In a significant ruling,^[1] relating to the airlines industry, the SC has held that tax at source should be deducted under Section 194H of the IT Act on the ‘supplementary commission’ earned by the agents while selling tickets to the passengers. For all the airlines, the International Air Transportation Association (‘IATA’) decides the ceiling price for the air tickets which is called the ‘base fare’. The airlines could decide the ticket price to be either equal to or lower than the price decided by IATA, which becomes the ‘net fare’. The agents are allowed to sell the tickets to the consumers at a price higher than the net fare decided by the airlines which becomes the ‘supplementary commission’ for the agents. That apart, the agents receive a commission amounting to 7% of the base fare decided by the IATA for the services provided by them and on such commission tax is duly deducted by the airlines under Section 194H of the IT Act. Although the ruling has been rendered on the facts relating to the airlines industry, the same would have a wider impact on industries and business across the board.

The case of the Income tax Department (‘ITD’) was that even if the airlines is not making the payment directly to the agent, such ‘supplementary commission’ would come under the ambit of Section 194H of the IT Act as the relation between the airlines and agents is of principal and agent, and the agent is selling the ticket on behalf of the airlines. Additionally, the plea was also that Section 194H of the IT Act uses the term ‘directly or indirectly’.  On the basis of these arguments and clauses of the agreement, the SC came to the conclusion that the airlines and agent have a ‘contract of agency’ and not a ‘contract of sale’ as the ownership of tickets and final risk and liability always remained with the airlines. Finally, by establishing that in terms of the agreement the airlines under the arrangement known as Billing and Settlement Plan become aware (at a later point of time) of the amount of ‘Supplementary Commission’ and as such, the airlines become liable to deduct tax on same.

[1]  Singapore Airlines Ltd. v. CIT, (2022) 144 taxmann.com 221(SC).