/2022 INSC 0980/
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6964­6965 OF 2015
Singapore Airlines Ltd. ..... Appellant
                                     
VERSUS
C.I.T., Delhi ..... Respondent
WITH
CIVIL APPEAL NO. 6966­6967 OF 2015
KLM Royal Dutch Airlines ..... Appellant
                                       
VERSUS
C.I.T. New Delhi ..... Respondent
WITH
CIVIL APPEAL NO. 6968 OF 2015
British Airways PLC ..... Appellant
Page  1  of  50

                                       
VERSUS
Commissioner of Income Tax (TDS) Delhi ..... Respondent
JUDGEMENT
Surya Kant, J:
1. The   question   that   arises   for   our   consideration   pertains   to
the   interpretation   of   Section   194H   of   the   Income   Tax   Act,   1961
(“IT Act”) as introduced by the Finance Act, 2001, with effect from
01.04.2000.   The   provision   requires   deduction   of   tax   at   source
(“TDS”)   at   10%   plus   surcharge   from   payments   falling   under   the
definition of “Commission” or “Brokerage” under the Section. 
A. THE AIRLINE INDUSTRY
2. Within the aviation industry during the relevant period, the
base   fare 1
  for   air   tickets   was   set   by   the   International   Air
Transport Association (“IATA”) with discretion provided to airlines
to   sell   their   tickets   for   a   net   fare   lower   than   the   Base   Fare,   but
not   higher. 2
  In   essence,   the   IATA   set   the   ceiling   price   for   how
much   airlines   may   charge   their   customers.   This   formed   part   of
1  “Base Fare”
2  “Net Fare”
Page  2  of  53

the   IATA’s   overall   responsibility   of   overseeing   the   functioning   of
the industry. 
3. The   air   carriers   were   also   required   to   provide   a   fare   list   to
the  Director  General  of  Civil Aviation  (“DGCA”)  for  approval.  The
prices that were rubber stamped by the DGCA may be equivalent
to or lower than the Base Fare set by the IATA. Alongside setting
the   standard   pecuniary   amount   for   tickets,   the   IATA   would
provide blank tickets to the travel agents acting  on behalf of the
airlines   to   market   and   sell   the   travel   documents.   The
arrangement between the airlines and the travel agents would be
governed   by   Passenger   Sales   Agency   Agreements   (“PSA”).   The
draft templates for these contracts are drawn up by the IATA and
entered into by various travel agents operating in the sector, with
the   IATA  which   signs  on  behalf  of  the  air   carriers.  The  PSAs  set
the   conditions   under   which   the   travel   agents   carry   out   the
aforementioned   sale   of   flight   tickets,   along   with   other   ancillary
services,   and   the   remuneration   they   are   entitled   to   for   these
activities.   
4. Once   these   tickets   were   sold,   a   7%   commission   designated
by the IATA would, be paid to the travel agent for its services as
Page  3  of  53

“Standard Commission” based on the price bar set by the IATA. 3
This   would   be   independent   of   the   Net   Fare   quoted   by   the   air
carriers   themselves.   The   7%   commission   on   the   Base   Fare
consequently triggered a requirement on the part of the airline to
deduct   TDS   under   Section   194H   at   10%   plus   surcharge.   The
details   of   the   amounts   at   which   the   tickets   were   sold   would   be
transmitted by the travel agents to an organization known as the
Billing and Settlement Plan (“BSP”). The BSP functions under the
aegis   of   the   IATA   and   manages   inter   alia   logistics   vis­à­vis
payments   and   acts   as   a   forum   for   the   agents   and   airlines   to
examine details pertaining to the sale of flight tickets. 
5. The BSP stores a plethora of financial information including
the   net   amount   payable   to   the   aviation   companies,   discounts,
and  commission  payable to  the  agents.  The system  consolidated
the amounts owed by each agent to various airlines following the
sale   of   the   tickets   by   the   former.   The   aggregate   amount
accumulated   in   the   BSP   would   then   be   transmitted   to   each   air
carrier by the IATA in a single financial transaction to smoothen
the   process   and   prevent   the   need   to   make   multiple   payments
over time. 
3  Prior to 01.01.2002, the Standard Commission was paid at the rate of 9%.
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6. Within   this   framework,   the   airlines   would   have   no   control
over   the   Actual   Fare   at   which   the   travel   agents   would   sell   the
tickets. 4
  While   the   ceiling   price   could   not   be   breached,   as
mentioned   earlier,   the   agents   would   be   at   liberty   to   set   a   price
lower   than   the   Base   Fare   pegged   by   the   IATA,   but   still   higher
than   the   Net   Fare   demanded   by   the   airline   itself.   Hence,   the
additional amount that the travel agents charged over and above
the Net Fare that was quoted by the airline would be retained by
the agent as its own income. 
7. An   illustration   of   how   such   a   transaction   would   be   carried
out   and   the   monetary   gains   made   by   the   respective   parties   is
shown below:
Base Fare
for
Singapore­
Delhi (Set
by the
IATA) Net Fare
(Set by
the
Airline) Actual
Fare
(Set by
the
Travel
Agent) Standard
Commissio
n
(7% of the
Base Fare) Supplementar
y Commission
(Actual Fare –
Net Fare)
Rs. 1 Lakh Rs.
60,000 Rs.
80,000 7% of Rs. 1
Lakh = Rs.
7,000 Rs. 80,000­
60,000 = Rs.
20,000
Ceiling
Price Income
of the
Assessee Rs.
20,000
left after
payment
of Net Income of
the travel
agent Additional
Income of the
travel agent
4  “Actual Fare”
Page  5  of  53

Fare to
the
Assessee
8. This   auxiliary   amount   charged   on   top   of   the   Net   Fare   was
portrayed   on   the   BSP   as   a   “Supplementary   Commission”   in   the
hands of the travel agent. Thus, the heart of the dispute between
the   Assessee   airlines   and   the   Revenue   in   this   case   lies   in   the
characterization   of   the   income   earned   by   the   agent   besides   the
Standard Commission of 7% and whether this additional portion
would be subject to TDS requirements under Section 194H. 
B. FACTUAL BACKGROUND
9. This batch of Civil Appeals arises from a judgement passed
on   13.04.2009   by   the   High   Court   of   Delhi   whereby   the   High
Court allowed the appeal by the Respondents/Revenue and held
that   Appellants/Assessees   were   required   to   deduct   TDS   under
Section   194H   of   the   Income   Tax   Act,   1961   (“IT   Act”),   on   the
Supplementary   Commission   accrued   to   travel   agents   entrusted
Page  6  of  53

by the Appellants to sell airline tickets. As a consequence of the
Assessees’   failure   to   carry   out   the   subtraction   of   the   requisite
amount  of  TDS,  they  were  declared  “assessees  in  default”   under
Section   201   and   would   accordingly   be   subject   to   payment   of
interest and penalties under Sections 201(1A) and 271C of the IT
Act.
10. The   relevant   Assessment   Year   is   2001­02.   Spurred   by   the
reintroduction of Section 194H in the IT Act by the Finance Act,
2001 5
, the Revenue sent out notices to the air carriers operating
in   the   country   to   adhere   to   the   requirements   for   deduction   of
TDS. Upon suspecting deficiencies on the part of certain airlines
in their compliance with statutory requirements under the IT Act,
the   Revenue   carried   out   surveys   under   Section   133A   of   the   IT
Act. 6
  Following   the   investigation,   the   Assessee   airlines   were
5   73. Insertion of a new provision for deduction of tax at source from payments in the
nature of commission or brokerage  
73.1   An   effective   method   of   widening   the   tax   base   is   to   enlarge   the   scope   of   deduction   of
income tax at source. Apart from bringing in more persons in the tax net, it also helps in
the   reporting   of   correct   income.   An   item   of   income   which   needs   to   be   covered   within   the
scope of deduction of income tax at source is the income by way of commission (not being
insurance  commission referred  to in  section 194D)  and brokerage.  The Act  has, therefore,
inserted a new section 194H relating to deduction of tax at source from income by way of
commission (not being insurance commission referred to in section 194D) and brokerage.
6   [133A. Power of survey.—
(1)   Notwithstanding   anything   contained   in   any   other   provision   of   this   Act,   an   income­tax
authority may enter— 
(a) any place within the limits of the area assigned to him, or 
(b) any place occupied by any person in respect of whom he exercises jurisdiction, [or] 
[(c) any place in respect of which he is authorised for the purposes of this section by such
income­tax authority, who is assigned the area within which such place is situated or who
exercises jurisdiction in respect of any person occupying such place,] 
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allegedly found to have paid their respective travel agents certain
amounts as Supplementary Commission on which the purported
TDS that the carriers had failed to deduct was as follows:
Assessee Supplementary
Commission Short Fall in
Deduction of TDS
Singapore Airlines Rs. 29,34,97,709 Rs. 2,93,49,770 (Not
including surcharge)
KLM Royal Dutch
Airlines Rs. 179,00,49,410 Rs. 18,25,85,040
(Including surcharge)
British Airways Rs. 46,24,28,310 Rs. 4,71,67,688
(Including surcharge)
11.  The Revenue contended that the travel agents operating on
behalf   of   the   Appellants   during   AY   2001­02   had   accrued   the
aforementioned   amounts   to   themselves   as   Supplementary
Commission   on   which,   as   per   Section   194H   read   with   Circular
No.   619   of   04.12.1991   issued   by   the   Central   Board   of   Direct
Taxes (“CBDT”), TDS was to be deducted by the Assessee airlines.
Show Cause notices for the recovery of the short fall in TDS were
sent   to   each   of   the   air   carriers.   Subsequently,   successive
Assessment   Orders   were   passed   holding   that   the   airlines   were
[at   which   a   business   or   profession   or   an   activity   for   charitable   purpose   is   carried   on,
whether such place be the principal place or not of such business or profession or of such
activity  for  charitable  purpose,  and  require  any  proprietor,  trustee,  employee  or  any  other
person  who may  at that  time and  place be  attending in  any manner  to, or  helping in,  the
carrying on of such business or profession or such activity for charitable purpose—]…
Page  8  of  53

