Holding

The supplementary commission is deemed a "commission" under Section 194H because the travel agents act as agents of the airlines, making the airlines liable to deduct TDS, but no further recovery of the shortfall is permitted as the agents have already paid tax, only interest may be imposed.

Summary

The case concerned whether the additional amount ("Supplementary Commission") earned by travel agents over and above the standard 7% commission on airline tickets is covered by Section 194H of the Income Tax Act and thus subject to tax deduction at source (TDS). The Supreme Court examined the nature of the relationship between airlines and travel agents under the Passenger Sales Agency Agreements and held that it is a principal‑agent relationship as defined in Section 182 of the Contract Act, bringing the supplementary commission within the ambit of "commission" under Section 194H. Consequently, the airlines are liable to deduct TDS on the supplementary commission, but since the agents have already paid income tax on those amounts, the shortfall cannot be recovered; only interest under Section 201(1A) may be levied. The Court also found that the airlines had reasonable cause for the initial non‑deduction, quashing penalty proceedings under Section 271C. The appeals were partly allowed, directing the Assessing Officer to compute interest and close the matter.

Issues considered

The characterization of the travel agents' supplementary commission as "commission" under Section 194H of the Income Tax Act.
Whether a principal‑agent relationship exists between the airlines and travel agents that brings the supplementary commission within the scope of Section 194H.
Whether the airlines are liable to deduct TDS on indirect payments (i.e., amounts received by agents from customers).
Whether interest and penalties under Sections 201(1A) and 271C are applicable given that the agents have already paid tax on the supplementary commission.
Whether the penalty under Section 271C can be avoided on the ground of reasonable cause under Section 273B.

Legislation cited

Income Tax Act, 1961s. 194H, s. 201, s. 201(1A), s. 271C, s. 273B
Indian Contract Act, 1872s. 182, s. 215, s. 216

Subjects

TDSSection 194HCommissionPrincipal‑agent relationshipSupplementary commissionIncome Tax ActPenaltyInterestContract ActAirline industry

Judgment

[2022] 9 S.C.R. 1 1

SINGAPORE AIRLINES LTD. A
v.
C.I.T., DELHI
(Civil Appeal No. 6964-6965 of 2015)
NOVEMBER 14, 2022 B
[SURYA KANT AND M. M. SUNDRESH, JJ.]
Income Tax Act, 1961: s. 194H – Tax Deduction at the Source
on Commission and brokerage – Interpretation of s. 194H – On
facts, assessee airlines selling their flight tickets through the travel
C
agents – Arrangement between the airlines and the travel agents
governed by Passenger Sales Agency Agreements, wherein agents
are entitled for 7% of the Base Fare as the Standard Commission,
however, they were at liberty to set a price higher than the Net Fare
demanded by the airline and the additional amount that the travel
agents charged over and above the Net Fare that was quoted by the D
airlines as the agent’s own income – Issue pertaining to the
characterization of the income earned by the agent besides the
Standard Commission of 7% and if this additional portion would be
subject to TDS requirements u/s. 194H – High Court held that
assessees were required to deduct TDS u/s.194H, on the
E
Supplementary Commission accrued to travel agents entrusted by
the assesses to sell airline tickets, as a result of the assessees’ failure
to carry out the subtraction of the requisite amount of TDS, they
were declared “assessees in default” u/s.201 for not deducting the
TDS from the supplementary commission of the travel agent other
than the designated standard commission @ 7% and would thus, F
be subject to payment of interest and penalties u/s. 201(1A) and
271C – On appeal, held: Intentions as manifested in the terms of
the contract between the parties indicate the existence of a principal-
agent relationship as defined u/s.182 of the Contract Act, the
definition of ‘Commission’ u/s. 194H stands attracted and the
G
requirement to deduct TDS arises – 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 lability – Accretion of the Supplementary Commission to
the travel agents is an accessory to the actual principal-agent
relationship under the PSA – Incidental benefit gained by an agent H
1
2 SUPREME COURT REPORTS [2022] 9 S.C.R.

