2014 (10) TMI 664 - HC - Income Tax

Entitlement for claim of deduction u/s 35B Commission paid to Shri C.G.S. Mani - Whether the Tribunal was rightly in holding that the commission paid by the assessee to Shri C.G.S. Mani amounted to maintenance of an agency within the meaning of clause (iv) of section 35B(1)(b) Held that - The Tribunal was rightly of the view that the agreement with Shri Mani records that Shri Mani is appointed as representative of the assessee for export to the countries mentioned in the agreement - He has been given suitable authority to negotiate and conclude any business and trade contracts with the organisation in the countries for supply of stores and goods to the countries mentioned in the agreement and/or for goods and stores to be supplied by the countries mentioned in the agreement to Indian parties - assessee claimed weighted deduction on account of proportionate administrative expenses relying upon Commissioner of Income Tax V/s. Stepwell Industries Ltd. 1997 (8) TMI 5 - SUPREME Court - the activity carried would come within the purview of the provision and, therefore, the weighted deduction was allowable thus, the order of the Tribunal is to be upheld Decided against revenue.

Summary

Issues:
- Interpretation of section 35B of the Income Tax Act, 1961 regarding deduction for commission paid to a foreign agent for promotion of exports.

Analysis:
1. The Tribunal referred a question to the Bombay High Court regarding the entitlement of an assessee company to a deduction under section 35B for commission paid to a foreign agent. The Commissioner of Income Tax had disallowed the deduction, stating that the payment did not amount to maintenance of an agency for promotion of exports.

2. The Tribunal reversed the Commissioner's order, citing an agreement with the foreign agent which authorized him to negotiate and conclude business contracts for export. The Tribunal relied on previous decisions and the specific terms of the agreement to support the deduction claim made by the assessee.

3. Mr. Suresh Kumar, representing the revenue, highlighted a judgment where a public limited company claimed a deduction for commission paid to Tata Exports for similar activities. The Division Bench in that case concluded that the activities of Tata Exports fell within the purview of the provision for weighted deduction, based on the Supreme Court's decision in another case.

4. After reviewing the precedents and relevant facts, the High Court found that the activities of the foreign agent in negotiating and concluding business contracts for export fell within the scope of section 35B. Citing the Supreme Court's decision, the High Court ruled in favor of the assessee, allowing the deduction claimed for the commission paid to the foreign agent.

5. The High Court answered the referred question in favor of the assessee and against the revenue, based on the interpretation of the law and the activities carried out by the foreign agent. The judgment was disposed of with no costs awarded.