Madras High Court
Commissioner Of Income Tax vs Farida Prime Tannery on 13 August, 1996
JUDGMENT Thanikkachalam, J.
1. In pursuance of the direction given by this Court, dt. 18th April, 1985 in TCP No. 244 of 1982, the Tribunal referred the following question for the opinion of this Court under s. 256(2) of the IT Act, 1961, hereinafter referred to as the 'Act' "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of Rs. 2,42,670 made to the State Trading Corporation as service charges and the commission of Rs. 1,85,910 paid to local agents of foreign buyers would qualify for weighted deduction under s. 35B of the IT Act, 1961 ?"
2. The question consists of two parts, the first part relates to service charges paid to State Trading Corporation on which weighted deduction under s. 35B of the Act was claimed. The second part relates to service charges and commission paid to local agents of foreign buyers on which weighted deduction was claimed under s. 35-B of the Act.
3. Insofar as the first part of the question is concerned, it related to service charges paid to State Trading Corporation. When this question came up for consideration before this Court, the learned standing counsel appearing for the Department, submitted that the Department is not pressing this part of the question. Therefore, the first part of the question is returned unanswered.
4. Insofar as the second part of the question is concerned, it related to claim of weighted deduction under s. 35B of the Act with regard to commission paid to local agents of foreign buyers.
5. The assessee is a firm, carrying on business as exporter of hides and skins and finished leather. Commission was paid to local agents of foreign buyers, amounting to Rs. 1,85,910. The assessee contended that the commission paid to local agents would not fall under sub-cl. (iii) of s. 35B(1)(b)(i), (ii) and (vi) of the Act. Therefore, according to the assessee, even if the commission was paid to the local agents of the foreign buyers within India, such payment would be eligible for weighted deduction. Before the ITO, the assessee produced the sale bills. On the basis of the sale bills, the ITO came to the conclusion that there is outright sale of goods by the assessee in favour of the persons, who are having export licence. Therefore, according to the ITO the assessee is not exporting the goods. Further, the ITO found that the commission payment made in India would not be eligible for weighted deduction under sub-cl. (iii) of s. 35B of the Act. On appeal, the first appellate authority allowed the deduction considering the fact that payment of commission to local agents of foreign buyers would not fall under sub-cl. (iii) of s. 35-B of the Act. On appeal, the Tribunal found that there is no evidence on record to show that there is no evidence on record to show that there is outright sale in favour of the person, who is having export licence. Further, the Tribunal hold that the local agents used to do various services in the matter of exporting the goods by the assessee. The services are enumerated in the order passed by the Tribunal. The Tribunal pointed out that sub-cl. (iii) of s. 35B of the Act would not be applicable on the facts available on record. The Tribunal recorded the findings that most of the foreign buyers have their agents in Madras. Those agents contact the local tanners for availability of skins, etc. They obtain full details regarding the production facilities, credit-worthiness of the party, machinery employed in the tannery and quality of the skins tanned through visits to the assessee's tannery and local enquiries. The local agents, in turn, inform the principals about the assessee and canvass business for the assessee. They also inspect the skins before its despatch to foreign countries. They give the assessee information regarding the markets outside India for assessee's goods, the price which the assessee can get for various types of skins tanned and other technical information like use of a particular machinery, chemical which would give the assessee the leverage in fixing the price and such other technical information. In view of the various duties done by the local agents of the foreign buyers, the commission paid to them was said to be eligible for weighted deduction irrespective of the fact whether the commission payment was made in India.
6. The learned standing counsel appearing for the Department submitted that the ITO on the basis of the sale bills produced by the assessee, came to the conclusion that there was outright sale in favour of the person who is having the licence to export the goods, therefore, the assessee is not exporting. The learned standing counsel pointed out that the Tribunal has not noted down this fact, but without controverting this statement made by the ITO, came to the conclusion that there is no evidence on record to show that there was outright sale in favour of the agents.