assessees   in   default   under   Section   201   of   the   IT   Act 7
  for   their
failure to deduct TDS from the Supplementary Commission, and
the   demands   raised   by   the   Revenue   in   respect   of   each   of   them
were confirmed.
12. Following addition of surcharge, and interest under Section
201(1A),   the   aggregate   amount   calculated   as   being   owed   to   the
Revenue was:
Assessee (Liability) Surcharge + Interest Aggregate Amount
Singapore Airlines
(Rs. 2,93,49,770) Rs. 58,700 + Rs.
21,13,224 Rs. 3,19,21,694
KLM Royal Dutch
Airlines
(Rs. 18,25,85,040) Rs. 2,24,26,580
(Interest Only) Rs. 20,50,11,620
British Airways
(Rs. 4,71,67,688) Rs. 60,08,391
(Interest Only) Rs. 5,31,76,079
13. Penalty proceedings were directed to be initiated against all
the   Assessees   under   Section   271C   of   the   IT   Act.   The   Assessees
proceeded   to   file   their   respective   appeals   before   the
Commissioner   of   Income   Tax   (Appeals)   against   the   Assessment
7   201. Consequences of failure to deduct or pay.—
[(1) Where any person, including the principal officer of a company,— 
(a) who is required to deduct any sum in accordance with the provisions of this Act; or 
(b)   referred   to   in   sub­section   (1A)   of   section   192,   being   an   employer,   does   not   deduct,   or
does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required
by or under this Act, 
then, such person, shall, without prejudice to any other consequences which he may incur,
be deemed to be an assessee in default in respect of such tax…
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Orders.     The   Commissioner   (Appeals)   passed   a   common   order,
rejecting   the   appeals   on   merits   but   directing   that   any
transactions   dated   prior   to   01.06.2001,   the   date   on   which
Section   194H   came   into   effect,   would   be   excluded   from   the
demand for TDS. 
14. The   Assessees   subsequently   approached   the   Income   Tax
Appellate  Tribunal,   Delhi   (“ITAT”).  In  CA  No.  6964­6965 of  2015
concerning Singapore Airlines, the ITAT accepted the contentions
of   the   Assessee   and   set   aside   the   Assessment   Order   passed
against it, while holding that:­
(i) The amount realized by the travel agent over and above the
Net Fare owed to the air carrier is income in its own hands
and   is   payable   by   the   customer   purchasing   the   ticket
rather than the airline;
(ii) The   “Supplementary   Commission”,   therefore,   was   income
earned via proceeds from the sale of the tickets, and not a
commission received from the Assessee airline;
(iii) The airline itself would have no way of knowing the price at
which the travel agent eventually sold the flight tickets;
(iv) Section  194H referred to  “service rendered” as  the guiding
principle for determining whether a payment fell within the
ambit of a “Commission”. In this case, the amounts earned
Page  10  of  53

by the agent in addition to the Net Fare are not connected
to any service rendered to the Assessee;
(v) The Revenue had erroneously and baselessly assumed that
the   travel   agent   had,   in   every   dealing,   realized   the   entire
difference   between   the   Net   Fare   and   the   IATA   Base   Fare
and   characterized   the   entire   differential   as   a
Supplementary   Commission.   Section   194H   could   not   be
pressed   into   operation   on   the   basis   of   such   surmises   and
without actual figures being proved. 
15. The   ITAT   followed   the   same   reasoning   and   allowed   the
appeals   by   the   Assessees   in   the   remaining   Civil   Appeals.
Aggrieved   by   the   quashing   of   the   Assessment   Orders,   the
Revenue brought separate appeals before the Delhi High Court. A
Division   Bench   of   the   High   Court   clubbed   together   various
Income   Tax   Appeals   all   of   which   concerned   tax   liability   for   the
airline   industry.   In   the   context   of   the   applicability   of   Section
194H   of   the   IT   Act,   the   Division   Bench   reversed   the   findings   of
the  ITAT  and  restored the  Assessment Orders. The  relevant  part
of the High Court judgement may be summerised as follows:­
(i) The   principles   to   be   kept   in   mind   when   interpreting   the
application of Section 194H of the IT Act are:
Page  11  of  53

a. The existence of a principal­agent relationship between
the Assessee airlines and the travel agents;
b. Payments made to the travel agents in the nature of a
commission;
c. The   payments   must   be   in   the   course   of   services
provided for sale or purchase of goods;
d. The   income   received   by   the   travel   agent   from   the
Assessees   may   be   direct   or   indirect,   given   expansive
wording of Section 194H;
e. The stage at which TDS is to be deducted is when the
amounts   are   rendered   to   the   accounts   of   the   travel
agents;
(ii) All   the   Assessees   had   accepted   that   a   principal­agent
relationship subsisted between them and the travel agents.
The terms of the PSAs also indicated that the actions of the
agents   in   procuring   customers   was   done   on   behalf   of   the
airlines and not independently;
(iii) Hence,   the   additional   income   garnered   by   the   agents   was
inextricably   linked   with   the   overall   principal­agent
relationship   and   the   responsibilities   that   they   were
entrusted with by the Assessees;
(iv) There   was   no   transfer   in   terms   of   title   in   the   tickets   and
they   remained   the   property   of   the   airline   companies
throughout the transaction;
Page  12  of  53

(v) The   Assessees   were   only   required   to   make   the   deductions
under   Section  194H  of   the   IT  Act   when   the   total   amounts
were accumulated by the BSA.
16. The   High   Court   reimposed   the   tag   of   “assessee   in   default”
under   Section   201   and   the   levy   of   interest   on   short   fall   of   TDS
under   Section   201(1A)   on   the   Assessees. 8
  The   aggrieved
Assessees are now before this Court in this batch of appeals.
C. SUBMISSIONS
17. Mr. C.S. Agarwal, learned Senior Counsel, appearing for the
Assessees in CA Nos. 6964­6965 of 2015, and Nos. 6966­6967 of
2015, has vehemently urged us to appreciate the incorrectness of
the impugned judgment, on the following grounds:­ 
(i) After the tickets are provided to the travel agent to sell, the
Assessees   no   longer   have   any   control   over   the   price   at
which   the   agent   finally   sells   them.   Thus,   the
Supplementary   Commission   that   accrues   to   the   travel
8   201. Consequences of failure to deduct or pay.—  
[(1A)   Without   prejudice   to   the   provisions   of   sub­section   (1),   if   any   such   person,   principal
officer   or   company   as   is   referred   to   in   that   sub­section   does   not   deduct   the   whole   or   any
part of the tax or after deducting fails to pay the tax as required by or under this Act, he or
it shall be liable to pay simple interest,— 
(i) at one per cent for every month or part of a month on the amount of such tax from the
date on which such tax was deductible to the date on which such tax is deducted; and 
(ii) at one and one­half per cent for every month or part of a month on the amount of such
tax from the date on which such tax was deducted to the date on which such tax is actually
paid, 
and   such   interest   shall   be   paid   before   furnishing   the   statement   in   accordance   with   the
provisions of subsection (3) of section 200…
Page  13  of  53

agent   is   due   to   dealings   between   the   agent   and   the
customer.   The   airline   is   not   involved   in   this   leg   of   the
transaction; 
(ii) There   are   two   separate   transactions   via   two   distinct   legal
relationships   that   are   spawned   during   the   process   of
selling   the   tickets.   The   first   is   between   the   air  carrier   and
the   travel   agent   for   which   the   Standard   Commission   is
paid. The second relationship is between the agent and the
customer in course of which the agent attempts to sell the
ticket for the highest price possible to maximize its income;
(iii) The airline is oblivious to the final price at which the agent
sells the travel documents to the customer. The portion in
addition to the Net Fare which the agent retains is not paid
by   the airline  at all  but is a  payment  to  the  agent  directly
by   the   purchaser   of   the   ticket.   Hence,   the   question   of
deducting TDS cannot feasibly arise as there is no payment
by   the   Assessee   to   begin   with.   Reliance   was   placed   on   a
decision   of   the   Bombay   High   Court   in   CIT   v.   Qatar
Airways . 9
(iv) The High Court has made various factual errors in terms of
how the industry functions:­
9  2009 SCC OnLine Bom 2179
Page  14  of  53

