1993 (8) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in allowing relief u/s 35B(1)(b)(iv) of the Income-tax Act, 1961, on the sales commission paid to foreign agents.

Summary:

Issue 1: Justification of Tribunal's Decision on Relief u/s 35B(1)(b)(iv)
The core issue revolves around whether the Tribunal was justified in law in allowing relief u/s 35B(1)(b)(iv) of the Income-tax Act, 1961, on the sales commission of Rs. 2,50,587 paid to foreign agents. The Assessing Officer initially allowed the deduction, but the Commissioner of Income-tax, West Bengal-1, Calcutta, set aside this assessment u/s 263, arguing that the commission did not qualify for deduction as no branch office was maintained outside India by the assessee-company.

Upon appeal, the Tribunal favored the assessee-company, referencing the Income-tax Appellate Tribunal, Allahabad Bench, in Kothari Carpets [1984] 9 ITD 357, and similar cases adjudicated by the Calcutta Tribunal. The Tribunal's decision was based on the agreement dated February 16, 1981, between the assessee and the foreign agents, which explicitly stated that the agents were appointed for promoting sales outside India and were paid a commission of five percent on the f.o.b. value of the products.

The High Court examined various precedents, including CIT v. Chloride India Ltd. [1992] 193 ITR 355 (Cal), CIT v. Pooppally Foods [1986] 161 ITR 729 (Kerala), and Chief CIT v. Mysore Sales International Ltd. [1992] 195 ITR 457 (Karnataka). The court noted that the Kerala High Court held that commission paid to an agent in a foreign country for promoting export trade could attract sub-clauses (ii), (iii), (iv), and (viii) of clause (b) of section 35B(1). The Karnataka High Court, however, distinguished that the term "agency" should imply an establishment similar to a branch or office.

The High Court of Calcutta disagreed with the Karnataka High Court's interpretation, emphasizing that the term "agency" should not be confined to the same genus as "branch" or "office." The court held that the assessee's payment of commission to foreign agents for promoting sales outside India fell within the purview of section 35B(1)(b)(iv). The court concluded that the assessee is entitled to claim the deduction, answering the reference in the affirmative and in favor of the assessee.

There will be no order as to costs.