JUDGMENT :

SURYA KANT, J.

1. The question that arises for our consideration pertains to the interpretation of Section 194H of the Income Tax Act, 1961 (“IT Act”) as introduced by the Finance Act, 2001, with effect from 01.04.2000. The provision requires deduction of tax at source (“TDS”) at 10% plus surcharge from payments falling under the definition of “Commission” or “Brokerage” under the Section.

(A) THE AIRLINE INDUSTRY

2. Within the aviation industry during the relevant period, the base fare¹ [“Base Fare”] for air tickets was set by the International Air Transport Association (“IATA”) with discretion provided to airlines to sell their tickets for a net fare lower than the Base Fare, but not higher.² [“Net Fare”] In essence, the IATA set the ceiling price for how much airlines may charge their customers. This formed part of the IATA’s overall responsibility of overseeing the functioning of the industry.

3. The air carriers were also required to provide a fare list to the Director General of Civil Aviation (“DGCA”) for approval. The prices that were rubber stamped by the DGCA