a. The PSA is signed by the IATA on behalf of the airlines
and   not   by   the   airline   itself,   as   stated   by   the   Division
Bench;
b. The High Court opined that  the Assessees would have
access to information regarding  the price at which the
travel agent sells the tickets via the BSP. However, the
High   Court   failed   to   note   that   the   BSP   is   under   the
control of the IATA which aggregates the amounts and
sends the final  bill to  the airline  at fixed times, rather
than after each transaction between the agent and the
customer;
c. The   High   Court   has   failed   to   consider   the   PSA   which
clearly does not govern the dealings between the agent
and   the   customer.   Section   211   of   the   Contract   Act,
1872,   requires   agents   to   act   in   accordance   with   their
duties and obligations under the relevant agreement. 10
However,   if   the   PSA   itself   does   not   address   certain
aspects of the agent’s functioning, these facets cannot
10   211. Agent’s duty in conducting principal’s business.—
An agent is bound to conduct the business of his principal according to the directions given
by the principal, or, in the absence of any such directions, according to the custom which
prevails   in   doing   business   of   the   same   kind   at   the   place   where   the   agent   conducts   such
business. When the agent acts otherwise, if any loss be sustained, he must make it good to
his principal, and if any profit accrues, he must account for it.
Page  15  of  53

fall under the ambit of the principal­agent relationship,
as defined under Section 182 of the Contract Act;
(v) Section   194H   of   the   IT   Act   refers   to   a   “Commission”   as
being  payment  in the course of “services rendered”. In the
second   segment   of   the   transaction,   there   is   evidently   no
service being provided by the agent to the Assessee;
(vi) The   usage   of   the   “Supplementary   Commission”
nomenclature   by   the   BSP   when   aggregating   the   amounts
involved   in   the   transaction   is   of   no   legal   consequence   as
this   terminology   is   employed   purely   for   convenience.   This
does   not   cloak   the   amount   earned   by   the   agent   from   the
customer as a “Commission” within the meaning of Section
194H;
(vii) The   actions   undertaken   by   the   agents   are   of   their   own
accord and do not fall under the terms of the PSA. Such a
scenario   is   most   appropriately   characterized   as   an   agent
acting   on   his   own   account   without   the   knowledge   of   the
principal under Section 216 of the Contract Act. 
(viii) The travel agents had already filed tax returns which were
inclusive   of   the   amounts   earned   by   them   from   the   sale   of
tickets over and above the Net Fare. Hence, income tax had
already been imposed on this additional portion of income
Page  16  of  53

and the matter was revenue neutral. Consequently, no TDS
was liable to be deducted at this stage as it would be akin
to   taxing   the   same   amount   twice.   A   judgement   of   this
Court   in   Hindustan   Coca   Cola   Beverages   Pvt.   Ltd.   v.
Commissioner of Income Tax 11
  was cited in this regard. 
Learned   Counsel   appearing   for   the   Assessee   in   CA   No.   6968   of
2015   broadly   adopted   the   submissions   made   by   learned   Senior
Counsel, Mr. Agarwal, in full. 
18. On   the   Revenue’s   side,   we   have   benefitted   from   the   able
assistance of Mr. Vikramjit Banerjee, learned Additional Solicitor
General,   as   well   as   learned   Counsel,   Mr.   Rupesh   Kumar.   They
rebuffed the contentions of the Assessees in the following terms:
(i) The distinction that the Assessees have attempted to draw
between the two purported legs of the ticket selling process
is   artificial   and   irrelevant.   The   overall   relationship   that
exists   between   the   airline   and   the   travel   agents   is   that   of
principal­agent,   and   having   admitted   this   position   before
the   High   Court,   no   contrary   stands   were   possible   at   this
stage;
11  (2007) 8 SCC 463
Page  17  of  53

(ii) The   PSAs   between   the   Assessees   and   the   travel   agents
clearly   showed   that   every   activity   carried  out   by   the   latter
in   terms   of   selling   the   tickets   was   on   behalf   of   the   air
carrier, further cementing the principal­agent equation;
(iii) At no  point  did  title in  the  tickets  pass  from   the airline  to
the   agents   to   transform   the   relationship   into   one   between
two   principals.   The   distinction   between   a   principal­agent
relationship,   and   that   between   two   principals,   in   the
context   of   Section   194H   was   expounded   upon   by   the
Gujarat   High   Court   in   Ahmedabad   Stamp   Vendors   Ass.
v. Union of India 12
  and was later affirmed by this Court 13
;
(iv) The   Assessees   would   have   access   to   the   data   maintained
by   the   BSP   to   delineate   the   Supplementary   Commission
amount   from   the   Standard   Commission.   Moreover,   there
was   no   requirement   for   TDS   to   be   deducted   after   every
transaction. It was completely practical and permissible for
the airlines to assemble the amounts together and make a
comprehensive TDS deduction at the end of the month; 
(v) The   language   of   Section   194H   is   inclusive   and   covers   any
“direct   or   indirect”   payments   to   the   agent.   Hence,   there
was   no   need   for   the   payment   to   be   made   directly   by   the
12  2002 SCC OnLine Guj 135
13  (2014) 16 SCC 114
Page  18  of  53

Assessees   to   the   travel   agents   in   order   for   it   to   fall   under
the ambit of “Commission” and be subject to TDS. Reliance
was placed on a decision of this Court in  Director, Prasar
Bharati v. CIT 14
;
(vi) The   taxing   of   the   auxiliary   amounts   in   the   hands   of   the
travel   agents   as   income,   did   not   cure   the   default   by   the
airlines in deduction of TDS.
We will now proceed to examine the rival submissions.
D. ANALYSIS
D.1  INTERPRETATION OF SECTION 194H OF THE IT ACT
19. The   central   point   for   our   consideration   lies   in   the
interpretation of what amounts to a “Commission” under Section
194H  of   the  IT  Act.   The  Assessees  and   the   Revenue   emphasized
upon   the   nature   of   the   relationship   between   an   airline   and   a
travel   agent   under   the   framework   of   the   PSA   that   governs   their
arrangement.   Before   analysing   the   competing   interpretations
placed   before   us,   the   relevant   part   of   Section   194H   requires
examined and reads as follows:
14  (2018) 7 SCC 800
Page  19  of  53

194H. Commission or brokerage.
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 or
by   any   other   mode,   whichever   is   earlier,   deduct
income­tax thereon at the rate of five per cent:
Provided   that   no   deduction   shall   be   made   under   this
section in a case where the amount of such income or,
as   the   case   may   be,   the   aggregate   of   the   amounts   of
such income credited or paid or likely to be credited or
paid during the financial year to the account of, or to,
the payee, does not exceed fifteen thousand rupees:
…
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;
20. Explanation (i) of Section 194H highlights the nature of the
legal   relationship   that   exists   between   two   entities   for   payments
between   them   to   qualify   as   a   “commission”.   Consequently,   our
endeavour   must   be   to   determine   whether   the   travel   agents  were
“acting   on   behalf   of”   the   airlines   during   the   process   of   selling
flight   tickets.   As   elaborated   upon   earlier,   the   Assessees   do   not
dispute   that   a   principal­agent   relationship   existed   during   the
Page  20  of  53

payment of the Standard Commission. The point on which the air
carriers   differ   from   the   Revenue   is   the   purported   second   part   of
the   transaction   i.e.   when   the   tickets   were   sold   to   the   customer
and for which the travel agents earned certain amounts over and
above the Net Fare set by the Assessees. 
21. The   definition   of   a   “principal”   and   an   “agent”   is   provided
under Section 182 of the Contract Act. The provision states:
182. “Agent” and “ principal ” defined.—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   such   act   is   done,   or   who   is   so
represented, is called the “principal”.
22. Due to the interlinked nature of Section 194H of the IT Act
and   Section   182   of   the   Contract   Act,   our   examination   will
axiomatically focus upon both provisions. The ambit of a contract
of   agency   has   been   elaborated   upon   lucidly   by   this   Court   on
various   occasions.   In   Lakshminarayan   Ram   Gopal   and   Sons
Ltd.   vs.   The   Government   of   Hyderabad 15
  several   treatises   in
English   Law   on   the   ambit   of   a   contract   of   agency   and   its
distinction from a relationship of servant and master, were listed:
“10. The distinction between a servant and an agent is
thus indicated in Powell's Law of Agency, at page 16 :­
15  (1955) 1 SCR 393
Page  21  of  53

