COMMISSIONER OF INCOME TAX DEL vs. M/S UNITED AIRLINES

* THE HIGH COURT OF DELHI AT NEW DELHI %

Judgment delivered on : 13.04.2009

ITA Nos. 306/2005 & 123/2006,

COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Mr R.D. Jolly, Sr. Standing Counsel with Mr Paras Chaudhary, Jr. Standing Counsel.

versus

SINGAPORE AIRLINES LTD

..... Respondent Through: Mr C.S. Aggarwal, Sr. Advocate with Mr Prakash Kumar, Advocate

ITA Nos. 121/2006 & 432/2006

COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Mr R.D. Jolly, Sr. Standing Counsel with Mr Paras Chaudhary, Jr. Standing Counsel.

versus

KLM ROYAL DUTCH AIRLINES

..... Respondent Through: Mr C.S. Aggarwal, Sr. Advocate with Mr Prakash Kumar, Advocate COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Mr R.D. Jolly, Sr. Standing Counsel with Mr Paras Chaudhary, Jr. Standing Counsel.

versus

PAKISTAN INTERNATIONAL AIRLINES CORP. ..... Respondent Through: Mr C.S. Aggarwal, Sr. Advocate with Mr Prakash Kumar, Advocate 2009:DHC:1333-DB COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Mr R.D. Jolly, Sr. Standing Counsel with Mr Paras Chaudhary, Jr. Standing Counsel. versus

KUWAIT AIRWAYS CORPORATION

..... Respondent Through: Mr C.S. Aggarwal, Sr. Advocate with Mr Prakash Kumar, Advocate

ITA Nos. 952/2008 & 964/2008

COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Ms Prem Lata Bansal & Ms Anshul Sharma, Advocates

versus

AIR FRANCE

..... Respondent Through: Mr C.S. Aggarwal, Sr. Advocate with Mr Prakash Kumar, Advocate.

ITA Nos. 51/2006, 119/2006 & 120/2006

COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Ms Prem Lata Bansal & Ms Anshul Sharma, Advocates in ITA No. 51/2006 Mr R.D. Jolly, Sr. Standing Counsel with Mr Paras Chaudhary, Jr. Standing Counsel in ITA No. 119/2006 & 120/2006

versus

THAI AIRWAYS INTERNATIONAL PUBLIC CO. LTD.

..... Respondent Through: Mr M.S. Syali, Sr. Advocate with Ms Mahua C. Kalram, Mr Saubhagya Aggarwal & Mr Aseem Mowar, Advocates. 2009:DHC:1333-DB

ITA Nos. 256/2006, 969/2008 & 897/2008

COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Ms Prem Lata Bansal & Ms Anshul Sharma, Advocates

versus

BRITISH AIRWAYS PLC

..... Respondent Through: Mr M.S. Syali, Sr. Advocate with Ms Mahua C. Kalra, Mr Saubhagya Aggarwal & Mr Aseem Mowar, Advocates. COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Ms Prem Lata Bansal & Ms Anshul Sharma, Advocates

versus

M/S AIR INDIA LTD

..... Respondent Through: Mr Sandeep Sethi, Sr. Advocate with Ms Padma Priya, Advocate. COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant

Through: Ms Rashmi Chopra, Advocate

versus

LUFTHANSA GERMAN AIRLINES

..... Respondent Through: Mr P.H. Parekh, Sr. Advocate with Mr D.P. Mohanty, Advocate

2009:DHC:1333-DB COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Ms Prem Lata Bansal& Ms Anshul Sharma, Advocates

versus

AIR FRANCE

..... Respondent Through: Mr O.P. Sapra, Mr Sandeep Sapra & Mr Kalyan Abraham, Advocates COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Mr R.D. Jolly, Sr. Standing Counsel with Mr Paras Chaudhary, Jr. Standing Counsel.

versus

KUWAIT AIRWAYS CORPORATION

..... Respondent Through: Mr Satyen Sethi & Mr Johnson Bara, Advocates

ITA Nos. 105/2008 & 336/2008

COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant Through: Ms Prem Pram Lata Bansal& Ms Anshul Sharma, Advocates

versus

BELAIR TRAVELS & CARGO P. LTD ..... Respondent

Through: Mr Kuldeep Singh, Advocate

ITA Nos. 117/2006 & 118/2006

COMMISSIONER OF INCOME TAX NEW DELHI

..... Appellant 2009:DHC:1333-DB

Through: Mr R.D. Jolly, Sr. Standing Counsel with Mr Paras Chaudhary, Jr. Standing Counsel.

versus

UNITED AIRLINES

..... Respondent

Through: Mr Ajay Vohra & Ms Kavita Jha, Advocates

CORAM :-

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER

in the Digest ?

