COMMISSIONER OF INCOME TAX Vs. KONCHERRY COIR FACTORIES

JUDGEMENT

(1.) Heard learned standing counsel for the appellant as well as learned counsel for the respondent-assessee. The substantial questions of law that arise for consideration in the appeal are as under:

(2.) The entire controversy arose as the Assessing Officer disallowed the commission paid to foreign agent on the ground it is hit by the provisions of section 40(a) of the Act. He took support from Toshoku Ltd.'s case . In order to calculate the actual tax payable and to give deductions under section 80HHC of the Act, the formula to be adopted definitely has impact so far as the export turnover. If the export turnover is more, more benefits will be extended to the assessee, who has export business as well. Depending upon the export turnover, which has to be taken into consideration to arrive at deductions under section 80HHC of the Act the formula has to be applied. The formula to be adopted which was adopted by the Assessing Officer is profits of business multiplied by the export turnover and the product to be divided by the total turnover of the business of the assessee. If the commission paid to the foreign agent is deducted from the export turnover, the figure that would be arrived by multiplying the profits of business would reduce proportionately when divided by the total turnover. The question is whether the commission paid by the foreign agent has anything to do with the export turnover declared by the assessee. Though such commission paid to the foreign agent could be claimed as expenditure, it cannot go out of the export turnover as indicated by the Assessing Officer because the nature of income paid as commission to the foreign agent cannot decide the export turnover of the assessee. The term "export turnover" is clearly defined under Explanation (b) to section 80HHC(4C) of the Income-tax Act, which reads as under:

(3.) As long as the export turnover indicated in the return of income is as per the definition of "export turnover" under the Explanation, there was no reason for the Assessing Officer to place reliance on the terms of contract between the assessee and the agent in order to deduct the commission amount from the export turnover. Therefore, the Commissioner of Income-tax (Appeals) and the Tribunal were justified in rejecting the method of calculation adopted by the Assessing Officer and allowing the exporter-assessee to include commission paid to the agent in the export turnover. The claim of the Revenue that the Assessing Officer was justified cannot be sustained. We uphold the opinion of the appellate authorities. Accordingly, the substantial questions of law are answered against the Revenue.