Income Tax Appellate Tribunal - Delhi
Singapore Airlines Ltd. vs Acit on 19 October, 2004
ORDER
R.V. Easwar, Judicial Member
1. The assessee in this appeal is a company operating passenger aircraft and handling cargo movement from India to Singapore and Beyond. It is a member of the IATA (International Air Transporter Association). The global income of the assessee-company is assessed to tax in singapore in accordance with the Double Taxation Avoidance Agreement between India and Singapore. In the course of its business, the assessee made payments in India and some of them were admittedly liable to tax deduction at source. In respect of such payment, the assessee filed the TDS returns with the AO, Circle 51(1), New Delhi.
2. On the basis of information that the assessee had paid commission to travel agents in excess of the limits laid down by IATA without deducting tax in accordance with Section 194H of the I.T. Act, reintroduced w.e.f 01.06.2001, the AO initiated proceedings u/s. 201 of the Act. According to him in respect of such commission, the assessee ought to have deducted tax @ 10 % + surcharge. He further observed that such payment was being treated by the assessee as a discount or incentive. Such a claim by the assessee was not acceptable to him. He also referred to the information collected in the course of a survey conducted u/s. 133A of the Act, which according to him confirmed his view that what was being paid by the assessee to the travel agents was only commission. He referred to the billing analysis received under the Billing Settlement Plan (BSP), which is an IATA approved organization, in support of his conclusion that the amount paid by the assessee to the travel agents in excess of the commission approved by the IATA was to be treated as supplementary commission which varied from transaction to transaction, on which the assessee failed to deduct tax u/s. 194H.
3. In addition to the claim that such excess payment cannot be treated as a payment of commission or supplementary commission, but should be viewed as a discount given to the travel agents, the assessee raised various other contentions, the gist of which is like this. The IATA approved commission was earlier 9% on the published fare in respect of the ticket which was brought down to 7% w.e.f. 1.1.2002. The published fare is the fare beyond which the ticket cannot be sold. However, the assessee fixes a minimum fare (net fare) which it gets from the travel agents in respect of the ticket. It is left to the travel agent, if he can to sell the ticket for any price over and above the net fare stipulated by the assessee. The excess so received by the travel agent will be retained by him and will not be passed on to the assessee. For example, if the published fare in respect of a ticket is Rs. 1 lac for Delhi - Singapore and the not fare (minimum fare payable to the assessee) is fixed at Rs. 60,000, and the travel agent is able to sell the ticket for Rs. 80,000/- the difference of Rs. 20,000 (Rs. 80,000-60,000) will be pocketed by the travel agent himself. As to for how much will the travel agent be able to sell the ticket over and above the net fare would depend on his selling capabilities, the market trend, the traffic and various other factors. If he can sell it for only Rs. 50,000, the loss of Rs. 10,000 shall be borne by him. In this example, the assessee paid 9% on the published fare of Rs. 1 lac as commission to the travel agent. This amounts to Rs. 9,000. The assessee deducts tax u/s., 194H from this commission of Rs. 9,000. However, according to the AO, the amount of Rs. 40,000 which is the difference between the published fare and the net fare also amounts to commission paid by the assessee to him on which it out to have deducted tax. In the example given, the assessee ought to have also deducted 10% on the amount of Rs. 40,000 which comes to Rs. 4,000. Since the assessee did not deduct the tax u/s. 194H on the amount of Rs. 40,000 which is referred to as supplementary commission by the AO, action was taken u/s., 201(1) to treat the assessee in default and for recovery of the tax from it and also to levy interest on the short deductions u/s. 201(1A).
4. The supplementary commission on the above based calculation by the AO in respect of the period from june, 2001 to 15th Feb, 2002 amounted to Rs. 29,34,97,709, on which the assessee ought to have deducted tax @ 10% which comes to Rs. 2,93,49,770. The surcharge amounted to Rs. 58,700 and thus the assessee ought to have deducted. According to the AO tax of Rs. 2,94,08,470 in the aggregate u/s. 194H. Since it failed to do so. the assessee was treated as defaulter u/s. 201(1) in respect of the aforesaid amount and interest of Rs. 21,13,224 was charged u/s. 201(1A). This order of the AO was passed on 28.8.2000.