A which has a reasonably close nexus with the responsibilities that
were entrusted to it by the principal must come under the ambit of
the relationship – Thus, the agents additional amount that the travel
agents charged over and above the Net Fare comes under the ambit
of Supplementary commission is liable for the deduction of TDS –
However, the travel agents have already paid income tax on the
B
Supplementary Commission, there can be no further recovery of
the shortfall in TDS owed by the assessees – However, interest may
be levied u/s. 201(1A) 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 – ss. 201, 201(1A), 271C – Contract Act, 1872 – s.
C 182.
Partly allowing the appeals, the Court
HELD: 1.1 Explanation (i) of Section 194H of the Income
Tax Act, 1961 highlights the nature of the legal relationship that
exists between two entities for payments between them to qualify
D as a “commission”. Consequently, the endeavour must be to
determine whether the travel agents were “acting on behalf of”
the airlines during the process of selling flight tickets. The
assessees do not dispute that a principal-agent relationship
existed during the payment of the Standard Commission. The
E 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. [Para 20][20-G-H; 21-A-B]

F 1.2 On taking a closer look at the Passenger Sales Agency
Agreement-PSA, there are numerous portions which crystallize
the intentions of the parties when entering into the
agreement.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
G 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
H customer. Furthermore, the airline has the responsibility to
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 3

provide full and final compensation to the travel agent for the A
acts it carries out under the PSA. [Para 29, 31][26-F-G]
1.3 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 principal-agent relationship, B
their consternation had been directed at the so-called second
limb of the deal that is exclusively between the agent and the
customer. However, the submissions advanced are clearly not
supported by the bare wording of the PSA itself. The High Court
was correct in its holding that the arrangement between the agent
and the purchaser is not a separate and distinct arrangement but C
is merely part of the package of activities undertaken pursuant
to the PSA. [Para 32][26-H; 27-A-B]
1.4 Section 194H of the IT Act does not distinguish between
direct and indirect payments. Both fall under Explanation (i) to
the provision in classifying what may be called a “Commission”. D
Therefore, if the ambit of Section 194H is seen 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, E
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. 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 F
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. [Para 34-
36][27-D-E; 28-B-E] G
1.5 The mechanics of how the airlines may utilize the Billing
and the Settlement Plan-BSP to discern the amounts earned as
Supplementary Commission and deduct TDS accordingly is an
internal mechanism that facilitates the implementation of Section
H
4 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 194H of the IT Act. 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. A contract of agency does not entail control
over the minutiae of the agent’s actions. Such a level of oversight
would more closely resemble a master-servant relationship. In a
B
principal-agent 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. The fact that the travel agent has
C 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
D
to the actual principal-agent 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
E ambit of the relationship, subject to any express limitations
articulated in the contract itself or under the Contract Act. 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. Notwithstanding the lack of
F
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. The BSP demarcates “Supplementary
Commission” under a separate heading. Hence, once the IATA
G 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 point that settlement is
made fully and finally, in line with Clause 7.2 of the PSA. [Para
H 43-47][31-G-H; 32-B-C; 33-C-E, G-H]
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 5

1.6 In any case, given that information regarding the A
Supplementary Commission was available to the airlines, there
is 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
B
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. [Para 50][35-B]
1.7 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” C
liable to deduction of TDS, this Court is left unmoved by the
submissions of the Assessees. The interpretation of the PSA,
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, the conclusion by the High Court in the D
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 is upheld.
[Para 51][35-C-E]
1.8 If the recipient of income on which TDS has not been E
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 F
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. The 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 submitted that the default in G
payment of TDS could not be excused purely on this ground.
However, the decisions in Hindustan Coca Cola’s case and Eli
Lilly & Co.’s case clearly bar their ability to pursue the assessee
airlines for recovery of the shortfall in TDS and restricts them to

H
6 SUPREME COURT REPORTS [2022] 9 S.C.R.

