Commissioner of Income Tax Vs Kerala Nut Food Co., P. Gopinatha Pillai, M. Shamsuddin and Co., Indian Nut Products, Asiatic Export Enterprises, General Industrial Corporation, L. Kunjukunju and Malabar Cashewnuts and Allied Products

K.S. Paripoornan, J.@mdashThese are connected cases. The Income Tax Appellate Tribunal has referred the following common question of law in all the Income Tax referred cases u/s 256(1) of the income tax Act:

"Whether, on the facts and in the circumstances of the case, the commission payments made in India in respect of exports made by the assessees to the.U. S. S. R. are entitled to weighted deduction u/s 35B of the Income Tax Act, 1961 ?"

2. The original petitions are filed by the Revenue u/s 256(2) of the Income Tax Act. The respondents in these original petitions are the assessees. They claim-weighted deduction u/s 35B in respect of commission payments made in India to various persons on exports made by them to the U. S. S. R. The claim was negatived by the Income Tax Officer. He held that the payments were made in India and they did not fall under any of the sub-clauses of Section 35B(l)(b) of the Act. The Commissioner of Income Tax (Appeals) held that the assessees are entitled to weighted deduction u/s 35B of the Act. He held so following the decision of the Appellate Tribunal in similar cases. In the appeals filed by the Department, the Appellate Tribunal, by its detailed judgment in I, T. A. Nos. 333 to 336 (Coch.) of 1981 dated February 26, 1983, held that the commission payments made by the assessee qualified for weighted deduction as has already been held by the Tribunal earlier in similar cases. The Revenue filed petitions u/s 256(1) of the Income Tax Act praying that four questions formulated by it may be referred for the decision of this court. By a consolidated order dated November 23, 1983, the Appellate Tribunal referred the question of law (quoted supra) for the decision of this court. In the various Income Tax references, this common question arises for consideration.

3. We heard counsel for the Revenue, Mr. Menon, and also for the respondents-assessees, Mr. Balachandran. Counsel for the Revenue contended that the Appellate Tribunal was in error in holding that the assessees are entitled to the weighted deduction claimed u/s 35B(l)(b), (i) and (ii) of the Income Tax Act, Counsel attacked the reasoning and finding entered by the Appellate Tribunal contained in paragraph 11 of its judgment dated February 26, 1983. It was contended that the finding of the Appellate Tribunal to the following effect :

"It is a necessary indication that the agents render services to the exporters by obtaining information regarding markets outside India for their goods. When they give the trade representation, regular market reports like the raw cashew nuts real position both in India and other producing countries, the price prevailing in all these sources of supply, the kernel''s price on consultation with the exporters what the agents actually do is to give advertisement and publicity outside India in respect of the goods of the assessee and obtain information regarding markets outside India for such goods. These are services incidental to the formation of the contract under Sub-clauses (i) and (ii) of Clause (b) of Section 35B(1),"

4. is patently an error. The reasoning and findings aforesaid are attacked as unsustainable and erroneous in law. They formed the subject-matter of the three questions sought to be referred to this court in the original petitions.

5. Counsel for the Revenue placed reliance on a Bench decision of this Court in Commissioner of Income Tax Vs. C. Tharian and Sons, and contended that the assessee must establish that "the expenses incurred were outside India" for the "specified activities performed outside India." It was also submitted that the burden is on the assessee to prove that the commission was paid wholly and exclusively for the specified activities conducted outside the country. In the light of the above Division Bench decision, it was submitted that the decision of the Appellate Tribunal is erroneous in law and the circumstances disclosed warrant an appropriate direction from this court to direct the Appellate Tribunal to refer the questions formulated in paragraph 7 of the original petitions. On the other hand, counsel for the assessee contended that the Division Bench decision in Commissioner of Income Tax Vs. C. Tharian and Sons, may require reconsideration and it cannot be said that the assessee must establish that the expenses were incurred outside India in all the cases, to attract the applicability of Section 35B of the Act. The various sub-sections of Section 35B(l)(b) import different ingredients and in certain cases, and in particular, for obtaining relief u/s 35B(l)(b)(ii), it may not be necessary to establish that the expenses were incurred outside India. For the purpose of disposing of these cases at this stage, it may not be necessary to adjudicate the correctness of the rival contentions put forward before us at this stage though the matter deserves a second look. Suffice it to say that, in the light of the contentions raised, we are satisfied that the three questions of law formulated by the Revenue in paragraph 7 of the original petitions do arise out of the order of the Appellate Tribunal. They are as follows :

"1. Whether, on the facts and in the circumstances of the case, the commission payment qualifies for weighted deduction u/s 35(l)(b)(i) and (ii) of the Income Tax Act, 1961 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is right and reasonable in finding that collecting the necessary information regarding the goods for export from the exporters by the trade representative in India through the seller''s agent is a necessary indication that the agents render services to the exporters by obtaining information regarding markets outside India for their goods ?

