Weekly Round-up on Tax and Corporate Laws | 14th to 19th November 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 14th to 19th November 2022, namely:

(a) TDS under Section 194H would apply on additional sum charged by agents over & above the airfare: Supreme Court;

(b) The Director of a Co. can’t be prosecuted vicariously for cheque bounce if Co. is not charged as accused: Supreme Court;

(c) CBIC amends instructions of GSTR-9 to give the effect of the increased time period for claiming ITC; and

(d) Interest on delay in filing GSTR-3B to be paid even if tax was already deposited in electronic cash ledger: High Court.

1. TDS under Section 194H apply on additional sum charged by agents over and above the airfare: SC

The Supreme Court has given a significant ruling on the applicability of Section 194H TDS on commission income. The Court has held that Section 194H applies to the additional amount, over and above net airfare, charged by agents from customers.

The lack of control that the assessee has over the actual airfare charged by the agents over and above the net airfare cannot form the legal basis for the assessee to avoid its liability to deduct tax under Section 194H.

Facts

Assessee-company engaged in the business of air transport services. The business mechanism of the assessee involves booking tickets through travel agents. International Air Transport Association (IATA) sets the base fare for air tickets. However, the airlines may sell their tickets for a net fare lower than the base fare but not higher.

Travel agents act on behalf of airlines to market and sell tickets and are entitled to a commission on the basic fare of the ticket fixed by the IATA.

Further, airlines have no control over the actual fare at which the agents sell tickets, and the agents are at liberty to set a price lower than the base fare fixed by IATA but still higher than the net fare demanded by the airline.

The additional amount charged by travel agents over and above the net fare quoted by airlines was retained by the agents as their own income.

The issue before the Supreme Court was:

“Whether the amount retained by the agents, over and above the net fare of air tickets, were to be treated as commission for deduction of tax at source under Section 194H?”

Ruling

The Supreme Court held that there is a distinction between a contract of agency and a contract of sale. A contract of sale is executed when the seller transfers the title of the goods to the buyer.

As per the agreement between the airline and the agent, the agent would sell the ticket as per the directions of the airline, and in case of any loss incurred by the agent, he would be indemnified by the airline.

There was no contract of sale between the assessee and the travel agent. The airline retains title over the travel tickets and is responsible for the actual services provided to the final consumer.

Further, as per the agreement, “all monies” collected by the agents on the sale of air tickets will be held by them in a fiduciary capacity. Accordingly, there was a contract of agency and not a contract of sale.

Further, the arrangement between the purchaser of the ticket and the agent is merely a part of the agency agreement and not a separate agreement. The extra benefit gained by the agent on the sale of tickets is due to the agency agreement entered with the airline.

The lack of control that the airlines have over the actual fare charged by the travel agents over and above the net fare cannot form the legal basis for the assessee to avoid its liability to deduct tax under Section 194H.

Thus, these amounts were incidental to the transaction by which the air tickets were sold on behalf of airlines and were for the benefit of agents. Such incidental benefit must come under the ambit of the principal-agent relationship.

The commission under Section 194H includes any payment received directly or indirectly by the agent on behalf of the principal. It does not distinguish the payment based on the source of such receipt.

Therefore, the amount retained by the agents on the sale of air tickets was a supplementary commission, liable for tax deduction under Section 194H.

Read the Ruling

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2. Director of a Co. can’t be prosecuted vicariously for cheque bounce if Co. is not charged as accused: Supreme Court

In the instant case, the Supreme Court held that the director of the company could not be prosecuted vicariously for cheque bounce by the company if the company is not arraigned as accused.

Questions raised

In the instant case, the following two main issues arose before the Apex Court:

(a) Whether a director of a company would be liable for prosecution under Section 138 of the Negotiable Instrument Act without the company being arraigned as an accused?

