P. Sathasivam, J.@mdashAround the World Travel and Tours Private Limited and 13 other travel agencies have filed the above writ petition,
seeking to issue a writ or declaration declaring that tax shall be deducted at source u/s 194H of the Income Tax Act, 1961, only in respect of the
commission actually paid or payable by respondents Nos. 4 to 21 to the petitioners on the face value of the tickets and no tax can be deducted in
respect of the discount or rebate on the price of the tickets allowed by the airlines to the customers against the listed price of the tickets.
2. While admitting the writ petition on July 25, 2003, this court in W. P. M. P. No. 25809 of 2003, granted interim injunction and ordered notice
to the respondents. Pursuant to the notice, British Airways--13th respondent, has filed W. V. M. P. No. 1661 of 2003, for vacation of the interim
injunction granted on July 25, 2003, in W. P. M. P. No. 25809 of 2003.
3. Heard Mr. V. Ramachandran, learned senior counsel for the petitioners, J. Narayanasamy, junior standing counsel for Income Tax Department
and Mr. R. Krishnamurthy, learned senior counsel for the 13th respondent.
4. Considering the fact that the miscellaneous petitions alone are to be disposed of, I am not going to refer the factual details as arrayed in the
affidavit and counter affidavit filed by the petitioners and the 13th respondent. According to the petitioners, they are regular assessees under the
Income Tax Act, 1961 (in short ""the Act""), and have been maintaining regular books of account. Section 194H of the Act provides for deduction
of tax on commission or brokerage in certain cases, as defined under the Act and was originally introduced by the Finance (No. 2) Act, 1991, with
effect from October 1, 1991. The section was amended by the Finance Act, 1992, with effect from June 1, 1992. This provision was omitted by
the Finance Act, 1999, with effect from April 1, 2000. While this is so, the Finance Act, 2001, reintroduced Section 194H with effect from June
1, 2001.
5. Mr. V. Ramachandran, learned senior counsel for the petitioners, after taking me through Section 194H of the Act, which came into force with
effect from June 1, 2001, would contend that the aforesaid provision applies only to commission or brokerage paid by a person to whom Section
194H applies. According to him, respondents Nos. 4 to 21 have taken the stand purporting to be on the basis of the view expressed by
respondents Nos. 1 to 3 that tax is deductible at source on the discounts that are allowed by the airlines and sales agents on the sale of tickets
effected by them pursuant to various schemes and promotional packages offered by them, notwithstanding that such discounts are not given to the
petitioners or travel agents, but are directly passed on to the customers by the airlines or their sales agents. Further such a stand of the respondents
would be totally opposed to the provisions u/s 194H of the Act, which would cause considerable business and financial embarrassment constituting
unreasonable restriction on the business carried on by the petitioners. He pointed out that in the light of the stand taken by respondents Nos. 1 to
3, the respondents Nos. 4 to 21, who are airline companies, operating air services within India and outside have sought to deduct tax at source out
of the amounts payable by them to the petitioner, invoking Section 194H of the Act not only on the commission paid by them to the petitioners, but
also the discount allowed by them to the customers. He also pointed out that the discount being a reduction in price allowed to the customers
directly, it does not constitute commission or brokerage and Section 194H of the Act would not apply thereto. Though learned senior counsel for
the petitioners have made elaborate argument with reference to tax deduction u/s 194H regarding commission or brokerage, etc., I am of the view,
that the said issue has to be considered only in the main writ petition.
6. Mr. R. Krishnamurthy, learned senior counsel appearing for the British Air- ways--13th respondent, would contend that the Income Tax
authorities have launched the proceedings against the 13th respondent on account of not having deducted tax at source on the discount/rebates
being provided to the customers against the listed price of the tickets. The Deputy Commissioner of Income Tax has passed an order on
September 30, 2002, holding that the rebates/discounts being offered by British Airways (13th respondent) to its customers is a part and parcel of
the commission paid by the British Airways to its dealers/agents, for the services rendered in connection with booking of tickets and the same is
covered under the provisions of Section 194H of the Act. He further contends that against the order of the Deputy Commissioner of Income Tax,
the British Airways, preferred an appeal before the Commissioner of Income Tax (Appeals), New Delhi. By order dated January 31, 2003, the
Commissioner of Income Tax (Appeals), allowed the appeals to the limited extent that the provisions of Section 194H of the Act, having come into
effect from June 1, 2001, the Assessing Officer ought not to have included those transactions which took place prior to June 1, 2001. The
Commissioner, how- ever, held against respondent No. 13, on the applicability of the provisions of Section 194H of the Act to the
rebates/discounts being provided by the 13th respondent to its customers. By placing the orders of the Deputy Commissioner of Income Tax and
the Commissioner of Income Tax, learned senior counsel appearing for the British Airways would contend that in the light of the injunction order
granted by this court, respondent No. 13 has been restrained from deduction of tax at source on the rebates/discounts actually allowed to the
customers. This, according to him, leads to a conflict due to separate and contrary order of two forums on the same issue of tax deduction at
source u/s 194H of the Act, on the amounts related to rebate and discounts.
7. In the light of the above statements, I have gone through the copy of the order of the Deputy Commissioner of Income Tax, New Delhi, dated
September 30, 2002, as well as the Commissioner of Income Tax (Appeals) dated January 31, 2003, which show the discounts being offered by
British Airways (respondent No. 13) to its customers is a part and parcel of the commission paid to us dealers/agents for the service rendered in
connection with the booking of tickets and the same is covered under the provisions of Section 194H of the Act. Though it is stated that both the
said orders of the Income Tax authorities are under challenge by way of further revision the fact remains, as per the orders of the Income Tax
authorities, the respondents, particularly, the 13th respondent is bound to deduct tax at source in respect of the discounts and rebates. As rightly
pointed out, by virtue of the injunction order, the respondents, particularly, respondent No. 13 is prohibited from implementing the orders of the
Income Tax authorities. In the event, the writ petitioners are not successful in their final outcome, respondent No. 13 and the remaining
respondents will be faced with a situation, wherein the Income Tax Department will prays for the demand for non-deduction and non-deposition of
tax at source u/s 194H of the Act on the amounts corresponding to the discounts/rebates, etc. As rightly stated, in that event, they will be burdened
with the demand to deposit the amounts deductible on account of non-deduction due to the interim injunction placed on it by this court as also the
interest, penalties, etc., that may be additionally levied. The balance of convenience is in favour of the respondents, for not continuing the interim
injunction. Respondent No. 13 has made out a prima facie case for vacation of the injunction order. As said earlier, in the event of failure in the
writ petition and if the injunction order is allowed to continue, the respondents airlines, particularly, the 13th respondent would be burdened to
make further collection from the travel agents to deposit the tax and also interest and penalty that may be additionally levied.
8. In the light of what is stated above, I do not find any valid ground to continue the injunction order. Accordingly, interim injunction granted on
July 25, 2003, is vacated. Consequently, W. V. M. P. No. 1661 of 2003 is allowed ; W. P. M. P. No. 25809 of 2003 is dismissed.
