2001 (10) TMI 8 - SC - Income Tax

Assessee sells tea. It has an agent called Sims Derby Trading Company Ltd. in the United Kingdom - warehouse is run by the said agent but the expenditure incurred thereon is reimbursed by the assessee to that agent. It is, therefore, the assessee which is maintaining the warehouse for the promotion of the sales of its tea outside India - tribunal was justified in holding that the assessee is entitled to weighted deduction under section 35(1)(b)(iv) as well as u/s 35(1)(b)(ix)

Summary

Issues:
Interpretation of section 35B(1)(b)(iv) for weighted deduction eligibility based on expenditure reimbursement for warehouse used by agent.

Analysis:
The case involves an appeal by the Revenue against a High Court decision regarding the eligibility of the assessee for weighted deduction under section 35B(1)(b)(iv) and 35B(1)(b)(ix) of the Income-tax Act for the assessment year 1981-82. The assessee, engaged in the tea business, had an agent in the UK, who operated a warehouse for storing tea, with expenses reimbursed by the assessee. The lower authorities and the High Court had ruled in favor of the assessee, considering the warehouse maintenance as part of selling expenditure under section 35B(1)(b)(iv).

The key question revolved around whether the reimbursement of warehouse expenses by the assessee to the agent falls within the scope of section 35B(1)(b)(iv). The Revenue's argument was based on the absence of the assessee's own warehouse abroad, contending that the expenses did not qualify under the said provision. However, it was established that the agent's warehouse was solely used for storing the assessee's tea for overseas sales, meeting the criteria of maintaining a branch or agency for sales promotion outside India.

Referring to the judgment in Aravinda Paramila Works v. CIT, the Supreme Court emphasized that the assessee must maintain the branch, office, or agency outside India for promoting sales of its goods. Even if the agency is established by a third party, the maintenance responsibility lies with the assessee. In this case, although the warehouse was operated by the agent, the reimbursement by the assessee indicated its maintenance for promoting tea sales abroad, satisfying the requirements of section 35B(1)(b)(iv).

Ultimately, the Supreme Court dismissed the appeal, upholding the lower authorities' decision in favor of the assessee. The judgment clarified that the assessee's reimbursement of warehouse expenses for tea storage by the agent qualified for weighted deduction under section 35B(1)(b)(iv), emphasizing the maintenance of the warehouse for sales promotion outside India by the assessee.