Kerala High Court
Srivilas Cashew Co. vs Commissioner Of Income-Tax on 12 August, 1991
Equivalent citations: [1992]196ITR887(KER)
JUDGMENT K.K. Usha, J.
1. At the instance of the assessee, the following question of law is referred for our opinion by the Income-tax Appellate Tribunal, Cochin Bench :
" Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction in respect of the sum of Rs. 1,85,232 under Section 35B(1)(b)(iv) of the Income-tax Act, 1961?"
2. For the assessment year 1981-82, the assessee, a processor and dealer of cashew kernels, claimed before the Income-tax Officer weighted deduction in respect of commission payments made to five foreign agents amounting to Rs. 2,02,712 under Section 35B(1)(b)(iv) of the Income-tax Act, 1961. Under the above provision, deduction can be claimed if the expenditure is incurred wholly and exclusively on maintenance, outside India, of a branch office or agency for the promotion of sale, outside India, of such goods, services or facilities. The Income-tax Officer rejected the claim of the assessee holding that the assessee did not maintain a branch office or agency of its own outside India, but the sales were made through agents who were carrying on the business of agency independently and for their own benefit and that the payment of commission made to such agents cannot be construed as an expenditure incurred by the assessee for maintaining an agency as contemplated under Clause (iv).
3. Aggrieved by the view taken by the assessing authority, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). The appellate authority took the view that, in order to claim deduction under Clause (iv), it is not necessary that the agent of the assessee outside India should act exclusively for the assessee as held by the Income-tax Officer. After examining copies of agreements entered into by the assessee with two of such agents which were registered with the Reserve Bank of India, the appellate authority treated the commission paid to them as weighted deduction under Section 35B. The Revenue took up the matter before the Income-tax Appellate Tribunal. Agreeing with the view taken by the assessing authority, the Tribunal held that since the agents were not acting exclusively for the assessee, no deduction can be claimed in respect of the commission paid to them under Section 35B(1)(b)(iv).
4. The assessee submits that the view taken by the assessing authority and the Tribunal is not sustainable as it runs counter to the section. The section does not insist that the agent shall do the business of the assessee exclusively. On the other hand, it was argued on behalf of the Revenue that the word "agency" takes its colour from the words "branch" and "office" (these words, in the context, can only mean the branch or office of the assessee manned by his servants) used in the section and, therefore, it should be given the same meaning and, if that be so, the relationship between the assessee and the so called agent shall be that of master and servant. Here, the persons who are doing the agency work are doing agency business for others also. They, therefore, cannot be said to be servants of the assessee and hence the commission paid to them cannot be said to be an expenditure incurred wholly and exclusively for maintaining an agency outside. In support of this contention, the Revenue relied on a decision of this court in CIT v. M. K. Gabrial Babu [1991] 188 ITR 464. Reference was also made to Kalyanji Kuwarji v. Tirkaram Sheolal, AIR 1938 Nag 254, Govind Prasad Sharma v. Board of Revenue, AIR 1965 MP 66 and Lakshminarayan Ram Gopal and Son Ltd. v. Govt, of Hyderabad [1954] 25 ITR 449 ; AIR 1954 SC 364. Counsel for the Revenue, therefore, submitted that the assessee is not entitled to claim deduction under Section 35B(1)(b)(iv).
5. We are not impressed by this argument. The word "agency" used in the section has acquired a clear and definite meaning both under law and in trade. The same meaning shall be attributed to the word in the section and not the meaning suggested by counsel for the Revenue. It is all the more so because the Legislature has deliberately used the disjunctive expression "or" denoting that the meaning of the words " branch ", "office" or " agency " cannot be the same. In the decision of the Supreme Court in Lakshminarayan Ram Gopal, AIR 1954 SC 364, the relationship of master and servant and principal and agent were considered in detail and the Supreme Court quoted with approval the statements of law contained in Halsbury's Laws of England :
" A principal has the right to direct what work the agent has to do, but the master has a further right to direct how the work is to be done."
6. The words used in the section only indicate that the claim can be accepted if it is established that the assessee is maintaining, outside India, either a branch or office under his control or an agency understood in common parlance for the promotion of the sale outside India, of his goods, services or facilities.
7. The commission paid by the assessee to the agents is the expense incurred by the assessee to maintain an agency outside India for the promotion of sale of the assessee's goods outside India. The assessee is, therefore, entitled to claim deduction in respect of the above payment under Section 35B(1)(b)(iv) of the Income-tax Act, 1961.
8. In the result, the question referred is answered in the affirmative and in favour of the assessee.
9. 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.