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Commissioner of Income-tax Vs. Pooppally Foods - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Case No. 73 of 1980
Judge
Reported in(1986)51CTR(Ker)122; [1986]161ITR729(Ker)
ActsIncome Tax Act, 1961 - Sections 35B and 35B(1)
AppellantCommissioner of Income-tax
RespondentPooppally Foods
Appellant Advocate P.K.R. Menon, Adv.
Respondent Advocate T.R.G. Wariyar, Adv.
Excerpt:
.....the income-tax officer dated december 23, 1974. annexures b and c are, respectively, the order and the decision of the appellate assistant commissioner and the order of the tribunal. on appeal, the appellate assistant commissioner on being satisfied, on the facts disclosed, that the payment was to an agent outside india, and it was in the nature of commission, reversed the finding of the income-tax officer and granted reliefs sought by the assessee. 5. strong reliance was placed by the counsel for the revenue on the decision of this court in cit v......the same view had been taken. a second appeal filed by the revenue having been dismissed by the appellate tribunal, this court had at the instance of the revenue in o.p. no. 3510 of 1977a directed the appellate tribunal to draw up a case and refer the questions of law arising out of the tribunal's order to this court. the questions of law referred to us read as follows :'1. whether, on the facts and in the circumstances of the case, and on an interpretation and scrutiny of the contract of purchases and invoices, the tribunal is right in law in holding that 'the london party has acted only as agents. the contract does not show them to be the buyer' and is not the above finding of the tribunal wrong and unreasonable in law and based on surmises and conjectures and on a failure to.....
Judgment:

K. Bhaskaran, C.J.

1. The assessee, M/s. Pooppally Foods, Alleppey, is a registered firm, carrying on the business of export of canned and processed shrimps. For the assessment year 1972-73, the assessee has claimed weighted deduction of Rs. 11,832 under Section 35B of the Income-tax Act, 1961 ('the Act'), it being one-third of Rs. 35,495 paid by way of commission to a foreign agent for the promotion of business. The Income-tax Officer rejected the claim holding that the payment was to the buyer, not to an agent ; and that it partook of the character of trade discount, not of commission. The Appellate Assistant Commissioner granted relief holding that the Income-tax Officer's approach was not correct inasmuch as the payment was by way of commission to an agent, not trade discount to the buyer. The Appellate Assistant Commissioner also stated that earlier in similar matters the same view had been taken. A second appeal filed by the Revenue having been dismissed by the Appellate Tribunal, this court had at the instance of the Revenue in O.P. No. 3510 of 1977A directed the Appellate Tribunal to draw up a case and refer the questions of law arising out of the Tribunal's order to this court. The questions of law referred to us read as follows :

'1. Whether, on the facts and in the circumstances of the case, and on an interpretation and scrutiny of the contract of purchases and invoices, the Tribunal is right in law in holding that 'the London party has acted only as agents. The contract does not show them to be the buyer' and is not the above finding of the Tribunal wrong and unreasonable in law and based on surmises and conjectures and on a failure to consider the contract of purchases and invoices and other relevant evidence on record correctly ?

2. Whether the assessee is entitled to weighted deduction under Section 35B of the Income-tax Act, 1961 ?'

2. Annexure A is the copy of the assessment order of the Income-tax Officer dated December 23, 1974. Annexures B and C are, respectively, the order and the decision of the Appellate Assistant Commissioner and the order of the Tribunal. Annexures D1 and D2, respectively, are copies of contracts dated April 6, 1970, and September 7, 1970, and annexure. E1 and E2, respectively, are the invoices dated November 12, 1970, and December 1, 1970. In fact, question No. 2 is comprehensive enough to render the first question redundant. We would, however, answer both the questions for the sake of completeness.

