JUDGMENT Rajes Kumar, J.
1. At the instance of the revenue, the Income Tax Appellate Tribunal, Allahabad has referred the following question of law under Section 256(2) of the Income Tax Act, 1961, hereinafter referred to as "the Act" for opinion to this Court for the assessment year 1983-84.
" Whether on the facts and in the circumstances of the case, the Hon'ble I.T.A.T. was legally correct in reaching the conclusion that the expenditure by way of commission to the Belgium Agent qualified for weighted deduction within the meaning assigned Under Section 35B(1)(b)(iv) of the I.T. Act, 1961?"
2. The brief facts of the case are as follows:
The assessee opposite party (hereinafter referred to as "the Act") is a partnership firm and carries on the business of manufacture and export of hand knitted woollen carpets. During the accounting period relevant to the assessment year 1983-84 they claimed weighted deduction Under Section 35B(1)(b)(iv) of the Act on the foreign agent's commission amounting to Rs. 4,60,432.60 paise paid to M/s Jack Barouk of Belgium on the count that they had entered into an agreement with the Belgium party under whom the foreign agent was to work for the assessee in the promotion of their exports, for which services a payment @ 5% of the invoice valaue of the exported goods had to be made. The Assessing Officer allowed the deduction. However, the learned CIT, Allahabad vide his order dated 3.2.1986 set aside the assessment order Under Section 263 of the Act for the requisite examination.
3. The assessing authority framed fresh assessment and disallowed the claim of deduction under Section 35B of the Act on the ground that the commission paid to the foreign agent M/S Jack Barouk of Belgium was not covered under Section 35B(1)(b)(iv) of the Act. Aggrieved by the order of the Assessing Authority, appeals filed before the Commissioner of Income Tax (Appeals), which was dismissed. The assessee filed second appeal before the Tribunal, which was allowed. The Tribunal held as follows:
"After hearing both the sides and considering the material on record. We found that a similar case as that of the assessee has already decided by the Allahabad Bench in the case of Kothari Carpet Co. v. I.T.O. (supra). In our view, Sub-section (iv) of Section 35B of the Act permits a deduction in respect of an expenditure incurred wholly and exclusively on maintenance outside India of a branch office or agency. The agency is an expression of which the content has nothing to do with the preceding words "office" or "Branch". Hence it cannot be said that Section 35B(1)(b)(iv) enjoins that the assessee himself has to maintain an office or agency outside India. He can operate through foreign agent. Therefore, while agreeing with the contention of the learned counsel, we allow the deduction as claimed Under Section 35B(I)(b)(iv) of the Act.
4. We have heard Sri A.N. Mahajan, learned Standing Counsel appearing on behalf of the Revenue and Sri S.K. Garg, learned* counsel appearing on behalf of the assessee.
5. Learned Standing Counsel submitted that the assessee did not own or maintain any of his Branch or any agency outside the country and the commission has been paid to the foreign agent for procuring orders etc. Thus, the said commission paid by the assessee does not fall within the purview of Clause (iv) of Section 35B of the Act. In support of his contention, he relied upon the decision' of the Apex Court in the case of Aravinda Paramila Works v. Commissioner of Income Tax reported in 237 ITR 284.
6. Learned counsel for the assessee submitted that the assessee by way of reimbursement has paid the amount to the foreign agent for maintaining an agency in respect of the service rendered and, therefore, it is covered under Clause (iv) of Section 35B(1)(b) of the Act. In support of his contention, he relied upon the decision of the Apex Court in the case of Commissioner of Income Tax v. Assam Frontier Tea Ltd. .
7. We have given our anxious consideration to the submissions made by the learned counsel for the parties.
8. The relevant part of Section 35B(1)(b)(iv) of the Act reads as follows:
"Section 35B(1)(a) where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred, after the 29 , day of February, 1968, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in Clause (b), he shall, subject to the provisions of this section be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year.
Provided that in respect of the expenditure incurred after the 28th days of February, 1973 (but before the 1st day of April, 1978), by a domestic company, being a company in which the public are substantially interested, the provisions of this clause shall have effect as if for the words "one and one-third times", the words "one and one-half times" had been substituted.
(b) The expenditure referred to in Clause (a) is that incurred wholly and exclusively on-
(iv) maintenance outside India of a branch, office or agent for the promotion of the sale outside India of such goods, services or facilities."
9. The aforesaid clause came up for consideration before the Apex Court in the case of Aravinda Paramila Works v. Commissioner of Income Tax reported in 237 ITR, 284. in that case also the applicant has engaged an agent for procuring the orders for the assessee and the commission was paid to the agent outside India who had procured the orders. The question for consideration before the Court was whether commission paid by the assessee to its agent outside India who had procured orders was expenditure on the maintenance outside India for agency for the promotion of sale outside India of its agarbathis. The Apex Court held as follows:
"What is required is an analysis of the provisions of Section 35B(1)(iv). The expenditure that is referred to therein has to be incurred on the maintenance outside India of a branch, office or agency for the promotion of sales outside India of the assessee's goods, services or facilities. Therefore, what is requisite is that the assessee should have maintained the branch, office or agency outside India. It is also requisite that such branch, office or agency should be for the promotion of sales outside India of the assessee' goods, services or facilities. When payment is made, as here, by an assessee of commission to agents outside India who had procured orders, the requirements of Clause (iv) are far from satisfied. There is in the first place, no maintenance by the assessee of the * agency. Secondly, the expenditure has to be incurred on the promotion of sales of the assessee's goods outside India. When expenditure is incurred by way of payment of commission on particular sales, that is not expenditure on the promotion of the assessee's sales in general.
While we think that there is some merit in the observation of the Karnataka High Court that the words "branch, office or agency" in the clause draw colour from each other and that the word "agency" should therefore, be interpreted in the light of the words "branch" and "office", it is, in any event, very clear that even if the agency is an agency established not by the assessee but by a third party, the agency must be maintained by the assessee."
10. The Apex court held that Clause (iv) required that the assessee should have maintained the branch, office or agency for the promotion- of sales outside India of assessee goods service or facilities. Apex court further held that expenditure incurred by way of payment of commission on particular sales is not expenditure on the promotion of assessee's sales in general.
11. The case cited by the learned counsel for the assessee Commissioner of Income Tax v. Assam Frontier Tea Ltd. (supra) is not applicable to the present case. In the said case, it was found that the warehouse was run by the assessee and the expenditure incurred thereon was reimbursed by the assessee to the said agent and thus, it was found that the assessee was maintaining the warehouse for the promotion of the sales of its tea outside India. On these facts, the Apex Court held that the requirements of Section 35B(1)(b)(iv) of the Act is met. However, such fact is not available in the present case.
12. In the present case, at no stage, it was the case of the assessee that it had maintained branch or agency outside the Country. Paragraph 3 of the Tribunal shows that it was pleaded that the assessee had entered into an agreement on 15.08.1977 with the foreign agent and in pursuance thereof the agent was selling the goods of the assessee and getting the commission as per the terms of the agreement. Therefore, respectfully following the decision of the Apex Court in the case of Aravinda Paramila Works v. Commissioner of Income Tax (supra), it is held that such expenditure towards commission to the agent was not qualified for deduction under Section 35B of the Act. The order of the Tribunal is not correct.
13. In view of the foregoing discussions, we answer the question referred to us in the negative i.e. in favour of the Revenue and against the assessee. However, there shall be no order as to costs.