Commissioner of Income Tax vs OSWAL WOOLLEN MILLS LTD. and Another

Jawahar Lal Gupta, J.

The Tribunal has referred the following two questions for the opinion of this court :

(i) ""Whether on the facts and in the circumstances of the case, the Tribunal was right in law in allowing weighted deduction on bank interest on

packing credit ?

(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the assessee''s claim for leave with wages,

ignoring the fact that this was not an ascertained liability but a contingent liability and hence not allowable under the law ?

Regarding the first question, Mr. Sawhney contends that the weighted deduction on bank interest on packing credit would not have been

allowed as the ingredients of section 35B were not satisfied. The claim as made was controverted by Mr. Sanjay Bansal on the basis of the

decision of the Madhya Pradesh High Court in Commissioner of Income Tax Vs. Vippy Solvex Product Private Limited, .

A perusal of section 35B(1)(b)(viii) would show that the weighted deduction is admissible only if the expenditure is incurred ""wholly and

exclusively"" on the ""performance of services outside India."" These services must be ""in connection with, or incidental to, the execution of a

contract. The said contract should be for the supply of goods or providing services or facilities outside India. In the present case, nothing has been

pointed out by the counsel to show that the loan advanced by the bank was for the performance of any service or supply of goods or for the

execution of a contract outside India. The payment is not shown to have been made for any service rendered beyond the limits of this country. In

view of this factual position, the ingredients of the provisions are not fulfilled. The claim of the assessee was wrongly allowed.

Mr. Bansal contends that a contrary view has been taken by Madhya Pradesh High Court. He appears to be right. However, we find that there

is a binding precedent of this court. In Commissioner of Income Tax Vs. O.K. Hosiery Mills, , a Bench of this court has held that where ""there was

no evidence on record to show that the bank had rendered any service outside India"", weighted deduction was not admissible. Similar is the

position in the present case.

Resultantly, the first question is answered in favour of the revenue.

Regarding the second question, Mr. Sawhney has very fairly conceded that the answer to the question is concluded against the revenue by the

decision of this court in Commissioner of Income Tax Vs. Oswal Woollen Mills Ltd., . In view of the admitted position, the second question is

answered against the revenue.

Disposed of accordingly. No costs.

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