A imposing interest for the default. In this context, the assessees
did not provide with the specifics of when the travel agents paid
their taxes on the Supplementary Commission. Furthermore, the
CBDT Circular of 29.01.1997, invoked in Hindustan Coca Cola’s
case was not placed before this Court either. It would be
necessary to fill in these missing details and determine the
B
amount of interest that the assessees are liable to pay before
this matter can be closed. Thus, it is deemed 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.
C The denouement of the examination of these issues concerns
the levy of penalties under Section 271C IT Act. The Assessing
Officer had initially directed that penalty proceedings be
commenced against the Assessees for the default in subtraction
of TDS but this process was put in cold storage while the airlines
and the revenue were contesting the primary issue of the
D
applicability of Section 194H before various appellate forums.
Section 271C provides for imposition of penalties for failure to
adhere to any of the provisions in Chapter XVII-B, which includes
Section 194H. This provision must be read with Section 273B
which excuses an otherwise defaulting Assessee from levy of
E penalties under certain circumstances. The ambit of “reasonable
cause” under Section 273B requires scrutiny before the
conclusion is reached that the Assessing Officer is required to
also calculate potential penalties to be levied against the
Assessees. [Para 56-60][37-F-G; 38-A-F; 39-F]
F 1.9 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 2001-
02. While the counsel for the Revenue has notified that various
airlines were deducting TDS under Section 194H at that time,
this does not necessarily mean that the position of law was settled.
G Rather, it appears 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 belong to the latter category.
Furthermore, there were contradictory pronouncements by
H different High Courts in the ensuing years which clearly highlights
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 7

the genuine and bona fide legal conundrum that was raised by A
the prospect of Section 194H being applied to the Supplementary
Commission. [Para 61][40-E-G]
1.10 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 B
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 principal-agent relationship as
defined under Section 182 of the Contract Act, then the definition
of “Commission” under Section 194H of the IT Act stands C
attracted and the requirement to deduct TDS arises. The realities
of how the airline industry functioned during the period in question
bolsters the 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 D
deduction of TDS from the Supplementary Commission to satisfy
their mandatory duties under Chapter XVII-B of the IT Act. [Para
63][41-B-D]
1.11 In light of the consensus between the parties that the
travel agents have already paid income tax on the Supplementary E
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 F
payment of income tax by the travel agents. It would 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 that no G
documentary evidence was placed, there may be certain anomalies
which the Assessing Officer is best positioned to iron out. In the
eventuality that any of the agents have not yet paid taxes on the
Supplementary Commission, the Revenue would be at liberty to
proceed in accordance with law under the IT Act for recover of
H
8 SUPREME COURT REPORTS [2022] 9 S.C.R.

A shortfall in TDS from the airlines. However, the ability to levy
penalties against the Assessees in light of Section 273B of the
IT Act is limited. While the arguments of the assessees is rejected
on merits in terms of their liability under Section 194H of the IT
Act, it is held in their favour on the count of the matter having
been rendered revenue neutral due to the apparent payment of
B
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. [Para 64-66][41-E-H; 42-A-C]
CIT v. Qatar Airways 2009 SCC OnLine Bom 2179 –
C disapproved.
Hindustan Coca Cola Beverages Pvt. Ltd. v.
Commissioner of Income Tax (2007) 8 SCC 463 : [2007]
8 SCR 1046; Ahmedabad Stamp Vendors Ass. v. Union
of India 2002 SCC OnLine Guj 135; Director, Prasar
D Bharati v. CIT (2018) 7 SCC 800 : [2018] 3 SCR 287;
Lakshminarayan Ram Gopal and Sons Ltd. vs. The
Government of Hyderabad (1955) 1 SCR 393; Gordon
Woodroffe & Co. v. Sheikh M.A. Majid & Co. [1966]
Suppl. SCR 1; Khedut Sahakari Ginning and Pressing
E Society v. State of Gujarat (1971) 3 SCC 480 : [1972]
1 SCR 714; Bhopal Sugar Industries Ltd. v. STO, Bhopal
(1977) 3 SCC 147 : [1977] 3 SCR 578; Around the
World Travel and Tours P. Ltd. v. Union of India 2003
SCC OnLine Mad 1027; Qamar Shaffi Tyabji v. The
Commissioner, Excess Profits Tax, Hyderabad (1960) 3
F SCR 546; Nagubai Ammal & Ors. v. B. Shama Rao &
Ors. [1956] 1 SCR 451; Commissioner of Income Tax
v. Eli Lilly & Co. (India) (2009) 15 SCC 1 : [2009] 5
SCR 20 – referred to.
Case Law Reference
G
[2007] 8 SCR 1046 referred to Para 17 (viii)
[2018] 3 SCR 287 referred to Para 18 (v)
[1955] 1 SCR 393 referred to Para 22
[1966] Suppl. SCR 1 referred to Para 23
H
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 9

