Commissioner of Income Tax vs Far East Tanning Company

R. Jayasimha babu, J.—The question referred to us at the instance of the Revenue arising out of the assessment of the respondent''s income

for the assessment year 1977-78 is :

Whether, on the facts and in the circumstances of the case, the Tribunal was fight in holding"" that the assessee is eligible for allowance of weighted

deduction u/s 35B of the Income Tax Act, 1961, in respect of the payment of commission to local agents of foreign buyers ?

Section 35B(1)(b)(ii) of the Act is the provision under which the Tribunal has sought to justify the allowance. That is also the submission of

counsel for the assessee who contends that the commission was paid to a person who had provided information to the assessee regarding the

markets outside India for the goods sold by the assessee. This argument is untenable and the finding of the Tribunal cannot be sustained.

Section 35B(1)(b)(ii) refers to expenditure incurred wholly and exclusively on obtaining information regarding markets outside India for such

goods, services or facilities. This provision does not contemplate the payment of commission for actual sales effected by the assessee of the goods

and services as an item eligible for deduction. The commission paid to the local agent of the foreign buyer is under the contract which the assessee

had concluded with the foreign buyer, and an item of expense ''which is directly related to the business of the assessee in the normal course. The

information if any provided by the agent of the foreign buyer is not generally about the markets for the assessee''s goods outside the country, but is

only limited to such information as he may have on the particular purchaser abroad.

This court in the case of Commissioner of Income Tax, Tamilnadu-III Vs. Southern Sea Foods (P.) Ltd., , after considering this very provision

held that the section did not deal with obtaining of export orders, but related only to obtaining of information regarding markets outside India and

that it would not be correct to state that procuring orders was the same as procuring information concerning markets outside India. We are in

agreement with that view.

The Supreme Court in the case of Commissioner of Income Tax, Delhi Vs. Stepwell Industries Ltd. and etc. etc., , held that the claim for

deduction by an assessee who had paid commission to the State Trading Corporation of India which sold the assessee''s goods to various parties

outside India, was not eligible for weighted deduction. The court held that the commission so paid was merely payment to a middleman for the

purpose of effecting sales.

We therefore answer the question referred to us in the negative, in favour of the Revenue and against the assessee. The Revenue is entitled to

costs in a sum of Rs. 750.