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TMI Blog1993 (8) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 of the Act, since it was viewed by him that the commission paid to foreign agents did not qualify for the deduction under section 35B as no branch office had been maintained by the assessee-company outside India. On appeal by the assessee-company against the order of the Commissioner of Income-tax under section 263, the Tribunal had decided the issue in favour of the assessee-company according to the ratio of the Income-tax Appellate Tribunal, Allahabad Bench, in the case of Kothari Carpets [1984] 9 ITD 357, which had been followed by the Income-tax Appellate Tribunal, Calcutta, in several cases. Before us the contentions raised before the Tribunal have been reiterated. We have heard learned counsel appearing for the parties. The agreement dated February 16, 1981, by and between the assessee and the foreign agents, inter alia, provided as follows : " You will procure and refer to us for our acceptance orders for the products in accordance with such instructions and directions as we may from time to time give to you. You will have no right to accept on our behalf orders procured by you or make contracts for the sale of the products on our behalf. You shall have no right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case are, however, different. The Tribunal found in this case that the expenditure was incurred by the assessee-company on maintenance of the agency outside India for promotion of sale outside India of goods which the assessee 'deals in'. It will appear from the details of the expenditure submitted before the Tribunal that the payments were made to three foreign agents in the U. A. E., England and Australia. Mr. Bagchi, appearing for the Revenue, has fairly drawn our attention to the decision of the Kerala High Court in CIT v. Pooppally Foods [1986] 161 ITR 729. In that case, the facts found by the Tribunal were that the payment was made to an agent outside India and that it was in the nature of commission. There, the Kerala High Court held that the commission paid to an agent in a foreign country for promotion of export trade would attract any one of the sub-clauses (ii), (iii), (iv) and (viii) of clause (b) of section 35B(1) of the Act. In our view, on the facts of this case, the expenditure, having been made by way of commission to agents in foreign countries for promotion of the business, would fall within the purview of sub-clause (iv) of section 35B(1)(b)." Our a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opening sentence of clause (b) of section 35B(1). The expenditure which qualifies for the weighted deduction should be one that was incurred ' wholly and exclusively ' on the various activities referred to in sub-clauses (i) to (ix) of clause (b). If the expenditure is relatable to anything else, certainly this provision cannot be attracted. Further, under sub-clause (iv), the expenditure incurred for the maintenance of the agency should be for the promotion of the sales outside India. Therefore, the maintenance of the agency for the sale promotional purposes alone is covered by the relevant words of sub-clause (iv) and such expenditure should be entirely incurred for the said purpose. The commission paid in the instant case certainly includes a remuneration for the agent for procuring a particular sale and it is not a commission for the promotion of the sales as such by building up a market for sandalwood oil generally." Our attention has also been drawn to the decision of the Kerala High Court in the case of Srivilas Cashew Co. v. CIT [1992] 196 ITR 887. In that case the Income-tax Officer rejected the claim of the assessee on the ground that the assessee did not maintain a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not necessary that the assessee should maintain an office or branch. The question is whether the assessee appointed an agent for the purpose of promotion of sales. The agreement in this case indicates without any doubt, that the agent was appointed for sales promotion and commission was paid. For such promotion payment has been made to the foreign agent with the approval of the Reserve Bank of India. It cannot be said that section 35B(1)(b)(iv) enjoins that the assessee himself has to maintain an office or agency outside India. He can operate through a foreign agent which has been done in the instant case. Since the assessee has paid commission to the foreign agent outside India for promotion of sales, expenditure for payment of such commission incurred by the assessee must be held to have been incurred for maintaining an agency outside India. With great respect we fail to subscribe to the view taken by the Karnataka High Court in Chief CIT v. Mysore Sales International Ltd. [1992]. 195 ITR 457, that the principle of ejusdem generis should apply in construing the expression " maintenance outside India of a branch, office or agency for the promotion of sales, etc." and the term ..... X X X X Extracts X X X X X X X X Extracts X X X X
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