Madras H.C : The assessee claimed the benefit of s. 35B of the IT Act, more specifically sub-cls. (ii), (v), (vi) and (vii).

High Court Of Madras

R.Y. Gaitonde & Co. vs. CIT

Sections 35B(1)(b)(ii)

Asst. Year 1978-79, 1980-81

R. Jayasimha Babu & K. Raviraja Pandian, JJ.

Tax Case Nos. 350 & 351 of 1994

9th September, 2002

Counsel Appeared

K. Ramagopal, for the Applicant : T.C.A. Ramanujam, for the Respondent



The assessee is a commission agent. It represents foreign principals, those principals being persons engaged in the manufacture of leather goods. The assessee assisted those principals in procuring leather from the local suppliers. The actual exports of the goods are made by the local traders or manufacturers in leather, and not by the assessee.

The assessee claimed the benefit of s. 35B of the IT Act, more specifically sub-cls. (ii), (v), (vi) and (vii). The assessee contended that the assessee had made available to the foreign buyer information regarding the markets inside India for the goods and services exported, that it had incurred expenses on the preparation and submission of tenders for the supply or provision outside India of the goods, services and facilities and performed activities incidental thereto and had performed services outside India in connection with, or incidental to, the execution of any contract for the supply of goods and also travelled outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outward from, and return to India.

The AO allowed the deduction only in respect of the expenditure of travel and rejected the claims made under all the other heads.

The services rendered by the assessee as set out by the assessee itself and as noted by the Tribunal in its order are : Collection of data regarding market trends and price situation, supply conditions etc. in India and sending periodically reports thereon. Keeping in touch with the principals on day-to-day basis through telephone and telex regarding any immediate situation developing in the market. Ascertaining the principals’ requirements and taking steps to procure materials from the market on best possible terms. Following up the orders placed, inspection of goods, as well as ensuring timely despatches of the materials ordered. Arranging for settlement of disputes between the principals and local suppliers which may arise with regard to the quantity and quality of materials supplied.

The Tribunal did not find that any of these services would qualify for deduction under s. 35B of the Act, and thus affirmed the view taken by the CIT(A), as also by the AO who had rejected those claims. Sec. 35B(2) [35B(1)(b)(ii)] refers to “obtaining information regarding markets outside India for such goods, services or facilities”. The assessee was not obtaining information about markets outside India, but, in fact, was obtaining information regarding market conditions in India for the leather which the foreign principals of the assessee wanted to purchase. He was transmitting information about Indian market conditions to his principals abroad, and not information about market conditions outside India to the persons who exported goods from India. The other activities carried on by the assessee were directly linked to providing assistance to the foreign principal in inspecting the goods in India, looking for the material which the foreign principal wanted, negotiating the terms of supply, keeping the foreign principal informed, also receiving instructions from the foreign principal and following up on the matter of prompt supply, and assistance in the matter of settlement of disputes, if any, with regard to the material exported by the Indian suppliers to the foreign principals of the assessee. These activities cannot be regarded as activities rendered outside India. The information obtained, as noticed, was not in relation to market conditions outside India.

Learned counsel for the assessee, however, contended that even an agent or broker is entitled to claim benefit of s. 35B of the Act, and placed reliance on the decision rendered in the case of CIT vs. Orient Charterers (1989) 80 CTR (Bom) 210 : (1990) 185 ITR 354 (Bom). The Court therein held that s. 35B of the Act is applicable not only to exporters of goods, but also to exporters of services. The Court further held that freight-broker and shipping agent was entitled to weighted deduction in respect of expenses incurred on foreign travel and for obtaining information about exporters of goods and availability of ships. The Court observed in that case that : “The assessee-firm is admittedly carrying on business as freight brokers and shipping agents. In the course of and for its business, it was necessary to collect information as to the places where goods are available for export from one country to another country and regarding the availability of ships. It is this type of information which the assessee furnishes to the ship-owners as well as to exporters of goods that enables the deals to be struck and the assessee gets brokerage or commission.”

The activity of the ship-broker as set out in the judgment would indicate that the activity extended beyond the shores of this country and was not one confined to identifying the exporters of goods from India and intimating the same to the shipping company.

The facts of this case are altogether different. The assessee is merely a commission agent which assists its foreign principals in procuring leather from Indian suppliers. It provides information to its principals about the market conditions in India and the assistance that it renders to its foreign principals in India, as their agent, does not amount to the export of its services outside India. We, therefore, answer the question referred to us : “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that assessee is not entitled to weighted deduction under s. 35B on the expenses claimed in the asst. yrs. 1978-79 and 1980-81 ?” in favour of the Revenue, and against the assessee.

[Citation : 260 ITR 330]

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