5. On appeal, the assessee took up various contentions including the contention that the AO has no jurisdiction over the assessee, having regard to the provisions of section 124 of the Act and the notification dated 14.09.01 issued by the CBDT. On merits, the assessee contended that the amount collected by the travel agent over and above the net fare cannot be described as commission or supplementary commission paid by it to the travel agent, and therefore, it was not subject to TDS u/s. 194H. The CIT(A). on a consideration of all the arguments taken before him rejected both the contentions relating to jurisdiction as well as merits. He thus confirmed the order of the AO subject to minor relief in respect of certificate u/s. 197 given to some travel agents in respect of transactions prior to 1.6.01. the date of which Sec. 194H was reintroduced.
6. The assessee is in further appeal before us. We have heard the rival contentions ably put forth before us by both the sides. The contention of the assessee with regard to jurisdiction of the AO is based on the wording of the notification dated 14.09.01, issued by the DBDT. In serial No. 1 of the schedule to this notification the CIT (TDS), Delhi is designated as the authority having jurisdiction over the territorial area of the NCT of Delhi Column 5 shows the persons or class of person who are subject to his jurisdiction. Clause (a) applies to persons other than companies. It is therefore, not applicable to the assessee because the assessee is a company. Clause (b) refers to persons other than ---activities. Income from business or profession and whose principle place of business not within the NCT of Delhi. This clause is also not applicable to the assessee because the assessee is a company. As per clause (c), persons being companies registered under the Companies Act, 1956 and having registered officer in the area of NCT of Delhi would be subject to the jurisdiction of the CIT(TDS), Delhi. The claim is that the assessee is not a company registered under the Companies Act, 1956 nor is its registered office situated in the NCT of Delhi and, therefore, even clause (c) is not applicable. This objection to the jurisdiction of the income-tax authorities was taken before the CIT(A) also, but he rejected the same for the reasons mentioned by him in para. 18 of his order. The same objection is taken before us also. It is further admitted that the notification issued on 18.03.03, after the default period in the assessee's case, would cover the assessee because -
a) the assessee is a company as defined in Section 2(17)(ii) of the I.T. Act, and such companies are covered by his notification; and
(b) the principal place of the assessee's business is in the NCT of Delhi and the requirement that the registered office of the company should be in the NCT of Delhi has been dispensed with.
However, the argument advanced is that the subsequent notification clearly indicated that the earlier notification dated 14.09.01 was not intended to apply to the assessee company. Though, prima facie there appears to be some force in what the assessee contends, we do not think that we can go into the question of jurisdiction of the AO in the present appeal in view of Section 124(2) of the IT. Act which says that where a dispute arises as to whether the AO has jurisdiction to assess any person, the question shall be determined by the Director General of Chief Commissioner of Commissioner of any of the other officers specified therein and if they are not in agreement, the question shall be determined by the CBDT or by such other designated authority. In view of this provisions, we refrain from adjudicating upon the issue. Mr. Irani, the Ld. Counsel for the assessee drew our attention to the judgment of the Punjab & Haryana High Court in Joginder Singh v. CIT, 128 ITR 14, in which a provision similar to Section 124(2) was considered with reference to the provisions of Section 132 of the I.T. Act and it was held that such a provisions applied only to an assessee and it does not debar any other person, who is not an assessee from questioning the jurisdiction of the AO. In the present case, the appellant before us is not assessed to tax and, therefore, is not an assessee according to Mr. Irani and the appellant is only another person who is treated as in default and hence the provision of Section 124(2) or 124(3) do not apply. This contention cannot be accepted because though Section 124(2) uses the words "jurisdiction to assess any person", the word assess has a very wide meaning and includes the whole procedure laid down in the I.T. Act for imposing any liability upon the taxpayer CIT v. Khemchand Ramdas, 6 ITR 414 (PC). In our opinion, the words quoted above are broad enough to cover the appellant before us against whom the proceedings have been initiated Section 201 of the Act. Since the appellant is also, in our opinion, covered by Section 124(2) of the Act, we cannot go into the question of the jurisdiction of the AO. In this connection, CIT(DR). Mr. Rajnesh Kumar pointed out that the assessee itself has been filing TDS returns voluntarily with the TDS, Circle 51(1), who has passed the impugned order. He, therefore, submitted that the assessee cannot now question the jurisdiction of the very same AO. This submissions has also force. But, we would not like to pronounce finally on the question since, in our opinion, we cannot examine this question at all. In this view of the matter, we refrain from examining the correctness of ground Nos. 6(xiii) and ground No. 7 (vii) taken before us.
