IN THE ITAT DELHI BENCH ‘C’
Income-tax Officer, Ward 11(4), New Delhi
Interserve Travels (P.) Ltd.
IT APPEAL NO. 3526 (DELHI) OF 2010
[ASSESSMENT YEAR 2006-07]
MAY 18, 2012
A.N. Pahuja, Accountant Member
This appeal filed on 20.07.2010 by the Revenue against an order dated 19.05.2010 of the CIT(A)-XIII, New Delhi, raises the following grounds:-
1. “On the facts and the circumstances of the case and in law, the order of CIT(A) is wrong, perverse, illegal and against the provisions of law which is liable to be set aside.
2. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in deleting an addition of Rs. 52,22,326/- ignoring the provisions of Section 40(a)(ia) of the Income-tax Act, 1961 and the facts that the entire TDS amount has been claimed by assessee company.
3. On the facts and in circumstances of the case and in law, the learned CIT(A) has erred in deleting an addition of Rs. 52,22,326/- without appreciating the fact that the commission received from M/s Amadeus India Pvt. Ltd. was rotated through the assessee company and intimately paid to the parties concerned and that the mischief of the provisions of section 194H and 40(a)(ia) of the Income-tax Act, 1961 are clearly attracted.”
2. Facts, in brief, as per relevant orders are that return declaring loss of Rs. 71,644/- filed on 20.11.2006 by the assessee, engaged in the business of travel agents, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (as the Act), issued on 06.10.2007. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed on perusal of profit and loss account that the assessee received commission from Amadeus India Pvt. Ltd. for an amount of Rs. 13,49,364/- while TDS certificate in Form No.16A enclosed with the return revealed commission of Rs. 65,71,690/-. To a query by the AO, seeking to invoke the provisions of section 40(a)(ia) of the Act, the assessee replied vide letter dated 18th December, 2008 as under:-
” … Interserve is acting as collection agency on behalf of its member travel agencies and passing the respective money received from Amadeus for the bookings made by those member travel agencies. Since, interserve is acting as a collection agency, the amount received and paid by interserve is not reflecting in its profit and loss statement. Interserve has not rendered any service to Amadeus and neither has the member travel agencies rendered any services to interserve. It is also pertinent to note that the member travel agencies have recognized the money collected through interserve in their profit and loss account and recognized as income. In other words, interserve has rendered no service which can render the collection handled by the interserve (on behalf of its member travel agencies) as its own income. The same principle applies to money paid by interserve to the member travel agencies which represents distribution of collected money which cannot be categorized as an expense. We, therefore, submit that it is prudent to recognize only the commission retained by interserve as its own income. On the other hand, since no expense has incurred by interserve while making payments to its members, provisions of Chapter XVII-B do not apply to this transaction ….”
3. However, the AO did not accept the submissions of the assessee on the ground that the commission income paid/credited to the assessee by M/s Amadeus India Pvt. Ltd. was the business income of the assessee and was recorded in their books of accounts under the nomenclature of commission income. The receipt of this income in the hands of the assessee was liable to TDS provisions as per Chapter XVII B of the Act and M/s Amadeus India Pvt. Ltd. duly deducted the tax on commission income paid to assessee at their end, which the assessee has claimed in its return. However, since the assessee did not deduct at source while making payment of commission to the travel agents, referring to provisions of sec. 40a(ia) of the Act, the AO disallowed the amount of Rs. 52,22,326/-.
4. On appeal, the ld. CIT(A) deleted the addition holding as under:-
“I have perused the various agreements referred and on consideration of the facts and arguments of the appellant I agree with the contentions of the appellant that the entire sum of Rs. 65,71,690/- received by the appellant from Amadeus India Pvt. Ltd. was not in the nature of income but was received in a representative capacity for and on behalf of the various travel agencies who were part of the consortium agreement. The appellant has not rendered any service to Amadeus so as to construe the amounts received as income as the services were actually rendered by the constituent members, who alone are chargeable to tax on the same. Thus, I hold that the addition of Rs. 52,22,326/-made by the Assessing Officer is not sustainable. The appellant succeeds on this ground of appeal.
The appellant submitted that in order to invoke the provisions of section 40(a)(ia), the prerequisite is that the payments were claimed as a deduction for computing the income chargeable under the head profits and gains of business of profession. He pointed out that in the present case the appellant has not claimed deduction for the amounts paid to the various travel agencies and as such the said section has been wrongly invoked by the Assessing Officer. He has further pointed out that the payments made to the various travels agencies represented the amounts which belonged to them. It was further submitted that since the appellant had neither debited the profit and loss account with respect to the payments made to the travel agents nor claimed deduction thereof the action of the Assessing Officer is wholly arbitrary unjustified, unlawful and ought to be quashed.
After examination of the P & L account, computation of income, it is noted that the appellant has not claimed deduction in respect of the amounts received from Amadeus India Pvt. Ltd. on behalf of the travel agents and paid to them. Accordingly the provision of Section 40(a)(ia) are not applicable and thus the disallowance of the said accounts is uncalled for.”
5. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while contending that in terms of the provisions of section 199 of the Act, credit for TDS can be allowed to the person from whose Income, tax has been deducted at source. Since M/s Amadeus India Pvt. Ltd. paid commission to the assessee and tax was also deducted at source from its income, in further payment by the assessee to the constituents, the assessee was liable to deduct tax at source. Since the assessee defaulted, amount cannot be allowed to be deducted from the income of the assessee.
