1991 (7) TMI 47 - HC - Income Tax

Summary

Issues involved: Interpretation of section 35B(1)(b)(iv) of the Income-tax Act, 1961 regarding deduction for commission paid to foreign agents for sales promotion abroad.

Summary:
The High Court of Karnataka was called upon to decide whether the Appellate Tribunal was correct in upholding the order directing the Income-tax Officer to consider the payment of commission to foreign agents as qualifying for weighted deduction under section 35B(1)(b)(iv) of the Income-tax Act, despite the omission of sub-clause (b)(iii) of section 35B. The assessee, acting as an agent for a public sector undertaking, entered into agreements with sub-agents in foreign countries for sales promotion. The agreements outlined commission payments, termination rights, minimum sales guarantees, and promotional activities. The Tribunal accepted the deduction claim under section 35B, emphasizing the promotion of sales abroad. However, the High Court analyzed the concept of "maintenance" under section 35B(1)(b)(iv) and concluded that the commission paid to agents was not solely for maintaining the agency for sales promotion outside India.

The Court highlighted that section 35B provides weighted deductions for specific expenditures related to export market development, distinct from general business expenses under section 37. The judgment emphasized that the maintenance of the agency under section 35B(1)(b)(iv) should be solely for promoting sales outside India. The commission paid to agents was deemed as remuneration for specific sales, not for general sales promotion activities. Reference to a Kerala High Court decision was made, but the Court differentiated the circumstances and held that the commission paid did not qualify for weighted deduction under section 35B(1)(b)(iv).

In conclusion, the Court ruled against the assessee, stating that the commission paid to foreign agents did not meet the criteria for weighted deduction under section 35B(1)(b)(iv) of the Income-tax Act, 1961. The judgment clarified the specific nature of expenditures eligible for deduction under the relevant provision, emphasizing the requirement for maintenance of the agency solely for sales promotion abroad.