Yes

RAJIV SHAKDHER, J

under Section 197 of the Act permitting the assessee-airlines to deduct tax at source at a lower rate or even „nil‟ rate would also cover the supplementary commission. (iii) The third set of appeals raise the issue as to whether tickets issued by assessee-airlines to its travel agents at a concessional price would

result in bringing the transaction within the ambit of Section 194H of the Act. If that be so, would the assessee-airlines be liable for the ensuing consequences under Sections 201(1) and 201(1A) of the Act.

ITA No. 306/2005. Keeping this ground rule in mind, let us examine the issues at hand.

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 the Department. The Department having been left with no choice conducted a survey under the provisions of Section 133A of the Act. The survey was conducted on 18.02.2002. During the course of survey, it came to light that the assessee(s)- airline(s) would supply blank tickets to the travel agent. The travel agent, after sale, would send the details to an organization by the name of Billing Settlement Plan (hereinafter referred to as „BSP‟); which is an organization approved by the International Air Transport Association (hereinafter referred to as the „IATA‟). The travel agent would send sale details to BSP every two weeks. Based on this information, the BSP would send a billing analysis to the assessee(s)-airline(s). The billing analysis conducted by the BSP would invariably refer to the transaction value, the tax amount, the standard IATA approved commission, which to begin with, was 9% and was reduced to 7% w.e.f. 01.01.2002, and lastly, if the transaction pertained to what was termed as a „deal‟ ticket, it would also indicate the supplementary commission. Thus the billing analysis would show the net amount payable, after deductions had been made from the transaction value on account of 2009:DHC:1333-DB

commission and supplementary commission wherever paid. The billing analysis statement prepared by BSP invariably in most cases referred to the deal code wherever there was reference to supplementary commission.

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.

mode of accounting both for standard commission and the supplementary commission is the same; (iv) the Bureau of Airlines Representatives Association as well as the Travel Agent Association of India had approached the Department whereupon a circular dated 13.11.2002 was issued which clarified the position that supplementary commission was commission within the meaning of Section 194H; (v) the word „indirectly‟ used in Section 194H of the Act was wide enough to bring within its ambit even the retention of monies in the form of supplementary commission by the travel agent; and (vi) lastly, the transaction between the assessee-airline and the travel agent was of the nature of a principal and agent whereby the agent was selling tickets of a fixed amount on commission either in the form of standard commission (as approved by IATA) or special/supplementary commission.

special/supplementary commission. The supplementary commission could not be categorized as discount since there was no obligation on the travel agent to pass on the special/supplementary commission to the customer. The BSP billing analysis has classified the commission in issue as supplementary commission. Most of the airlines in their books of account 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.

[hereinafter referred to as the „CIT(A)‟]. A reference to the airlines which preferred appeal to the CIT(A) is made in paragraph 2 of his order. The CIT(A) in his order also notes the fact that the Pakistan Airlines has not contested the issue of treatment of supplementary commission being in th nature of commission as held by the Assesing Officer. He notes that the main ground taken by the Pakistan Airlines is that the tax ought to be recovered from the payee and not from the payer.

vii. The transaction prior to 1.6.01 will be excluded for applying section 194H to the supplementary commission.