(a)  Generally  a   master  can   tell   his   servant   what   to  do
and how to do it.
(b)   Generally   a   principal   cannot   tell   his   agent   how   to
carry out his instructions.
(c)   A   servant   is   under   more   complete   control   than   an
agent,
and also at page 20 :­
(a)   Generally,   a   servant   is   a   person   who   not   only
receives   instructions   from   his   master   but   is   subject   to
his   master's   right   to   control   the   manner   in   which   he
carries   out   those   instructions.   An   agent   receives   his
principal's   instructions   but   is   generally   free   to   carry
out those instructions according to his own discretion.
(b) Generally, a servant, qua servant, has no authority
to   make   contracts   on   behalf   of   his   master.   Generally,
the purpose of employing an agent is to authorise him
to make contracts on behalf of his principal.
(c)   Generally,   an   agent   is   paid   by   commission   upon
effecting   the   result   which   he   has   been   instructed   by
his   principal   to   achieve.   Generally,   a   servant   is   paid
by wages or salary.
11.   The   statement   of   the   law   contained   in   Halsbury's
Laws of England ­ Hailsham Edition ­ Volume 22, page
113,   paragraph   192   may   be   referred   to   in   this
connection :­
"The   difference   between   the   relations   of   master   and
servant   and   of   principal   and   agent   may   be   said   to   be
this : a principal has the right to direct what work the
agent   agent   has   to   do   :   but   a   master   has   the   further
right to direct how the work is to be done."
The  position   is   further  clarified   in   Halsbury's   Laws   of
England   ­   Hailsham   Edition   ­   Volume   1,   at   page   193,
article 345 where the positions of  an agent, a servant
and independent contractor are thus distinguished :­
" An agent is to be distinguished on the one hand from
a   servant,   and   on   the   other   from   an   independent
contractor. A servant acts under the direct control and
supervision   of   his   master,   and   is   bound   to   conform   to
all   reasonable   orders   given   him   in   the   course   of   his
work; an independent contractor, on the other hand, is
Page  22  of  53

entirely independent of any control or interference and
merely   undertakes   to   produce   a   specified   result,
employing   his   own   means   to   produce   that   result.   An
agent,   though   bound   to   exercise   his   authority   in
accordance   with  all   lawful   instructions   which  may  be
given to him from time to time by his principal, is not
subject   in   its   exercise   to   the   direct   control   or
supervision of the principal. An agent, as such is not a
servant,   but   a   servant   is   generally   for   some   purposes
his   master's   implied   agent,   the   extent   of   the   agency
depending upon the duties or position of the servant."
23. This   Court   in   Gordon   Woodroffe   &   Co.   v.   Sheikh   M.A.
Majid   &   Co. 16
  also   drew   the   distinction   between   a   ‘contract   of
agency’ and a ‘contract of sale’, on the following basis:
“The   essence   of   sale   is   the   transfer   of   the   title   to   the
goods   for   price   paid   or   to   be   paid.   The   transferee   in
such case becomes liable to the transferor of the goods
as   a   debtor   for   the   price   to   be   paid   and   not   as   agent
for   the   proceeds   of   the   sale.   On   the   other   hand,   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   who   is   therefore   liable
to account for the proceeds.”
24. To   understand   whether   or   not   such   transfer   of   title   had
taken   place,   this   Court   in   Khedut   Sahakari   Ginning   and
Pressing Society v. State of Gujarat 17
  had placed emphasis on
the   need   to   closely   scrutinize   the   contract   between   the   parties
and opined that:
16  1966 Supp SCR 1
17  (1971) 3 SCC 480
Page  23  of  53

“5.   Whether   a   particular   agreement   is   an   agency
agreement   or   an   agreement   of   sale   depends   upon   the
terms   of   the   agreement.   For   deciding   that   question,
the   terms   of   the   agreement   have   got   to   be   examined.
The   true   nature   of   a   transaction   evidenced   by   a   writ­
ten   agreement   has   to   be   ascertained   from   the
covenants   and   not   merely   from   what   the   parties
choose   to   call   it.   The   terms   of   the   agreement   must   be
carefully   scrutinised   in   the   light   of   the   surrounding
circumstances.”
25. This   was   reiterated   in   Bhopal   Sugar   Industries   Ltd.   v.
STO, Bhopal 18
  by a 3­judge bench which held:
“5…Thus   the   essence   of   the   matter   is   that   in   a
contract   of  sale,   title  to  the  property  passes   on   to  the
buyer   on   delivery   of   the   goods   for   a   price   paid   or
promised.   Once   this   happens   the   buyer   becomes   the
owner  of  the  property  and   the  seller  has   no  vestige   of
title   left   in   the   property.   The   concept   of   a   sale   has,
however,   undergone   a   revolutionary   change,   having
regard to the complexities of the modern times and the
expanding   needs   of   the   society,   which   has   made   a
departure   from   the   doctrine   of   laissez   faire   by
including  a   transaction   within   the   fold   of   a   sale   even
though   the   seller   may   by   virtue   of   an   agreement
impose   a   number   of   restrictions   on   the   buyer,   e.   g.,
fixation   of   price,   submission   of   accounts,   selling   in   a
particular   area   or   territory   and   so   on.   These
restrictions per se would not convert a contract of sale
into   one   of   agency,   because   in   spite   of   these
restrictions   the   transaction   would   still   be   a   sale   and
subject   to   all   the   incidents   of   a   sale.   A   contract   of
agency, however, differs essentially from a contract of
sale inasmuch as an agent after taking delivery of the
property   does   not   sell   it   as   his   own   property   but   sells
the   same   as   the   property   of   the   principal   and   under
his instructions and directions. Furthermore, since the
agent   is   not   the   owner   of   the   goods,   if   any   loss   is
suffered   by   the   agent   he   is   to   be   indemnified   by   the
18  (1977) 3 SCC 147
Page  24  of  53

principal.   This   is   yet   another   dominant   factor   which
distinguishes an agent from a buyer­pure and simple.”
26. From  the catena of cases elaborating  on the characteristics
of   a   contract   of   agency,   the   following   indicators   can   be   used   to
determine   whether   there   is   some   merit   in   the   Assessees’
contentions   on   the  bifurcation   of   the   transaction   into  two  parts:
Firstly , whether title in the tickets, at any point, passed from the
Assessees to the travel agents;   Secondly , whether the sale of the
flight   documents   by   the   latter   was   done   under   the   pretext   of
them   being   the   property   of   the   agents   themselves,   or   of   the
airlines;  Thirdly , whether the airline or the travel agent was liable
for  any  breaches of the  terms and  conditions in the tickets, and
for   failure   to   fulfil   the   contractual   rights   that   accrued   to   the
consumer who purchased them. 
27. Our  examination of the nature of the arrangement between
the   parties   will   be   premised   on   a   reading   of   the   PSA.   Learned
Senior   Counsel   for   the   Assessees   has   gone   to   great   lengths   to
show us that there isn’t even a whisper in the PSA regarding the
transaction   between   the   travel   agents   and   the   customer.
According   to   him,   this   shows   that   the   second   part   of   the
Page  25  of  53

transaction   falls   outside   the   ambit   of   the   principal­agent
relationship. 
28. On   the   contrary,   Mr.   Kumar,   learned   Counsel   for   the
Revenue, has emphasized on the point that at no stage does the
PSA indicate that title in the goods i.e. the tickets, transfers from
the air carrier to the agent. Clause 6.1 of the PSA states in clear
terms   that   the   travel   documents   “ …are   and   remain   the   sole
property   of   the   Carrier…until   duly   issued   and   delivered
pursuant to a transaction under this Agreement. ” No rebuttal
on   this   averment   was   forthcoming   from   learned   Senior   Counsel
for   the   Assessees,   and   hence,   we   have   no   hesitation   in   agreeing
with   Mr.   Kumar’s   submission   that   the   tickets   remained   the
property of the airline. No contract of sale between two principals
was ever in existence between the Assessees and the travel agent
as   per   the   criteria   laid   down   in   Bhopal   Sugar   Industries
(Supra)  and  Gordon Woodroffe & Co. (Supra) . 
29. When we take a closer look at the PSA, there are numerous
portions   which   crystallize   the   intentions   of   the   parties   when
entering into the agreement. The recitals of the PSA state:
Page  26  of  53

Each   IATA   Member   (hereinafter   called   "Carrier")   which
appoints   the   Agent,   represented   by   the   Director   General   of
IATA  acting for and on behalf of such IATA Member.
30. In the same vein, Clauses 3, 9 & 15 also indicate that:
3.1  The Agent is authorized to sell air passenger  transportation
on the services of the Carrier and on the services of other are
carriers   as   authorized   by   the   Carrier.   The   sale   of   air
passenger   transportation   means   all   activities   necessary   to
provide   a   passenger   with   a   valid   contract   of   carriage
including   but   not   limited   to   the   issuance   of   a   valid   Traffic
Documents and the collection of monies therefore. The Agent
is also authorized to sell such ancillary and other services us
the Carrier may authorize;
3.2   All   services   sold pursuant to this Agreement shall be sold
on behalf  of Carrier and  in compliance  with Carrier's tariffs,
conditions   of   carriage   and   the   written   instructions   of   the
Carrier as provided to the Agent. The Agent shall not in any
way vary or modify the terms and conditions set forth in any
Traffic   Document   used   for   services   provided   by   the   Carrier,
and the Agent shall complete these documents in the manner
prescribed by the Carrier.
x ­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­ x­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­
x
9.  Remuneration
For  the   sale  of air transportation and ancillary services by the
Agent under this Agreement the Carrier shall remunerate the
Agent  in a manner and  amount  as  may be  stated from  time
to time and communicated to the Agent by the  Carrier.   Such
remuneration   shall   constitute   full   compensation   for   the
services rendered to the Carrier.
x ­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­ x­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­
x
15.  Indemnities  and Waiver
15.1   The   Carrier   agrees to indemnify and hold harmless the
Agent,   its   officers   and   employees   from   and   against   liability
for   any   loss,   injury,   or   damage,   whether   direct,   indirect   or
consequential, arising in the course of transportation or other
ancillary services provided by the Carrier pursuant to a sale
made   ty   the   Agent   hereunder   or   arising   from   the   failure   of
the Carrier to provide such transportation or services,   except
to   the   extent   that   such   less,   injury,   or   damage   is   caused   or
Page  27  of  53

contributed   to   by   the   Agent,   its   officers,   employees   or   any
other person acting on the Agent's behalf.
31. Several   elements   of   a   contract   of   agency   are   satisfied   by
these   clauses,   and   the   recitals.   Every   action   taken   by   the   travel
agents   is   on   behalf   of   the   air   carriers   and   the   services   they
provide   is   with   express   prior   authorization.   The   airline   also
indemnifies   the   travel   agent   for   any   shortcoming   in   the   actual
services   of   transportation,   and   any   connected   ancillary   services,
as   it   is   the   former   that   actually   retains   title   over   the   travel
documents and is responsible for the actual services provided to
the   final   customer.   Furthermore,   the   airline   has   the
responsibility to provide full and final compensation to the travel
agent for the acts it carries out under the PSA. 
32. The   irresistible   conclusion   is   that   the   contract   is   one   of
agency   that   does   not   distinguish   in   terms   of   stages   of   the
transaction involved in selling flight tickets. While Assessees had
readily accepted the existence of the principal­agent relationship,
their   consternation   had   been   directed   at   the   so­called   second
limb   of   the   deal   that   is   exclusively   between   the   agent   and   the
customer. However, the submissions advanced in this regard are
clearly   not   supported   by   the   bare   wording   of   the   PSA   itself.   The
Page  28  of  53

