2013 (4) TMI 119 - HC - Income Tax

Court dismisses Revenue's appeal on canvassing commission deduction under Income Tax Act for assessment years 2004-2007

The Court dismissed the Revenue's appeals against the Tribunal's decision for the assessment years from 2004-05 to 2006-07 regarding the deduction of ... Deduction U/s 10B of the Income Tax Act - The assessee has DTA sales, deduction U/s 10B(4) of the Act, which provides for working out proportionate profit on export turnover from the total profit - The Assessing Officer reduced therefrom the canvassing commission paid by the assessee to foreign agents in convertible foreign exchange and took only the net export turnover realised for the computation of export profit for deduction - Held that:- There is nothing to indicate from the records that the canvassing agent has rendered any technical or professional knowledge justifying deduction of the amount paid to them to determine the export turnover, on which the assessee has been granted deduction. Since the finding of the lower authorities are to the effect that payment made to the canvassing agent by the assessee is not for any professional or technical service, no deduction is called for in terms of Explanation 2(iii) of sub Section (9A) of Section 10B for the purpose of computation of deduction under sub Section (4) of Section 10B - Appeals filed by the Revenue is dismissed. Issues:- Interpretation of deduction under Section 10B of the Income Tax Act for canvassing commission paid in determination of export turnover.Analysis:The judgment involves a dispute regarding the deduction of canvassing commission paid in the determination of export turnover for the purpose of deduction under Section 10B of the Income Tax Act. The appellant, a 100% export-oriented unit, claimed deduction under Section 10B on the profit earned on export. The primary contention was whether the sale proceeds received in convertible foreign exchange constitute export turnover or if the canvassing commission paid to foreign agents should be deducted from the export turnover for computation of eligible deduction. The Assessing Officer reduced the commission paid by the assessee from the export turnover, while the first appellate authority and the Tribunal sided with the assessee, leading to the Revenue filing appeals against the Tribunal's decision for the assessment years from 2004-05 to 2006-07.The key legal provision in question was Section 10B(4) of the Income Tax Act, which determines the profits derived from export in relation to the total turnover of the business. Additionally, the definition of 'export turnover' in Explanation 2(iii) to Section 10B(9A) was crucial in understanding the scope of deduction. The Revenue contended that the commission paid to canvassing agents constituted technical service, which should be deducted from the export turnover. In contrast, the assessee argued that the commission payment was solely for canvassing orders and did not involve technical or professional services.The Court examined the definition of 'technical service' under the Act and referenced previous judgments to determine the scope of services that qualify for deduction from export turnover. It was established that if the assessee incurs expenditure for technical services abroad, deduction is warranted from the export turnover. However, in this case, there was no evidence to suggest that the canvassing agent provided technical or professional services, justifying a deduction from the export turnover. Therefore, the Court concluded that since the lower authorities found no indication of the agent rendering technical or professional services, no deduction was warranted under Explanation 2(iii) of sub-Section (9A) of Section 10B for computing the deduction under sub-Section (4) of Section 10B. As a result, the appeals filed by the Revenue were dismissed for lack of merit, upholding the Tribunal's decision in favor of the assessee.