My agents keep the difference between the price they charge customers and the net price they pay me — do I have to deduct TDS on money that never passed through my hands?
Yes. The Supreme Court held on 14 November 2022 that the supplementary commission retained by IATA travel agents — the excess of the actual fare charged to the passenger over the net fare payable to the airline — is "commission" under section 194H, and the airlines were bound to deduct tax at source on it. Section 194H is read with section 182 of the Contract Act: where the contract shows a principal-agent relationship, the definition is attracted. But because the agents had paid tax on those amounts, no recovery of the shortfall could be made from the airlines; only interest under section 201(1A) survives, and the section 271C penalties were quashed.
Decided by the Supreme Court (Supreme Court of India; Surya Kant and M.M. Sundresh JJ, judgment delivered by Surya Kant J) on 2022-11-14, reported as Civil Appeal Nos. 6964-6965 of 2015, 6966-6967 of 2015 and 6968 of 2015. It bears on section 194H, section 201(1), section 201(1A), section 271C, section 273B of the Income Tax Act 1961, in TDS Defaults and Penalty matters.
This closes a two-decade controversy on which High Courts had gone both ways, and it does two distinct things. On liability, it fixes the test for section 194H: look at the contract, apply section 182 of the Contract Act, and if the relationship is principal and agent then what the agent retains is commission, whether or not the principal ever handled the money. The practical objection — that the airline cannot know the actual fare — was answered by the Billing and Settlement Plan, which already carried the figures. On consequences, it applies Hindustan Coca Cola Beverages and Eli Lilly to hold that where the payee has paid tax on the receipt, the deductor cannot be made to pay the tax over again; the Revenue is confined to interest for the period of default. And it treats a genuinely unsettled question of law as reasonable cause under section 273B, so no penalty follows.
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IATA fixed a base fare as a ceiling; airlines quoted a lower net fare to their agents; agents sold tickets at any actual fare between the two and kept the difference. On the base fare the agent also received a standard commission of 7 per cent, on which the airlines did deduct tax under section 194H. The difference between the actual fare and the net fare was shown on the Billing and Settlement Plan as supplementary commission. For assessment year 2001-02, after section 194H was reintroduced by the Finance Act 2001 and after surveys under section 133A, the Revenue held the airlines to be assessees in default under section 201 for not deducting on that amount: Singapore Airlines Rs.29.34 crore, KLM Royal Dutch Rs.179.00 crore and British Airways Rs.46.24 crore of supplementary commission, with shortfalls of about Rs.2.93 crore, Rs.18.25 crore and Rs.4.71 crore. Interest under section 201(1A) was added and penalty proceedings under section 271C directed. The Delhi High Court decided for the Revenue on 13 April 2009 and the airlines appealed.
The appeals were allowed in part. On the merits the Court was unequivocally with the Revenue: supplementary commission is commission within section 194H and the airlines were obliged to deduct tax at source on it. But since counsel on both sides accepted that the travel agents had already paid income tax on those amounts, there can be no further recovery of the shortfall from the airlines. Interest under section 201(1A) remains payable for the period from the date of default in deduction to the date the agents paid their tax, and the Assessing Officer was directed to compute it, with liberty to verify whether tax was in fact paid by each agent. If any agent has not paid, the Revenue may proceed to recover the shortfall from the airline. The penalty proceedings under section 271C were quashed, reasonable cause under section 273B being made out.
On liability the Court read section 194H with section 182 of the Contract Act. The question is not who physically handled the money but what the contract shows: if the intention manifested in the terms of the Passenger Sales Agency Agreements is a principal-agent relationship as section 182 defines it, then what the agent retains answers the definition of commission and the duty to deduct arises. The Court reinforced this with the industry's own machinery — the Billing and Settlement Plan already recorded the net amounts, discounts and commission for each agent, and IATA remitted a consolidated sum to each carrier, so it was practical and feasible for the airlines to make a consolidated deduction from the supplementary commission. On consequences the Court followed Hindustan Coca Cola Beverages and Eli Lilly & Co. (India): where the recipient has included the amount in its income and paid tax on it, the deductor cannot be proceeded against for the tax a second time, and the Central Board's circular of 29 January 1997 says as much; but that does not touch interest under section 201(1A) for the period of default. On penalty, section 271C must be read with section 273B, which excuses a failure shown to rest on reasonable cause. Eli Lilly treated a nascent and controversial question as reasonable cause. The same applied here: the liability of an airline to deduct on supplementary commission had never been decided by the Supreme Court when the dispute arose in assessment year 2001-02, some carriers deducted and others did not, and High Courts had given contradictory rulings. That was a genuine and bona fide legal conundrum.
