1994 (2) TMI 39 - HC - Income Tax

Summary

Issues:
Whether the assessee was entitled to weighted deduction under section 35B of the Income-tax Act on commission paid for export sales.

Analysis:
The case involved the question of whether the assessee was entitled to weighted deduction under section 35B of the Income-tax Act for commission paid on export sales. The Tribunal had referred the common question of law to the High Court regarding the eligibility of the assessee for the deduction. The assessee, a domestic company engaged in the business of manufacturing bicycle components, claimed weighted deduction for commission paid to foreign agents for introducing foreign buyers. The Income-tax Officer initially rejected the claim, considering the payment as traditional expenditure. However, the Commissioner of Income-tax (Appeals) accepted the claim, stating that the commission was for obtaining information on export markets, falling under sub-clause (ii) of section 35B(1)(b) of the Act.

The High Court analyzed the provisions of section 35B of the Act, which allows for weighted deduction for specified revenue expenditure incurred for the development of export markets. The critical issue was whether the commission paid to foreign agents fell within the ambit of sub-clause (ii) of section 35B(1)(b) of the Act, which pertains to obtaining information regarding markets outside India. The Court noted that the Tribunal had relied on a Special Bench decision in a similar case, where it was held that commission payments for export sales qualified for weighted deduction under section 35B.

The Court further emphasized that the Revenue's argument that the payment was a trade discount rather than commission was not valid, as the claim for weighted deduction was based on commission paid to foreign agents for promoting the business abroad. The Court upheld the Tribunal's decision, stating that the expenditure on commission to foreign agents for introducing buyers and providing information on export markets qualified for weighted deduction under section 35B(1)(b)(ii) of the Act. The Court concluded by answering the question in favor of the assessee and against the Revenue, affirming the eligibility of the assessee for the weighted deduction.

In summary, the High Court ruled in favor of the assessee, allowing the weighted deduction under section 35B of the Income-tax Act for commission paid to foreign agents for export sales, based on the findings of fact and the applicability of the Special Bench decision.