Payment to foreign agent qualifies for tax deduction under Income-tax Act

The court allowed the weighted deduction under section 35B of the Income-tax Act for the payment made to a travelling agent for booking orders in foreign countries. The court held that booking orders outside India for the supply of goods constituted performance of service in connection with the execution of the contract for supply of goods outside India. The expenditure incurred on payment of commission for booking orders outside India qualified for weighted deduction under section 35B(1)(a) of the Income-tax Act. The court ruled in favor of the assessee and against the Revenue, with no costs awarded.

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Issues:
Claim of weighted deduction under section 35B of the Income-tax Act, 1961 for payment made to a travelling agent for booking orders in foreign countries.

Analysis:
The judgment concerns the claim of an assessee-firm for weighted deduction under section 35B of the Income-tax Act, 1961, in relation to a payment made to a travelling agent for booking orders in foreign countries during the assessment year 1977-78. The travelling agent was responsible for booking orders for the assessee in foreign countries and had booked orders within the parameters set by the assessee. The claim for weighted deduction was initially disallowed by the Income-tax Officer and the Commissioner of Income-tax (Appeals) upheld this decision. However, the Tribunal allowed the weighted deduction in respect of the amount paid to the travelling agent.

The questions referred to the court for opinion were whether booking orders outside India for the supply of goods constitutes performance of service in connection with the execution of the contract for supply of goods outside India, and whether the expenditure incurred on payment of commission for booking orders outside India qualifies for weighted deduction under section 35B(1)(a) of the Income-tax Act.

The court referred to a previous judgment regarding the provisions of section 35B, highlighting that the section is designed to provide deductions to encourage export potential. The court noted that expenditure related to the export of goods is eligible for weighted deduction under this provision. It was observed that expenditure incurred for obtaining information regarding market potentiality for goods to be exported falls within the purview of the relevant clause.

Applying the principles from the previous judgment, the court concluded that the assessee's claim fell under the specific clause of section 35B(1) that entitles weighted deduction for expenditure incurred for services outside India in connection with the execution of a contract for supply of goods outside India. Therefore, both questions were answered in favor of the assessee and against the Revenue. No costs were awarded in the circumstances.

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