Commissioner of Income Tax vs Orion Coir Mats and Mattings Manufacturers (I.) Ltd.

T.L. Viswanatiia Iyer, J.—The Income Tax Appellate Tribunal, Cochin Bench, has referred the following three questions for our consideration and opinion, namely :

"1. Whether, on the facts and in the circumstances of the case, is the Tribunal justified in holding that the contribution to the Coir Promotion Fund, viz., Rs. 29,594, is eligible for weighted deduction u/s 35B of the Income Tax Act, 1961, especially when the amount was later returned to the assessee by the Coir Board ?

Whether, on the facts and in the circumstances of the case, was the Tribunal correct in law in finding that the payments of Rs. 71,672 made by the assessee to Overseas Agencies, are agency commissions and are eligible for weighted deduction u/s 35B of the Income Tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the Tribunal had any material to come to the conclusion that the expenditure had been incurred for an activity of the nature falling under Sub-clause (viii) of Section 35B(1)(b) ?"

The decision of the Tribunal was rendered on the basis of its prior decision in the assessee''s own case for a prior year in Income Tax Reference No. 214/(Coch.) of 1980. That decision has come up to this court in reference, Income Tax Reference No. 317 of 1982, when questions similar to questions Nos. 2 and 3 mentioned above were referred as questions Nos. 1 and 2 therein. There was yet another reference made to this court in the assessee''s own case which was disposed of by the Division Bench of this court in Commissioner of Income Tax Vs. Orion Coir Mats and Matting Manufacturers (P) Limited, in which this court found that the material available was not sufficient to decide whether payment made to overseas agencies in respect of which weighted deduction was claimed was payment of agency commission or it was a trade discount allowed to the foreign principal. This court, therefore, declined to answer the question and remitted the matter back to the Tribunal. That was way back on March 13, 1987. But, there is no precise information as to what happened to the matter after remand by this court by the decision in the second of the references on March 13, 1987. The second Division Bench which dealt with Income Tax Reference No. 317 of 1982, therefore, declined to answer the two questions, namely, questions Nos. 2 and 3 herein, and remitted the matter back to the Tribunal for fresh consideration according to law. We are also in the same position so far as questions Nos. 2 and 3 are concerned. Since the order of the Tribunal on which the present order is passed stands directed to be reconsidered in Income Tax Reference No. 317 of 1982, we feel that these questions also require reconsideration in the light of the observations contained in the first of the cases referred to earlier.

So far as question No. 1 is concerned, whether the Tribunal was justified in holding that the contribution to the Coir Promotion Fund, namely, Rs. 29,594 is eligible for weighted deduction u/s 35B of the Income Tax Act, especially when the amount was later returned to the assessee by the Coir Board is one, which, in our opinion, is covered by the decision of this court in COMMISSIONER OF Income Tax Vs. N. C. JOHN AND SONS LTD. (AND VICE VERSA)., . In that case also the same question arose for consideration and the Division Bench held that the levy by the Coir Board for purposes of guaranteeing trade and promotional activity for sale of coir in overseas markets, but returned in subsequent years cannot be considered as expenses incurred by the assessee and hence is not entitled to weighted deduction u/s 35B. This decision squarely applies to the facts of the case. The contention raised by the assessee that expenses has been incurred when the payment was made to the Coir Board and that the only right of the Income Tax Officer is to invoke Section 41 subsequently when the amount is returned does not appeal to us. Evidently, the amount was taken as a sort of deposit by the Coir Board to return it in a subsequent year. There is no expenditure having regard to the nature of the transactions and, therefore, no question of applying Section 35B arises. Question No. 1 has to be answered in the negative, that is, against the assessee and in favour of the Revenue based on the aforesaid decision. We, therefore, dispose of the reference as follows :

We answer question No. 1 against the assessee and in favour of the Revenue. We decline to answer questions Nos. 2 and 3 and direct the Income Tax Appellate Tribunal to deal with the matter afresh in the light of the observations contained in the decision of this court in Commissioner of Income Tax Vs. Orion Coir Mats and Matting Manufacturers (P) Limited, and the decision in Income Tax Reference No. 317 of 1982. No costs.

Communicate a copy of this judgment under the seal of this court and the signature of the Registrar to the Income Tax Appellate Tribunal, Cochin Bench, for information.