1981 (6) TMI 10 - HC - Income Tax

High Court denies weighted allowance claim for commission on export orders

The High Court of Madras ruled against the domestic company seeking a weighted allowance under Section 35B of the Income Tax Act, 1961 for commission paid ... Export Market Development Allowance Issues involved: Interpretation of provisions of Section 35B of the Income Tax Act, 1961 regarding weighted allowance for promoting export markets.Summary:The judgment by the High Court of Madras discussed the provisions of Section 35B of the Income Tax Act, 1961, which aim to promote and develop export markets for domestic companies. The case involved a domestic company engaged in exporting prawns and shrimps, seeking a weighted allowance under Section 35B for commission paid to secure export orders. The Income Tax Officer (ITO) disallowed the weighted allowance, but the Appellate Authority Commission (AAC) and the Tribunal granted the allowance.The Tribunal determined that the assessee was entitled to the weighted allowance under specific sub-clauses of Section 35B(1)(b). However, the Department challenged this decision, leading to a detailed examination of whether the commission paid for securing export orders fell under the eligible expenditure categories of Section 35B.The Court analyzed the applicability of sub-clauses (ii), (iv), and (viii) of Section 35B(1)(b) to the commission payment. It was concluded that the commission payment did not qualify under any of these sub-clauses as it did not meet the conditions specified for each category. The Court emphasized that the commission was paid for procuring orders, not for services related to the execution of a contract, as required by the relevant sub-clauses.The Court also considered the location of expenditure, highlighting that the commission paid within India did not satisfy the conditions under sub-clause (iii) of Section 35B(1)(b) which pertains to expenditure incurred outside India. Therefore, the Court ruled against the assessee's claim for the weighted allowance under Section 35B.In conclusion, the Court answered the question of law regarding the entitlement to the weighted deduction under Section 35B in the negative, ruling in favor of the Department. The Department was awarded costs from the assessee, including counsel's fee.