[1972] 1 SCR 714 referred to Para 24 A
[1977] 3 SCR 578 referred to Para 25
[1960] 3 SCR 546 referred to Para 44
[1956] 1 SCR 451 referred to Para 50
[2009] 5 SCR 20 referred to Para 55 B
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 6964-
6965 of 2015.
From the Judgment and Order dated 13.04.2009 of the High Court
of Delhi at New Delhi in ITA No.306 of 2005 and ITA No. 123 of 2006.
C
With
Civil Appeal Nos. 6966-6967 and 6968 of 2015.
Vikramjit Banerjee, ASG, C. S. Agarwal, Arijit Prasad, Sr. Adv.,
Bhargava V. Desai, Anil Makhija, Ms. Charu Modi, Umashankar,
Jagmohan, Rupesh Kumar, Ms. Gargi Khanna, Shashank Bajpai, Udai D
Khanna, Santosh Kumar, Prashant Singh, Sidddhartha Sinha, Tathagat
Sharma, Shivam Singhania, Raman Yadav, Raj Bahadur Yadav,
Mrs. Anil Katiyar, Vishal Kalra, Saumyendra Tomar, Ms. Snigdha
Gautam, Shekhar Prit Jha, Vinay Garg, Advs for the appearing parties.
The Judgment of the Court was delivered by E

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. F
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 G
fare1 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
1
“Base Fare”
2
“Net Fare” H
10 SUPREME COURT REPORTS [2022] 9 S.C.R.

A the ceiling price for how much airlines may charge their customers.
This formed part of 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
B 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
C (“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
D 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 “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
E 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 vis-à-vis payments
F 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
G 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
H Prior to 01.01.2002, the Standard Commission was paid at the rate of 9%.
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 11
[SURYA KANT, J.]

6. Within this framework, the airlines would have no control over A
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
B
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:
C

D

E

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 F
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
G
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
4
‘‘Actual Fare’’ H
12 SUPREME COURT REPORTS [2022] 9 S.C.R.

A Income Tax Act, 1961 (“IT Act”), on the Supplementary Commission
accrued to travel agents entrusted 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.
B
10. The relevant Assessment Year is 2001-02. Spurred by the
reintroduction of Section 194H in the IT Act by the Finance Act, 20015,
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
C 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 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:
D

E

F 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
G (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 income-tax
authority may enter—
H (a) any place within the limits of the area assigned to him, or
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 13
[SURYA KANT, J.]

11. The Revenue contended that the travel agents operating on A
behalf of the Appellants during AY 2001-02 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
B
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 assessees in default under Section 201 of the IT Act7 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. C
12. Following addition of surcharge, and interest under Section
201(1A), the aggregate amount calculated as being owed to the Revenue
was:

D

E
(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 income-tax authority, who is assigned the area within which such place is situated
or who exercises jurisdiction in respect of any person occupying such place,]
[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 F
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—]…
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;
G
or
(b) referred to in sub-section (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… H
14 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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 Orders. The
Commissioner (Appeals) passed a common order, rejecting the appeals
on merits but directing that any transactions dated prior to 01.06.2001,
B
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. 6964-6965 of 2015
concerning Singapore Airlines, the ITAT accepted the contentions of the
C 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
D 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;

E (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
F 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
G
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
H
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 15
[SURYA KANT, J.]