High   Court   in   the   impugned   judgment   is   correct   in   its   holding
that the arrangement between the agent and the purchaser is not
a   separate   and   distinct   arrangement   but   is   merely   part   of   the
package of activities undertaken pursuant to the PSA.  
33. Regardless, learned Senior  Counsel, Mr. Agarwal, remained
resolute   in   his   submission   that   the   principal­agent   relationship
does   not   cover   the   Supplementary   Commission   on   the   basis   of
arguments that are independent of the PSA. We shall now turn to
a   discussion   of   those.   Primarily,   he   contended   that
Supplementary   Commission   goes   from   the   hands   of   the
consumer   and   into   the   pockets   of   the   travel   agents   without   any
intervention   from   the   Assessees.   Hence,   the   prerequisite   of   a
payment on which TDS can be deducted in the first place is not
fulfilled.
34. Section   194H   of   the   IT   Act,   as   noted   earlier,   does   not
distinguish   between   direct   and   indirect   payments.   Both   fall
under Explanation (i) to the provision in classifying what may be
called   a   “Commission”.   As   submitted   by   learned   Additional
Solicitor   General,   Mr.   Banerjee,   this   Court   in   Prasar   Bharati
Page  29  of  53

(Supra)   had   expounded   on   the   ambit   of   Section   194H   by   ruling
that: 
“28.   The   Explanation   appended   to   Section   194H
defines the expression "commission or brokerage". It is
an   inclusive   definition   and   includes   therein   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
assets,   valuable   Article   or   thing   not   being   securities.
Clause   (ii)   defines   professional   services;   Clause   (iii)
defines   securities;   and   Clause   (iv)   provides   a   deeming
fiction   for   treating   any   income   so   as   to   attract   the
rigor of the Section for ensuring its compliance.
…..
31…   lastly,   the   definition   of   expression   "commission"
in the Explanation appended to Section 194H being an
inclusive   definition   giving   wide   meaning   to   the
expression   "commission",   the   transaction   in   question
did   fall   under   the   definition   of   expression
"commission"   for   the   purpose   of   attracting   rigor   of
Section194H of the Act.”
35. Therefore,   if   we   view   the   ambit   of   Section   194H   in   an
expansive manner, the factum of the exact source of the payment
would   be   of   no   consequence   to   the   requirement   of   deducting
TDS. Even on an indirect payment stemming from the consumer,
the   Assessees   would   remain   liable   under   the   IT   Act.
Consequently,   the   contention   of   the   airlines   regarding   the   point
of origination for the amounts does not impair the applicability of
Section 194H of the IT Act. 
Page  30  of  53

36. The   next   point   raised   was   regarding   the   practicality   and
feasibility   of   making   the   deductions,   regardless   of   whether
Section 194H may, in principle, cover the indirect payment to the
travel agent. The Assessees have pointed out that the travel agent
acts   on   its   own   volition   in   setting   the   Actual   Fare   for   which   the
flight tickets are sold, and as a symptom of this, the airline itself
has   no   knowledge   whatsoever   regarding   how   much
Supplementary Commission it has drawn for itself. 
37. Before   delving   into   this   aspect   of   the   matter,   it   would   be
remiss   of   us   to   not   mention   that   this   issue   has   seen
contradictory stands taken among different High Courts. Learned
Senior Counsel for the Assessees brought to our notice a decision
by the Bombay High Court in  Qatar Airways (Supra)  during the
course of his submissions. The Division Bench in that case held:
3…For Section  194H  to  be attracted, the income being
paid   out   by   the   Assessee   must   be   in   the   nature   of
commission   or   brokerage.   Counsel   for   the   Revenue
contended that it was not the case of the Revenue that
this   difference   between   the   principal   price   of   the
tickets   and   the   minimum   fixed   commercial   price
amounted   to   payment   of   brokerage.   We   find   however,
that in order to deduct tax at source the income being
paid   out   must   necessarily   be   ascertainable   in   the
hands of the Assessee. In the facts of the present case,
it   is   seen   that   the  airlines   would   have  no  information
about   the   exact   rate   at   which   the   tickets   were
ultimately   sold   by   their   agents   since   the   agents   had
Page  31  of  53

been   given   discretion   to   sell   the   tickets   at   any   rate
between   the   fixed   minimum   commercial   price   and   the
published   price   and   it   would   be   impracticable   and
unreasonable to expect the Assessee to get a feed back
from   their   numerous   agents   in   respect   of   each   ticket
sold. Further, if the airlines have discretion to sell the
tickets   at   the   price   lower   than   the   published   price
then the permission granted to the agent to sell it at a
lower   price,   according   to   us,   can   neither   amount   to
commission   nor   brokerage   at   the   hands   of   the   agent.
We   hasten   to   add   any   amount   which   the   agent   may
earn   over   and   above   the   fixed   minimum   commercial
price   would   naturally   be   income   in   the   hands   of   the
agent and will be taxable as such in his hands. In this
view of the matter, according to us, there is no error in
the impugned order and the question of law as framed
does   not   arise.   The   appeal   is   therefore,   dismissed   in
limini.
38. As   may   be   evident,   there   is   significant   similarity   between
the   conclusions   reached   by   the   Bombay   High   Court   and   the
arguments   raised   by   the   Assessees.   Learned   counsel   for   the
Revenue,   on   the   other   hand,   urged   that   the   Delhi   High   Court’s
stand   in  the  impugned  judgment   is  the  correct  position,  both  in
terms   of   the   law   under   Section   194H   and   a   practical
understanding of how the airline industry operates. It is prudent
for   our   analysis   to   extract   the   following   relevant   part   of   the
impugned judgment which supports the Revenue’s case: 
26.   Insofar   as   the   first   submission   is   concerned   that
there   is   no   evidence   of   receipt   of   money   by   the   travel
agent over and above the net fare is answered really by
the second  submission of the assessee­airline  which is
that   they  become   aware  of  the  monies   received   by   the
Page  32  of  53

travel   agent   only   when   the   billing   analysis   is   placed
on   record   by   the   BSP.   Therefore,   to   say   that   the
revenue is seeking to cast the liability on the assessee­
airline   to   deduct   tax   when   there   is   no   evidence   of
income   received   by   the   travel   agent   is   factually   an
incorrect   submission.   It   should   be   remembered   that
what is relevant is whether the Section 194H casts an
obligation   on   the   assessee   to   deduct   tax   at   source.
Once an obligation is cast it is for the assessee­airline
to   retrieve   the   necessary   information   from   the   travel
agent   who   works   under   its   supervision   and   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
assessee­airline.   Since   the   best   evidence   in   respect   of
the   sale   of   Traffic   Documents/Air   Tickets   is   available
with the assessee­airline 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   assessee­airline,   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   assessee­airline   cannot   be
held to be an assessee­in­default.
39. For   completeness,   there   is   another   decision   of   the   Madras
High   Court   as   well   which   takes   the   same   stance   as   the   Delhi
High   Court   in   the   impugned   judgment   (Supra) .   In   Around   the
World   Travel   and   Tours   P.   Ltd.   v.   Union   of   India 19
  the
Assessee   was  a   travel   agent   that   had   filed  a  Writ   Petition   before
the   High   Court   seeking   a   declaration   that   TDS   under   Section
19  2003 SCC OnLine Mad 1027
Page  33  of  53

