2017 (7) TMI 1014 - SC - Income Tax

Entitled to weighted deduction in terms of the provision of Section 35B(1)(b)(iv) - appointment of agent - High Court 2005 (8) TMI 107 - ALLAHABAD High Court rejecting the claim of the assessee, observed that at no stage, the assessee had put up a case that it had maintained branch or agency outside the country - Held that - No doubt, the assessee was not maintaining any branch office. However, the case of the assessee was that Mr. Jack Barouk was appointed as his agent. It was the specific case made out by the assessee right from the stage of the assessment proceedings and was specifically argued before the ITAT, as mentioned above, which was accepted by the ITAT. Referring to agreement entered into between the assessee and Mr. Jack Barouk it is in the form of communication dated 24th October, 1977 addressed by Mr. Jack Barouk to the assessee stating therein the terms and conditions on which two parties agreed to work together. In this communication, Mr. Jack Barouk agreed to keep the goods of the assessee in his godown, show the said products to the visiting customers personally and secure orders from the territories mentioned therein namely, Benelux and France. This communication further states that he will be given 5% commission on all goods shipped by the assessee to the aforesaid territories on the orders procured by the said Mr. Jack Barouk. The assesseee had accepted and agreed on the aforesaid terms contained in the said communication and there is a specific endorsement to this effect by the assessee that the said communication, on acceptance by the assessee, became a valid and enforceable agreement between the parties. The aforesaid terms clearly state that Mr. Jack Barouk had agreed to work as an agent of the assessee and on the orders procured he was to get 5% commission. This aspect that the agreement was in fact an agency agreement stands conclusively established by the registration given by the Reserve Bank of India vide its letter dated 29th October, 1977. Captioned communication of the Reserve Bank of India reads as Registration of Selling Agency Arrangement . Thus, while giving its accord to the arrangement established between the parties it was termed as an agency arrangement. Thus, no hesitation in coming to the conclusion that Mr. Jack Barouk was an agent of the assessee and, therefore, all the conditions stipulated in Section 35B(1)(b)(iv) for giving weighted deduction of expenditure incurred by the assessee stands established. We, thus, allow this appeal and set aside the impugned order of the High Court and restored of that ITAT. - Decided in favour of assessee.

Summary

Issues:
- Entitlement to weighted deduction under Section 35B(1)(b)(iv) of the Income Tax Act, 1961 for Assessment Year 1983-84.

Analysis:
The primary issue in this case revolved around the appellant's entitlement to a weighted deduction under Section 35B(1)(b)(iv) of the Income Tax Act, 1961. The appellant had claimed a deduction for the amount paid to Mr. Jack Barouk, a commercial agent in Brussels, for the sale of goods outside India. The provision allowed for one and one-third times the amount of such expenditure incurred during the previous year, provided it was incurred wholly and exclusively on maintenance outside India of a branch, office, or agent for promoting sales outside India. The crux of the matter was whether Mr. Jack Barouk could be considered an "agent" of the assessee for the purpose of this provision.

The Assessing Officer initially denied the benefit of the provision, leading to an appeal before the Commissioner of Income Tax (Appeals) and subsequently the Income Tax Appellate Tribunal (ITAT). The ITAT, upon reviewing the agreement between the assessee and Mr. Jack Barouk, concluded that it constituted an agency agreement. Furthermore, the Reserve Bank of India had approved the agreement as an agency arrangement, reinforcing this characterization.

However, the High Court, in a decision favoring the Department, erroneously stated that the assessee had not maintained a branch or agency outside the country. Contrary to this finding, the appellant had consistently argued that Mr. Jack Barouk was appointed as its agent, a stance supported by the ITAT's ruling based on the agreement's terms and the Reserve Bank of India's approval.

Upon a detailed examination of the agreement between the parties, which outlined Mr. Jack Barouk's role as an agent securing orders and receiving commissions, the Supreme Court unequivocally determined that he indeed acted as an agent of the assessee. Consequently, all conditions specified in Section 35B(1)(b)(iv) for granting a weighted deduction on the expenditure incurred were deemed fulfilled. As a result, the appeal was allowed, the High Court's order was set aside, and the ITAT's decision was reinstated.