quashing of the Assessment Orders, the Revenue brought separate A
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
B
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:
a. The existence of a principal-agent relationship
between the Assessee airlines and the travel agents; C
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
d. The income received by the travel agent from t h e
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
E
agents;
(ii) All the Assessees had accepted that a principal-agent
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
F
the airlines and not independently;
(iii) Hence, the additional income garnered by the agents was
inextricably linked with the overall principal-agent
relationship and the responsibilities that they were entrusted
with by the Assessees;
G
(iv) There was no transfer in terms of title in the tickets and
they remained the property of the airline companies
throughout the transaction;
(v) The Assessees were only required to make the deductions
under Section 194H of the IT Act when the total amounts H
16 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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.
B C. SUBMISSIONS
17. Mr. C.S. Agarwal, learned Senior Counsel, appearing for the
Assessees in CA Nos. 6964-6965 of 2015, and Nos. 6966-6967 of 2015,
has vehemently urged us to appreciate the incorrectness of the impugned
judgment, on the following grounds:-
C
(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 agent is due to
dealings between the agent and the customer. The airline
D 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
E 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
F 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
8
201. Consequences of failure to deduct or pay.—
[(1A) Without prejudice to the provisions of sub-section (1), if any such person,
principal officer or company as is referred to in that sub-section does not deduct the
whole or any part of the tax or after deducting fails to pay the tax as required by or
G 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 one-half 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
H accordance with the provisions of subsection (3) of section 200…
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 17
[SURYA KANT, J.]

by the purchaser of the ticket. Hence, the question of A
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 B
of how the industry functions:-
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 C
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 D
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 E
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 fall under the
ambit of the principal-agent relationship, as defined under
Section 182 of the Contract Act;
F
(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;

9
2009 SCC Online Bom 2179
G
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. H
18 SUPREME COURT REPORTS [2022] 9 S.C.R.

A (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
B
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
C 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
D income 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 Tax11 was cited in this regard.
E 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,
F 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
G between the airline and the travel agents is that of
principal-agent, and having admitted this position before the
High Court, no contrary stands were possible at this stage;

11
H (2007) 8 SCC 463
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 19
[SURYA KANT, J.]

(ii) The PSAs between the Assessees and the travel agents A
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 principal-agent 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 B
principals. The distinction between a principal-agent
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
India12 and was later affirmed by this Court13;
C
(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 D
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
Assessees to the travel agents in order for it to fall under E
the ambit of “Commission” and be subject to TDS. Reliance
was placed on a decision of this Court in Director, Prasar
Bharati v. CIT14;
(vi) The taxing of the auxiliary amounts in the hands of the
travel agents as income, did not cure the default by the F
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 G
ACT

12
2002 SCC OnLine Guj 135
13
(2014) 16 SCC 114
14
(2018) 7 SCC 800 H
20 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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
B
194H requires examined and reads as follows:
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
C 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 income-tax thereon at the
D 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
E year to the account of, or to, the payee, does not exceed fifteen
thousand rupees:
…
Explanation.—For the purposes of this section,—
F (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
G
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”
H
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 21
[SURYA KANT, J.]

the airlines during the process of selling flight tickets. As elaborated A
upon earlier, the Assessees do not dispute that a principal-agent
relationship existed during the 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
B
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 C
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 D
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
Hyderabad15 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: E

“10. The distinction between a servant and an agent is thus
indicated in Powell’s Law of Agency, at page 16 :-
(a) Generally a master can tell his servant what to do and
how to do it. F
(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 :-
G
(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
15
(1955) 1 SCR 393 H
22 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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
B 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.
C 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
D 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
E 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
F 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
entirely independent of any control or interference and merely
undertakes to produce a specified result, employing his own
G 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
H
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 23
[SURYA KANT, J.]

agent, the extent of the agency depending upon the duties or A
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 B
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 C
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. D
State of Gujarat17 had placed emphasis on the need to closely scrutinize
the contract between the parties and opined that:
“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 E
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.” F
25. This was reiterated in Bhopal Sugar Industries Ltd. v. STO,
Bhopal18 by a 3-judge 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
G
the goods for a price paid or promised. Once this happens the
buyer becomes the owner of the property and the seller has

16
1966 Supp SCR 1
17
(1971) 3 SCC 480
18
(1977) 3 SCC 147 H
24 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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
B
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
C 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
D
the goods, if any loss is suffered by the agent he is to be
indemnified by the principal. This is yet another dominant
factor which distinguishes an agent from a buyer-pure and
simple.”
26. From the catena of cases elaborating on the characteristics of
E 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
F 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.
G 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 transaction falls outside the ambit of the
H principal-agent relationship.
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 25
[SURYA KANT, J.]

