2010 (9) TMI 65 - HC - Income Tax

Weighted deduction - Payment of commission - made to the parties in Bangladesh and Shri Lanka - relationship between the agents and assessee - It was also observed by the Tribunal that the assessee had not shown to have any regular agreement of agency with any of the said parties. Even necessary correspondence between those parties was not placed before the Tribunal or before the authorities below to show that what was the exact nature of relationship between those parties and the assessee. - Held that commission paid by the assessee was not established so as to disqualify the assessee from grant of weighted deduction under Section 35B of the Act.

Summary

Issues:
1. Claim of weighted deduction under Section 35B of the Income Tax Act for commission paid to agents outside India.
2. Dismissal of application under section 254(2) of the Act regarding alleged mistakes in the Tribunal's order.
3. Reference for opinion on the establishment of an agency relationship with parties to whom commission was paid.

Analysis:

Issue 1: Claim of Weighted Deduction under Section 35B
The assessee claimed weighted deduction under Section 35B of the Income Tax Act for commission paid to agents outside India. However, the Assessing Officer, CIT (A), and the Income Tax Appellate Tribunal all denied the claim. The Tribunal noted that the assessee failed to establish a regular agreement of agency with the parties in Bangladesh and Sri Lanka to whom the commission was paid. Lack of necessary correspondence and evidence regarding the exact nature of the relationship between the parties and the assessee led to the rejection of the claim. The Tribunal emphasized that the mere payment of commission does not establish an agency relationship without evidence of an obligation to promote the sale of the assessee's goods. Consequently, the Tribunal upheld the decisions of the authorities below, concluding that the assessee was not entitled to the weighted deduction.

Issue 2: Dismissal of Application under Section 254(2)
The assessee filed an application under section 254(2) of the Act, claiming mistakes in the Tribunal's order and stating that documents were filed before the Assessing Officer. However, the Tribunal dismissed the application, citing the absence of documents filed before the Tribunal and the lack of discussion on those documents in previous orders. The Tribunal deemed it impermissible for the assessee to submit documents at a later stage through a Miscellaneous application. Subsequently, the assessee sought a reference under Section 256(1) of the Act, raising a question on the establishment of an agency relationship with the parties to whom commission was paid.

Issue 3: Reference for Opinion on Agency Relationship
The reference posed the question of whether the Appellate Tribunal was correct in holding that the relationship of agency with the parties to whom commission was paid by the assessee was not established, thereby disqualifying the assessee from receiving the weighted deduction under Section 35B of the Act. The Court noted the absence of representation on behalf of the assessee and concluded that the Tribunal had made findings of fact based on the material before it. Consequently, the Court found no legal question requiring its consideration and answered the reference against the assessee.