LexARAVINDA PARAMILA WORKS versus COMMISSIONER OF INCOME TAX
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A ARA VINDA PARAMILA WORKS v. COMMISSIONER OF INCOME TAX MARCH 3 I, 1999 B [S.P. BHARUCHA AND R.C. LAHOTI, JJ.) Income Tax Act, 1961-Sec. 35B(J)(b)(iv)-Deductions on expenditure incurred on maintenance of an agency for promotion of sales abroad- Assessee-Export of goods-Commission paid to agent abroad for procuring C orders-Claims for weighted deduction-Entitlement of-Held, payment of commission to agents abroad does not amount to maintenance of agency- Not entitled to claim deduction. Words & Phrases: D "Agency"-Meaning_ and interpretation of in the context of S. 35B(J)(b)(iv) of the Income Tax Act, 1961. Appellant-assessee manufactured agarbathis and exported them during the Assessment year. It paid commission to agents outside India for procuring orders. On the expenditure incurred on agents, a weighted deduction under E S. 35B(l)(b)(iv) of the income Tax Act, 1961 was claimied. It was disallowed by the income Tax officer; but allowed by the Commissioner oflncome Tax (Appeals). However, the Appellate Tribunal and the High Court disallowed the said claim. Hence the present appeal. F G Dismissing the appeal, this Court HELD : 1.1. Payment of commission to an agent abroad is not maintenance of an 'agency' within t.he meaning of S. 35B(l)(b)(iv) of the Income Tax Act, 1961. Thus, appellant-assessee is not entitled to claim weighted deduction under S. 35B(l)(b)(iv) of the Act. (349-H; 351-E-F] 1.2. The expenditure that is referred to In S. 35B(l)(b)(iv) of the Act has to be incurred on the maintenance outside India of a branch, office or agency for the promotion of sales outside India of the assessee's goods, services or facilities. Therefore, what is requisite is that the assessee should have maintained a branch, office or agency outside India. It is also requisite H that such branch, office or agency should be for the promotion of sales 348 r ARVINDA PARAMILA WORKS v.C.I.T. [BHARUCHA, l.] 349 outside India of the assessee's goods, services or facilities. When payment A is made, as in the irista~t case, by an assessee as commission to agents outside Indfa who had procured orders, the requirements of clause (iv) are far from satisfied. Thus, there is, in the first place, no maintenance by the assessee of an agency. Secondly, the expenditure has to be incurred on the promotion of sales of the assessee's goods outside India. When expenditure B is incurred by way of payment of commission on particular sales, that is not expenditure on the promotion of the assessee's sales in general. [352-F-H) 2. There is some merit in the observation of Karnataka High Court in Mysore Sales• case that the words "branch, office or agency" in the clause draw colour from each other and that the word 'agency' should , therefore, C be interpreted in the light of the words "branch" and 'office', it is, in any event, very clear that even if the agency is an agency established not by the 1 assessee but by a tbird party, the agency must be maintained by the assessee. [353-A-BJ *Chief Commissioner of Income Tax v. Mysore Sales international Ltd., D 195 ITR 457, approved. C.l T. v. Usha Telehoist Ltd, 212 ITR 177; Commissioner of Income Tax v. Assam Frontier Tea Ltd, 224 ITR 398 and Commissioner of Income Tax v. Pooppally Foods, 161 ITR 729, disapproved. Commissioner of Income Tax v. Cadila Laboratories (P) Ltd., 221 ITR 35, referred to. CIVIL APPELLATE JURISDICTION : Civil Appeal; No. 11366 of 1995. From the Judgment and Orde~ dated 12.12.94 of the Karnataka High Court in I. T.R.C. No. 58 of 1991. G. Sarangan and P.R. Rmasesh for the Appellant. E F B.P. Ahuja, Mrs. Neera Gupta and S.K. Dwivedi for the Respondent. G The Judgment of the Court was delivered by BHARUCHA, J. The question in this appeal is wh~~~er payment of commission to an agent abroad is maintenance of an ag~ncy within the meaning of Section 35B(l)(b)(iv) of the Income Tax Act, 1961. The High H 350 SUPREME COURT REPORTS [1999) 2 S.C.R. A Courts_have taken divergent views. We are concerned with the Assessment Year 1981-82. The assessee manufactured agarbathis. It had exported agarbathis during the year under consideration. It had paid commission to agents outside India who had procured orders. It claimed weighted deduction under the afore-mentioned B provision in respect of such expenditure ofRs.13,23,225. It was disallowed by the Assessing Authority. The Commissioner of Income Tax (Appeals) took a contr
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