28. On the contrary, Mr. Kumar, learned Counsel for the Revenue, A
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
B
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 C
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:
Each IATA Member (hereinafter called “Carrier”) which D
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 E
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. F
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 G
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.
H
26 SUPREME COURT REPORTS [2022] 9 S.C.R.

A x------------------------------------------------------x-------------------------------------------
x
9. Remuneration
For the sale of air transportation and ancillary services by
B 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.

C 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
D
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
E the extent that such less, injury, or damage is caused or
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
F 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
G 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
H
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 27
[SURYA KANT, J.]

of the principal-agent relationship, their consternation had been directed A
at the so-called 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
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
B
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 principal-agent 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. C
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 D
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 (Supra) had expounded on the ambit of
Section 194H by ruling that: E
“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 F
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 G
compliance.
…..
31… lastly, the definition of expression “commission” in the
Explanation appended to Section 194H being an inclusive
H
28 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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
B 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.
C
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
D 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
E 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
F 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
G 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 been given discretion to sell the tickets at any
rate between the fixed minimum commercial price and the
H
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 29
[SURYA KANT, J.]

published price and it would be impracticable and A
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
B
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 C
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, D
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:
E
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 assessee-airline which is that they become aware of
the monies received by the travel agent only when the billing
analysis is placed on record by the BSP. Therefore, to say F
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 G
to deduct tax at source. Once an obligation is cast it is for
the assessee-airline 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/
H
30 SUPREME COURT REPORTS [2022] 9 S.C.R.

A air tickets sold on behalf of the assessee-airline. Since the
best evidence in respect of the sale of Traffic Documents/Air
Tickets is available with the assessee-airline or its agents it
cannot in our view take up the stand that the machinery for
deduction of tax has failed. The very fact that this information
is made available by the billing analysis made by BSP would
B
show that it is possible to retrieve the information by the
assessee-airline, therefore, we do not accept the view of the
Tribunal that there is no evidence of monies having been
received by the travel agent over and above the net fare or
that the said information is not available at the relevant point
C in time and, therefore, the assessee-airline cannot be held to
be an assessee-in-default.
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
D Tours P. Ltd. v. Union of India19 the Assessee was a travel agent that
had filed a Writ Petition before the High Court seeking a declaration
that TDS under Section 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.
E 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
F 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
G 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

19
H 2003 SCC OnLine Mad 1027
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 31
[SURYA KANT, J.]

to deal with in any manner they like. The agents, according A
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 B
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 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. C

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 D
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 E
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 TDS, at the end of each month after having received the F
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 G
principal-agent 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
H
32 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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
B 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 more closely resemble a master-servant
relationship. In a principal-agent 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
C 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,
Hyderabad20 in the following manner:
“7…An agent has to be distinguished on the one hand from
D 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
E 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
F 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
G 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, 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
20
H (1960) 3 SCR 546
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 33
[SURYA KANT, J.]

approval of the Board of Directors of the company.” The A
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.
B
Therefore, the appellant, was neither a servant nor a mere
sub-agent. 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 C
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 principal-agent relationship under the PSA. In
such a commercial arrangement, the benefit gained by an agent is D
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.
E
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 F
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. G
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
H
34 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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
B
for the agents themselves. It is at this 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
C 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.—
D 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
E by the agent, or that the dealings of the agent have been
disadvantageous to him.
x-------------------------------------------x--------------------------------------------------x
216. Principal’s right to benefit gained by agent dealing on
F 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.
G
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 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
H
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 35
[SURYA KANT, J.]

