airways all other airlines have accepted that the relationship between the assessee-airline and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first advert certain operational aspects of the transaction which are not in issue :- What is not disputed is that IATA monitors the trade in air traffic and lays down guidelines for carrying on civil air transportation business. As a matter of fact IATA prescribes PSA agreements which most airlines have executed with their travel agents. It is also not disputed that in respect of commission which the assessee-airline are required to pay to the travel agent is fixed by IATA. This commission is termed as standard commission. The IATA commission, that is, the standard commission payable by assessee-airline to travel agent prior to 01.07.1999 was 9% and thereafter it dropped to 7%. It is also an admitted fact that in so far as assessee(s)-airline(s) which operate from India are concerned they are required to file a fare list with the Directorate General of Civil Aviation (in short „DGCA‟ ) for its approval. This fare which is called the DGCA fare is more often than not below the IATA fare. It is important to note for the period, under consideration, assessee-airline were prohibited from mentioning a fare below the IATA/DGCA approved fare on air tickets. What is of import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - AG/UT SQSIN3 N 20. A perusal of the extract above would show that this fare-sheet would indicate that for journey which originates from Bombay[see column (1)], the gross or the published fare would be Rs 26,795/- [see column (3)] and the net fare would be Rs 17,500/- [see column (4)]. The net fare is calculated on the basis of the code given under the heading „SP Code‟ which reads in the instant case as AG/UT [see column (5)]. We were informed by the learned counsel for the assessee that AG stands for agent and „UT‟ represents the percentage in numerical terms which the agent would retain from the published fare and the balance would be remitted to the assessee-airline in the form of net fare. In order to understand the code UT which translates into figures we were given the following explanation. The code is encapsulated in the words MOUNTFABER. Each alphabet of these words is represented by figures 1, 2, 3…… 9 & 0. For convenience it may be read as under:- M O U N T F A B E R 1 2 3 4 5 6 7 8 9 0 21. Therefore, in the code that we are considering which is AG/UT, AG would stand for agent U is equivalent to numer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the office of the carrier or any of its members. (See clause 5 of the PSA agreement). (vi) Traffic Documents deposited by the carrier or by the billing settlement plan management on behalf of the carrier, as the case may be, are and will remain the property of the carrier or plan management unless they are issued and delivered pursuant to a transaction. (See clause 6.1 of the PSA agreement). (vii) The carrier or the BSP is empowered to carry out an audit or procure audit of the traffic documents as and when it so desires. (See clause 6.2 of the PSA agreement). (viii) Where carrier participates in an automated ticketing system for issuance of standard traffic documents or other neutral traffic documents and the travel agent issues such traffic documents through the system on behalf of the carrier, the carrier at any time may withdraw from the agent, the authority to issue neutral traffic documents on its behalf. In the event the agent is in default or suspended in accordance with the sales agency rules, in such situation, the agent is prohibited from issuing neutral traffic documents which he always does on behalf of the carrier. (See clause 6.3 of the PSA agreement). (ix) Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also in turns is obliged to indemnify and hold the carrier harmless for any negligence and/or omission on its behalf which causes loss, injury or damage to the carrier. This also includes any loss caused to the carrier resulting from negligent or unauthorized use by the agent or his employees and service by the agent on account of unauthorized issuance of traffic documents through an automated ticketing system. (See clause 15.2 & 15.3 of the PSA agreement). 22. A reading of the provisions of the aforesaid clauses would clearly establish that the travel agent acts on behalf of the assessee-airline whereby a legal relationship is established between the assessee-airline and the third party, that is, the passenger. By entering into such a legal relationship on behalf of the principal, that is, the assessee-airline by issuing the traffic documents to a third party, that is, the passenger, the travel agent makes the assessee-airline liable to a legal action by the passengers, that is, the third party. Similarly by virtue of such a transaction, that is, issuance of traffic documents by the travel agent to the passenger it enables the principal, that is, the assessee-airline to sue the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir submissions as to why their travel agent should be treated as not having acted as an agent. The only possible answer to this would perhaps be in the argument which is being taken by all other airlines that in so far as the first leg of the transaction is concerned whereby the travel agent is paid