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 statement is of no consequences in view of the fact that the assessee-airline comes to know of this state of affairs only when the statement is received from BSP and not at the time when the tickets are sold and the price is realized by the travel agent.

be said to be a person responsible for paying commission to the travel agent; (c) the difference between the net fair and the published fair was not credited to the account of the travel agent in the assessee‟s books; and (d) lastly, there was no payment of such excess amount by the assessee-airline to the travel agent in cash or cheque or by any other mode. In these circumstances, the Tribunal set aside the order of the Assessing Officer treating the assessee-airline as assessee in default under Section 201(1) of the Act and also the order passed under Section 201(1A) of the Act levying interest in the sum of Rs 21,13,224/-. It is important to note that the Tribunal did not decide the issue of juri iction raised by the assessee-airline on the ground that this was within the domain of the CBDT. In view of the fact that the Tribunal had quashed the order of the Assessing Officer under Section 201(1) of the Act the other issue with respect to the issuance of certificate under Section 197 of the Act and the deductibility of the tax 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

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 submission of the assessee-airline that they had a dual/hybrid relationship with their agent, that is, in so far as the transaction which involved payment of standard commission was that of agency, while that which involved the retention of supplementary commission by the travel agent, that is, price obtained over and above the net fare, was a result of a principal to principal relationship ought to be rejected, for the reason that no evidence whatsoever was placed by the assessee-airline to establish that there was such a dual relationship between the parties. The Standard Format Agreement (as approved by IATA), that is, the Passenger Sales Agency (PSA) Agreement executed by the assessee- 2009:DHC:1333-DB

airline was silent as regards any such dual relationship to which the assessee-airline had adverted to; (iv) a perusal of the billing analysis statement prepared by the BSP undoubtedly revealed that the assessee-airline received the balance amount that is the net fare after deductions made, from the gross fare of standard commission and supplementary commission. The assessee- airline would deduct tax at source from the standard commission but did not deduct the same from supplementary commission. The billing

analysis statement clearly indicated that wherever extra commission in the form of special/supplementary commission was paid to the travel agent there was a reference to a deal code. The supplementary commission was nothing but commission within the meaning of Section 194H read with the explanation which envisaged a payment received or receivable “directly or indirectly” by a person acting on behalf of another person for services rendered or for any services in the course of buying or selling of goods. It was the contention of the learned counsel that the retention of supplementary commission was covered within the extended meaning of the commission as provided in the explanation as this was an indirect payment by the assessee-airline to the travel agent. To buttress her submission that the nature of the relationship between the assessee-airline and the travel agent was that of a principal and agent, reference was made to the clauses of PSA Agreement, in particular the clauses 3 1 3 2 3 3 3 5 6 1 6 2 7 2 7 4 9 10 11 2 2009:DHC:1333-DB

easily be calculated by taking into account the product of the number of tickets sold and the net fare; and (vi) lastly, it was contended that the amount of supplementary commission which had to be paid on each transaction was embedded in the deal code which was known only to the three concerned parties, that is, the assessee-airline, the travel agent and BSP. Since the assessee- airline was the person responsible for payment of supplementary commission to the travel agent the tax could have been deducted as and when the billing analysis statement were handed over by the BSP to the airline. It was thus contended that the supplementary commission fell within the ambit of the explanation to Section 194H and hence assessee- airline was an „assessee in default‟ within the meaning of the provisions of Section 201(1) of the Act and was thus liable for payment of interest under Section 201(1A) of the Act.

tickets to travel agent was on account of principal agent relationship, the concession constituted commission as the concessional tickets were issued for services rendered by the travel agent to the assessee-airline. In other words the difference between the normal fare and the concessional fare was nothing but additional commission paid by the assessee-airline to the travel agent, within the meaning of provisions of Section 194H. Therefore, the provisions of Sections 201(1) and 201(1A) were attracted even to this case. ASSESSEE(S):

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 travel agents) was realized by the travel agents. The difference as reduced by standard commission and taxes which is referred to as supplementary commission is only a notional figure and this cannot be termed as a „commission‟ within the meaning of section 194H of the Act. It is contended that what the assessee is entitled to receive is only the net fare. There is no right in the assessee-airline to receive the published fare from the travel agent on sale of tickets. Reference in this regard was made to clauses 7.1, 7.2 and 3.2 of the PSA Agreement; (iv) thus the notional figure of supplementary commission as appearing in the billing analysis statement of the BSP is neither income 2009:DHC:1333-DB

