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Singapore Airlines Ltd. vs. C.I.T., Delhi

Civil Appeal · 2022 INSC 1201Decided 14 Nov 2022
Civil Appeal Nos. 6964-6965 of 2015
Surya Kant · M.M. Sundresh

Background

Under the airline industry's IATA-governed ticketing system, travel agents were entitled to a 7% "Standard Commission" on the fare, but could also sell tickets at an "Actual Fare" higher than the airline's "Net Fare," keeping the difference as a "Supplementary Commission." The tax department held that this Supplementary Commission was also subject to tax deduction at source (TDS) under Section 194H of the Income Tax Act, treating it as a commission paid by the airlines to their travel agents; the Delhi High Court agreed with the Revenue, and the airlines appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that the relationship between airlines and travel agents was one of principal and agent under Section 182 of the Contract Act, so the Supplementary Commission fell within the definition of "Commission" under Section 194H, and TDS was indeed deductible on it, ruling against the airlines on this core question. However, since it was undisputed that the travel agents had already paid income tax on this amount, the Court held (applying its own earlier precedents) that the Revenue could not recover the TDS shortfall a second time from the airlines, though interest under Section 201(1A) could still be charged for the delay, and the matter was sent back to the Assessing Officer to compute that interest. The Court also quashed penalty proceedings against the airlines, since the law on this point had genuinely been unsettled and contested across different High Courts, giving the airlines "reasonable cause" for not deducting TDS at the time.

Lesson Learnt

Even where a taxpayer is ultimately found liable for a tax deduction it did not make, if the recipient has already paid tax on that same income, the tax department cannot recover the shortfall twice. It is limited to charging interest for the delay, and penalties should not be imposed where the underlying legal question was genuinely unsettled at the relevant time.

Official source (sci.gov.in)View Judgment (PDF)

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