Commissioner of Income Tax vs ASSAM FRONTIER TEA LTD.

By the Court

The revenue is in appeal by special leave against the judgment and order of a Division Bench of the High Court at Gauhati insofar as the High Court answered in the affirmative and in favour of the assessee the following question :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee is entitled to weighted deduction u/s 35(1)(b)(iv) (sic) as well as u/s 35(1)(b)(ix) ?"

We are concerned with the assessment year 1981-82, the accounting year being 1979-80 and the question insofar as it relates to section 35B(1)(b)(iv).

The assessee sells tea. It has an agent called M/s. Sims Derby Trading Company Ltd. in the United Kingdom. Under the terms of its agreement with the said agent, the tea business abroad is handled by the said agent. The said agent runs a warehouse for the purpose, and the expenditure on the warehouse is reimbursed by the assessee to the said agent.

It was held by the Appellate Assistant Commissioner and confirmed by the Appellate Tribunal and the High Court that the maintenance of an agency for the promotion of sales u/s 35B(1)(b)(iv) of the Income Tax Act had a broad meaning and embraced within it various activities including "the expenditure incurred towards hiring of warehouse for storing the tea............ the expenditure is a part of selling expenditure which the assessee reimbursed to the agent."

Section 35B states that where an assessee, who is resident in India, has incurred, directly or in association with any other person, any expenditure referred to, inter alia, in clause (b) thereof, he would be allowed a deduction of a sum equal to be one and one-third times the amount of such expenditure incurred during the previous year. So far as is relevant, clause (b) reads thus :

"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; .......

The question, therefore, is whether the reimbursement by the assessee to the said agent of the expenditure incurred on the warehouse used by the agent for the storage of the assessee's tea falls within the scope of the said sub-clause (iv).

The argument on behalf of the revenue heretofore was that the assessee had not a warehouse of its own in a foreign country and the expenses incurred on the maintenance of the said agent's warehouse fell outside the scope of section 35B(1)(b)(iv). What was contended before us by learned counsel for the revenue was that it was not established that the warehouse was utilised only for storing the assessee's tea; in other words, that it was used by the said agent for storing other goods. This was not the revenue's case at any stage before now. Had it been, the Tribunal would have noted it and answered it. As thinks stand, having regard to the record, we are satisfied that the warehouse that is run by the said agent is utilised, under the terms of the agreement between the said agent and the assessee, only for the storage of the assessee's tea for the purposes of its sale abroad.

This court has construed the scope of section 35B(1)(b)(iv) in its judgment in Aravinda Paramila Works Vs. Commissioner of Income Tax, . Having analysed the provision, this court held that what was requisite was that the assessee should have maintained the branch, office or agency outside India and that such branch, office or agency should be for the promotion of sales outside India of the assessee's goods, services or facilities. It was held, further, that even if the agency was an agency established not by the assessee but by a third party, the agency had to be maintained by the assessee.

In the instant case, the warehouse is run by the said agent but the expenditure incurred thereon is reimbursed by the assessee to the said agent. It is, therefore, the assessee which is maintaining the warehouse for the promotion of the sales of its tea outside India. This being so, in our view, the requirements of section 35B(1)(b)(iv) are met.

The appeal is dismissed. No order as to costs.