7. The learned counsel appearing for the assessee submitted that the sale, if at all, is in favour of the local agents of the foreign buyers. As otherwise, it was pointed out that the Tribunal has recorded a finding that there is no evidence to show that there was outright sale in favour of the person, who is having the licence to export. Under such circumstances, it was submitted that the finding of the Tribunal should be accepted, since the Tribunal is the highest fact-finding authority.
8. We have heard the learned standing counsel appearing for the Department and the learned counsel appearing for the assessee on this aspect. No doubt, in the order passed by the ITO, it is stated that the sale bills were produced before him, and on the basis of the sale bills, he came to the conclusion that there is an outright sale in favour of the persons, who is having the licence, meaning thereby that the assessee is not an exporter. But the Tribunal, which is a highest fact-finding authority, recorded a finding that there is no evidence on the side of the assessee to show that there is an outright side. When the Tribunal recorded this finding, the presumption would be that the Tribunal would have seen the order passed by the ITO, the order passed by the first appellate authority and the documents available on record. When once the Tribunal recorded a finding, it is not possible for this Court, sitting in a reference jurisdiction, to go into the question of evidence on which the Tribunal recorded a finding. Further, the sale bills were not produced before us to show that there is any outright sale or not. Under such circumstances, we accept the finding given by the Tribunal that there is no evidence to show that there is outright sale in favour of a person, who is having a licence.
9. The services rendered by the local agents of foreign buyers would go to show that this would have happened prior to sale. If the sale took place, then it can be said that there is supply of goods and that, therefore, sub-cl. (iii) of s. 35B of the Act would apply. Before the stage of the sale taking place, the foreign buyers and the local agents are performing various services by which the payment made to them would come under sub-cl. (i), sub-cl. (ii) or under sub-cl. (vi) of s. 35B of the Act. Since the payment of commission was not classified under sub-cl. (iii), the fact whether the commission was paid in India or outside India is immaterial. For this finding, we are depending upon the decision of the Kerala High Court in CIT vs. Kerala Nut Food Co. .
10. According to the facts arising in CIT vs. Southern Sea Foods (P) Ltd. (1983) 140 ITR 855 (Mad) : TC 15R. 427 the assessee-company had engaged the services of another company 'M' for the purpose of procuring orders from foreign buyers in respect of export of prawns and shrimps to the foreign countries and paid commission. The assessee claimed weighted deduction under s. 35B of the Act on the commission paid. According to the Tribunal, the assessee was entitled to have the weighted deduction either under sub-cl. (ii) or sub-cl. (iv) or sub-cl. (viii) of s. 35B(1)(b) of the Act. In this decision, the circular issued by the CBDT, dt. 28th December, 1981, was not considered since this was not available at the time when this decision was rendered. Further, in this decision it was held that commission paid for merely procuring information concerning the export markets would not fall under sub-cl. (ii) or sub-cl. (iv) or sub-cl. (viii) of s. 35(1)(b) of the Act. This decision was rendered on the facts arising in that case. But according to facts arising in the present case, the local agents of the foreign buyers were not only procuring information concerning export markets, but also rendering various other services like advertisement or publicity outside India in respect of the goods, services or facilities, which the assessee deals in or provides in the course of his business; obtaining information regarding markets outside India for such goods, services or facilities; furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services of facilities. Therefore, on facts we come to the conclusion that the commission paid to the local agents of foreign buyers in the present case is eligible for weighted deduction under sub-cl. (i) and (vi) of s. 35B of the Act.
11. In Raja Trading Company vs. CIT , this Court held that since the commission on export of Rs. 38,459 paid in India is not relatable to export trade, relief under s. 35B of the Act was not granted. Therefore, on facts this Court came to the conclusion in the abovesaid decision that the commission payment does not relate to export trading. Therefore, this decision would render no assistance to decide the issue arising in the present case. Accordingly, we answer the second part of the question in the affirmative and against the Department.
12. No costs.