3. In our view, the facts of the case and the pleadings of the parties are such that there could be no serious difficulty in resolving the point indispute. In effect and substance, the real point is whether the assessee is entitled to weighted deduction under Section 35B of the Act with respect to the payment alleged to have been made. There is no case for the Revenue that the payment of Rs. 35,495 had not been made by the assessee. The Income-tax Officer declined to accept the claim of the assessee for weighted deduction on two grounds, as is clear from annexure A--assessment order ; (1) the payment was to the buyer, not to an agent ; and (2) it was in the nature of trade discount, not commission. On appeal, the Appellate Assistant Commissioner on being satisfied, on the facts disclosed, that the payment was to an agent outside India, and it was in the nature of commission, reversed the finding of the Income-tax Officer and granted reliefs sought by the assessee. The Revenue then had no case that even if the payment was to an agent, and was in the nature of commission, the assessee would not be entitled to claim weighted deduction under Section 35B of the Act in relation to the payment referred to above for other reasons. In appeal before the Appellate Tribunal also, it would appear from anuexure C, the order of the Tribunal and the statement of the case, the Revenue had confined its grounds to those relating to the person or the agent to whom the payment was made and the nature of the payment stated to have been made. When the Appellate Assistant Commissioner has recorded a finding, in reversal of the findings of the Income-tax Officer with reference to facts disclosed, and when that finding has been confirmed by the Appellate Tribunal, really no question of law out of the Tribunal's order for decision by this court could normally arise.

4. The counsel for the Revenue, however, contended before us that the Tribunal ought not to have dismissed the Revenue's appeal and should have remanded the matter to the Income-tax Officer to ascertain whether, even if the payment was to the agent (not to the buyer) and was in the nature of commission (not trade discount), that would fall within one of the clauses under Section 35B of the Act so as to entitle the assessee to claim weighted deduction. In our considered view, when the assessee claimed weighted deduction alleging that the payment was by way of commission and to an agent in a foreign country for promotion of the business, and the Revenue raised no other contention except that the payment was in the nature of a trade discount and was to the buyer, which contention, though found favour with the Income-tax Officer, was rejected by the Appellate Assistant Commissioner and the Tribunal, no further question could arise, and the Tribunal had no duty to probe further into the matter to discover any other grounds on which the Revenue could have contested the matter.

5. Strong reliance was placed by the counsel for the Revenue on the decision of this court in CIT v. Cochin Co. P. Ltd. : [1979]119ITR157(Ker) . Itis true that in that case, this court had declined to answer the questions referred and had sent back the reference to the Tribunal for being dealt with in accordance with law and in the light of the observations contained in the judgment. In the last paragraph of the judgment in that case, the facts and circumstances leading to the remand of the matter to the Tribunal, without the questions being answered, are stated as follows (at pp. 160 and 161) :

'On the terms of the section, the question for consideration would be whether the amount overdrawn by the assessee, 50% of which was waived by the agent, represented expenditure, wholly and exclusively incurred on any of the grounds or for any of the purposes listed in Clauses (i) to (ix) of the above section. From this point of view, we find no approach by the Tribunal, and no discussion by it ; nor, for that matter, by the authorities below. Without thus getting to grips with the section and its clauses and sub-clauses, the discussion of this aspect of the question would, it seems to us, be unsatisfactory. The Tribunal did not even quote the section or refer to the relevant sub-clauses of Clause (b) which, according to it, had application. In the absence of such specific and pointed consideration, the finding recorded by the Tribunal has little value.... '

6. In the case on hand, there is no such complication of facts. Moreover, the assessee-firm had specifically stated that the weighted deduction, if claimed, was on account of the commission paid to an agent in a foreign country with respect to the sale to a party in London. In our view, the expenditure incurred on commission paid to an agent in a foreign country for promotion of export trade would attract any one of the Sub-clauses (ii), (iii), (iv) and (viii) of Clause (b) of Section 35B(1) of the Act, particularly so, when the Revenue never before had chosen to raise the point that such expenditure would not fall within the ambit of any of the clauses in Section 35B of the Act for entitlement to weighted deduction. We are also not persuaded to accept the contention that the Tribunal was under a legal obligation to make a further enquiry in the matter or remand the matter to the Income-tax Officer for the purpose.

7. The result, therefore, is that we answer the questions referred to us in the affirmative, that is in favour of the assessee and against the Revenue.

8. A copy of this judgment under the signature of the Registrar and seal of the High Court would be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.


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