Commissioner of Income Tax vs Chaman Silk Mills

S.S. Sodhi, J.—The matter here concerns the claim of the assessee-firm, Chaman Silk Mills, Amritsar, for weighted deduction u/s 35B of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), in respect of the payment of Rs. 14,083 made to Surinder Pal Bansal, during the assessment year 1977-78.

The said Shri Surinder Pal Bansal was the assessee''s travelling agent who was responsible for booking orders for the assessee in foreign countries. He had gone abroad taking samples with him and had, in fact, booked orders within the price range and latitudes as set by the assessee.

The claim for weighted deduction was disallowed by the Income Tax Officer and the appeal against this order was also later dismissed by the Commissioner of Income Tax (Appeals).

The assessee''s claim, however, prevailed with the Tribunal and weighted deduction in respect of the said amount of Rs. 14,083 was allowed. It is in this factual background that the following questions have been referred to this court for its opinion :

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that booking of orders outside India for the supply of goods, etc., constitutes performance of service in connection with, or incidental to, the execution of the contract for the supply of the goods, etc., outside India for purpose of and within the meaning of Sub-clause (viii) of Clause (b) of Sub-section (1) of Section 35B of Income Tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the expenditure of Rs. 14,083 incurred by the assessee on payment of commission in consideration for the booking of orders outside India for the supply of goods by the assessee outside India qualifies for allowance of weighted deduction u/s 35B(1)(a) of the Income Tax Act being an expenditure falling under Sub-clause (viii) of Clause (b) of Sub-section (1) of Section 35B of the said Act ?"

In dealing with the provisions of Section 35B of the Act, in the context of weighted deduction sought thereunder in respect of payments made to the Export Credit Guarantee Corporation, the High Court of Andhra Pradesh in Commissioner of Income Tax Vs. Navabharat Enterprises (P.) Ltd., observed that (p. 329) : "Section 35B bearing the caption "Export markets development allowance" is in the nature of a subsidy designed to provide more deduction than the deduction normally allowed u/s 37 of the Act with a view to give impetus to export potential. The expenditure, relatable only to export of goods is eligible for weighted deduction under this provision. Clause (b) of Sub-section (1) enumerates the diverse sorts of expenditure eligible for deduction and the texture of expenditure embodied therein is closely integrated with export business . . . Sub-clause (ii) contemplates deduction of expenditure for information regarding markets outside India. This is obviously aimed at giving relief in the event of spending the amount for survey of export potential. Therefore, the expenditure incurred by the assessee for obtaining information regarding market potentiality for the goods sought to be put in the stream of export is squarely within the purview of Sub-clause (ii)."

Applying the ratio of Commissioner of Income Tax Vs. Navabharat Enterprises (P.) Ltd., no exception can be taken to the view of the Tribunal that the assessee''s claim fell squarely under Sub-clause (viii) of Clause (b) of Section 35B(1) of the Act, which entitles weighted deduction for any expenditure referred to in Clause (a), incurred wholly and exclusively for performance of services outside India in connection with, or incidental to, the execution of any contract for supply outside India of goods, services or facilities supplied by an assessee.

Both the questions referred, therefore, have to be answered in the affirmative, in favour of the assessee and against the Revenue.

In the circumstances, there will be no order as to costs.