21 November 2022

TDS on indirect payments – ‘Commission’ includes both direct and indirect modes of payments

The Supreme Court in the case of Singapore Airlines Ltd. v. CIT has held that provisions of Tax Deduction at Source (‘TDS’) under Section 194H of the Income Tax Act, 1961 would apply in case of commission paid by indirect mode of payment. The Court in this judgement dated 14 November 2022 observed that the word ‘commission’ is to be interpreted expansively, inclusive of both direct and indirect modes of payments.


  • The matter pertained to the financial year 2000-01 relevant to Assessment Year 2001-02. In the relevant period, ‘Base Fare’ for air tickets was set by International Air Transport Association (‘IATA’). However, the airlines had discretion to sell air tickets at a price lower than the base fare. The price at which airline sold the tickets was referred to as ‘Net Fare’. This Net Fare was also required to be approved by DGCA[1]
  • The arrangement between the airlines and travel agents was governed by the Passenger Sales Agency Agreement (‘PSA’).
  • The travel agents had a discretion to sell air tickets at a price higher than Net Fare but less than Base Fare. The airlines had no control over the actual fare charged by the travel agents from customers. E.g., if the Base Fare is INR 1 lakh and Net Fare is INR 60,000, then the travel agent had a discretion to sell tickets at any price between INR 1 lakh to INR 60,000. 
  • Travel agents had two streams of revenues: (1) ‘standard commission’ from airline (i.e., 7% of Base Fare) for their service of selling tickets and (2) ‘supplemental commission’ collected from customers on account of selling air tickets at prices higher than those set by airlines. This supplemental commission was directly collected from the customers and was not paid by the airlines.
  • In the present case, while the airlines[2] deducted tax at source (‘TDS’) on standard commission, but they did not make deduction on supplementary commission earned by travel agents on the ground that it would not fall within ambit of Section 194H of the Income-tax Act, 1961 (‘Act’).
  • The Assessing Officer (‘AO’) held that the supplemental commission is also in the nature of ‘Commission’ under Section 194H[3] of the Act and hence, airlines were required to deduct TDS on such commission. The order of AO was affirmed by the CIT(A) but turned down by the ITAT. However, the High Court of Delhi reversed the judgement of the Tribunal and held in favour of Revenue that the airlines were required to deduct TDS on supplemental commission.

Supreme Court Judgement:

  • The issue to be determined as to whether the travel agents were acting on behalf of the airlines during the process of selling flight tickets.
  • SC observed that Section 194H of the Act has to be read with Section 182 of the Indian Contract Act, 1872. It analysed at length the principles of contract act in relation to the agent and principal with the help of plethora of judgments. Only when a principal-agent relationship between two parties as defined under Section 182 of the Contract Act is established, can the definition of ‘Commission’ under Explanation (i) to Section 194H of the IT Act be fulfilled.
  • Tests to determine as to whether there existed two separate relationships between airlines and travel agents (a) Whether title in the tickets passed from airlines to travel agents; (b) Whether the sale of flight documents by travel agents was done under the pretext of the being the property of the travel agent themselves or of the airlines; (c) Whether the airline or the travel agents was liable for any breaches of the terms and conditions in the tickets?
  • Airlines lack of control over the actual fare charged by travel agents cannot be a ground for non-deduction of tax.
  • Flight tickets remained the property of the airliners throughout until it is finally purchased by the passengers. Supplementary commission was charged within the ambit of the PSA and was not violating any contractual clauses or interests of the airlines. The benefit gained by the travel agent is incidental to and has a reasonably close nexus with the responsibilities expressly authorised to it by the principal airliner. The arrangement between the agent and the passenger is not a separate and distinct arrangement but is rather a part of the larger bundle of activities undertaken within the ambit of the PSA.
  • The word ‘commission’ to be interpreted expansively, inclusive of both direct and indirect modes of payments. The exact source of the payment would be of no relevance, such that payment flowing indirectly from the consumer to the travel agents would not impair the applicability of Section 194H of the Act on airliners.
  • SC further accepted Revenue’s contention that TDS is not required to be deducted after every transaction. for practical and reasonable purposes, airliners could have made consolidated deductions of TDS from the Supplementary Commission to satisfy their mandatory duties under Section 194H by making use of the data shared with them by regulatory organisations.


[1] Director General of Civil Aviation

[2] Singapore Airlines Ltd., KLM Royal Dutch Airlines and British Airways PLC

[3] Introduced by the Finance Act, 2001

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