JUDGEMENT
N.R. Prabhu, Accountant Member -
(1.)THESE two cross appeals (one each by the Department and by the assessee) are consolidated and disposed of by a common order for the sake of convenience.. We shall deal with the appeal by the department first
(2.)The first ground in this departmental appeal is that the CIT(A) erred in allowing relief of Rs. 28,66,066 under the provisions of Section 35B on commission paid to Chemi Exports Kontours, G.M.B.H.
It is submitted by the learned Departmental Representative that the relief granted by the CIT(A) is without any justification. Adverting to the amendment made by the Finance Act, 1980 w.e.f. 1/4/1981, it is pointed out that several of the sub-clauses of Section 35B(l)(b) have been deleted and those that survived did not enable the assessee to claim the relief as was ordered by the CIT (A). The claim has been processed by the CIT(A) under Clause (iv) of Section 35B(l)(b). This clause speaks of maintenance of an agency outside India for promotion of sale outside India of goods, services or facilities. Where the agreement under which commission has been paid contemplates payment for procurement of orders, this cannot be construed as maintenance of an agency outside India and, therefore, it was wrong on the part of the CIT(A) to grant relief under Section 35B(l)(b) on such payments.
The learned counsel for the assessee, on the other hand, contends that no blemish can be attached to the order passed by the CIT(A). There was an agreement which has been approved by the Reserve Bank of India and so also the payment of commission under the agreement. Inviting our attention to Clauses (2) and (3) of the agreement it is submitted that the agents were not only to procure export business for the company's pharmaceutical products but were also required to undertake to promote company's product in foreign market and such promotional efforts would include preparation and translation wherever required, printing and distribution of literature and other connected documents and also distribution of written propaganda material. The agents were also required to arrange for distribution of samples of the company's products and to generate demand. They were to maintain an agency office, if found necessary and to undertake, if necessary, travel to various foreign markets in connection with promotion of export. The terms of the agreement spelt out in clear language, can leave no doubt that the assessee was maintaining an agency outside India. The assessee relies on the decisions of the Bombay High Court in CIT v. Godrej & Boyce Mfg. Co.(P.)Ltd. [1984] 149 ITR 594/17 Taxman 270 and Tribunal in J.H. & Co. v. Second ITO [1982] 1 SOT 150 (Bom.) (SB), Mettur Beardsell Ltd. v. ITO [1985] 11 ITD 631 (Mad.) (TM) and G & Co. v ITO [1983] 3 ITD 566 (Bom.) (SB).
(3.)WE have heard the parties to the dispute and in our opinion the claim of the assessee is unexceptionable. The decision of the Bombay High Court in Godrej & Boyce Mfg. Co. (P.) Ltd.' s case (supra) and the other three decisions of the Tribunal relied upon by the assessee support the case of the assessee. The payment, having regard to the terms of the agency agreement which has been approved by the R.B.I., is not a payment simpliciter for procurement of orders. The agents were required to undertake several other functions to publicise and popularise the products manufactured by the assessee company. In that sense we are of the view that these payments could squarely be covered by Sub-clause (iv) of Section 35B(l)(b) of the Act and we see no reason to interfere with the order of the CIT(A). WE may in this connection state that reliance placed by the assessing officer on Madras High Court decision in CIT v. Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855 is totally misplaced. That was a case where payment was made in India for procurement of foreign orders and it was in this context the Madras High Court held that such payments would not be eligible for weighted deduction.
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