Vildirect: IncomeTax-caselaws-1991-VIL-612-CAL-DT

1991-VIL-612-CAL-DT

Equivalent Citation: [1992] 193 ITR 355, 66 TAXMANN 649

CALCUTTA HIGH COURT

Date: 14.01.1991

COMMISSIONER OF INCOME-TAX

CHLORIDE INDIA LIMITED

BENCH

Judge(s) : SHYAMAL KUMAR SEN., AJIT KUMAR SENGUPTA

JUDGMENT

AJIT K. SENGUPTA J.-This reference under section 256(1) of the Income-tax Act, 1961, relates to the assessment year 1981-82.

Shortly stated the facts are that in the assessment framed by the Inspecting Assistant Commissioner (Assessment) for the assessment year 1981-82, he allowed weighted deduction under section 35B of the Incometax Act, 1961, on several items of expenditure including the expenditure of Rs. 92,326 incurred by the assessee-company on payment of commission to overseas agents for export promotion.

The Commissioner of Income-tax, on an examination of the assessment records of the assessee, took the view that weighted deduction on the expenditure incurred on payment of commission to overseas agents has been wrongly allowed and that the assessment order on the point was erroneous and prejudicial to the interests of the Revenue. Therefore, show-cause notice under section 263 was, accordingly, issued to the assessee. After considering the submissions made on behalf of the assessee, the Commissioner of Income-tax held that the weighted deduction on the aforesaid expenditure was wrongly allowed and the same should be withdrawn. The Inspecting Assistant Commissioner was, accordingly, directed to modify the assessment order withdrawing the weighted deduction allowed under section 35B on the commission paid to foreign parties.

Being aggrieved, the assessee took the matter before the Tribunal. The Tribunal, on a consideration of the facts and circumstances of the case, held that the expenditure incurred by the assessee-company in the instant case falls under clause (iv) of section 35B(1)(b) and, accordingly, it was allowable. On these facts, the following questions of law have been referred to this court :

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the commission paid to foreign agents was covered under sub-clause (iv) of clause (b) of section 35B(1) of the Income-tax Act, 1961 ?

2. Whether, on the facts and in the circumstances of the case, and on a proper interpretation of clause (iv) of section 35B(1)(b) of the Income-tax Act, 1961, the Tribunal was correct in law in holding that the assessment order dated 31st January, 1985, was neither erroneous nor prejudicial to the interests of the Revenue and, therefore, the Commissioner of Income-tax had wrongly assumed jurisdiction under section 263 of the said Act ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in cancelling the order of the Commissioner of Income-tax passed under section 263 of the Income-tax Act, 1961 ?"

Section 35B(1)(b)(iv) provides that export markets development allowance should be allowable if such expenditure is incurred wholly or exclusively on maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods and services or facilities.

The contention raised by the Revenue before the Tribunal was that the expenditure incurred on payment of commission was not allowable and, in this connection, reliance was placed on a decision of the Madras High Court in CIT v. Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855. In that case, the commission was paid to an Indian company. The Madras High Court considered the question whether the commission paid to any Indian company fell within the purview of sub-clause (iv). It was held that this subclause refers to expenditure incurred wholly or exclusively on maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities which the assessee deals in. The Madras High Court was of the view that the expenditure incurred on payment of commission to the Indian company did not fall under sub-clause (iv).

The facts in this case are, however, different. The Tribunal found in this case that the expenditure was incurred by the assessee-company on maintenance of the agency outside India for promotion of sale outside India of goods which the assessee "deals in". It will appear from the details of the expenditure submitted before the Tribunal that the payments were made to three foreign agents at U. A. E., England and Australia.

Mr. Bagchi, appearing for the Revenue, has fairly drawn our attention to the decision of the Kerala High Court in CIT v. Pooppally Foods [1986] 161 ITR 729. In that case, the facts found by the Tribunal were that the payment was made to an agent outside India and that it was in the nature of commission. There, the Kerala High Court held that the commission paid to an agent in a foreign country for promotion of export trade would attract any one of the sub-clauses (ii), (iii) (iv) and (viii) of clause (b) of section 35B(1) of the Act. In our view, on the facts of this case, the expenditure, having been made by way of commission to agents in foreign countries for promotion of the business, would fall within the purview of sub-clause (iv) of section 35B(1)(b).

For the reasons aforesaid, we answer all the three questions in the affirmative and in favour of the assessee.

There will be no order as to costs.

SHYAMAL KUMAR SEN J. - I agree.

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