Section 194H is to be read with Section 182 of the Contract Act.
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court held on 14 November 2022 that the supplementary commission retained by IATA travel agents — the excess of the actual fare charged to the passenger over the net fare payable to the airline — is "commission" under section 194H, and the airlines were bound to deduct tax at source on it. Section 194H is read with section 182 of the Contract Act: where the contract shows a principal-agent relationship, the definition is attracted. But because the agents had paid tax on those amounts, no recovery of the shortfall could be made from the airlines; only interest under section 201(1A) survives, and the section 271C penalties were quashed. This was decided by the Supreme Court (Supreme Court of India; Surya Kant and M.M. Sundresh JJ, judgment delivered by Surya Kant J) and bears on section 194H, section 201(1), section 201(1A), section 271C, section 273B of the Income Tax Act 1961. It is reported as Civil Appeal Nos. 6964-6965 of 2015, 6966-6967 of 2015 and 6968 of 2015. This closes a two-decade controversy on which High Courts had gone both ways, and it does two distinct things. On liability, it fixes the test for section 194H: look at the contract, apply section 182 of the Contract Act, and if the relationship is principal and agent then what the agent retains is commission, whether or not the principal ever handled the money. The practical objection — that the airline cannot know the actual fare — was answered by the Billing and Settlement Plan, which already carried the figures. On consequences, it applies Hindustan Coca Cola Beverages and Eli Lilly to hold that where the payee has paid tax on the receipt, the deductor cannot be made to pay the tax over again; the Revenue is confined to interest for the period of default. And it treats a genuinely unsettled question of law as reasonable cause under section 273B, so no penalty follows. If it applies to you, the first step is this: Test the arrangement against section 182 of the Contract Act before concluding that no TDS arises — the label on the payment and the fact that the money never reached you are both beside the point.
IATA fixed a base fare as a ceiling; airlines quoted a lower net fare to their agents; agents sold tickets at any actual fare between the two and kept the difference. On the base fare the agent also received a standard commission of 7 per cent, on which the airlines did deduct tax under section 194H. The difference between the actual fare and the net fare was shown on the Billing and Settlement Plan as supplementary commission. For assessment year 2001-02, after section 194H was reintroduced by the Finance Act 2001 and after surveys under section 133A, the Revenue held the airlines to be assessees in default under section 201 for not deducting on that amount: Singapore Airlines Rs.29.34 crore, KLM Royal Dutch Rs.179.00 crore and British Airways Rs.46.24 crore of supplementary commission, with shortfalls of about Rs.2.93 crore, Rs.18.25 crore and Rs.4.71 crore. Interest under section 201(1A) was added and penalty proceedings under section 271C directed. The Delhi High Court decided for the Revenue on 13 April 2009 and the airlines appealed. The matter was decided on 2022-11-14 by the Supreme Court (Supreme Court of India; Surya Kant and M.M. Sundresh JJ, judgment delivered by Surya Kant J). On those facts the Supreme Court held as follows. The appeals were allowed in part. On the merits the Court was unequivocally with the Revenue: supplementary commission is commission within section 194H and the airlines were obliged to deduct tax at source on it. But since counsel on both sides accepted that the travel agents had already paid income tax on those amounts, there can be no further recovery of the shortfall from the airlines. Interest under section 201(1A) remains payable for the period from the date of default in deduction to the date the agents paid their tax, and the Assessing Officer was directed to compute it, with liberty to verify whether tax was in fact paid by each agent. If any agent has not paid, the Revenue may proceed to recover the shortfall from the airline. The penalty proceedings under section 271C were quashed, reasonable cause under section 273B being made out.
