2.8 Query: Application of section 44AB to a travel agent.
1.A partnership firm is acting as travel agent for the purchase of air tickets from the various companies in India for its customers. The firm is also rendering the services to its customers in respect of visa, passport, etc.
2. The said firm, on receipt of an order from its customer, for the purchase of air ticket (both domestic and international), places an order for the same with Air India, Egypt Air, etc. On the receipt of a confirmed ticket, the said firm issues the invoices for sale of ticket to its customer for the gross amount of the ticket. The firm accordingly credits the sale account and debits the customer account.
3. With respect to services, the said firm, under instructions from its customers, gets the visa for them and raises the invoice for the service charges.
4.The querist has sought the opinion of the Expert Advisory Committee on the following issues:
(a) Whether the firm is liable to get its books of account audited under section 44AB of Income-tax Act, 1961, if its total sale of tickets exceeds Rs. 40 lakhs.
(b) If the reply to (a) above is in the affirmative, then, whether in computing the said 40 lakhs, the amount received in respect of services rendered like visa, etc. would be included.
(c) If this firm raises its own invoices for the full value of tickets and receives the payment but in the books of account only commission earned is accounted for, (the rate of commission is different for different types of tickets and customers), then
(i) Whether only commission income which is accounted for in the books of account of this firm should be taken into account for Considering the limit of Rs. 40 lakhs/Rs. 10 lakhs for the purpose of section 44AB of Income-tax Act, 1961, or the entire value of sale effected by this firm should be considered for the above purpose.
(ii) In either case which limit would apply for the above purpose, i.e., Rs. 10 lakhs or Rs. 40 lakhs.
Opinion December 12, 1990
1. The Committee notes from the facts of the query that the partnership firm is rendering the following two types of services:
(a) Purchase of tickets for its customers from various companies for which it gets commission, and
(b) Arranging for visa, passport, etc. for customers for which it gets service charges.
The Committee also notes that the firm is issuing invoices separately for the above two services and in respect of service mentioned in (a) above, the invoice is raised for the gross amount of ticket.
2. The Committee also notes from the facts of the query that the firm is crediting the ‘Sales Account’ with the invoice value of the tickets issued to the customers. The Committee presumes that the firm is debiting the ‘Purchase Account’ separately in respect of purchase of tickets from various airline companies.
3. The Committee notes paragraphs 4.9, 4.10, 4.11 and 4.12 of the ‘Guidance Note on Tax Audit under Section 44AB of the Income-tax Act’ which recommended inter alia as follows:
“4.9 Question may also arise as to whether the sales by a commission agent or by a person on consignment basis should form part of the sales/turnover of the commission agent and/or consignee as the case may be. In such cases, it would be necessary to find out whether the property in the goods belongs to the commission agent or the consignee immediately before the transfer by him to third person. If the property in the goods continues to belong to the principal, the relevant sale price should not form part of the sales/ turnover of the commission agent and/or the consignee as the case may be. If, however, the property in the goods belongs to the commission agent and/or the consignee, as the case may be, the sales price received/receivable by him shall from part of his sales/turnover.
In this context, it would be useful to refer to the CBDT Circular No. 452 dated 17th March, 1986, where the Board has clarified the question of applicability of Section 44AB in the cases of Commission Agents, Arhatias, etc…..
4.10 The term “gross receipt” is also not defined in the Act. It will include all receipts arising from carrying on of business which would normally be assessable as business income under the Income-tax Law. Broadly speaking, the following items of income and/or receipts would be covered by the term “gross receipts in business”:
…..
(v) Reimbursement of expenses incurred (e.g., packing, forwarding, freight, insurance, travelling, etc.) and if the same is separately credited in a separate account in the books, only the net surplus or deficit in this account should be added or deducted from the total sales or turnover for the purposes of Section 44AB;
4.11 The following items would not form part of “gross receipts in business” for purposes of section 44AB of the said Act:
…..
(viii) In the case of a travelling agent, the amount received from the clients for payment to the airlines, railways, etc., where such amounts are received by way of reimbursement of expenses incurred on behalf of the clients; and …..
4.12 Thus, the principle to be applied is that if the assessee is merely reimbursed for certain expenses incurred, the same will not form part of his gross receipts. But in the case of charges recovered, which are not by way of reimbursement of the actual expenses incurred, they will form part of his gross receipts.”
4. The Committee is of the view that as far as the sale and purchase of tickets is concerned, the firm is acting as a commission agent as it purchases the tickets from the various airlines companies in the name of its customers and passes the tickets to its customers. In this transaction, the firm is paid commission by the airlines companies. If the firm had accounted for only the commission earned on the tickets as its income, in its books of account, then only such commission income would have been considered for the purpose of the limit of Rs. 40.00 lakhs. But since in the present case, the firm is crediting the ‘Sales Account’ with the gross sale value of the tickets, in the view of the Committee, the total sale value of tickets (as represented by ‘Sales Accounts’) will have to be taken into account for the purpose of the limit of Rs. 40.00 lakhs.
5.The Committee also notes para 3.1 of the above referred Guidance Note which is reproduced below:
“The expression “Profession” involves the idea of an occupation requiring purely intellectual skill or manual skill (works of art or surgery controlled by the intellectual skill of the operator, as distinguished from an operation which is substantially the production or sale or arrangements for the production or sales, of commodities). Profession is a word of wide import and includes “Vocation” which is only a way of living. [CIT v. Ram Kripal Tripathi 125 ITR 408 (Allahabad)]. The world ‘business’ is wide enough to cover profession [Barendra Prasad Ray v. ITO (1981) 129 ITR 295 (SC)].”
6. The Committee is of the view that the activities of a travel agent do not involve any intellectual or any manual skill. The travel agent merely purchases and sells the tickets and offer services like arranging for visa, passport, etc. The Committee is, therefore, of the view that the travel agent shall be considered to be carrying on a business and the limit of Rs. 40.00 lakhs would apply to it.
7. On the basis of above, the Committee is of the following opinion in respect of the issues raised in the para 4 of the query:
(a) The firm is liable to get its books of account audited under Section 44AB of the Income-tax Act, 1961, if the total sale of tickets and the service charges in respect of services for visa, passport, etc., exceed Rs. 40.00 lakhs.
(b) The service charges in respect of services like visa, passport, etc. would have to be considered for the purpose of the limit of Rs. 40.00 lakhs.
(c) (i) If the firm accounts for only the commission earned on tickets as its income in its books of account, then, only such commission and the services charges in respect of services for visa, passport, etc. would be considered for the purposes of the limit of Rs.40.00 lakhs.
(ii) The limit of Rs. 40 lakhs would apply to the firm as it is carrying on business. ___________________________ |