Delhi HC: Only Interest Recoverable from Airlines in TDS Cases Where Agents Paid Tax

The Revenue filed an appeal against Royal Jordanian Airlines, contending that the obligation to deduct tax at source under Section 194H on supplementary commission paid to travel agents stood conclusively settled in its favour by the High Court decision in CIT v. Singapore Airlines Ltd., later affirmed by the Supreme Court.

The assessee opposed the appeal citing low tax effect in terms of CBDT Circulars Nos. 5/2024 and 9/2024. It requested that the appeal be disposed of strictly in line with paragraphs 68 to 71 of the Supreme Court judgment in Singapore Airlines, highlighting the practical impossibility of establishing, after more than a decade and after closure of its Indian operations, whether its former agents had discharged their tax liability.

Main Issue: Whether, despite the settled obligation to deduct TDS under Section 194H, recovery from the airline can be restricted only to interest under Section 201(1A) where the commission income has already been taxed in the hands of travel agents.

HC’s Order: The Hon’ble High Court acknowledged that the core issue of TDS liability under Section 194H was squarely covered in favour of the Revenue by the Supreme Court’s decision in Singapore Airlines. However, having regard to the directions issued by the Supreme Court and the long passage of time, the Court disposed of the appeal strictly in terms of paragraphs 68 to 71 of that judgment.

The Court held that where the travel agents had already paid income tax on the supplementary commission, no recovery of TDS could be made from the airline. The Revenue was confined to levying interest under Section 201(1A) for the period of default. The Assessing Officer was directed to raise demand only towards applicable interest and not to insist that the airline prove whether the agents had paid tax.

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