194H   would   be   deducted   only   for   the   Standard   Commission
amount actually paid to it by the airlines it was operating for. The
stay   had   initially   been   granted   by   the   High   Court   but   then
subsequently   vacated,   against   which   the   Assessee   had   filed   an
appeal. The Madras High Court held:
8.   The  injunction   sought   by  the   appellants   to  restrain
the   airlines   from   deducting   tax   is   not   an   injunction
that   can   be   granted.   The   liability   for   payment   of   tax
arises,   in   terms   of   the   statute   and   the   perception   of
the   appellants   cannot   determine   the   true   content   of
the   statutory   provision   and   cannot   afford   a   sound
basis   for   the   court   injuncting   the   person,   who   may
otherwise   be   liable   to   deduct   tax,   from   deducting   tax
on payment made to the agents.
9.   We   must   also   notice   that   the   appellants   have   not
placed   before   the   court   the   scheme   under   which   the
payments   are   made   or   accounted.   It   is   the   definite
stand   of   the   caveator   airline   that   what   is   made
available   to   the   agents   is   supplementary   commission,
which  amount   the  agents   are  free  to  deal   with  in   any
manner   they   like.   The   agents,   according   to   the
airlines,   can   pass   on   the   entire   amount   of
supplementary   commission   to   the   passengers   or   may
retain   a   part   of   it   and   pass   on   only   a   portion   of   that
commission.
40. The   striking   aspect   of   the   dispute   in   Around   the   World
Travels   (Supra)   was   the   insistence   by   the   airline   that   the
amount   retained   by   the   Assessee   agent   was   Supplementary
Commission.   This   contributed   to   the   conclusion   reached   by   the
High Court that the amount earned by the agent appeared to be
Page  34  of  53

susceptible   to   TDS   deduction   under   Section   194H.   In   this
background,   the   landscape   in   regard   to   Section   194H   and   its
applicability to the auxiliary amounts earned by a travel agent on
top of the Net Fare demonstrates a lack of uniformity among High
Courts. 
41. The   contrary   opinions   by   the   High   Courts   necessitates   a
definitive   ruling   from   us   to   bring   clarity   on   this   point.   We   may
now   return   to   the   specific   argument   by   learned   Senior   Counsel
for   the   Assessees   on   the   issue   of   the   airline’s   lack   of   knowledge
regarding   the   Actual   Fare   and   resultant   impracticality   of
expecting it to deduct TDS on amounts that it isn’t even aware of.
42. Learned   Counsel   for   the   Revenue   has   rebutted   this   by
highlighting   the   manner   of   operation   of   the   BSP   where   financial
data regarding the sale of tickets is stored. According to him, the
BSP   agglomerates   the   data   from   multiple   transactions   and
transmits   it   twice   a   month,   or   bimonthly.   The   expectation   from
the   Revenue   is   not   that   the   Assessees   make   TDS   deductions   in
real   time   as   the   sale   of   tickets   by   the   agents   is   recorded   on   the
BSP.   Rather,   a   more   reasonable   approach   is   taken   whereby   the
air   carriers   must   simply   calculate   the   accumulated   amount   of
Page  35  of  53

TDS, at the end of each month after having received the requisite
date   from   the   IATA   and   the   BSP   and   make   a   single
comprehensive   deduction.   It   was   submitted   that   the   Assessee
cannot be absolved from its statutory duties under Section 194H,
irrespective of the viability of operating in this manner. 
43. Having   analysed  the  rival contentions  and keeping  in  mind
the   principal­agent   relationship   between   the   parties,   we   find
significant   merit   in   the   arguments   by   the   Revenue.   The
mechanics of how the airlines may utilize the BSP to discern the
amounts earned as Supplementary Commission and deduct TDS
accordingly   is   an   internal   mechanism   that   facilitates   the
implementation   of   Section   194H   of   the   IT   Act.   The   specifics   of
this   system   were   seemingly   not   placed   before   the   Bombay   High
Court in  Qatar Airways (Supra) . 
44. Further,   the   lack   of   control   that   the   airlines   have   over   the
Actual Fare charged by the travel agents over and above the Net
Fare, cannot form the legal basis for the Assessees to avoid their
liability.   As   averted   to   in   Lakshminarayan   Ram   Gopal   &   Son
Ltd. (Supra)  a contract of agency does not entail control over the
minutiae   of   the   agent’s   actions.   Such   a   level   of   oversight   would
Page  36  of  53

more   closely   resemble   a   master­servant   relationship.   In   a
principal­agent   relationship,   it   is   sufficient   for   the   latter   to   be
informed   of   the   responsibilities   and   duties   under   the   contract
and   certain   guidelines   on   how   to   satisfy   them.   An   agent
undoubtedly   retains   a   sizeable   level   of   discretion   on   how   to
achieve   the   desired   results.   This   characteristic   of   a   contract   of
agency   was   cemented  by   this   Court   in   Qamar   Shaffi   Tyabji   v.
The   Commissioner,   Excess   Profits   Tax,   Hyderabad 20
  in   the
following manner:
“7…An  agent  has  to be distinguished  on the one  hand
from   a   servant   and   on   the  other   from   an   independent
contractor. A servant acts under the direct control and
supervision   of   his   master,   and   is   bound   to   conform   to
all   reasonable   orders   given   in   the   course   of   his   work.
An   agent   though   bound   to   exercise   his   authority   in
accordance   with  all   lawful   instructions   which  may  be
given to him from time to time by his principal, is not
subject   in   its   exercise   to   the   direct   control   or
supervision   of   the   principal.   Indeed,   learned   counsel
for   the   appellant   accepts   as   correct   the   distinction
made   above   and   also   accepts   that   the   true   relation
between   the   Mills   and   the   Trustees   was   that   of
principal   and   agent;   but   he   contends   that   as   between
the Trustees and the appellant the relation was one of
master   and   servant.   We   consider   that   this   contention
is   wholly   unsound.   We   have   examined   the   original
agreement   between   the   Mills   and   the   Trustees   dated
April   12,   1934.   Clause   9   of   that   agreement   said   that
"the   agents   may   regulate   and   conduct   their
proceedings  in such manner  as they  may  from  time  to
time   determine   and   may   delegate   all   or   any   of   their
powers,   authorities   and   discretions   as   secretaries,
20  (1960) 3 SCR 546
Page  37  of  53

treasurers   and   agents   of   the   company   to   such   person
or   persons   and   on   such   terms   and   conditions   as   they
may   think   fit,   subject   to   the   approval   of   the   Board   of
Directors of the company." The delegation in favour of
the   appellant   was   made   under   this   clause.   The
position was therefore this: the Trustees as agents had
express   authority   to   name   another   person   to   act   for
the   principal   in   the   business   of   the   agency,   and   they
named the appellant with the approval of the Board of
Directors.   Therefore,   the   appellant,   was   neither   a
servant   nor  a   mere   sub­agent.   He   was   an   agent   of   the
principal   for   such   part   of   the   business   of   the   agency
as was entrusted to him.”
45. The fact that the travel agent has discretion to set an Actual
Fare   which   is   above   the   Net   Fare   has  no   effect   on   the   nature  of
the relationship between the parties. A contract of agency permits
an agent to carry out acts on its own volition provided it does not
contravene  the  purpose  of  the   agency   contract  and  the  interests
of the principal. The accretion of the Supplementary Commission
to the travel agents is an accessory to the actual principal­agent
relationship   under  the   PSA.   In   such   a   commercial  arrangement,
the   benefit   gained   by   an   agent   is   incidental   to   and   has   a
reasonably   close   nexus   with   the   responsibilities   that   were
entrusted   to   it   by   the   principal   air   carrier.   Such   incidental
benefits   or   actions   must   come   under   the   ambit   of   the
relationship, subject to any express limitations articulated in the
contract itself or under the Contract Act.  
Page  38  of  53

46. Apart   from   this,   Clause   7.2   of   the   PSA   sets   out   that   any
payments   collected   by   an   agent   pursuant   to   sale   of   air
transportation   and   ancillary   services   are   held   in   a   fiduciary
capacity   for   the   Carrier   until   a   proper   accounting   is   made.   The
Clause in question is reproduced below:
7.2   All   monies   collected  by  the  Agent   for  transportation   and
ancillary   services   sold   under   this   Agreement,   including
applicable remuneration which the  Agent is entitled  to  claim
hereunder, are the property of the Carrier and must be held
by   the   Agent   in   trust   for   the   Carrier   or   on   behalf   of   the
Carrier   until   satisfactorily   accounted   for   to   the   Carrier   and
settlement made.
47. Notwithstanding the lack of control over the Actual Fare, the
contract definitively states that “all monies” received by the agent
are   held   as   the   property   of   the   air   carrier   until   they   have   been
recorded on the BSP and properly gauged. As already mentioned
by   learned   Counsel   for   the   Revenue,   and   accepted   by   learned
Senior   Counsel   for   the   airlines,   the   BSP   demarcates
“Supplementary   Commission”   under   a   separate   heading.   Hence,
once   the   IATA   makes   the   payment   of   the   accumulated   amounts
shown   on   the   BSP,   it   would   be   feasible   for   the   Assessees   to
deduct   TDS   on   this   additional   income   earned   by   the   agent,   and
whatever   remains   after   the   subtraction   under   Section   194H
would   count   as   income   for   the   agents   themselves.   It   is   at   this
Page  39  of  53

point that settlement is made fully and finally, in line with Clause
7.2 of the PSA. 
48. The   only   remaining   objection   from   the   Assessees   concerns
Section  216  of  the  Contract  Act.  To  appropriately   appreciate  the
scope of the provision, a combined reading  of both Sections 215
&  216 is  necessary.  Both  these provisions  are reproduced  below
for ease of reference:
215.   Right   of   principal   when   agent   deals,   on   his   own
account,   in   business   of   agency   without   principal’s
consent.—
If an agent deals on his own account in the business of
the   agency,   without   first   obtaining   the   consent   of   his
principal   and   acquainting   him   with   all   material
circumstances which have come to his own knowledge
on   the   subject,   the   principal   may   repudiate   the
transaction,   if   the   case   shows,   either   that   any
material fact has been dishonestly concealed from him
by   the   agent,   or   that   the   dealings   of   the   agent   have
been disadvantageous to him.
x­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­x­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­x
216.   Principal’s   right   to   benefit   gained   by   agent
dealing on his own account in business of agency.—
If   an   agent,   without   the   knowledge   of   his   principal,
deals in the business of the agency on his own account
instead of on account of his principal, the principal is
entitled to claim from the agent any benefit which may
have resulted to him from the transaction.
49. In the facts before us, we find that Sections 215 and 216 of
the   Contract   Act   are   of   no   assistance.   We   have   already
ascertained that the PSA does not explicitly address the issue of
Page  40  of  53

