1991 (4) TMI 106 - HC - Income Tax

Indian High Court Affirms Export Commission Payments Qualify for Tax Deduction

Commissioner Of Income-Tax Versus KERALA NUT FOOD CO., General Industrial Corporation

Commissioner Of Income-Tax Versus KERALA NUT FOOD CO., General Industrial Corporation - [1991] 192 ITR 585 Issues Involved:1. Eligibility for weighted deduction u/s 35B of the Income-tax Act, 1961.2. Services rendered by agents in India for exports to the U.S.S.R.3. Interpretation of section 35B(1)(b)(i) and (ii) of the Income-tax Act.Summary:Issue 1: Eligibility for Weighted Deduction u/s 35B of the Income-tax Act, 1961The common question in these cases was whether commission payments made in India for exports to the U.S.S.R. are entitled to weighted deduction u/s 35B of the Income-tax Act, 1961. The Appellate Tribunal had held that such payments qualify for weighted deduction under section 35B(1)(b)(i) and (ii) as the agents furnished information about foreign buyers, publicized the goods, and facilitated the sales.Issue 2: Services Rendered by Agents in India for Exports to the U.S.S.R.The Tribunal found that the agents rendered services by obtaining information about markets outside India and advertising the goods, which are services incidental to the formation of the contract. The commission payments were made to agents like Kasturi Nagesh Pai and Co., Bombay, and others, at the rate of 1% of the invoice amount. These agents facilitated the export contracts, which were routed through them, and the payment terms included a provision for the commission.Issue 3: Interpretation of Section 35B(1)(b)(i) and (ii) of the Income-tax ActThe Tribunal referred to the decision of the Special Bench in J. Hemchand and Co.'s case, which was accepted by the Central Board of Direct Taxes (CBDT) in its circular dated December 28, 1981. The circular clarified that commission payments to parties bringing about export sales qualify for weighted deduction, irrespective of whether the expenditure is incurred in India or outside. The Tribunal's findings were based on materials such as contracts, correspondence, and telex messages, which demonstrated that the agents' services were essential for the export process.Conclusion:The High Court upheld the Tribunal's decision, affirming that the commission payments qualify for weighted deduction under section 35B(1)(b)(i) and (ii). The court noted that the CBDT's circular, which has the force of law, supported this interpretation. The references were disposed of in favor of the assessees, and the Tribunal's findings were deemed justified and rational.