Kerala High Court
Commissioner Of Income-Tax vs Orion Coir Mats And Matting ... on 13 March, 1987
Equivalent citations: [1987]166ITR616(KER)
Author: T. Kochu Thommen
Bench: T. Kochu Thommen
JUDGMENT T. Kochu Thommen, J.
1. In ITR No. 82 of 1982, the following question has been, at the instance of the Revenue, referred to us by the Income-tax Appellate Tribunal, Cochin Bench :
" Whether, on the facts and in the circumstances of the case, and on a consideration of the agency agreement, documentary and other evidence, the Tribunal was right in law and fact in holding that the persons to whom payments were made were the agents of the assessee-company and the commission allowable to them is an expenditure eligible for rebate under Section 35B and is not the above finding wrong, unreasonable and without consideration of the relevant materials ?"
2. In ITR No. 100 of 1980, a similar question has been, at the instance of the Revenue, referred to us by the Income-tax Appellate Tribunal, Cochin Bench. That question reads :
" Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the persons to whom payments were made were the agents of the assessee and that the assessee was entitled to weighted deduction under Section 35B of the Income-tax Act, 1961 ?"
3. The assessee is the same in both the cases. ITR No. 82 of 1982 relates to the assessment year 1974-75 and ITR No. 100 of 1980 relates to the assessment year 1973-74. The finding of the Appellate Tribunal in both these cases is that the assessee is entitled to weighted deduction in terms of Section 35B(1)(b)(iv) of the Income-tax Act, 1961 (the "Act").
4. The case of the assessee is that it paid a percentage of the export price of the goods as commission to each of its agents employed outside India for the promotion of its sales. Such agency commission paid, claims the assessee, is deductible under Section 35B(1)(b)(iv) of the Act. This provision reads :
" 35B. Export markets development allowance.--.....
(b) The expenditure referred to in Clause (a) is that incurred wholly and exclusively on--...
(iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities ;..."
5. This means that, in order to attract the provision, the expenditure must have been incurred wholly and exclusively to maintain outside India a branch, office or agency of the assessee for promoting the assessee's business of selling goods, services or facilities outside India. For the claims for deduction to succeed, it must be proved that the assessee had at the relevant time an agent outside India, and that the agent promoted the assessee's sale of goods, services or facilities outside India. In the present case, it is in evidence that the assessee had entered into agreements with certain persons abroad. These agreements show that the assessee is liable to pay each agent a percentage of the sale price as commission. The Tribunal accepted the contention of the assessee that the recipient of the amount, described as commission, acted as the agent of the assessee.
6. If the amount described as commission is paid to a person who is himself the principal buyer of goods from the assessee by deduction of a percentage of the sale price, such payment, as found by the Commissioner in ITR No. 100 of 1980, is only a trade discount and not payment of commission. In the absence of any evidence to show that the recipient of the money acted for and on behalf of the assessee as an agent in canvassing business abroad and has sold the goods to parties abroad as an agent, a deduction in the sale price of goods sold to him does not amount to payment of commission. The question, therefore, is whether the amount paid by deduction of the sale price was meant to be paid to the person who acted solely as an agent of the assessee, and not in his own right as a principal, or as an agent of foreign buyers. If the answer is that he was himself a principal or an agent of foreign buyers, the amount paid to him in the manner in which it is stated to have been paid would not attract the benefit of Section 35B(1)(b)(iv) of the Act. On the other hand, if he acted solely as the assessee's agent for canvassing the assessee's business abroad, then he earned the money for the work which he did abroad on behalf of the assessee and the reward which he received is an agency fee or commission so as to attract the benefit of Section 35B(1)(b)(iv) of the Act.
7. It is stated by the Tribunal that documents were produced before it and some documents were selected as specimens of the course of dealings between the parties. From the findings of the Tribunal, we are not satisfied that the Tribunal has appreciated the legal significance of the necessary facts; [see the principles stated in ITR Nos. 7 and 8 of 1982 (CIT v. Tharian & Sons [1987] 166 ITR 607)]. In the circumstances, we are of the view that the question which arises in either of these cases requires to be considered afresh with reference to the relevant facts and the correct principles of law.
8. Accordingly, we decline to answer the question referred to us in either of these cases.
9. We direct the parties to bear their respective costs in these tax referred cases.
10. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.