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TMI Blog1984 (3) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... amburg. It will be necessary to quote the relevant provisions of this agreement as under : " It has been agreed between both the parties as follows : 1. The first party 'KC' are the manufacturers of Indian hand-knotted carpets who have agreed to appoint the second party as 'AGENTS', Export Promotion Sole Selling Agents in whole of Europe including the United Kingdom for a period of five years. 2. The 'AGENTS' will secure orders for export of hand-knotted carpets from first class customers. 3. 'KC' will manufacture and export the orders submitted and confirmed. 4. It has been decided that a commission of 5 per cent will be paid to 'AGENTS' at the same time when the documents are paid by the customers. 'KC' will give irrevocable instruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed and allowed under section 35B(1)(b)(iv). This section reads as under : "35B(1)(a) where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred after the 29th day of February, 1968, but before the 1st day of March, 1983, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in clause (b), he shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year : Provided that in respect of the expenditure incurred after the 28th day of February, 1973 but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any agency and was, therefore, not entitled to deduction under section 35B. After giving the assessee an opportunity of being heard, he enhanced the income by Rs. 1,22,771. 4. The assessee is now in appeal before us. The learned counsel for the assessee, Shri Agarwal, submitted before us that the Commissioner (Appeals) had completely misunderstood the provisions of the Act inasmuch as he had compared the legal interpretation of the words 'maintenance' and 'agency' with those understood in common parlance. He submitted that none of the authorities below have doubted the genuineness of the agency agreement or the fact that the assessee had, in fact, made the payment of Rs. 3,68,312 to the agent. He also submitted that the assessee was pruden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is necessary to create an agency. " Shri Agarwal contended that an agent was not a servant and that his status emanated from a contract entered into with the principal. He argued that the German party, admittedly, was the assessee's agent and not the servant of the latter. His next contention was that in terms of section 185 of the Indian Contract Act, no consideration was necessary to create an agency and that it was enough if there was a contract to that effect between the principal and the agent, which by itself, created an agency between them. On the basis of these legal submissions, his argument was that there was a contract of agency between the assessee and the German firm. 6. Shri Agarwal then referred to dictionary meanings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to have been maintained. He finally submitted that the assessee had incurred an expenditure of Rs. 3,68,312 in the maintenance of the above agency, which expenditure was entitled to relief under section 35B. According to him, therefore, the ITO was justified in allowing the above relief and the Commissioner (Appeals) had committed a legal error in withdrawing it. 7. On behalf of the department, it was submitted that the question of payment was linked with the element of the agency and the two could not be separated. The learned departmental representative, in this connection also referred to certain observations appearing at page 187 of Law and Practice of Income-tax, Vol. 1, Seventh edition by Kanga and Palkhivala. He has also referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to maintain an agency outside India. Obviously in the case of maintaining a branch or an office, the burden of meeting the entire expenditure would have been upon the assessee. The assessee, however, chose to maintain only an agency. In order to maintain an agency, his responsibility was not to meet its expenses, but to keep the relationship with the German firm intact or to carry it on. This is what the assessee has done. The assessee, therefore, has maintained an agency outside India in terms of sub-clause (iv) of the section. This view also finds support from the various decisions cited at the bar. We do not agree with the view of the Commissioner (Appeals) that the legal meaning of maintenance of an agency can be compared with the use o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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