the consequences mentioned under Sections 215 and 216 of the Contract A
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 B
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
C
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, through the prism of Section 182 of the
Contract Act and Section 194H of the IT Act, provided by the Revenue D
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 E
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. F
Learned Counsels on both sides have agreed that the travel agents who
received the Supplementary Commission for AY 2001-02, 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 G
contended that there has been no loss to the Revenue on this 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

21
Nagubai Ammal & Ors. v. B. Shama Rao & Ors., [1956] 1 SCR 451. H
36 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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
B 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 appellant-assessee was rightly held to be an ‘assessee in
default’, there could be no recovery of the tax alleged to be in
C 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
D 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
E 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.
….
9. Be that as it may, the circular No. 275/201/95- IT(B) dated
F 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 officer-in-charge of TDS, that taxes
G due have been paid by the deducted-assessee. 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
deducted-assessee or the liability for penalty under Section
271C of the Income-tax Act.”

H
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 37
[SURYA KANT, J.]

55. A similar principle was also advanced in the context of Section A
192 of the IT Act in Commissioner of Income Tax v. Eli Lilly & Co.
(India) 22:
“98…In our view, therefore, the tax-deductor- assessee
(respondent(s)) were duty bound to deduct tax at source under
Section 192(1) from the Home Salary/special allowance(s) B
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 C
appeals. We are directing the AO to examine each case to
ascertain whether the employee-assessee (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 D
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 which tax was E
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).” F
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 G
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.
22
(2009) 15 SCC 1 H
38 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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 pursue the Assessee airlines for
B
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 29.01.199723, invoked
C 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
D 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
E 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 before various appellate forums. Section 271C provides
for imposition of penalties for failure to adhere to any of the provisions in
Chapter XVII-B, which includes Section 194H. This provision must be
F 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:

G (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 XVII-B; or

23
H Circular No. 275/201/95- IT(B)
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 39
[SURYA KANT, J.]

(b) Pay the whole or any part of the tax as required by or A
under, -
(i) Sub-section (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. B

(2) Any penalty imposable under Sub-section (1) shall be
imposed by the Joint Commissioner.
x----------------------------------------------x----------------------------------------------------x
Section 273B: Penalty not to be imposed in Certain Cases: C
Notwithstanding anything contained in the provisions of clause
(b) of Sub-section (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 D
(c) or clause (d) of Sub-section (1) or Sub-section (2) of Section
272A, Sub- section (1) of Section 272AA, or Sub-section
(1) of Section 272BB or Sub-section (1A) of Section 272BB or
Sub-section (1) of Section 272BBB or clause (b) of Sub-section
(1) or clause (b) or clause (c) of Sub-section (2) of Section
E
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
F
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 G
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 H
40 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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.
B 95. In each of the 104 cases before us, we find that
non-deduction 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 tax-deductor-assessee
C 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 view that in none of the 104 cases penalty was leviable
under Section 271C as the respondent in each case has
D 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
E adjudicated upon by this Court when the controversy first arose in AY
2001-02. 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
F 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
G of Section 194H being applied to the Supplementary Commission.
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
H and, hence, there was “reasonable cause” for the air carriers to have
SINGAPORE AIRLINES LTD. v. C.I.T., DELHI 41
[SURYA KANT, J.]

not deducted TDS at the relevant period. The logical deduction from A
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 B
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 principal-agent
relationship as defined under Section 182 of the Contract Act, then the C
definition of “Commission” under Section 194H of the IT Act stands
attracted and the requirement to deduct TDS arises. The realities 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 D
Supplementary Commission to satisfy their mandatory duties under
Chapter XVII-B 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 E
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 F
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 that
no documentary evidence was placed before us, we are conscious that
there may be certain anomalies which the Assessing Officer is best G
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
H
42 SUPREME COURT REPORTS [2022] 9 S.C.R.

A 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
B 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.
C
67. In summation, we allow the appeals in part.
68. Pending applications, if any, consequently stand disposed of.

D Nidhi Jain Appeals partly allowed.
(Assisted by : Shashwat Jain, LCRA)

E

F

G

H