Income Tax Appellate Tribunal - Ahmedabad
Cadila Laboratories (P.) Ltd. vs Inspecting Assistant Commissioner on 24 December, 1992
Equivalent citations: [1993]45ITD216(AHD)
ORDER
R.L. Sangani, Judicial Member
1. to 12. (These paras are not reproduced here as they involve minor issues.]
13. As far as assessment year 1983-84 is concerned only clauses of Section 35B(1)(b) that were in force are clauses (i), (iv), (vii) and (ix). The other clauses had been omitted. The assessee relies on clauses (i) and (iv) which are as under:
(i) Advertisement or publicity outside India in respect of goods, services or facilities which the assessee deals in or provides in the course of business.
(iv) Maintenance outside India of a Branch, Office or agency for the promotion of sale outside India of such goods, services or facilities.
14. The above commission has been paid outside India. The question is whether the assessee could be regarded to have maintained agency for the promotion of sale outside India. The copies of agreements with the foreign agents are on record. On examining the provisions of clauses (iv) we find that the Legislature has used disjunctive expression "Or" in Clause (iv) of Section 35B(1)(b) which indicates that the meaning of the words "Branch", "Office" or "agency" occurring in the section cannot be the same. The words used in the section indicate that the claim of the assessee can be accepted if it is established that the assessee was maintaining outside India, either a branch or office under his control or a agency as understood in common parlance for the promotion of sale, outside India, for goods, services or facilities. The word "agency" used in the section has acquired clear and definite meaning both under law and in trade and the same meaning shall have to be attributed to the said word in the section and not the meaning suggested on behalf of the department. In the circumstances the commission paid by the assessee to the foreign agents represented commission paid to maintain an agency outside India for the promotion of sale of the assessee's goods outside India. Consequently the assessee would be entitled to weighted deduction under Section 35B(1)(b)(iv) of the Act. We are supported in the view which we have taken by the decision of Kerala High Court in the case of Srivilas Cashew Co. v. CIT [1992] 196 ITR 887.
15. It is true that a contrary view has been taken by the Karnataka High Court in the case of Chief CIT v. Mysore Sales International Ltd. [1992] 195 TTR 457 (Kar.). The Karnataka High Court has held that since the word "agency" occurs along with the words "brand" and "office" and since the word "maintenance" has also been used in said provision, the commission paid to foreign agents did not qualify for weighted deduction. We specifically inquired from the parties whether there was any decision of Gujarat High Court on the point in controversy and we were informed that there was no direct decision of Gujarat High Court on the point in controversy. We have considered both the decisions viz., the decision of Kerala High Court and the decision of Karnataka High Court. We prefer to rely on the decision of Kerala High Court. We respectfully follow said decision and hold that the commission paid to foreign agents in respect of export of goods would be eligible for weighted deduction under Section 35B( l)(b)(iv) of the Act. We further find that similar view has been taken by Special Bench of the Tribunal in the case of K.C.P.Ltd. v. ITO[1991] 38 ITD 15 (Hyd.). The Tribunal in that decision has observed that maintenance of agency means of act of continuing the relationship of principal and agent. We direct the ITO to allow weighted deduction on Rs. 3,10,054.
16. We shall now deal with the commission of Rs. 2,22,399 paid to Indian Agents. There are five such agents. The names have been given at page 8 of the paper book. These agents function from Bombay, Trichur and Ahmedabad. In CIT v. Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855 (Mad.) on which the department had relied, the Madras High Court held that the commission to agents would fall under Clause (iii) of Section 35B(1)(b) of the Act. That view has not been accepted by the other High Courts. The Special Bench of Tribunal in the case of J. Hemchand & Co. v. Second TTO 1 SOT 150 (Bom.) has held that such commission would fall under clauses (i) and (ii). The learned counsel for the assessee has submitted that we should follow the view of the Special Bench of the Tribunal particularly when similar view has been taken by the Kerala High Court in the case of CIT v. Kerala Nut Food Co. [1991] 192 ITR 585 (Ker.) in which certain instructions of the Board have been reproduced. The learned DR has relied on the decision of Kerala High Court in the case of CIT v. Western India Plywoods Ltd. [1990] 183 ITR 638 which is based on earlier decisions of Kerala High Court in the cases of CTT v. C. Tharian &Sons[1987] 166 ITR 607 and CIT v. Orion Coir Mats & Matting Mfrs.(P.) Ltd. [1987] 166 ITR 616.
