| 3.Supplementary Commission by travel agent was liable to deduction of TDS u/s 194H: Supreme Court –[ Singapore Airlines Ltd. v. Commissioner of income-tax, Civil Appeal Nos. 6964 to 6968 of 2015, dated November 14,2022] |
• Assessee-company engaged in the business of air transport services. The business
mechanism of the assessee involves booking tickets through travel agents. The base fare for air tickets was set by International Air Transport Association (IATA). However, the airlines may
sell their tickets for a net fare lower than the Base Fare, but not higher.
• Travel agents act on behalf of airlines to market and sell tickets and they are entitled too a commission on the basic fare of the ticket fixed by the IATA.
• Airlines Company had executed passenger sales agency (PSA) agreements with travel agents in terms of which they would supply blank tickets to travel agents and would pay standard commission to them on published fare of tickets sold by them. |
| • Once these tickets were sold, a designated commission would be paid to travel agent for its services as standard commission. |
• However, travel agents also charged additional amount over and above net fare i.e.,
supplementary commission – Assessee deducted tax at source on amount of standard commission, but did not make deduction on supplementary commission on ground that it would not fall within ambit of section 194H given that information regarding supplementary commission was available to airlines and these amounts were incidental to transaction by which flight tickets were sold on behalf of air carriers and was for their benefit, airlines could not have absolved themselves of liabilities under IT Act attached to accrual of that additional portion of income by agent. |
| • Further, the arrangement between the purchaser of the ticket and the agent is merely a part of the agency agreement and not a separate agreement. The extra benefit gained by the agent on the sale of tickets is due to the agency agreement entered with the airline. |
• Thus, these amounts were incidental to the transaction by which the air tickets were sold on behalf of airlines and was for the benefit of agents. Such incidental benefit must come under the ambit of the principal-agent relationship.
• The commission under section 194H includes any payment received directly or indirectly by the agent on the behalf of the principal. It does not distinguish the payment based on the source of such receipt.
• Therefore, the amount retained by the agents on sale of air tickets was a supplementary commission, liable for deduction of tax at source, under section 194H. |
• Hence in the case of Singapore Airlines Ltd v. CIT it was clarified that where airlines
Company executed passenger sales agency (PSA) agreements with travel agents in terms of which they would pay commission to them on published fare of tickets sold by them on behalf of airlines, additional amount over and above net fare charged by agents from customers i.e., supplementary commission were incidental to transaction by which flight tickets were sold on behalf of air carriers and assessee was liable to deduct TDS under section 194H on same |
| 4. Lessee Eligible for depreciation u/s 32 ,if lessor never claimed title or possession of leased asset- Supreme Court [Commissioner of income tax v. SBI Home financer Ltd., Appeal no –3548 of 2007,dated September 13,2022] |
| • The assessee was carrying on the business of leasing and finance. A company ‘WPIL’ approached the assessee for lease/finance for a plant which was being set up at the premises of a company named ‘SIL’.
• Pursuant to such approach, the assessee itself acquired the said plant and leased out the
same to ‘WPIL’ upon taking symbolic possession. As per the agreement, ‘SIL’ had a right to purchase the plant after expiry of a stipulated period of time. In the relevant assessment year, the assessee claimed depreciation under section 32.
• The Tribunal held that the ownership of the assessee could not be established or accepted because of the reason that there was a stipulation that a third party, other than the lessee to whom the plant was leased out by the assessee, had a right to purchase.
• In the instant case it was not in dispute that the assessee carried business of leasing and finance. The Tribunal held that the agreement for leasing was genuine. The department did not prefer any appeal nor had filed any cross-objection against such finding. Therefore, the transaction was held to be a lease and not a finance. The income generated out of such lease at the hands of the assessee, therefore, was business income.
• At the same time, lease does not extinguish the right of ownership of the lessor; nor does the lessee acquire any right of ownership thereon. If it were a finance transaction, then the ownership would have accrued to WPIL. WPIL did not claim ownership. It did not claim any benefit under section 36(1)(iii) for capital borrowed on the rent paid, treating the same as interest on borrowed capital. Neither WPIL was taking the liability of repayment of the alleged principal. On the other hand WPIL claimed the rent paid as revenue expenditure, i.e., business expenditure. Without the alleged right of SIL to purchase the plant after the alleged stipulated finance, the assessee was the owner of the property.
• In other words the Tribunal, on facts, found that the assessee was the owner of the plant but for the alleged right of the SIL to purchase the plant after the expiry of the alleged stipulated time.
• High Court by impugned order held that since SIL had neither claimed any title or possession over plant nor claimed depreciation in respect thereof and had also not exercised its option to purchase plant, ownership of assessee in respect of plant could not be disputed for purpose of section 32 and, therefore, assessee was entitled to avail benefit of section 32 – On appeal by revenue it was found that assessee had become owner of plant and machinery – Further lease rentals in entirety had been taxed as a revenue receipt/income accrued and taxable. |
| • Therefore the assessee was the owner of the plant for the purpose of section 32 and by leasing it out to the WPIL, the assessee had used the plant wholly for the purpose of its business namely for the purpose of carrying on the business of leasing and as such the income earned thereon by way of a rental of the plant was business income. Thus, the ingredients of ownership and user of the plant in business, as required under section 32, having been fulfilled, the assessee was entitled to depreciation available to it under section 32. |
