Section 194H of the IT Act requires deduction of tax at the time of credit or payment, whichever is earlier. Thus, timing assumes critical importance here since the airlines become ‘aware’ of the supplementary commission at a much later point in time. If SC’s judgment has to be applied as it is, each and every case would fall within the purview of Section 201 of the IT Act and each remittance cycle would open the tax deducting parties to proceedings under Section 201 of the IT Act. This would lead to unintended consequences.

Secondly, ‘commission’ is for services rendered, including in the course of buying or selling of goods. From the judgment, it emerges as an undisputed fact that for providing the services relating to the sale of the airline tickets the agents have already been paid 7% commission on the ‘base fare’ and on which tax deduction at source has been deducted and deposited. Once the service (for sale of goods) has been compensated, any subsequent income that may arise to the agent on account of the difference between the base fare and net fare could only be characterised as business income / or income from other sources of the agent and not in the nature of commission income. How can the same service be rendered twice or for that matter compensated twice?

Thirdly, there is no discussion as to how the agents have accounted for this income which arises to them subsequently, being the difference between the net fare and the price at which the tickets are sold.

That apart, impossibility of performance has never even crossed the mind of the Court given the specific nuances of withholding tax provisions. However, this judgement will have a wider impact on business specifically where trading takes place at multiple levels and the maximum retail price remains fixed. At each level of the trade, margins are retained and if this judgment was to be interpreted literally, at each stage the profit retained would become a subject matter of withholding. This would lead to hazardous consequences.