1983 (9) TMI 165 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility of commission paid to State Trading Corporation (STC) for weighted deduction under section 35B of the Income-tax Act, 1961.
2. Interpretation of services rendered by STC in relation to section 35B.
3. Applicability of the CBDT circular regarding weighted deduction to the assessee's case.
4. Relevance of the Madras High Court decision in CIT v. Southern Sea Foods (P.) Ltd. to the present case.

Issue-wise Detailed Analysis:

1. Eligibility of Commission Paid to STC for Weighted Deduction under Section 35B:
The primary issue is whether the commission paid by the assessee to the STC qualifies for a weighted deduction under section 35B of the Income-tax Act, 1961. The Tribunal considered the nature of services rendered by STC, which include product development, innovation, assistance in sampling and costing, quality control, testing facilities, sales, and after-sales service. The Tribunal concluded that these services fall within the eligible clauses of section 35B(1)(b) and thus qualify for weighted deduction.

2. Interpretation of Services Rendered by STC in Relation to Section 35B:
The Tribunal examined the services provided by STC, which included sending foreign buyers and technicians to the assessee's tannery, obtaining market information, distributing goods, providing technical information, and assisting in contract execution. These services were found to be comprehensive and integral to the export process, thereby qualifying for weighted deduction under section 35B. The Tribunal emphasized that the services rendered by STC are not limited to mere procurement of orders but encompass a wide range of activities that promote exports.

3. Applicability of the CBDT Circular Regarding Weighted Deduction to the Assessee's Case:
The Tribunal considered a CBDT circular that allowed weighted deduction for service charges paid to STC by vegetable oil exporters. The Tribunal found that the nature of services rendered by STC to the assessee was identical to those mentioned in the circular. Thus, the Tribunal held that the assessee is equally eligible for the weighted deduction, rejecting the departmental representative's argument that the benefit should be confined only to vegetable oil exporters.

4. Relevance of the Madras High Court Decision in CIT v. Southern Sea Foods (P.) Ltd. to the Present Case:
The Tribunal distinguished the present case from the Madras High Court decision in CIT v. Southern Sea Foods (P.) Ltd., where the payment was made to agents in India for procuring orders. The Tribunal noted that in the present case, the STC provided a range of services beyond mere order procurement, including market research, publicity, and technical support. Therefore, the Tribunal concluded that the Madras High Court decision does not apply to the facts of the current case.

Conclusion:
The Tribunal concluded that the assessee is entitled to the weighted deduction under section 35B for the commission paid to STC. The services rendered by STC were found to be comprehensive and integral to the export process, qualifying for the deduction. The Tribunal dismissed the departmental appeals, affirming that the CBDT circular applies to the assessee's case and that the Madras High Court decision in CIT v. Southern Sea Foods (P.) Ltd. does not affect the assessee's eligibility for the deduction.