(b) Whether a complaint under Section 138 of the Negotiable Instrument Act would be liable to be proceeded against the director of the company without there being any averments in the complaint that the director arrayed as an accused was in charge of and responsible for the conduct and business of the company?

Apex Court’s Ruling

The provisions of Section 141 of the Negotiable Instrument Act impose vicarious liability by deeming fiction that pre-supposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-sections (1) and (2) of Section 141 would not be liable to be convicted based on the principles of vicarious liability.

For maintaining the prosecution under Section 141 of the Negotiable Instrument Act, arraigning the company as an accused is imperative, and non-impleadment of the company would be fatal for the complaint.

Arguments advanced by learned counsel for the appellant that an additional accused can be impleaded after the filing of the complaint merits no consideration once the limitation prescribed for taking cognizance of the offence under Section 142 of the Negotiable Instrument Act has expired.

More particularly, in view of the fact that the petitioner neither made any effort at any stage of the proceedings to arraign the company as an accused nor any such circumstances or reason been pointed out to enable the Court to exercise power conferred by the proviso to Section 142, to condone the delay for not making the complaint within the prescribed period of limitation.

Vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if, at the material time, he was in charge of and was also responsible to the company for the conduct of its business. Simply because a person is a director of a company, it does not necessarily mean that he fulfils both the above requirements to make him liable. Conversely, without being a director, a person can be in charge of and responsible to the company for the conduct of its business.

Where the allegations in the complaint did not, in express words or with reference to the allegations contained therein, make out a case that at the time of the commission of the offence, the individual named in the complaint as accused was in charge of and was responsible to the company for the conduct of its business, it was to be held that requirement of Section 141 was not met and the complaint against the accused was to be quashed.

Read the Ruling

3. CBIC amends instructions of GSTR-9 to give the effect of the increased time period for claiming ITC

The CBIC has issued a notification to amend the instructions of Form GSTR-9 to give effect to the change of time limit for claiming ITC, issuing credit or debit notes & making amendments in outward supplies for the previous year. The words ‘April 2022 to September 2022’ have now been substituted with ‘April 2022 to October 2022 filed up to 30th November 2022’ in the relevant places.

Notably, vide Finance Act, 2022, the time limits specified under the law for various compliance requirements such as the time limit to avail input tax credit, time limit to claim adjustment of tax relating to the credit note, time limit relating to rectification of GSTR 1 and GSTR 3B, etc. have been changed from 30th September to 30th November. These changes are made effective from 1st October 2022. In this regard, Notification No. 22/2022–Central Tax dated 15th November 2022 has been issued.

Read the Notification

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4. Interest on delay in filing of GSTR-3B to be paid even if tax was already deposited in electronic cash ledger: HC

The Jharkhand High Court has held that any deposit in Electronic Cash Ledger before the due date of filing GSTR 3B does not amount to discharging the tax liability by the petitioner. The revenue has the right to compute interest on said delayed payment, and the Court also directed the petitioner to pay interest on delayed filing.

Facts

The department levied interest due to the delay in filing the GSTR-3B returns by the petitioner. However, the petitioner denied paying interest on the delay in filing GSTR 3B for disputed periods on the ground that the amount of tax had already been deposited before filing the GSTR 3B return in its electronic cash ledger.

The question before the High Court was whether the amount deposited as tax through valid challans by a registered person in the Government Exchequer before the filing of the GSTR 3B returns could be treated as a discharge of the tax liability.

High Court

The High Court noted that an electronic cash ledger is just an e-wallet where cash can be deposited at any time by creating requisite challans. The assessee can claim a refund of the amount deposited in the electronic cash ledger at any time by following the procedure prescribed under GST Act, and the computation of interest liability is dependent upon delay in filing returns beyond the due date. Therefore, it was held that any deposit in the electronic cash ledger before the due date of filing GSTR 3B would not amount to the discharge of tax liability and revenue had rightly computed interest on the delayed payment since petitioner had delayed the filing returns for the disputed period.

Read the Ruling