Supplementary Commission at all. Further, an agent acting of its
own account does not, in principle, alter the nature of a contract
of   agency   and   only   gives   rise   to   the   consequences   mentioned
under Sections 215 and 216 of the Contract Act if the conditions
contained   within   them   exist.   We   do   not   consider   it   helpful   to
dwell on this point. 
50. In   any   case,   given   that   information   regarding   the
Supplementary   Commission   was   available   to   the   airlines,   we
have   no   doubt   that   the   airlines   could   not   have   absolved
themselves of liabilities under the IT Act attached to the accrual
of that additional portion of income by the agent. These amounts
were incidental to the transaction by which the flight tickets were
sold on behalf of the air carriers and was for their benefit. The old
adage   that   a   party   to   a   contract   cannot   “both   approbate   and
reprobate” is apt for this factual scenario. 21
51. From   the   exposition   of   law   on   the   ambit   of   a   contract   of
agency   and   its   resultant   effect   on   the   classification   of   the
difference   between   the   Actual   Fare   and   Net   Fare   as   being   a
“Commission” liable to deduction of TDS, we are left unmoved by
the submissions of the Assessees. The interpretation of the PSA,
21   Nagubai Ammal & Ors. v. B. Shama Rao & Ors. , [1956] 1 SCR 451.
Page  41  of  53

through the prism of Section 182 of the Contract Act and Section
194H   of   the   IT   Act,   provided   by   the   Revenue   appears   to   be   the
correct   position.   Thus,   we   affirm   the   conclusion   reached   by   the
Delhi High Court in the impugned judgment on the nature of the
relationship   between   the   airlines   and   the   travel   agents,   and   the
liability   that   is   attached   to   deduction   of   TDS   on   the
Supplementary   Commission.   As   a   consequence   of   our   analysis,
the   view   taken   by   the   Bombay   High   Court   in   Qatar   Airways
(Supra)  stands overruled. 
D.2  REVENUE NEUTRAL
52. Having held in favour of the Revenue in connection with the
applicability   of   Section   194H   of   the   IT   Act,   the   remaining   issue
for   us   to   address   is   whether   the   matter   has   been   rendered
revenue   neutral.   Learned   Counsels   on   both   sides   have   agreed
that   the   travel   agents   who   received   the   Supplementary
Commission for AY 2001­02, have already shown these amounts
as   their   income.   Subsequently,   they   have   paid   income   tax   on
these sums. 
53. Learned Senior Counsel for the Assessees, Mr. Agarwal, has
contended   that   there   has   been   no   loss   to   the   Revenue   on   this
Page  42  of  53

count.   Learned   Counsel   for   the   Revenue,   Mr.   Kumar,   admitted
the   payment   of   income   tax   by   the   travel   agents   but   has   argued
that this does not absolve the airlines of their infraction in terms
of the mandate under Section 194H of the IT Act. 
54. This Court in   Hindustan Coca Cola Beverage Pvt. Ltd. v.
Commissioner   of   Income   Tax   (Supra)   was   confronted   with   a
similar   situation   where   the   recipient   of   income   on   which   the
Assessee had failed to deduct TDS under Section 194C of the IT
Act,   had   already   paid   income   taxes   on   that   amount.   The   Court
held:
“6.   The   Tribunal   upon   rehearing   the  appeal   held   that
though   the   appellant­assessee   was   rightly   held   to   be
an   'assessee   in   default',   there   could   be   no   recovery   of
the   tax   alleged   to   be   in   default   once   again   from   the
appellant   considering   that   Pradeep   Oil   Corporation
had   already   paid   taxes   on   the   amount   received   from
the   appellant.   It   is   required   to   note   that   the
department   conceded   before   the   Tribunal   that   the
recovery   could   not   once   again   be   made   from   the   tax
deductor   where   the   payee   included   the   income   on
which  tax  was   alleged  to  have  been  short  deducted  in
its taxable income and paid taxes thereon. There is no
dispute   whatsoever   that   Pradeep   Oil   Corporation   had
already paid the taxes due on its income received from
the   appellant   and   had   received   refund   from   the   tax
department. The Tribunal came to the right conclusion
that   the   tax   once   again   could   not   be   recovered   from
the   appellant   (dedicator­   assessee)   since   the   tax   has
already been paid by the recipient of income.
….
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9. Be that as it may, the circular No. 275/201/95­ IT(B)
dated 29.1.1997 issued by the Central Board of Direct
Taxes, in our considered opinion, should put an end to
the   controversy.   The   circular   declares   "no   demand
visualized   under  Section   201(1)   of   the   Income­   tax   Act
should be enforced after the tax deductor has satisfied
the   officer­in­charge   of   TDS,   that   taxes   due  have   been
paid   by   the   deducted­assessee.   However,   this   will   not
alter   the   liability   to   charge   interest   under   Section
201(1A)  of the  Act  till the  date of payment of  taxes  by
the deducted­assessee or the liability for penalty under
Section 271C of the Income­tax Act."
55. A   similar   principle   was   also   advanced   in   the   context   of
Section 192 of the IT Act in  Commissioner of Income Tax v. Eli
Lilly & Co. (India) 22
:
“98…In  our  view,   therefore,   the  tax­deductor­  assessee
(respondent(s)) were duty bound to deduct tax at source
under   Section   192(1)   from   the   Home   Salary/ special
allowance(s)   paid   abroad   by   the   foreign   company,
particularly   when   no   work   stood   performed   for   the
foreign   company   and   the   total   remuneration   stood
paid   only   on   account   of   services   rendered   in   India
during the period in question. 
99.   As   stated  above,   in   this   matter,   we  have  before  us
104 civil  appeals.  We  are directing the AO to examine
each   case   to   ascertain   whether   the   employee­assessee
(recipient)   has   paid   the   tax   due   on   the   Home
Salary /special   allowance(s)   received   from   the   foreign
company.   In   case   taxes   due   on   Home   Salary/special
allowance(s)   stands   paid   off   then   the   AO   shall   not
proceed   under   Section   201(1).   In   cases   where   the   tax
has not been paid, the AO shall proceed under Section
201(1) to recover the shortfall in the payment of tax.
100.   Similarly,   in   each   of   the   104   appeals,   the   AO
shall   examine   and   find   out   whether   interest   has   been
paid/recovered   for   the   period   between   the   date   on
22  (2009) 15 SCC 1
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which   tax   was   deductible   till   the   date   on   which   the
tax was actually paid. If, in any case, interest accrues
for the aforestated period and if it is not paid then the
Adjudicating   Authority   shall   take   steps   to   recover
interest   for   the   aforestated   period   under   Section
201(1A).”
56. It appears to us that if the recipient of income on which TDS
has   not   been   deducted,   even   though   it   was   liable   to   such
deduction under the IT Act, has already included that amount in
its   income   and   paid   taxes   on   the   same,   the   Assessee   can   no
longer be proceeded against for recovery of the short fall in TDS.
However,   it   would   be   open   to   the   Revenue   to   seek   payment   of
interest under Section 201(1A) for the period between the date of
default in deduction of TDS and the date on which the recipient
actually paid income tax on the amount for which there had been
a shortfall in such deduction. 
57. As   noted   earlier,   learned   Counsels   for   the   parties   were   ad
idem  on the fact that the travel agents had already paid taxes on
the   amounts   earned   by   them.   The   Revenue   had   contended   that
the   default   in   payment   of   TDS   could   not   be   excused   purely   on
this   ground.   However,   the   decisions   in   Hindustan   Coca   Cola
(Supra)   and   Eli   Lilly   &   Co.   (Supra)   clearly   bar   their   ability   to
Page  45  of  53

