The Supreme Court would decide whether foreign airlines are liable to deduct tax at source (TDS) on commissions paid to travel agents for rendering ticketing services.
The issue for consideration before the apex court is if airlines would have to deduct TDS on the difference between the full value of tickets and the concessional tickets issued to their travel agents.
The question has been raised by the income tax department before a Bench headed by Justice SH Kapadia, which has sought reply from international airlines British Airways as to why it failed to deduct TDS on such amounts.
The department had challenged the Delhi High Court judgement that held that the difference between the full value of the tickets and the concessional tickets issued by airlines is not an income in terms of Section 194H of the Income Tax Act, 1961, and hence the carriers are liable to make such deductions on such differential amounts.
The high court verdict had come on batch of petitions filed by the department against various airlines?Air India, Lufthansa German Airlines, Air france, Kuwait Airways Corporation, United Airlines and others. The high court had also held that since the airlines had no obligation to deduct TDS on such notional commission, which had not been realised, it could not be held as that these airlines were defaulting assessees.
Travel agents carry out the functions of an agent and provide concessional tickets in lieu of the services rendered by them to the airlines, additional solicitor general Parag Tripathi said, adding that only the agents working for the respective airlines were given tickets at concessional rates as they brought bulk business for them.
The petition stated, ?The Delhi High Court had erred in holding that the travel agent is liable to the airlines in its capacity as a debtor and not as an agent for the price of the ticket as soon as the property in ticket passes to the travel agents.?
According the department, the difference between the full value of the ticket and the concessional ticket would be the commission on which TDS should be deducted by the airline and the whole transaction had to be seen in terms of the intention of the assessees which is to offer or reward its performing agents.
It said that British Airways had failed to adhere to CBDT circular that clarified that if the consignee or an agent retained the commission received from the airline on sale of tickets, it would amount to constructive payment by the principal and hence liable to TDS under the Act. Airlines handle tickets through their agents and sub-agents approved by International Air Transport Association and pay commission at 7% to them for rendering services.
While the global concern of British Airways is assessed to tax in its parent country Great Britian as per DTAA between India and Britain, the carrier is liable to deduct TDS on the payments or credits governed by Chapter XVII of the Act (Collection and recovery-deduction at source), the Revenue said.