nor can it be construed as payment received or receivable, directly or indirectly by the travel agents in its capacity as the agent of the assessee-airline for any services rendered to the assessee-airline. In this context it was submitted that the billing analysis statement of BSP is not a statement of account as contended by the Revenue; (v) since there was no evidence to suggest that the difference between published fare and the net fare was actually received by the travel agent, there was no obligation on the part of the assessee-airline to deduct tax at source on such notional commission which had not been realized and hence it could not be held to be an assessee in default under Section 201(1) or liable for interest under Section 201(1A) of the Act; (vi) in these circumstances the provisions of Section 194H of the Act Sriniwasa Shetty; (1981) 128 ITR 294; and (vii) lastly, it was contended that it is not disputed that the travel agents had paid tax on the said supplementary commission and hence the Revenue was precluded from raising demands on the assessee-airline. Reliance in this regard was placed on the following judgments: a) Hindustan Coca Beverages (P) Ltd vs CIT; (2007) 293 ITR 326 (SC) b) CIT vs Adidas India Marketing (P) Ltd; (2007) 288 ITR 379 (Del) c) CIT vs Select Holiday Resorts (P) Ltd; (2007) 207 CTR 239 2009:DHC:1333-DB

d) CIT vs Majestic Hotel Ltd.; (2007) 293 ITR 185 (Del) e) CIT vs Taj Quebecor Printing Ltd; (2006) 281 ITR 170(Del)

(vii) (a) In this context it was submitted that at the most the assessee-airline would be liable for 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.

B. Firm vs CTO; AIR 1968 SC 784. The remaining submissions were more or less similar.

Officer under Section 197(1) of the Act was not decided and hence in case this court was to hold otherwise, the appeal be remitted to the Tribunal for decision on this aspect of the matter.

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 time of payment of such income in cash or by the issue of a cheque or draft of by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten percent: Provided xxxx Provided xxxx Provided xxxx Explanation. – For the purposes of this section, - (i) “Commission or Brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities; (ii) xxxx (iii) xxxx (iv) xxxx”

payment of such income in cash or by issue of cheque or draft or by any other mode.

(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.

agent in Section 182 of the Contract Act. Section 182 of the Contract Act reads as follows:- “An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom said act is done, or who is so represented, is called the principal.”

principal. The agent thus uses his own discretion to act on behalf of the principal subject to the limits to his authority prescribed by the principal. (See Lakshminarayan Ram Gopal & Son Ltd vs The Government of Hyderabad AIR 1954 SC 364 at page 367, paragraphs 11 & 12. This cited with the approval in Qamar Shaffi Tyabji vs The Commissioner, Excess Profit Tax, Hydrabad (1960) 39 ITR 611(SC) at pages 615 & 616. (iv) There is no necessity of a formal contract of agency, it can be implied which could arise from the act of parties or situations in which parties are put.

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 importance is that this is referred to as the published fare on which the commission fixed by IATA, that is, the standard commission is paid by the assessee-airline to their respective travel agents. It is also undisputed that IATA in order to streamline the financial aspects of air transportation service provides a service for settlement of financial transaction between the travel agent(s) and their assessee(s)-airline(s). This is done broadly in the following manner:- (i) IATA prints neutral tickets and distributes them to all agents. (ii) Agents issue tickets to passengers and sent audit coupons to the BSP. (iii) The BSP captures the information from these audit coupons and prepares a billing statement which clearly reflects the gross/ published fare, standard IATA commission paid to agents as well as the supplementary commission. The net fare payable by the travel agent to the assessee-airline is also reflected in the billing statement. (v) The travel agent then pays a single cheque to IATA/BSP for tickets sold on behalf of various assessee-airlines, who then distribute the money received to respective assessee-airline 2009:DHC:1333-DB

QEE3M 26,795/- 17,500/- AG/UT SQSIN3 N 2009:DHC:1333-DB

respect of the transaction, in issue. The assessee has submitted that in the transaction, in issue, it is interested only in receiving 65% of the gross/ published fare in the form of net fare. Any amount which the travel agent earns over and above the net fare or does not earn is not the concern of assessee-airline and hence is neither income paid directly or indirectly to the travel agent and, therefore, there cannot be any liability firstly on the assessee-airline to deduct tax at source on the balance 35%, evidently received by the travel agent of which there is no evidence putforth by the Department. In order to appreciate this aspect it may be important to look at the provisions of PSA agreement. In this regard while summarizing the relevant provisions of the PSA a reference will be made to the relevant clauses. (i) The PSA provides that the travel agent is authorized to sell air passenger transportation services of the carrier and such services of other air carriers as authorized by the carrier(s). (See clause 3.1 of the PSA agreement). (ii) All services offered by the carrier are sold by the travel agent on behalf of the carrier. The travel agent is not empowered to vary or modify the terms and conditions setforth in the traffic document used for services provided by the carrier(s) and the agent is obliged to complete the documents in the manner prescribed by the carriers(s). (See clause 3.2 of the PSA agreement). 2009:DHC:1333-DB

