High Court dismisses application under s. 256(2) of I.T. Act, 1961 for weighted deduction

The High Court of Bombay dismissed an application under s. 256(2) of the I.T. Act, 1961, regarding the allowance of weighted deduction under section 35B(1)(b) for commission paid to an agent in Muscat. The court upheld the Tribunal's decision that the payment constituted commission, not trade discount, and was eligible for deduction under s. 35B(1)(b) based on the agency agreement and circumstances, rejecting the Department's claim. The application was dismissed with costs.

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Issues: Whether commission paid to foreign agents for procuring business and promoting the assessee's products qualified for weighted deduction under section 35B(1)(b) of the Income-tax Act, 1961.

Analysis: The payment was found to be genuine commission paid under an agency agreement after approval of the Reserve Bank of India. The agreement obliged the foreign agents to use their best endeavours to secure business, maintain showrooms, and publicise the assessee's products in their territory. On these facts, the expenditure fell within the scope of section 35B(1)(b), including the relevant clauses dealing with export-market development and publicity-related expenditure.

Conclusion: The commission payment was held to be eligible for weighted deduction under section 35B(1)(b) of the Income-tax Act, 1961, and the answer was in favour of the assessee.

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