TaxTMI 
TaxTMI 
TaxTMI 
1988 (8) TMI 147
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.... the contract. It appears that negotiations were going on with a Japanese company for purchase of Ductile Iron Pipes. The assessee-company approached EPI and convinced them that their product was more suitable and superior to the Japanese product. Thereafter EPI had got in touch with another contractor who was jointly executing the work and explained the advantages of using the product of the assessee. There is evidence for this in the shape of the telex message given by an executive of EPI to Mr. Hormis in Kuwait. 4. On 19th April, 1976, EPI wrote to the assessee stating that they were willing to consider the assessee's offer on the following considerations : (i) The goods supplied would be of international standard quality. (ii) EPI will carry out the inspection of the goods and persuade the Iraqi authorities to accept the supplies from India. (iii) EPI would arrange for L/C in favour of the assessee. (iv) The assessee would pay EPI a service charge of 10 per cent of the total contract price in Indian rupees (in India for marketing their product in Iraq). It appears that apart from this, there was also a further requirement regarding spare parts and the assessee had agreed ....
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..... EPI shall through credit note, reimburse these charges to HACP. (vi) Further, it is agreed that payments received by HACP against Indian L/C shall be refunded to EPI as soon as HACP re-negotiates revised invoices against foreign L/C. (vii) It is also agreed that EPI shall ensure the payments under 'reserve' by the bank, are honoured by foreign buyer." 7. On this basis, the assessee had shipped goods to Iraq and had paid 10 per cent of the revised price as service charges to EPI as per clause (iv) of the modified agreement of 1st December, 1976. Out of the amounts, the amount paid during the accounting year was Rs. 38,29,002. The assessee claimed deduction under section 35B in respect of this payment. The Income-tax Officer was of opinion that the assessee is not entitled to this deduction. He did not give full reasons in the order but referred to the assessment order for the year 1975-76. On appeal, the Commissioner of Income-tax (Appeals) was of opinion that the assessee was entitled to the deduction. He found that though the main contract has been secured by EPI, the goods have been exported by the assessee directly to M/s. Amiry Contracting & Trading Co., Basra. The bills h....
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....ndings. 10. We have considered the submissions. The question whether such payment as we are dealing with in this case would represent a trade discount or a commission has been considered by the Kerala High Court in the case of CIT v. Orion Coir Mats & Matting Mfrs. (P.) Ltd. [1987] 166 ITR 616. At page 618, this principle has been laid down which is reproduced below : "If the amount described as commission was paid to a person who was himself the principal buyer of goods from the assessee by deduction of a percentage of sale price, such payment was only a trade discount and not payment of commission. In the absence of any evidence to show that the recipient of the money acted for and on behalf of the assessee as an agent in canvassing business abroad and had sold the goods to parties abroad as an agent, a deduction in the sale price of goods sold to him did not amount to payment of commission. The question, therefore, was whether the amount paid by deduction from the sale price was meant to be paid to the person who acted solely as an agent of the assessee, and not in his own right as a principal, or as an agent of foreign buyers. If the answer was that he was himself a principal....
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....he higher price negotiated by EPI. The second is a refund of 1.4 per cent of the revised value since the full invoice value would be realised in foreign L/C. Third is the payment of 10 per cent of the revised price as service charges to EPI for marketing their product. The assessee is not making a claim in respect of the first two items. The claim is only in respect of the last item. 11. In the above paragraphs, we have dwelt on the understanding arrived at between the two parties before finalising the contract in July 1976. It is very clear therefrom that both parties had understood that the real export of the goods would be by the assessee although nominally the contract would show that EPI had purchased the goods. When we see the conduct of the parties subsequently, we get further strength for the proposition that the goods were sold to a third party by the assessee. As noted by the Commissioner (Appeals), the goods were despatched to Basra and the final consignee was M/s. Amiry Contracting and Trading Co., Basra. It is also an admitted fact that EPI in its turn had transferred the goods to the Basra party at the same rate at which nominally they had purchased it from the asses....
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....n the goods never passed from the petitioners to the Corporation at any stage and it is the petitioners who had exported the goods, earned the foreign exchange and received the proceeds in India in accordance with the Foreign Exchange Regulation Act, even though through the instrumentality of the Corporation, then the answer to the second question hardly presents any difficulty, because then it follows a fortiori that it is the petitioners who were the exporters for all purposes, except the external appearance, including the purpose of the aforesaid provision and it is the petitioners alone who would be entitled to the tax credit certificates on the basis of the sale proceeds and the income arising therefrom to the total exclusion of the Corporation. It, however, appears to us that even if it be assumed that the arrangement between the parties had the legal effect of transferring title in the goods in favour of the Corporation, the petitioners would still be the real exporters for the purpose of the aforesaid provision and be entitled to the tax credit certificate. Section 280ZC provides that 'a person who exports any goods' during the material period 'and receives the sale proceed....
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....is a real commission to EPI and it does not represent a trade discount. Further as required by the principle laid down by the Kerala High Court in the decision cited in paragraph 10 of our order, EPI has been acting as the agent of the assessee and not as the agent of the foreign buyer. This is clear from the fact that EPI has been canvassing for the assessee's goods with the foreign buyers. So the assessee is entitled to the deduction. 14 to 21. [These paras are not reproduced here as they involve minor issues.] 22. Now we take up the cross-objection filed by the assessee. In this cross-objection, the assessee had raised the following points : "(1) The order of the Commissioner of Income-tax (Appeals) in so far as it is against the respondent is contrary to law and facts of the case. (2) The Commissioner (Appeals) ought to have seen that the sum of Rs. 1,04,93,923 received under cash compensatory scheme included in the sales constituted capital receipts and as such it should not have been included in computing the total income of the respondent. (3) The Commissioner (Appeals) ought to have seen that the authority for the above proposition can be had in the judgment of the Spe....
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....llate Tribunal as if it were an appeal presented within the time specified in sub-section (3)." On an analysis of the sub-section, the following ingredients are found : (1) The Income-tax Officer or the assessee should receive notice that an appeal against the first appellate authority has been preferred by the other party. (2) The Income-tax Officer or the assessee should not have filed an appeal against such order or part thereof. (3) Then within 30 days of the receipt of the notice the cross-objection can file a memorandum of cross-objection. (4) The memorandum of cross-objection must be against any part of the order of the first appellate authority. (5) Such memorandum shall be disposed of by the Tribunal as if it were an appeal presented within the time limit, fixed in section 253(3). 25. All these conditions must be satisfied before the assessee or the Income-tax Officer can file a valid cross-objection. It would be seen from the above that one of the conditions is that cross-objection must be against any part of the order of the Appellate Assistant Commissioner or as the case may be the Commissioner (Appeals). Naturally this means that the cross-objection must be on a....