Commissioner of Income Tax vs Rajjab Carpets

The Income Tax Appellate Tribunal, Allahabad has referred the following question of law u/s 256(1) of the Income Tax Act, 1961, hereinafter referred to as "the Act" for opinion to this Court:

Whether, on the facts and in the circumstances of the case, the hon''ble Income Tax Appellate Tribunal was legally correct in holding that the expression ''maintenance of agency'' meant an act of continuing the relationship of principal and agent in terms of Section 35B(1)(b)(iv) of the Income Tax Act, 1961 ?

The present reference relates to the assessment year 1981-82.

The brief facts giving rise to the present reference are as follows:

The original return was filed by the Assessee on August 31, 1981. The assessment was completed u/s 143(3) of the Act on the income of Rs. 4,76,390. While completing the assessment, weighted deduction u/s 35B of the Act was disallowed in respect of payment of Rs. 2,47,015 to M/s. Unad Cath Export Pvt. Ltd. Against this disallowance, the Assessee preferred an appeal. The Commissioner of Income Tax (Appeals), vide his order dated March 18, 1987, set aside the order of the Assessing Officer and directed him to examine the allowability of deduction u/s 35B of the Act in the light of sub-clause (iv) of Section 35B(1)(b) of the Act. Subsequently, the assessment u/s 143(3)/ 251 was completed by the Assessing Officer, vide order dated February 17, 1989, but again, the deduction u/s 35B of the Act was disallowed as was done in the original assessment. The Assessee, being aggrieved, again preferred an appeal before the Commissioner of Income Tax (Appeals) who, vide his order dated February 28, 1990, dismissed the appeal and upheld the order of the Assessing Officer. In second appeal, the Tribunal relying on its earlier order in the case of Kothari Carpets v. ITO [1984] 9 ITD 357 dated March 5, 1984 in I. T. A. No. 2084/A/1983 deleted the addition of Rs. 82,338.

We have heard Sri A. N. Mahajan, learned Counsel appearing for the Revenue and Sri S. D. Singh, learned Counsel appearing for the Respondent -Assessee.

It has been pointed out that a similar question of law was referred to this Court for opinion in the case of Commissioner of Income Tax Vs. Kothari Carpets , wherein this Court has held that the Assessee cannot be said to be maintaining a foreign agency where there was no requirement or obligation on the Assessee under the terms of the agreement to maintain the agency of the foreign party outside India and it was only required to pay commission as per the agreement in respect of the contract order procured by the said foreign agency and, therefore, it was not entitled for weighted deduction u/s 35B(1)(b)(iv) of the Act. The question referred to was thus answered in the negative, i.e., in favour of the Revenue and against the Assessee.

Respectfully following the aforesaid decision of this Court, we answer the question referred to us in the negative, i.e., in favour of the Revenue and against the Assessee. There will be no order as to costs.