FASHION CARPET CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) At the instance of the assessee, the Income Tax Appellate Tribunal Allahabad has referred the following question of law under Section 256(1) of the Income Tax Act, 1961, hereinafter referred to as "the Act" for opinion to this Court for the assessment year 1981-82. "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the commission payments made to the Handicrafts & Handloom Export Corporation of India (HHEC) are not entitled to weighed deduction under Sub-clause (i) and (iv) of Section 35B(1)(b) of the Income-tax Act, 1961?"

(2.) The brief facts of the case are as follows: The assessee was a manufacturer and exporter of of Hand knotted carpets. The assessee had paid commission to the Handicrafts and Handlooms Export Corporation of India Ltd. (in short "HHEC") and claimed weighted deduction under Section 35-B(1)(a) & (b) of the Act. HHEC is alleged to be a subsidiary of the State Trading Corporation of India Ltd (in short "STC") under the administrative control of Ministry of Textiles (Government of India). The said HHEC is alleged to be playing a role in developing exports of Persian design Hand knotted carpets from India. It was also maintaining warehouse and depot at Hamburg in West Germany. In the said case deductions under Section 35B of the Act were denied by the Assessing Officer on the ground that the assessee was not maintaining any agency outside India and thus the claim admissible under Section 35B(1)(a) and (b) of the Act was not admissible to the assessee. The said order was confirmed by the Commissioner of Income 'fax (Appeals) in first appeal filed by the assessee. The Tribunal also confirmed the said appeal. The Tribunal held as follows: "We have heard the parties at length and also perused the entire papers on record. It is not in dispute that HHEC had acted as an agent of the assessee and had procured orders from the said firms. It is also not in dispute that HHEC; a subsidiary of STC maintains a warehousing Depot at Hamburg, The only thing would be seen is its so whether the maintenance of a Warehousing Depot at Hamburg can amount to maintenance of an agency by the assessee. H.HEC on enquiry by the Deputy Commissioner of Income-tax (Assessment), Special Range, Varanasi had reported vide its letter dated 20th December, 1988 copy of which is at page 33 of the compilation which runs as under: 1. HHEC is a wholly owned subsidiary of the STC under administrative control of Ministry of Textiles, Government of India. HHEC has been taking various steps for developments of exports of handicrafts and handlooms besides gold jewellery from the Country. Steps taken for developing exports of hand knotted woolen carpets relate to; PRODUCT DEVELOPMENT 2. HHEC has played a pioneering role in developing exports of Persian design hand knotted carpets from India. Special attention is being paid to adoptation of new designs or introduction of new ones to suit the requirements of buyers from abroad. The Corporation is a pace-setter in the field of product development.

(3.) For boosting exports of hand knotted woolen carpets from India, HHEC's carpets Warehousing Depot at Hamburg set up in 1965 has been doing a great deal of work for promoting the Indian Carpets through regular participation in Heimtextile (Frankfurt) every year. Special publicity campaign have been organized for giving continued publicity to Indian carpets besides organizing lived demonstration by carpet weavers in the art of carpet making at important Fairs and Department Stores. All such activities undertaken by the corporation are in the over all interest of carpet trade from India.