6. On the other hand, the ld. AR submitted that the assessee and 12 other travel agents entered in to a consortium agreement on 1.4.2003.Except the assessee, all other parties were conducting and pursuing the business of travel agent, running services by booking Air Lines tickets, utilizing computerised electronic reservation system platform provided by Amadeus. Since Amadeus desired to maintain one account for all the bookings effected by 12 members and higher commission was offered, it was agreed between members that the lead member would collect the commission/fee and thereafter, distribute proportionately amongst the members. While referring to the relevant clauses of the agreement, the ld. AR further pointed out that since assessee was not conducting any business of a travel agency but acted as collecting agency on behalf of member travel agents and in passing on their share of income out of the money received from Amadeus on account of booking by the said travel agents, apparently, the payment made to members was not for any services rendered and thus, the assessee was not liable to deduct any tax at source for distributing the money received from Amadeus amongst constituent members. The said travel agents had shown the amount as their income and paid tax thereon. Inter alia, the ld. AR further pointed out that the principles of mutuality apply even in the case of a company and in this connection relied upon decision in FGP Ltd. v CIT  326 ITR 444; Jit & Pal X-rays (P.) Ltd. v. CIT  267 ITR 370; CIT v. U.P. Upbhokta Sahkari Sangh Ltd.  288 ITR 106 (All.) beside CIT v. Sirmour Truck Operators Union  195 Taxman 62 (HP); ITO v. Hill Properties Ltd. [IT Appeal Nos. 6223 & 6249 (Mum.) of 2009, dated 16-7-2010]. To a query by the Bench, the ld. AR pointed out for assessment for the preceding assessment year was completed u/s 143(1) of the Act.
7. We have heard both the parties and gone through the facts of the case as also the aforesaid decisions relied upon by both the sides. At the outset, the plea of the ld. AR regarding applicability of principles of mutuality in this case is not tenable, no such plea having been taken before the lower authorities. Consequently, the AO or the ld. CIT(A) did not have any occasion to examine the applicability of said principles of mutuality nor the ld. AR demonstrated before us as to how the said principles are applicable in this case. .In the absence of any finding on that aspect, emerging from the impugned order, we refrain from expressing any opinion on that aspect or the applicability of decisions relied upon by the ld. AR, especially when the ld. AR did not demonstrate before us as to how these decisions are applicable in facts and circumstances before us. At this stage, we may also clarify that it is a settled position that credit for TDS is to be given in the case of the person in whose hands income is taxable and that too in the year in which the corresponding income is taxed. Now adverting to the facts narrated before us, the assessee entered into a consortium agreement with 12 other members who are travel agents for booking air tickets through the platform provided by M/s Amadeus Pvt. Ltd. In terms of the said agreement dated 01.04.2003, all the member travel agents except the assessee, rendered services of booking air line tickets,& utilized the computerized electronic reservation system platform provided by “Amadeus” ,who offered preferential rates subject to bulk business being offered by all the travel agents as one entity. The Amadeus maintained one account of all the bookings effected by the “Consortium Members” and paid a quarterly segment fee along with a statement, giving details of segments generated by each consortium member and amount paid to the assessee as representative of the consortium travel agent. The consortium members also agreed that the assessee would act as a lead Member & authorized it to enter into contracts with Amadeus to make collections and distribute the monies to each of the Consortium Travel Agents in proportion to the segment bookings effected by each of the travel agents. The travel agents agreed to proportionately contribute towards the expenditure of the assessee while the assessee was authorised to retain the money out of the revenues of the consortium travel agents collected from Amadeus. Inter alia, it was agreed that if the Amadeus India Pvt. Ltd. deducted Income tax at source in respect of payments made to the assessee in the representative capacity out of income of the consortium travel agents, then the credit for such tax deducted at source shall be claimed by the assessee alone in its return of income, and no other member would have any right or claim on such amount. In the event of any loss or damage on account of any breach in the stipulation of the agreement, all the members were jointly & severally liable. In terms of the said agreement, the lead member i.e., the assessee is required to collect the commission for services rendered by other members and distribute the said commission amongst the members on priority basis. Though the TDS certificate issued by Amadeus reflected commission of Rs. 65,71,690/-, the assessee distributed the amount of Rs. 52,22,326/- amongst the members for services rendered by them in booking tickets etc. and amount of Rs. 13,49,364/- alone was reflected in the accounts of the assessee. Since the amount of Rs. 52,22,326/- was not received for any services rendered by the assessee to Amadeus while tax was also deducted at sources from the income of travel agents transmitted through the assessee, the ld. CIT(A) concluded that the amount could not be treated as income of the assessee. Moreover, since the assessee did not claim the said amount as expenditure in its accounts, no tax was deducted at source by the assessee. Consequently, the ld. CIT(A) concluded that no disallowance could be made in terms of provisions of sec. 40(a)(ia) of the Act. As is evident from the terms and conditions of the consortium agreement, the payment by the assessee to other consortium members is not voluntary. The assessee is under a legal obligation in terms of the agreement to pay the amount to other consortium members in accordance with settled terms. There is nothing to suggest that the assessee rendered any service to Amadeus. It is the settled legal position that income accrues when an enforceable debt is created in favour of an assessee. In other words, income accrues when the assessee acquires the right to receive the same. The terms of the consortium agreement do not reveal any such right in favour of the assessee. Income of 52,22,326/- rightfully belonged to the other consortium members, to whom the amount was distributed by the assessee. Thus, the ld. CIT(A) rightly concluded that the said amount can not be treated as income of the assessee. Since the assessee only distributed the income in terms of the agreement and this did not amount to incurring of an expenditure nor the assessee claimed any, we do not find any infirmity in the findings of the ld. CIT(A) in deleting the disallowance u/s 40a(ia) of the Act. In view thereof, especially when the Revenue have not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground nos.2 and 3 in the appeal are dismissed.
8. Ground no.1 in the appeal being general in nature nor any submissions having been made before us on this ground, does not require any separate adjudication and is, therefore, dismissed. No other plea or argument was made before us.
9. In the result, appeal is dismissed.