7. We now proceed to examine the merits of the rival stands. Section 197H says that any person who is not an individual or HUF, and is responsible for paying to a resident any income by way of commission 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 cheque or draft or any other mode, whichever is earlier, deduct tax thereon 10%. There are two provisos with which were are pt concerned. The words "commission or brokerage" are defined in Explanation (1) below the Section as including any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered, other than provisional 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. Section 200 says that any person deducting the tax in accordance with Section 194, inter alia, shall deposit the sum deducted to the credit of the Central Govt. within the prescribed time. The consequences of failure to deduct or pay the tax are mentioned in Section 201. Briefly speaking under sub-section (1) the consequence will be that the person who has defaulted will be treated as an assessee in default in respect of the tax. Under sub-section (1A), in addition to the collection of the tax from the defaulter, the defaulter will also be required to pay simple interest at 15% p.a. on the amount of the tax from the date on which it was deductible to the date on which it was actually paid. In the present case, he appellant has been treated as an assessee in default and it has also been directed to pay interest and both the actions are under challenge.
8. The following questions arise for our consideration :
a) Can the amount realized by the travel agent in excess of the net fare be considered to be commission?
b) Can be assessee be said to be a person responsible for paying the commission?
c) Was there a credit of the commission to the Account of the travel agent in the assessee's books?
d) Was there a payment of the commission (in cash or cheque or any other mode) by the assessee to the travel agent?
9. The example (already given) can be recapitulated for ready reference.
a) Delhi-Singapore published fare - Rs. 1 lac.
b) Net fare to be paid to the assessee (minimum fare) - Rs. 60,000
c) Amount realized by the travel agent for the ticket - Rs. 80,000
d) IATA Commission at 9 on Rs. 1 lac - Rs. 9,000 The basis question which is to be examined is whether the amount of Rs. 20,000 realised by the travel agent in excess of the net fare can be considered to be his income by way of commission, paid to him by the assessee company. In our opinion, it is difficult to say so. This amount represents realization of the travel agent himself due to his own efforts. He is prohibited from selling the ticket for a price in excess of the published fare. He has. However, to sell the ticket at least at the net fare of RS. 60,000 in the example given above. The arrangement between the assessee and the travel agent is that whatever price is realized in excess of the net fare would belong to him in his own right. If the cannot sell the ticket for the net fare, he has nevertheless to pay the assessee the net fare and the deficiency or loss would be his. As to what exactly the travel agent is able to realize is dependent wholly on his efforts and the traffic conditions. The entire amount, therefore, represents his income by way of sale proceeds of the ticket and not by way of commission received from the assessee at the time a sale of the higher assessee company has no knowledge or means of knowledge of even knowing the price for which the travel agent sells the ticket. Further in so far as the excess amount realized by the travel agent is concerned, he has not rendered any service to the assessee company so that it can be said that he is being compensated by way of commission. He makes all efforts in his own right to realize the maximum possible in excess of the net fare. In doing so, he makes no reference to the assessee-company and it is entirely open to him to realized the best rice possible. He is not accountable to the assessee-company in respect of such excess. The entire excess represents his income which does not emanate from the assessee at all. Thus, it cannot be stated to be commission. It is also clear that so far as the excess realized is concerned, the amount has not been paid by the assessee-company to the travel agent. Thus, it cannot be said either that the assessee-company is responsible for paying the commission to the travel agent or that the amount realized by travel agent in excess of the net fare in income by way of commission./
10. The definition of the words "commission or brokerage" gives a clue to the question whether the excess over the net fare realized by the travel agent can be considered as commission. It refers to a payment received "for services rendered". It cannot be said, as already noted, that in respect of the excess of Rs. 10,000 realised by the travel agent any services were rendered by him to the airline company. No doubt, he was able to realize the excess rice only by virtue of the agency, but that is different from saying that the realized the same as remuneration for any services rendered to the airline company.
