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1996 DIGILAW 825 (MAD)

Commissioner of Income Tax v. R. S. and Sons

1996-08-13

K.A.THANIKKACHALAM, N.V.BALASUBRAMANIAN

body1996
Judgment :- K. A. THANIKKACHALAM J. In pursuance of the direction given by this court in T. C. P. Nos. 170 and 171 of 1982, dated April 18, 1983, the Tribunal referred the following two questions for the opinion of this court under section 256(2) of the Income-tax Act, 1961, hereinafter referred to as (the "Act") "1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the commission of Rs. 1, 20, 311 paid to the State Trading Corporation as service charges would qualify for weighted deduction under section 35B of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the commission of Rs. 2, 11, 034 paid to local agents of foreign buyers and insurance premium of Rs. 54, 318 paid to the Export Credit Guarantee Corporation would qualify for weighted deduction under section 35B of the Income-tax Act, 1961?" Question No. 1 relates to commission paid to State Trading Corporation on which weighted deduction under section 35B of the Act was claimed. When these tax cases came up before us for consideration, the department is not pressing this question No. 1. Accordingly, we are returning this question No. 1 unanswered In so far as question No. 2 is concerned, it consists of two parts. The first part relates to commission paid to local agents of foreign buyers and the second part relates to insurance premium paid to the Export Credit Guarantee Corporation on which weighted deduction under section 35B of the Act was claimed In so far as the second part of the second question is concerned, the premium paid to the Export Credit Guarantee Corporation would qualify for weighted deduction under section 35B of the Act, in view of the decision rendered by us in T. C. Nos. 834 and 835 of 1984 of even date (August 13, 1996) in the case of CIT v. K. Haji Md. Ghouse Saheb and Co. 1994 (240) ITR 920. Therefore, we answer this second part of the second question in the affirmative and against the DepartmentSo far as the first part of the second question is concerned, it relates to commission paid to the local agents of foreign buyers. The assessee is an exporter of hides and skins. Ghouse Saheb and Co. 1994 (240) ITR 920. Therefore, we answer this second part of the second question in the affirmative and against the DepartmentSo far as the first part of the second question is concerned, it relates to commission paid to the local agents of foreign buyers. The assessee is an exporter of hides and skins. The first appellate authority directed allowance of weighted deduction under section 35B of the Act in respect of the commission paid to local agents. The Tribunal held that commission payment made to local agents of foreign buyers would fall under sub-clauses (i) and (ii) of section 35B(1)(b) of the Act, Accordingly, the Tribunal following the decision of the Special Bench of the Tribunal (Bombay "B" Bench), in the case of J. Hemchand and Co., in I.T.A. Nos. 3255 and 3330 (Bom) of 1976-77, held that the assessee is entitled to weighted deduction under section 35B of the Act. Before us, it was submitted that the foreign buyers actually issued instructions to the local agents to obtain the goods required by him and the assessee from whom the goods were purchased was required to pay commission to the local agents. The orders issued by the foreign buyers mentioned the name of the agent on whose information the order had been booked. The services of the agents was of informing their principals of the nature of the goods available with the particular businessman in India and securing orders for such goods from the foreign buyers. The order also required that the invoices prepared by the seller/ assessee was countersigned by the agent, who was sending the information through cable. Since it is the agent who furnishes the information to the assessee about the foreign buyers and brings about the sale, the Commissioner of Income-tax (Appeals) held that the commission payment to Indian agents of foreign buyers is an expenditure exclusively incurred not only on advertisement or publicity outside India in respect of the goods, but also in obtaining information regarding the market outside India for such goods. The details of the nature of the services rendered by the local agents would go to show that the expenditure incurred by way of commission payment would fall under sub-clauses (i) and (ii) of section 35B(1)(b) of the Act. The details of the nature of the services rendered by the local agents would go to show that the expenditure incurred by way of commission payment would fall under sub-clauses (i) and (ii) of section 35B(1)(b) of the Act. On a similar set of facts, in T. C. No. 1126 of 1984 in the case of CIT v. Farida Prime Tannery 1998 (231) ITR 233, 1997 (141) CTR 129 (Mad), by our judgment of even date (August 13, 1996), we held, following various decisions on this aspect, that the assessee is entitled to weighted deduction under section 35B of the Act in respect of the commission payment made to the local agents of the foreign buyers irrespective of the fact that the commission was paid in India. By following the decision in our judgment in 'P. C. No. 1126 of 1984-CIT v. Farida Prime Tannery 1998 (231) ITR 233, 1997 (141) CTR 129 we consider that there is no infirmity in the order passed by the Tribunal on this aspect in the present case also. Accordingly, we answer the first part of the second question in the affirmative and against the Department. No costs.