Commissioner of Income Tax vs India Pistons Repco Ltd.

N.V. Balasubramaniam, J.—- In pursuance of the directions of this court, the Appellate Tribunal has stated a case and referred the following

question of law for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to weighted

deduction u/s 35B of the Income Tax Act, 1961, in respect of the commission of Rs. 22,322 paid to Amalgamations Ltd., Madras, for the

assessment year 1976-77 ?

The assessee is a company engaged in the manufacture of fly wheel starter and ring gears (automobile components). For the assessment year

1976-77, the assessee returned a total income of Rs. 17,35,871 under the head ""Business"" and the assessee claimed weighted deduction u/s 35B

of the Income Tax Act for a sum of Rs. 22,322 on the ground that the sum represented the assessee''s share of export promotion division

expenses, which was paid to another company called Amalgamations Limited. The claim of the assessee was that it did not have direct access for

the export of the assessee''s goods, nor did it have direct customer contacts outside India and therefore one of the companies in the same

management Amalgamations Group had established export promotion services for procuring business in a foreign market and for pursuing after

sales services and the assessee-Company utilised the services of the company Amalgamations Limited, and paid the sum of Rs. 22,322 towards its

share of expenses. The Income Tax Officer disallowed the claim on the ground that the expenditure was incurred for procuring assistance for

promotion of sales and such an expenditure was not covered by section 35B of the Act.

The assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) found that

the break up of the figures claimed by the assessee is under :

The Commissioner of Income Tax (Appeals) found that the expenses for which the assessee claimed weighted deduction are covered by sub-

clauses (i), (ii), (v), (vi) and (viii) of section 35B(1)(b) of the Act and held that it is not necessary that those expenses should have been incurred

outside India. The Commissioner of Income Tax (Appeals) also found that the assessee has incurred the expenditure along with other companies in

the same group and there was a central export division for doing export work. The expenses of the central export division was ultimately shared by

the assessee with the other companies in this group, and, hence, the Commissioner of Income Tax (Appeals) held that the assessee was entitled to

weighted deduction u/s 35B in respect of Rs. 22,322.

The Revenue carried the matter in appeal before the Income Tax Appellate Tribunal. The Appellate Tribunal following its earlier order in the

case of ITO v. L. M. Van Moopes Diamond Tools India Ltd. (I.T.A. Nos. 1480 and 1481/Mds. of 1979, dated May 28, 1980), held that the

payments made by the assessee were towards the expenses of Amalgamations Limited for procuring the business in a foreign market and the

assessee was entitled to weighted deduction u/s 35B of the Act. The Appellate Tribunal noticed that the amount was paid at a flat rate as a

commission to a sister concern, while other companies also paid commission for such services at a particular percentage of the turnover. The

Tribunal held since the expenditure does not come within clause (iii) of section 35B of the Act, the assessee was entitled to weighted deduction

under the provisions of section 35B of the Act.

Mr. S. V. Subramaniam, learned senior counsel appearing for the Revenue has not seriously disputed the position that the assessee would be

entitled to weighted deduction of the assessee''s share of the export promotion expenses of a sum of Rs. 1,500. Section 35B of the Act grants

weighted deduction to an assessee for expenditure wholly and exclusively incurred on the items mentioned u/s 35B(1)(b) of the Act. The finding of

the Appellate Tribunal is that the expenditure incurred by the assessee would fall within sub-clauses (i), (ii), (v), (vi) and (viii) of section 35B(1)(b)

of the Act. It is only in cases of expenditure falling under clause (iii) of section 35B(1)(b) of the Act, the assessee is not entitled to claim weighted

deduction, if the expenditure was incurred in India. Since the finding of the Tribunal is that none of the expenditure falls within clause (iii) of section

35B(1)(b) of the Act, we are of the opinion that the Tribunal has come to the correct conclusion that the assessee is entitled to weighted deduction.

Further, section 35B also permits the assessee to claim weighted deduction when the assessee incurs the expenditure directly or in association with

any other person. Viewed from any angle, whether the assessee incurs the expenditure directly or incurs the expenditure in association with others,

the assessee can claim weighted deduction provided the expenses claimed fall within any of the provisions of section 35B(1)(b) of the Act and not

prohibited by the same sub-section. In view of the provisions set out in section 35B of the Act, the order of the Appellate Tribunal holding that the

assessee is entitled to weighted deduction u/s 35B of the Act is in order.

Mr. S. V. Subramaniam, learned senior counsel for the Revenue, has argued that the same reasons would not apply to the five per cent

commission export to Yugoslavia. It is seen from the order of the Commissioner of Income Tax (Appeals) and also the order of the Appellate

Tribunal, that no contention was raised on behalf of the Revenue that the commission exports to Yugoslavia stand on a different footing from that of

the export promotion expenditure incurred by the assessee. In view of the fact that no such contention was raised before the Appellate Tribunal

and also in view of the position that the Appellate Tribunal has proceeded to treat both the expenses on the same footing, we are of the view that it

is not permissible for the Revenue to raise such a factual contention before this court. Therefore, we hold that the Appellate Tribunal has come to

the correct conclusion that the assessee was entitled to weighted deduction u/s 35B of the Act in respect of the commission of Rs. 22,322 paid to

Amalgamations Limited, Madras, for the assessment year 1976-77. Accordingly, we answer the question referred to us in the affirmative and

against the Department. No costs.