17. We have considered the entire circumstances and facts on record. As already stated, in the relevant assessment year only clauses (i), (iv), (vii) and (ix) were in force. The Bombay High Court in the case of CAT v. Sahney Steel & Press Works (P.) Ltd. [1989] 177 ITR 354 (Bom.) has held that such commission to Indian Agents would fall under clauses (ii), (vi) and (vii). Since these three clauses were not in force in the assessment year under consideration, the claim of the assessee was bound to fail, if we rely on the decision of Bombay High Court. As already stated, the assessee's counsel has relied only on Clause (i). That clause pertains to expenditure on advertisement or publicity outside India in respect of goods, services or facilities which the assessee deals in or provides in the course of business. The commission paid to the Indian Agents cannot be said to be an expenditure on advertisement or publicity outside India as envisaged in Clause (i). It is true that Special Bench of the Tribunal in the case of J. Hemchand & Co. (supra) has held that such commission would come under clauses (i) and (ii). This view was based on the finding recorded on the facts of that case to the effect that the commission agents concerned had furnished information to the assessee about foreign buyers and publicised the assessee's goods to those buyers. Furnishing of information would come under Clause (ii) and as already stated, Clause (ii) is not in force in the year under consideration. In the present case there is no evidence that the concerned agents had publicised the assessee's goods to the foreign buyers and it was in respect of the work of publicity that the commission had been paid. In fact that is not the case of the assessee. What is argued is that the agents should be regarded to have done publicity to the goods of the assessee. However, there should be evidence to prove that expenditure was on advertisement or publicity outside India. There is no such evidence on record and as such commission paid to Indian agents would not be eligible for weighted deduction for the year under consideration.
18. The learned counsel for the assessee had argued that in the instructions of the Board which are reproduced in the case of Kerala Nut Food Co.( supra) the CBDT had accepted the decision of Special Bench of Tribunal in the case of J. Hemchand & Co.(supra) and as such we should decide the present controversy in the light of the decision of the Special Bench in the case of J. Hemchand & Co. [supra]. We find that it is not correct to say that the CBDT had accepted in its entirety the decision of the Special Bench of the Tribunal in the case of J. Hemchand & Co. (supra). In the instructions which have been reproduced it is specifically mentioned that there are several points on which the Board did not agree. There is nothing in those instructions to indicate that the Board had agreed on the decision of Special Bench as far as item of commission paid to Indian Agents was concerned. That aspect is irrelevant because we have already referred to the decision of the Special Bench in respect of commission paid to Indian Agents and we have pointed out that the said decision proceeded on the basis that the agents had collected information and had given publicity to the goods of the assessee and for that reason clauses (i) and (ii) were attracted. The learned counsel for the assessee had conceded that the entire commission paid to Indian Agents would not be eligible because Clause (ii) was not in force in the year under consideration but, according to him, some portion of the commission which would be attributable to activity under Clause (4) should be held eligible for weighted deduction. We are unable to accept this submission for the simple reason that there is no evidence on record which could form basis for a firm finding to the effect that a particular portion of the commission represented expenditure on advertisement or publicity outside India in respect of the goods which the assessee dealt in in the course of the business. Consequently no portion of the commission paid to Indian Agents would be eligible for weighted deduction. In the case of Kerala Nut Food Co. (supra) which the learned counsel has strongly relied on, the assessment year involved was the assessment year in which Clause ((0 was in force and on the facts of that case the finding arrived at was that clauses (i) and (ii) were attracted. Such is not the case here. We accordingly confirm the order of the ITO disallowing weighted deduction in respect of commission of Rs. 2,22,399 paid to the Indian Agents.
19 & 20. [These paras are not reproduced here as they involve minor issues.]