pursue   the   Assessee   airlines   for   recovery   of  the   shortfall   in   TDS
and restricts them to imposing interest for the default.
58. In this context, the Assessees have not provided us with the
specifics   of   when   the   travel   agents   paid   their   taxes   on   the
Supplementary  Commission. Furthermore, the  CBDT Circular  of
29.01.1997 23
, invoked in   Hindustan Coca Cola (Supra)   has not
been   placed   before   us   either.   It   will   be   necessary   to   fill   in   these
missing   details   and   determine   the   amount   of   interest   that   the
Assessees   are   liable   to   pay   before   this   matter   can   be   closed.
Thus,   we   deem   it   appropriate   to   remand   the   matter   back   to   the
Assessing Officer to flesh out these points in terms of the interest
payments due for the period from the date of default to the date
of payment of taxes by the agents. 
59. The   denouement   of   our   examination   of   these   issues
concerns  the  levy  of  penalties under  Section  271C  of  the IT Act.
The   Assessing   Officer   had   initially   directed   that   penalty
proceedings be commenced against the Assessees for the default
in subtraction of TDS but we are informed that this process was
put   in   cold   storage   while   the   airlines   and   the   revenue   were
contesting the primary issue of the applicability of Section 194H
23  Circular No. 275/201/95­ IT(B)
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before   various   appellate   forums.   Section   271C   provides   for
imposition   of   penalties   for   failure   to   adhere   to   any   of   the
provisions in Chapter XVII­B, which includes Section 194H. This
provision   must   be   read   with   Section   273B   which   excuses   an
otherwise defaulting Assessee from levy of penalties under certain
circumstances. The twin provisions read as follows:
Section   271C:   Penalty   for   Failure   to   Deduct   Tax   at
Source :
(1) If any person fails to ­
(a) Deduct the whole or any part of the tax as required
by or under the provisions of Chapter XVII­B; or
(b) Pay the whole or any part of the tax as required by
or under, ­
(i) Sub­section (2) of Section 115O; or
(ii) Second proviso to Section 194B,
then,   such   person   shall   be   liable   to   pay,   by   way   of
penalty, a sum equal to the amount of tax which such
person failed to deduct or pay as aforesaid.
(2)   Any   penalty   imposable   under   Sub­section   (1)   shall
be imposed by the Joint Commissioner.
x ­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­x­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­x
Section   273B:   Penalty   not   to   be   imposed   in   Certain
Cases :
Notwithstanding   anything   contained   in   the   provisions
of   clause   (b)   of   Sub­section   (1)   of   Section   271,   Section
271A,   Section   271AA,   Section   271B,   Section   271BA,
Section   271BB,   Section   271C,   Section   271CA,   Section
271D,   Section   271E,   Section   271F,   Section   271FA,
Section 271FB, Section 271G, clause (c) or clause (d) of
Sub­section   (1)  or  Sub­section   (2)   of   Section   272A,   Sub­
section   (1)   of   Section   272AA,   or   Sub­section   (1)   of
Section  272BB or Sub­section (1A)  of  Section  272BB or
Sub­section   (1)   of   Section   272BBB   or   clause   (b)   of   Sub­
Page  47  of  53

section (1) or clause (b) or clause (c) of Sub­section (2) of
Section   273,   no   penalty   shall   be   imposable   on   the
person   or   the   assessee,   as   the   case   may   be,   for   any
failure   referred   to   in   the   said   provisions   if   he   proves
that there was reasonable cause for the said failure.
60. The   ambit   of   “reasonable   cause”   under   Section   273B
requires   our   scrutiny   before   we   reach   the   conclusion   that   the
Assessing Officer is required to also calculate potential penalties
to be levied against the Assessees. This Court in   Eli Lilly & Co.
(Supra)   had   elaborated,   in   the   passage   extracted   below,   on   the
context in which Section 273B may be utilized:
94…Section   273B   states   that   notwithstanding
anything   contained   in   Section   271C,   no   penalty   shall
be imposed on the person or the assessee for failure to
deduct   tax   at   source   if   such   person   or   the   assessee
proves  that   there  was  a  reasonable  cause  for  the  said
failure.   Therefore,   the   liability   to   levy   of   penalty   can
be   fastened   only   on   the   person   who   do   not   have   good
and   sufficient   reason   for   not   deducting   tax   at   source.
Only those persons will be liable to penalty who do not
have  good   and   sufficient   reason   for   not   deducting  the
tax.   The   burden,   of   course,   is   on   the   person   to   prove
such good and sufficient reason.  
95.   In   each   of   the   104   cases   before   us,   we   find   that
non­deduction   of   tax   at   source   took   place   on   account
of   controversial   addition.   The   concept   of   aggregation
or consolidation of the entire income chargeable under
the   head   "Salaries"   being   exigible   to   deduction   of   tax
at source under Section 192 was a nascent issue… The
tax­deductor­assessee   was   under   a   genuine   and   bona
fide   belief   that   it   was   not   under   any   obligation   to
deduct tax at source from the home salary paid by the
foreign   company/HO   and,   consequently,   we   are   of   the
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view that in none of the 104 cases penalty was leviable
under   Section   271C   as   the   respondent   in   each   case
has   discharged   its   burden   of   showing   reasonable
cause for failure to deduct tax at source.
61. We find some parallels between the facts of the present case
and   the   situation   in   Eli   Lilly   &   Co.   (Supra) .   The   liability   of   an
airline   to   deduct   TDS   on   Supplementary   Commission   had
admittedly   not   been   adjudicated   upon   by   this   Court   when   the
controversy first arose in AY 2001­02. While learned Counsel for
the   Revenue,   Mr.   Kumar,   has   notified   us   that   various   airlines
were   deducting   TDS   under   Section   194H   at   that   time,   this  does
not necessarily mean that the position of law was settled. Rather,
it appears to us that while one set of air carriers acted under the
assumption   that   the   Supplementary   Commission   would   come
within the ambit of the provisions of the IT Act, another set held
the   opposite   view.   The   Assessees   before   us   belong   to   the   latter
category. Furthermore, as we have highlighted earlier, there were
contradictory   pronouncements   by   different   High   Courts   in   the
ensuing years which clearly highlights the genuine and bona fide
legal conundrum that was raised by the prospect of Section 194H
being applied to the Supplementary Commission. 
Page  49  of  53

62. Hence,   there   is   nothing   on   record   to   show   that   the
Assessees have not fulfilled the criteria under Section 273B of the
IT   Act.   Though   we   are   not   inclined   to   accept   their   contentions,
there   was   clearly   an   arguable   and   “nascent”   legal   issue   that
required   resolution   by   this   Court   and,   hence,   there   was
“reasonable cause” for the air carriers to have not deducted TDS
at the relevant period. The logical deduction from this reasoning
is   that   penalty   proceedings   against   the   airlines   under   Section
271C of the IT Act stand quashed. 
E. CONCLUSION
63.  Our conclusion in terms of the application of Section 194H
of the IT Act to the Supplementary Commission amounts earned
by   the   travel   agent   is   unequivocally   in   favour   of   the   Revenue.
Section 194H is to be read with Section 182 of the Contract Act.
If   a   relationship   between   two   parties   as   culled   out   from   their
intentions   as   manifested   in   the   terms   of   the   contract   between
them   indicate   the   existence   of   a   principal­agent   relationship   as
defined under Section 182 of the Contract Act, then the definition
of   “Commission”   under   Section   194H   of   the   IT   Act   stands
attracted and the requirement to deduct TDS arises. The realities
Page  50  of  53

of   how   the   airline   industry   functioned   during   the   period   in
question   bolsters   our   conclusion   that   it   was   practical   and
feasible   for   the   Assessees   to   utilize   the   information   provided   by
the   BSP   and   the   payment   machinery   employed   by   the   IATA   to
make   a   consolidated   deduction   of   TDS   from   the   Supplementary
Commission   to   satisfy   their   mandatory   duties   under   Chapter
XVII­B of the IT Act. 
64. Having   said   this,   in   light   of   the   consensus   between   the
parties that the travel agents have already paid income tax on the
Supplementary  Commission,  there can  be  no  further  recovery   of
the   shortfall   in   TDS   owed   by   the   Assessees.   However,   interest
may be levied under Section 201(1A) of the IT Act. As an epilogue
to   this   aspect   of   the   matter,   the   Assessing   Officer   is   directed   to
compute the interest payable by the Assessees for the period from
the date of default by them in terms of failure to deduct TDS, till
the date of payment of income tax by the travel agents. It will be
open   to   the   Assessing   Officer   to   look   into   any   details   that   are
necessary for completion of this exercise, including verification of
whether   tax   was   actually   paid   at   all   by   the   agents   on   the
amounts from which TDS was supposed to be subtracted. Given
Page  51  of  53

that   no   documentary   evidence   was   placed   before   us,   we   are
conscious   that   there   may   be   certain   anomalies   which   the
Assessing Officer is best positioned to iron out. 
65. In   the   eventuality   that   any   of   the   agents   have   not   yet   paid
taxes on the Supplementary Commission, the Revenue will be at
liberty   to   proceed   in   accordance   with   law   under   the   IT   Act   for
recover   of   shortfall   in   TDS   from   the   airlines.   However,   we   limit
the   ability   to   levy   penalties   against   the   Assessees   in   light   of
Section 273B of the IT Act.
66. Having   concluded   so,   we   hope   that   closure   has   been
brought to a legal controversy that has persisted for two decades.
While   we   reject   the   arguments   of   the   Assessees   on   merits   in
terms of their liability under Section 194H of the IT Act, we hold
in  their  favour   on  the  count  of  the matter  having  been  rendered
revenue neutral due to the apparent payment of income taxes on
the   amounts   in   question   by   the   travel   agents.   The   Assessing
Officer   is   directed   to   expeditiously   complete   the   assignment   of
determining   the   interest   payable   in   accordance   with   the
guidelines   laid   down   above,   so   as   to   bring   a   quietus   to   the
litigation. 
Page  52  of  53

67. In summation, we allow the appeals in part. 
68. Pending   applications,   if   any,   consequently   stand   disposed
of. 
…..…………………..J.
(SURYA KANT)
…..…………………..J.
(M.M. SUNDRESH)
New Delhi:
November 14, 2022
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