(iii) The agent shall make only such representations as authorized in the PSA agreement or by the carrier. In respect of Traffic Documents/Air Tickets previously issued the travel agent is authorized to accept, re-issue, validate or re-validate all such Traffic Documents only in accordance with carrier‟s-tariff conditions, conditions of carriage or written instructions. (See clause 3.3 & 3.5 of the PSA agreement). (vi) Any request made by the passenger shall be forwarded by the agent to the traffic carrier to enable the carrier to extend such services to the customer. (See clause 3.6 of the PSA agreement). (v) The agent is prohibited from making any representation which would indicate or imply its office is 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). 2009:DHC:1333-DB

(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) Where money is received by the agent on issuance of traffic documents to the passengers for a transportation or ancillary service, it shall be the agent‟s responsibility to remit the amount to the carrier. (See clause 7.1 of the PSA agreement). (x) The monies collected by the agent for transportation and ancillary services shall be the property of the carrier and the agent shall hold the monies in trust on behalf of the carrier until satisfactorily accounted for to the carrier and settlement made. (See clause 7.2 of the PSA agreement). (xi) The agent is prohibited from pledging, ceding, promising or otherwise transferring to third parties any claim to monies due to the agent or to the carrier, but not yet collected for transportation and 2009:DHC:1333-DB

ancillary services sold under the PSA agreement. (See clause 7.3 of the PSA agreement). (xii) In the event of agent becoming bankrupt all monies due to the carrier or held on behalf of the carrier in connection with the PSA agreement shall become immediately due and payable to the carrier. (See clause 7.4 of the PSA agreement). (xiii) Agent is empowered to make representations only in accordance with the carrier‟s tariffs, conditions of carriage and written instructions, and against receipts. (See clause 8 of the PSA agreement). (xiv) The agent shall be remunerated for sale of air transportation and ancillary services in the manner and amount as may be agreed and communicated to the agent from time to time which shall construed full compensation for services rendered to the carrier. (See clause 9 of the PSA agreement). (xv) The agency under the PSA shall be terminated in accordance with sale agency rules, in particular where the carrier withdraws the appointment of agent or agent withdraws from its appointment by the carrier or the agent is removed from the agency list or the agent relinquishes its IATA approval or accreditation. (See clause 13 of the PSA agreement). (xvi) The carrier would indemnify and hold the agent harmless for any 2009:DHC:1333-DB

or consequentially arising in the course of transportation or other ancillary services provided by the carrier pursuant to a sale made by the agent which arises from failure on the part of the carrier to provide such transportation or services. (See clause 15 of the PSA agreement). (xvii) The agent 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).

provisions of the PSA agreement is empowered to create, modify and terminate contractual relationship on behalf of the principal, that is, the assessee-airline. In this context see the provisions of clause 3.1 to 3.6 and clause 8 of the PSA agreement. Furthermore as is evident from a reading of clause 6, in particular, clause 6.1 of the PSA agreement the traffic document at any given point in time remain the property of the assessee-airline. As a matter of fact since the traffic documents, that is, the air tickets are issued by the travel agent on behalf of the assessee- airline who is the provider of the air transportation and other ancillary services it holds the travel agent harmless and is obliged to indemnify the travel agent for any loss caused on account of failure to provide such air transportation or other ancillary services contracted for by the travel agent on behalf of the assessee-airline. This situation obtains even where the air tickets are issued by the travel agent on behalf of the assessee-airline through an automated system. Similarly any negligence on behalf of the agent in issuing the traffic documents/air tickets would render him liable to the assessee-airline/the carrier.

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 is completely at odds with the manner in which the transaction is conducted. In our minds, there is no doubt, that the relationship between the assessee-airline and the travel agent is one of principal and agent. This is a finding of fact which is being returned by Assessing Officer and the CIT(A) which has not been upset even by the Tribunal.

