Commissioner of Income Tax vs Chillies Export House Ltd.

R. Jayasimha Babu, J.—The assessment year is 1983-84. While counsel for the assessee contended that the law laid down by this court in

the case of Commissioner of Income Tax Vs. Sivanandha Steels Ltd., applies to the facts of this case, learned counsel for the Revenue submitted

that it is the law laid down by the apex court in the case of Aravinda Paramila Works Vs. Commissioner of Income Tax, that is applicable. In the

decision of this court in Commissioner of Income Tax Vs. Sivanandha Steels Ltd., , it was found that there was in fact an agreement between the

principal and the agent under which the agent had maintained an office abroad for promoting sales of the principal, and had received commission,

but such commission had not been bifurcated between the cost of maintaining the office and the portion relating to the profit of the agent. The agent

had agreed to undertake similar works for more than one principal. It was held by this court that that by itself did not result in the benefit of the

export markets development allowance u/s 35B being denied to the assessee as the assessee would still be entitled to that benefit to the extent to

which it had expended monies towards running of the office of the agent abroad.

In this case, all that was asserted by the assessee was that he had paid one per cent, commission to the agents abroad, who had procured

orders. That commission was paid on the sales effected in the countries in which those agents had functioned. In the decision of this court in

Commissioner of Income Tax Vs. Sivanandha Steels Ltd., as also in the judgment of the apex court in Aravinda Paramila Works Vs.

Commissioner of Income Tax, , it has been laid down that a mere commission paid on sales effected cannot be regarded as expenditure on

promotion of marketing of the product. The apex court observed that when payment is made by an assessee to a commission agent, outside India,

who had procured orders and there was nothing to show that the office of the agent was being maintained by the assessee Section 35B(1)(b)(iv)

would not be attracted.

The Tribunal, on the facts of this case, was in error in granting the benefit of the export markets development allowance to the assessee. The

commission paid to the assessee''s agents outside India on the sales effected by the assessee through them was, therefore, not an amount in respect

of which deduction can be given. We, therefore, answer the question referred to us, viz.,

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee would be entitled to

weighted deduction in respect of commission paid to outside agents u/s 35B(1)(b)(iv) ?"" in favour of the Revenue and against the assessee.