11. The ld. Counsel for the assessee, Mr. Irani cited several authorities in support of the above contentions, but we are of the view that the judgment of the Kerala High Court M.S. Hameed and Ors. v. Director of State Lotteries and Ors., 249 ITR 86 is more appropriate to the present case. In that case, the lottery agents received bulk quantities of lotteries ticket from the State Govt. They were given a discount on a slab system. for example, for a ticket of Re. 1, the agent had to pay only 71.5 to 75 paisa. The ticket purchased were thereafter distributed through other agents and sub-agents on commission basis. The income-tax deptt. Demanded that tax be deducted at source by the State Govt. u/s. 194G. The petitioners (lottery agents) before the High Court challenged the action of the income-tax deptt. Several contentions where raised in support of the writ petition before the High Court. On of them was that the lottery agents could sell the ticket for any one ranging from 72 paise to Re. 1 and that it was not the business of the State Gover. to conclude into the matter as to how much was realized by the agent and thus same the price for which the ticket was sold by the agent was not known to the Govt. at all, it was not possible to deduct that tax at source. This argument was accepted by the Kerala Govt. in the following words.
"If the face value of the ticket, for example, is Rs. 1, notwithstanding the circumstances the petitioners receive if for 72 paise. The State, therefore, realizes a ticket, receiving 72 paise. The petitioners may sell the ticket so obtained at any price of their choice. It is not the State's business to enquire into the matter at all. Therefore, it is difficult to assume that the petitioners have in all cases made a margin of 28 paise by the mere purchase of the ticket. His case is that resells it for 72.5 paise, and he derives a profit of half paise per ticket. He may be right or that may be a misleading statement. But he has been able to obtain a ticket worth Rs. 1 for 72 paise. His total input therefore is 72 paise, and in that context it us difficult to describe the transaction as one whereby because of investment of 72 paise he has simultaneously made a profit of 28 paise. Several "ifs" have to be employed, which do not exist in real like, for this court to accept the case of the Department that by the factum of purchase he had already made a profit."
12. The other contention raised before the Kerala High Court was that since there was no payment of any income nor was there any credit of the income in favour of the agent there can be no liability or duty to deduct tax. This contention was also accepted by the High Court in the following words :
"Therefore, the demand of tax is to be shows as one on the income of the person concerned. There is neither payment of cash or by cheque, and the Government never credits any income to the account of the person like the petitioners. When the deduction is contemplated at the time of payment to the person concerned and when it is sown that there is not payment to the agent at the time of purchase of the ticket the section automatically becomes inapplicable. If any prize or remuneration is payable by the Govt. to any person, deduction at source as envisaged under the section, may arise. But when no payment is made in view of the mandate of the section, no deduction is envisaged. That the ticket is given on a discount of 28 per cent, can be not imagination be pressed into service for an interpretation that none the less, ten per cent. of 28 paise is deductible as tax perhaps the intention might have been t bring the agents within the tax net, but the section as it stands, according to me, is not authority for taxation at source, as is envisaged by exhibit P-4"
13. The above observations also meet the claim of the CIT(DR) before us that provisions such as 194H which are aimed at collecting tax at source have to be strictly completed with. The Section has to be complied with only when it is workable and both the character of the payment as well the precise amount thereof are known to both the parties. However, if either of them is ambiguous or vague or unworkable, the section cannot be implemented. Where there is uncertainly as to what would be the income paid or credited to the payee or whether thee was any payment of all by the person charged with the duty of deducting tax it cannot be said that the section should nevertheless be umplemented.
