Airline Liable to Deduct TDS on Supplementary Commission Paid to Travel Agents, Revenue Can Recover Interest Only if Agents Paid Tax: Delhi HC [Read Judgment]

In a recent ruling, the Delhi High Court held that airlines are required to deduct tax at source on supplementary commission paid to travel agents under Section194H of the Income Tax Act. The Court also held that if the travel agents have already paid income tax on such commission, then the Income Tax Department can recover only interest and not the main tax amount from the airline.

The appeal was filed by the Commissioner of Income Tax against Royal Jordanian Airlines. The dispute was related to deduction of tax at source on supplementary commission paid by the airline to its travel agents. The tax amount involved in the case was around Rs. 26 lakh.

The Revenue argued that the issue was already settled in its favour by the earlier decision of the Delhi High Court in the case of CIT v. Singapore Airlines Ltd., which was later confirmed by the Supreme Court in 2023. They argued that the relationship between the airline and travel agents is of principal and agent and because of this, TDS under Section 194H is applicable.

The revenue also argued that even though the tax amount was small, the appeal was covered under the exception in CBDT Circular No. 5 of 2024, since it was a TDS matter.

The airline argued that the appeal should be dismissed because of low tax effect as per CBDT circulars. Alternatively, it was argued that the case should be decided in line with the Supreme Court judgment in Singapore Airlines. The airline argued that the travel agents had already paid income tax on the commission amount and so the department cannot recover the tax again from the airline.

They also argued that more than ten years had passed and the airline had stopped operations in India, so it was very difficult to collect old records or contact earlier agents.

A Division Bench of Justice Dinesh Mehta and Justice Vinod Kumar observed that the issue of TDS liability under Section 194H was already settled by the Supreme Court in favour of the Revenue. At the same time, the Court observed that after such a long time, it would be very difficult for the airline to prove whether the agents had paid tax or not.

The court explained that as per the Supreme Court ruling, if the agents have already paid tax, then the department cannot recover the main tax amount again, but interest can still be charged. The court disposed of the appeal in line with the Supreme Court judgment. The court directed the Assessing Officer to raise demand only for the interest amount on TDS and not for the tax amount.

The court also clarified that the Assessing Officer should not ask the airline to prove whether the agents had paid tax. The airline was directed to pay the interest amount within two months after receiving the demand notice. The appeal was disposed of.

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