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Interpretation of section 35B(1)(b)(iv) of the Income-tax Act, 1961 for weighted deduction on commission paid to foreign agents. Analysis: The case involved a reference under section 256(1) of the Income-tax Act, 1961, for the assessment year 1981-82, regarding the entitlement of the assessee to a weighted deduction under section 35B(1)(b)(iv) of the Act. The assessee, a company, claimed deduction for travelling expenses and commission paid to foreign agents for securing information about market conditions abroad. The claim was rejected due to the withdrawal of a specific clause from section 35B with effect from April 1, 1981. The Commissioner of Income-tax (Appeals) upheld the rejection, despite the assessee's argument that the commission was paid to agents for various services related to sales abroad, relying on the Reserve Bank of India approval. The Tribunal, however, allowed the appeal, determining that the commission payment fell under sub-clause (iv) of clause (b) of section 35B, reversing the Commissioner's decision. The High Court was approached with the question of whether the Tribunal was correct in allowing the weighted deduction. The Court noted the reliance on a previous case involving Chloride India Ltd., where the Tribunal found that expenditure on maintaining an agency outside India for sales promotion abroad was eligible for deduction. However, in the present case, the commission was paid for securing market information, not sales promotion. The Court emphasized that for deduction under sub-clause (iv) of section 35B(1), it must be established that the agency outside India was maintained for sales promotion of goods dealt with by the assessee. Mere market information gathering does not qualify as sales promotion. Consequently, the Court declined to answer the question and remanded the matter to the Tribunal for further consideration in line with the observations made in the judgment. In conclusion, the High Court's decision highlighted the importance of establishing that the agency outside India was maintained for sales promotion of goods dealt with by the assessee to qualify for a weighted deduction under section 35B(1)(b)(iv) of the Income-tax Act, 1961. The Court emphasized the distinction between market information gathering and sales promotion, indicating that the former does not automatically qualify for the deduction. The matter was remanded to the Tribunal for a fresh disposal based on the Court's observations, emphasizing the need for a factual determination regarding the purpose of maintaining the agency outside India.
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