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 as a principal and agent relationship and ends up into that of a principal to principal relationship; is completely untenable as there are no two transactions in point of fact. The transaction is a singular transaction which is executed between the travel agent while acting on behalf of the principal airline in selling the traffic documents/ air tickets to a third party which is the passenger and thereby creating a legal relationship between the principal that is, the assessee-airline and the third party, which is the passenger. For any enforcement of rights emanating therefrom the principal would have the right to sue the passenger and similarly the passenger would have the right to sue the principal, that is, the assessee-airline. 2009:DHC:1333-DB

put itself in a position to deduct tax on the actual income received by the travel agent on sale of each of such traffic documents/air tickets sold on behalf of the assessee-airline. Since the best evidence in respect of the sale of Traffic 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.

Section 194H and sets out the wide definition of expression „commission‟ does not find mention in Section 194G. (ii) The Court found as a fact that the sale of lottery tickets by the State Government to registered agents who sold the tickets further to the public or the sub-agents was an out-right sale because registered agents after purchasing the tickets would sell them either directly to the public or to the sub-agents who would further sell it to the public. The tickets were purchased at a discounted price, therefore, the Court came to the conclusion that discount cannot be termed as a commission. It is important to note that the Court in M.S. Hameed (supra) observed that given fact that perhaps the idea behind incorporation of Section 194G was to bring such transactions within the net of Section 194G of the Act, however, since the fiction did not extend to the payments, in issue, it could not be brought within the purview of Section 194G. In the instant case the Legislature by spreading the net wide by inserting explanation (i) to Section 194H of the Act, has made its intention crystal clear.

M.S.Hameed (supra) did not arise in the present case. In our view this case has no applicability to the present fact situation and is clearly distinguishable.

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 not decisive of the legal relationship…...”

“……It is manifest that the question as to whether the transactions in the present case are sales or contracts of agency is a mixed question of fact and law and must be investigated with reference to the material which the appellant might be able to place before the appropriate authority.”

was a „commission‟ or „brokerage‟ within the meaning of the explanation (i) to Section 194H of the Act. The Court came to the conclusion that stamp vendors had purchased the stamps at a discounted price and hence the provisions of Section 194H of the Act had no applicability. This is clear from the following observations of the Court “There is no dispute about the fact that the licensed vendor has to pay the price of the stamp papers less the discount at the rates provided in Appendix III to the Rules, which rates vary from 0.5 per cent to 4 per cent. It is not that the stamp vendor collects the stamp papers from the Government, sells them to the retail customers, and then deposits the sale proceeds with the Government less the discount. The liability of the stamp vendor to pay the price less the discount is not dependent upon or contingent to sale of the stamp papers by the licensed vendor. The licensed vendor would not be entitled to get any compensation or refund of the price if the stamp papers were to be lost or destroyed…….”

“….The crucial question is whether ownership in the stamp papers passes to the stamp vendor when the treasury officer delivers stamp papers on payment of price less discount. 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…….”

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 extent the benefit of the certificate issued to them, if any, under Section 197 of the Act would be available. We allow the following appeals and set aside the impugned judgments passed by the Tribunal in each of these appeals and remand the matter to the Tribunal for examining all other aspects of the matter as also the consequences which would flow therefrom.

concessional ticket would be the „commission‟ on which tax at source should have been deducted by the assessee(s)-airline(s).

(i) the concessional ticket may have been given to the travel agent for carrying out his function as an agent; however, the transaction between the two is that of principal to principal. The travel agent upon payment of concessional price adorns the robe of a customer of the assessee-airline; (ii) the difference in price is a discount, that is, a deduction on the full value of the ticket; (iii) no income having been received by the travel agent, it is not offered to tax by them. We are not told that the department sought to tax the travel agent on the difference in price i.e., concession received by the travel agents except to the extent of holding the assessee(s)- airline(s) liable under Section 194H of the Act for failure to deduct tax at source in respect of such concession; and (iv) lastly, the transferee i.e., travel agent is liable to the transferor i.e, the assessee-airline in its capacity as a debtor and not an agent for the price of ticket as soon the property in ticket passes to the travel agent. 2009:DHC:1333-DB

RAJIV SHAKDHER, J

April 13, 2009/kk

BADAR DURREZ AHMED, J 2009:DHC:1333-DB