Gujarat High Court
Commissioner Of Income Tax vs Cadila Laboratories (P) Ltd. on 2 February, 1995
Equivalent citations: [1996]221ITR35(GUJ)
Author: M.B. Shah
Bench: M.B. Shah
JUDGMENT M.B. Shah, J.
1. For the asst. yr. 1983-84, the Tribunal, Ahmedabad Bench 'A', has referred the following question for our opinion, under s. 256(2) of the IT Act, 1961 ('the Act') :
"Whether, the Tribunal was right in law in holding that the assessee had been maintaining agency for promotion of sales outside India within the meaning of s. 35B(1)(b)(iv) and whether the Tribunal was right in allowing weighted deduction ?"
2. The aforesaid question arises in the background of the fact that the assessee claimed weighted deduction of Rs. 3,10,034, under s. 35B(1)(b)(iv) of the Act, on account of commission paid to foreign agents, by contending that the commission was paid to various foreign agencies on account of services rendered by them for promoting exports, that those services included the services for procuring and maintaining export business outside India.
3. The Tribunal considered the fact that there were six agents of the assessee, and they represented export territories of U. S. S. R., Oman, Kenya, Sri Lanka and China, and as far as Kenya was concerned, one agent functioned from U. K. while the other functioned from Nairobi. The Tribunal also found that the commission was paid outside India.
4. The relevant part of sub-clause (iv) of clause (b) of sub-s. (1) of s. 35B, as it stood at the relevant time, is as under :
"(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. Reading the said sub-clause, it is apparent that weighted deduction can be given to the assessee, if such expenditure is incurred wholly and exclusively on the maintenance of a branch, office or agency outside India for promotion of sale outside India of goods, services and facilities. Thus, under the said sub-clause, the assessee is entitled to weighted deduction for expenditure incurred in maintaining agency for promotion of sale outside India, and that expenditure would be covered by the said sub-clause, if it is found that on behalf of the assessee, the other person had entered into transaction in the foreign country. It is not necessary that the assessee should have executed a formal agreement of agency, or to have an office for that purpose.
6. In Halsbury's Laws of England, Third Edition, Volume I, para. 351, at page 146, with regard to 'Agency' it is observed as under :
"351. Agency depended on true nature of relationship. - An agent primarily means a person employed for the purpose of placing the principal in contractual or other relations with a third party and it is essential to an agency of this character that a third party should be in existence or contemplated. The essence of such an agent's position is that he shall be but a conduct pipe connecting two other parties."
7. In Halsbury's Laws of England, Fourth Edition, Volume 1, para. 701 at page 418, under the Chapter 'Agency' it is stated as under :
"701. Nature of the relation of agency. - The terms 'agency' and 'agent' have in popular use a number of different meanings, but in law the word 'agency' is used to connote the relation which exists when one person has an authority or capacity to create legal relations between a person occupying the position of principal and third parties.
The relation of agency arises whenever one person, called 'the agent' has authority to act on behalf of another called 'the principal', and consents so to act. Whether that relation exists in any situation depends not on the precise terminology employed by the parties to describe their relationship, but on the true nature of the agreement or the exact circumstances of the relationship between the alleged principal and agent."
8. In the same paragraph, it is further stated as under :
"The essence of the agent's position is that he is only an intermediary between two other parties."
9. Undisputedly, in the present case, the expenditure is incurred by the assessee for payment of commission to its agents in foreign countries for the purpose of promotion of sale outside India. This would certainly be the amount of expenditure incurred wholly and exclusively for the promotion of sales outside India, on maintenance of agency outside India.
10. Under the said sub-clause, it is not necessary that the assessee would get the benefit of weighted deduction only if a branch or office is maintained outside India. But that benefit the assessee would get, even if the work of promotion of sale is done through agency.
Similar view is taken by -
(1) The Calcutta High Court, in the case of CIT vs. Chloride India Ltd. (1992) 193 ITR 355 (Cal).
(2) The Kerala High Court in the case of CIT vs. Pooppally Foods (1986) 161 ITR 729 (Ker), and (3) The Kerala High Court in the case of Srivilas Cashew Co. vs. CIT (1992) 196 ITR 887 (Ker).
11. Considering the aforesaid discussion and the ratio laid down in the aforesaid decisions, the question raised in the present reference is answered in favour of the assessee and against the Revenue.
12. The reference stands disposed of accordingly with no order as to costs.