on IATA approved commission, that is, standard commission the relationship between the assessee-airline and the travel agent is one of principal and agent while when it recovers money from the passengers over and above the net fare, and in its own right then the transaction transforms into between one principal and another. We are unable to appreciate that a single transaction whereby a traffic document in the form of an air ticket is sold by a travel agent on behalf of its principal would result in a hybrid relationship, that is, in so far as payment of the IATA/standard commission is concerned the same transaction would be treated as one between a principal and the agent and in so far as the payments over and above the net fare are concerned it would then, in a manner of speaking, metamorphise into a transaction of a different kind, that is, principal to principal. Such a submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. This is especially so, as indicated above, at no point in time the travel agent obtains proprietary rights to the Traffic Documents/Air Tickets. There is no value or price paid by him on which the travel agent gets a deduction. The price or value is received by the assessee-airline through the medium of the travel agent from the passenger which is also one of the facets of the services offered by the travel agent. The price or value of the Traffic Document received by the travel agent for and on behalf of the assessee-airline is held in trust. Thus the money retained by the travel agent is commission (supplementary commission) within the meaning of Section 194H of the Act. Therefore, for the assessee-airline to contend, as discussed hereinabove, that in so far as the first leg of the transaction is concerned whereby they pay standard commission to the travel agent on which assessee-airline deduct tax at source, the relationship between the assessee-airline and the travel agent is that of principal and agent, whereas the money or monies which the travel agent retains over and above the net fare is not commission since the relationship transforms - from one which commences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic Documents/Air Tickets is available with the assessee-airline or its agents it cannot in our view take up the stand that the machinery for deduction of tax has failed. The very fact that this information is made available by the billing analysis made by BSP would show that it is possible to retrieve the information by the assessee-airline, therefore, we do not accept the view of the Tribunal that there is no evidence of monies having been received by the travel agent over and above the net fare or that the said information is not available at the relevant point in time and, therefore, the assessee-airline cannot be held to be an assessee-in-default. 27. As regards the submission of the learned counsel for the assessee-airline that the facts of the present case are in pari materia with the Judgment of the Kerala High Court in M.S. Hameed (supra), we may only note that the said judgment of the Kerala High Court is clearly distinguishable from the facts obtaining in the present case. The points of distinction are as follows:- (i) The case pertains to deduction of tax at source under Section 194G of the Act while the present case pertains to Section 194H of the Act. It is importan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion one way or the other what would be determinative would be the nature of the transaction and not its form. And this exercise undoubtedly involves delving into both facts and law. The observations in Sri T.V.T & Firms (supra) being apposite are culled out hereinbelow:- "As a matter of law there is a distinction between a contract of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of the principal and make over either the sale proceeds or the goods to the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The true relationship of the parties in each case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scount. The rules themselves contemplate that what the licenses vendor does, while taking delivery of the stamp papers from the Government offices, is purchasing the stamp papers. Clause (b) of sub-rule (2) of rule 24 indicates that the discount which the licensed vendor had obtained from the Government was on purchase of the stamp papers……." 28. In view of the above we hold that the supplementary commission which is the amount retained by the travel agent is commission within the meaning of Section 194H read with Explanation (i) to the said section. The assessee-airlines were thus obliged to deduct tax at source at the rate prescribed during the relevant period. The assessee-airline having not deducted the tax at source, they are liable to be held, within the terms of Section 201(1), as assessee(s)-in-default and also liable for payment of interest in terms of section 201(1A) of the Act. In view of the fact that the Tribunal having coming to the conclusion that Section 194H of the Act was not applicable and hence did not examine any other contention of the assessee-airline, as also, the quantum and the period for which assessee-airline would be entitled to pay interest or to what ..... X X X X Extracts X X X X X X X X Extracts X X X X
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