On liability the Court read section 194H with section 182 of the Contract Act. The question is not who physically handled the money but what the contract shows: if the intention manifested in the terms of the Passenger Sales Agency Agreements is a principal-agent relationship as section 182 defines it, then what the agent retains answers the definition of commission and the duty to deduct arises. The Court reinforced this with the industry's own machinery — the Billing and Settlement Plan already recorded the net amounts, discounts and commission for each agent, and IATA remitted a consolidated sum to each carrier, so it was practical and feasible for the airlines to make a consolidated deduction from the supplementary commission. On consequences the Court followed Hindustan Coca Cola Beverages and Eli Lilly & Co. (India): where the recipient has included the amount in its income and paid tax on it, the deductor cannot be proceeded against for the tax a second time, and the Central Board's circular of 29 January 1997 says as much; but that does not touch interest under section 201(1A) for the period of default. On penalty, section 271C must be read with section 273B, which excuses a failure shown to rest on reasonable cause. Eli Lilly treated a nascent and controversial question as reasonable cause. The same applied here: the liability of an airline to deduct on supplementary commission had never been decided by the Supreme Court when the dispute arose in assessment year 2001-02, some carriers deducted and others did not, and High Courts had given contradictory rulings. That was a genuine and bona fide legal conundrum. In the words reproduced by the source cited on this page: "Section 194H is to be read with Section 182 of the Contract Act."
It was decided by the Supreme Court on 2022-11-14 and is reported as Civil Appeal Nos. 6964-6965 of 2015, 6966-6967 of 2015 and 6968 of 2015. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 194H, section 201(1), section 201(1A), section 271C, section 273B, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The appeals were allowed in part. On the merits the Court was unequivocally with the Revenue: supplementary commission is commission within section 194H and the airlines were obliged to deduct tax at source on it. But since counsel on both sides accepted that the travel agents had already paid income tax on those amounts, there can be no further recovery of the shortfall from the airlines. Interest under section 201(1A) remains payable for the period from the date of default in deduction to the date the agents paid their tax, and the Assessing Officer was directed to compute it, with liberty to verify whether tax was in fact paid by each agent. If any agent has not paid, the Revenue may proceed to recover the shortfall from the airline. The penalty proceedings under section 271C were quashed, reasonable cause under section 273B being made out. It arises in TDS Defaults and Penalty matters, on section 194H, section 201(1), section 201(1A), section 271C, section 273B of the Income Tax Act 1961, and was decided by Supreme Court of India; Surya Kant and M.M. Sundresh JJ, judgment delivered by Surya Kant J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If you failed to deduct, get written confirmation and proof that the payee has offered the amount and paid the tax; that stops recovery of the tax itself under section 201(1), though not interest. Compute and offer interest under section 201(1A) from the date deduction was due to the date the payee paid — the Court remitted exactly this exercise to the Assessing Officer. Against a section 271C penalty, plead reasonable cause under section 273B and document the conflict of judicial opinion at the relevant time; a nascent, arguable question of law is enough.
Still good law. A citator search returns 75 later decisions citing the judgment, 41 of them from the Supreme Court and the High Courts, the most recent a Bangalore Tribunal batch of 20 May 2024. The Delhi High Court applied it across a batch of appeals on 13 February 2024, recording that 'The aforesaid view has been reiterated in a more recent judgment of the Supreme Court in Singapore Airlines Ltd. Vs. CIT where the following principles were laid down', and the Bangalore Tribunal applied it in the IBM group matters of 20 May 2024. Nothing overruling or doubting it was found. Its reach has, however, been confined by a later Supreme Court decision: see the adverse entry. For section 194H purposes on airline supplementary commission it stands. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The harvested text is clipped: about 38,837 characters from the middle are missing. That portion carried the Court's detailed construction of section 194H, its analysis of the Passenger Sales Agency Agreements against section 182 of the Contract Act, and its treatment of the conflicting High Court decisions. What survives is the framing of the industry and the facts, and the whole of the concluding analysis from the discussion of Hindustan Coca Cola onwards, including paragraph 63 which states the ratio. The reasoning recorded above on agency is therefore taken from the Court's own summary of its conclusion rather than from the full discussion. No reporter citations were harvested; the appeal numbers come from the judgment's first page. The Court itself noted that no documentary evidence of when the agents paid tax was placed before it, and left that to the Assessing Officer. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed in part. On the merits the Court was unequivocally with the Revenue: supplementary commission is commission within section 194H and the airlines were obliged to deduct tax at source on it. But since counsel on both sides accepted that the travel agents had already paid income tax on those amounts, there can be no further recovery of the shortfall from the airlines. Interest under section 201(1A) remains payable for the period from the date of default in deduction to the date the agents paid their tax, and the Assessing Officer was directed to compute it, with liberty to verify whether tax was in fact paid by each agent. If any agent has not paid, the Revenue may proceed to recover the shortfall from the airline. The penalty proceedings under section 271C were quashed, reasonable cause under section 273B being made out.
TaxSphere, “Singapore Airlines Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/singapore-airlines-ltd-v-cit/ (validity last checked 2026-08-29)
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