IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO(S). 4176/2007 M/S. VELVET CARPET & CO. LTD. APPELLANT(S) VERSUS C.I.T., ALLAHABAD RESPONDENT(S) ORDER question that needs to be decided in present case is as to whether appellant/assessee herein was entitled to weighted deduction in terms of provision of Section 35B(1)(b)(iv) of Income Tax Act, 1961, which was provision in force during relevant period, i.e. Assessment Year 1983-84. In return filed by assessee for that year, it had stated that sum of Rs. 4,60,433/- was paid by assessee to one Mr. Jack Barouk of Brussels who was appointed by assessee as its commercial agent in said country for sale of assessee's goods. aforesaid provision, i.e. Section 35B(1)(b)(iv), provides for weighted deduction that is in addition to actual amount spent, one-third thereof as additional expenditure, which provision was introduced to give benefit to assessee. This Signature Not Verified Digitally signed by ASHWANI KUMAR Date: 2017.05.17 provision reads as under: 12:15:02 IST Reason: 2 Section 35B(1)(b)(iv): Where assessee, being domestic company or person (other than company) who is resident in India, has incurred, after 29th day of February, 1968, whether directly or in association with any other person, any expenditure (not being in nature of capital expenditure or personal expenses of assessee) referred to in clause(b), he shall, subject to provisions of this section be allowed deduction of sum equal to one and one-third times amount of such expenditure incurred during previous year. Provided that in respect of expenditure incurred after 28th days of February, 1973 (but before 1st day of April, 1978), by domestic company, being company in which public are substantially interested, provisions of this clause shall have effect as if for words one and one-third times , words one and one-half times had been substituted. (b) expenditure referred to in clause (a) is that incurred wholly and exclusively on- xxx xxx xxx xxx (iv) maintenance outside India of branch, office or agent for promotion of sale outside India of such goods, services or facilities. As per clause (b) (iv) expenditure incurred shall qualify for weighted deduction in case expenditure is incurred wholly and exclusively on maintenance outside India of branch, office or agent for promotion of sale outside India of such goods, services or facilities. What is not in dispute is that expenditure was in fact incurred. It was also incurred wholly and exclusively outside India as payment was made to Mr. Jack Barouk resident of Brussels. It is also not in dispute that this payment was made against some 3 sales of carpets belonging to assessee, made by said Mr. Jack Barouk. only dispute is as to whether he could be treated as agent of assessee. appellant had filed appeal against order of Assessing Officer refusing to give benefit of aforesaid provision, with Commissioner of Income Tax (Appeals) ['CIT (Appeals)], which was dismissed. However, in further appeal preferred before Income Tax Appellate Tribunal (ITAT), appellant succeeded. perusal of judgment of ITAT reveals that ITAT had looked into agreement that was entered into between assessee and aforesaid Mr. Jack Barouk and found that this agreement is agency agreement. ITAT also took into consideration another supporting fact that as per legal requirement said agreement was approved by Reserve Bank of India and Reserve Bank of India in its approval had treated this agreement to be agency agreement. We find that High Court while allowing appeal of Department and rejecting claim of assessee, observed that at no stage, assessee had put up case that it had maintained branch or agency outside country. This is clearly erroneous finding and against record. No doubt, assessee was not maintaining any branch office. However, case of assessee was that Mr. Jack Barouk was appointed as his agent. It was specific case made out by assessee right from stage of assessment proceedings and was specifically argued before ITAT, as mentioned above, which was accepted by ITAT. We were taken through agreement that was entered into between assessee and Mr. Jack Barouk by learned counsel for 4 appellant. It is in form of communication dated 24 th October, 1977 addressed by Mr. Jack Barouk to assessee stating therein terms and conditions on which two parties agreed to work together. In this communication, Mr. Jack Barouk agreed to keep goods of assessee in his godown, show said products to visiting customers personally and secure orders from territories mentioned therein namely, Benelux and France. This communication further states that he will be given 5% commission on all goods shipped by assessee to aforesaid territories on orders procured by said Mr. Jack Barouk. assesseee had accepted and agreed on aforesaid terms contained in said communication and there is specific endorsement to this effect by assessee that said communication, on acceptance by assessee, became valid and enforceable agreement between parties. aforesaid terms clearly state that Mr. Jack Barouk had agreed to work as agent of assessee and on orders procured he was to get 5% commission. This aspect that agreement was in fact agency agreement stands conclusively established by registration given by Reserve Bank of India vide its letter dated 29th October, 1977. Captioned communication of Reserve Bank of India reads as Registration of Selling Agency Arrangement . Thus, while giving its accord to arrangement established between parties it was termed as agency arrangement. Thus, we have no hesitation in coming to conclusion that Mr. Jack Barouk was agent of assessee and, therefore, all conditions stipulated in Section 35B(1)(b)(iv) for giving 5 weighted deduction of expenditure incurred by assessee stands established. We, thus, allow this appeal and set aside impugned order of High Court and restored of that ITAT. ......................J. [A.K. SIKRI] ......................J. [ASHOK BHUSHAN] NEW DELHI; APRIL 05, 2017. 6 ITEM NO.104 COURT NO.7 SECTION IIIA SUPREME COURT OF INDIA RECORD OF PROCEEDINGS Civil Appeal No(s). 4176/2007 M/S. VELVET CARPET & CO. LTD. Appellant(s) VERSUS C.I.T., ALLAHABAD Respondent(s) (WITH INTERIM RELIEF AND OFFICE REPORT) Date : 05/04/2017 This appeal was called on for hearing today. CORAM : HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE ASHOK BHUSHAN For Appellant(s) Dr. Harshvir Pratap Sharma, Adv. Mr. A.K. Srivastava, Adv. Mr. K. S. Rana,Adv. For Respondent(s) Mr. Y.P. Adhyaru,Sr. Adv. Ms. Gargi Khanna, Adv. Ms. Purnima Bhat Kak, Adv. Mrs. Anil Katiyar,Adv. UPON hearing counsel Court made following ORDER appeal is allowed in terms of signed order. Pending application(s), if any, stands disposed of accordingly. (Ashwani Thakur) (Mala Kumari Sharma) COURT MASTER COURT MASTER (Signed order is placed on file) Velvet Carpet & Co. Ltd. v. CIT, Allahabad