After 10 Years, Royal Jordanian Airlines Cannot Be Asked To Prove Travel Agents Paid Tax: Delhi High Court

The Delhi High Court has held that Royal Jordanian airline can't be saddled with the burden of proving, after a decade, that its travel agents had discharged their tax liability.

The observation was made by the division bench of Justices Dinesh Mehta and Vinod Kumar while dealing with proceedings relating to deduction of tax at source (TDS) under the Income Tax Act.

Section 194H of the Income Tax Act, 1961, mandates TDS on commission and brokerage payments.

The Court was hearing an appeal filed by the Revenue against Royal Jordanian Airlines, arising out of proceedings under Section 201 of the Income Tax Act, 1961, in which the airline was treated as an assessee in default for failure to deduct TDS under Section 194H on commission paid to travel agents.

While the Revenue contended that the airline was statutorily obliged to deduct TDS on the commission paid to agents, the airline argued that the demand was unsustainable since the agents had already offered the income to tax and paid the due taxes.

It was further submitted that the operations of the airlines remained closed in India during the past ten years and it would be wholly unreasonable to require the airline to now produce documentary proof showing tax compliance by each individual agent, as all its contacts with the earlier agents have severed.

The High Court noted that the issue of principal TDS liability in such cases was settled in Singapore Airlines Ltd. v. Commissioner of Income Tax (2023), where the Supreme Court took note of the consensus between the parties therein that— since the travel agents had already paid income tax on the Supplementary Commission, there could be no further recovery of the shortfall in TDS owed by the airline.

Moreover, the Court accepted the airline's submission that after a long lapse of time, the burden of proving that complied with its tax obligations can't be mechanically cast upon the airline.

“We agree with the submission of the respondent that after more than ten years of the transactions having taken place, it will be very difficult for the respondent-company to prove the factum of the tax having been paid by the agents,” it said.

The Court, however, noted that in Singapore Airlines (supra), the Top Court had allowed the Department to levy applicable interest under Section 201(1A).

Accordingly, the Court disposed of the appeal by holding that Revenue's demand would be confined only to the interest component, if otherwise payable in accordance with law.

“The AO shall issue demand notice in relation to applicable interest, on the applicable TDS amount, which the respondent-assessee shall have to deposit within a period of two months of the receipt of the demand notice. The AO shall not enquire into as to whether the amount of tax has been paid/deposited by the agent of the assessee,” the court ordered.

For Appellant: Advocate Vipul Agrawal, SSC and Advocate Gaoraang Ranjan, Adv.

For Respondent: Advocate Anil Makhija, Adv.

Click here to read order