3. Whether, on the facts and in the circumstances of the case, and considering the ''services'' referred to by the Tribunal, the Tribunal is right in law and fact in holding :

(i) what the agents actually do is to give advertisement and publicity outside India in respect of the goods of the assesses and obtain information regarding markets outside India for such goods ?

(ii) these are services incidental to the formation of the contract falling under Sub-clauses (i) and (ii) of Clause (b) of Section 35B(1) ?"

6. We, accordingly, direct the Appellate Tribunal to refer the above three questions of law for the decision of this court.

7. Before passing, we should advert to a contention advanced by counsel for the assessees. Mr. Balachandran, counsel for the assessees, brought to our notice that the Appellate Tribunal in this case has only followed the decision of the Special Bench of the Appellate Tribunal in I. T. A. Nos. 3255 and 3330 (Bom) of 1976-77, and the said decision has been accepted by the Revenue and a circular has been issued by the Central Board of Direct Taxes dated December 28, 1981, accepting the said decision in so far as the question of allow ability of weighted deduction u/s 35B of the Act is concerned. Mr. Balachandran further submitted that, in the light of the above Special Bench decision of the Appellate Tribunal and the circular of the Central Board of Revenue, instructions have been given to various Commissioners of Income Tax not to proceed with the cases raising similar questions. So, counsel submitted, that in these cases, in the light of the above Special Bench decision and the circular by the Central Board of Revenue, the matter should be treated as closed and a direction to the Appellate Tribunal to refer the questions of law for the decision of this Court is really an empty formality. We are afraid, we cannot accept this submission in toto, at this stage. The decision of the Special Bench of the Appellate Tribunal in I. T. A. No. 3255 of 1976-77, as also the Circular of the Central Board of Revenue dated December 28, 1981, are not before us. These two documents are referred to in a decision of the Allahabad High Court reported in Commissioner of Income Tax Vs. Novelty Trading Corporation and Others, . There is also a reference to the same in the decision in Commissioner of Income Tax, Delhi-I Vs. Jay Engineering Works, . But, in the absence of these documents, we are not in a position to place reliance on them or adjudicate the plea raised by Mr. Balachandran, counsel for the assessee. But, all the same, we consider that, in the interests of justice, when the Appellate Tribunal forwards the statement of the case along with the necessary documents placed before it, the Appellate Tribunal shall forward a copy of the judgment in I. T. A. No. 3255 of 1976-77, as also a copy of the Circular of the Central Board of Direct Taxes dated December 28, 1981, after obtaining it from the Commissioner of Income Tax, Kerala. We direct the Revenue to place these two documents before the Appellate Tribunal so as to enable the Appellate Tribunal to include them in the statement of the case. The Appellate Tribunal is directed to forward the statement of the case in these original petitions along with all necessary documents inclusive of the above Special Bench decision and the above-mentioned circular as cxpeditiously as possible.

8. In the light of the disposal of the original petitions, we have to consider the nature of disposal of the Income rax Referred Oases Nos. 91 to 102 and 203 and 211 of 1984. The question referred to this court has been extracted hereinabove (paragraph 1). We arc of the view that the question in the referred cases is rather vague or ambiguous and cannot be answered satisfactorily in the light of the contentions raised before us by counsel for the Revenue and also counsel for the respondents-assessees. It is agreed that the question referred to us by the Appellate Tribunal will be taken in by the questions which we have directed the Appellate Tribunal to refer for our decision in the various original petitions. In that light, a consideration of the questions referred to us in the various Income Tax referred cases is superfluous or unnecessary at this stage. We decline to answer the question referred to us in the various Income Tax referred cases in the light of our direction in the original petitions and also in view of the fact that the question referred to us is rather vague and cannot be satisfactorily answered without further materials and further amendment of the question itself. We decline to answer the question referred to us in Income Tax References Nos. 91 to 102, 203 and 211 of 1984, in the light of our decision in the original petitions

9. The original petitions and the Income Tax references are disposed of as above. There shall be no order as to costs.

10. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Appellate Tribunal, Cochin Bench.