14. The CIT(DR) submitted that the assessee, which is the airline company, is in a position to know the amount for which the agent sold the ticket, in view of the statements received from BSP, which functions under the approval of IATA. But then this is known to the assessee only when the statements are received which is at point of time than the time at which the tickets were sold by the agents and the price realized by them. At the time, i.e. the time when the tickets were actually sold and the price realized by the agent, the assessee was not even aware of the price realised by the agent much less can it be stated that the realized of the price amount to a payment of a supplementary commission by the assessee to the agent.
15. The other argument raised by the CIT(A) is that the travel agents do not buy the tickets from the assessee as was the case before the Kerala High Court where the lottery agents had to buy the tickets from the State Govt, and since they only book the tickets for the assessee they act as facilitators and thus rendered services to the assessee, which attracts Section 194H. We are unable to accept this argument because it assumes that even with reference to the excess over the net fare realized by the travel agent he acts as the assessee's agent. In respect of the excess he is not bound to account for the same to the assessee company and normally an agent is in law bound to account for the proceeds to his principal.
16. The CIT(DR), Mr. Rajnesh Kumar, then submitted that the difference between the published fare and the net fare should be treated as constructive payment by the assessee to the travel Agent. In other words, he says that (in the above example) it must be assumed as if the travel gent handed over the amount of Rs. 1 las representing the sale price of the ticket to the assessee out of which the assessee retained the net fare of Rs. 60,000 are sale a payment of Rs. 40,000 to the travel agent. The theory of construction payment as rightly pointed out on behalf of the assessee, would apply only in the first place assessee was entitled to get the published free of Rs. 1 lac from the travel agent or if it had been agreed between the parties that the agent shall disclose to the assessee the price for which the ticket was actually sold. But in the present case even if the agent is able to sell the ticket at Rs. 1 lac, what the assessee is entitled to is only the net fare of Rs. 60,000, it is not entitled to received the excess which is collected by the travel agent. As already noted, whatever excess is collected by the travel agent is solely due to his efforts and the excess belongs to him in his own right. over which the assessee company can have no claim. Thus, when the assessee company has no right to receive the excess over the net fare, it cannot be said that the theory of constructive payment would apply and it should be assumed as if the assessee received the excess payment from the agent and paid it back to him. Further, there is no material in record to which our attention was drawn to show that the travel agent shall disclose, at the time of the sale of the ticket, to the assessee company the price for which the ticket was actually sold.
17. Once noteworthy feature in the present case is that the department has assumed that in all the cases the travel agent has uniformly realized the published fare of Rs. 1 lac (in the example given) and, therefore, the difference of Rs. 40,000 between the published fare and the net fare must be viewed as a supplementary commission paid by the assessee to the agent. There is no basis for such assumption. Section 194H operates on actual figures and only where the liability is clearly established. It is not permissible to invoke the section on the basis of assumption. In the case on hand, the first assumption made by the AO is that the ticket is sold for the published fare. The second assumption is that the assessee is entitled to the entire published fare. The third assumption is that the difference between the published fare and the net fare represents supplementary commission. The forth is that such a commission is paid by the assessee to the travel agents one of these assumptions is a fact borne out by the agreement between the parties or the actual dealings between them. Hence, the section is not attracted.
18. We, therefore, conclude 35 follows :
(a) he amount realized by the travel agent in excess of the net fare cannot be considered as commission.
b) The assessee cannot be said to be a person responsible for paying the "commission" to the travel agent.
(c) There was no crediting of the difference between the net fare and the published fare to the account of the travel agent in the assessee book.
d) There was no payment either of such excess by the assessee to the travel agent in cash of cheque or any other mode.
We therefore, set aside the order passed by the AO treating the assessee as in default under Section 201 (1) and levying interest of Rs. 21,13,224 u/s. 201(1A) and allow the appeal.