JUDGMENT Rajes Kumar, J.
1. The Income Tax Appellate Tribunal, Allahabad has referred the following question under Section 256(2) of the Income-tax Act (hereinafter referred to as 'Act') relating to the assessment year 1982-83 for opinion to this Court:
"Whether on the facts and circumstances of the case, the Hon'ble Tribunal was justified in reversing the allowance Under Section 35B in respect of the expenditure incurred on the payment of commission to one Mojavarion of West Germany, who was appointed to look after the interest of the assessee there and procure orders by exhibiting the product of the assessee?"
2. The brief facts of the case are that the assessee-applicant (hereinafter referred to as 'assessee') had engaged a foreign commission agent in the name of M/s Mojavarion of West Germany for procuring orders of the carpets manufactured by it. Commission agent was required to be paid the fixed commission on the orders obtained by it. The assessee claimed that to engage a foreign agent amounted to maintenance of a foreign agency and thus the assessee was entitled for an allowance Under Section 35B on the said expenditure meted out for payment of commission to the alleged foreign commission agent. The said contention was not accepted by the Assessing Officer but was accepted by the first appellate authority. Revenue filed appeal before the Tribunal. The Tribunal reversed the order of the Commissioner of Income Tax (Appeals) and restored the order of the assessing officer on the ground that engaging of foreign agent did not amount to maintaining a foreign agency and thus the expenditure on the engagement of such foreign commission agent did not qualify for allowance under Section 35B of the Act.
3. Heard Sri S.D. Singh learned counsel for the assessee and Sri A.N. Mahajan, learned Standing Counsel for the revenue.
4. The Tribunal found that the assessee has engaged an agent outside the Country to procure order for which it had agreed commission and the commission has been accordingly paid. Assessee has not opened his own branch or office outside the Country. Section 35B(1)(iv) of the Income Tax 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 29th 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, 1973), 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.
(iv) maintenance outside India of a branch, office or agent for the promotion of the sale outside India of such goods, services or facilities."
5. 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, and 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."
6. 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.
7. In the present case, the assessee has only engaged an agent outside the Country to procure orders and has not maintained its own branch or office or any agency for the promotion of sales outside India. 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 of the under Section 35B of the Act. The order of the Tribunal is, accordingly, upheld.
8. In the result, the question referred is answered in the affirmative i.e. in favour of the Revenue and against the assessee. However, there shall be no order as to costs.