Commissioner of Income Tax vs Oswal Woollen Mills Ltd.

S.P. Goyal, J.—The Revenue moved this petition u/s 256(2) of the Income Tax Act for a mandamus directing the Tribunal to refer the three questions stated therein for the opinion of this court. However, at the time of arguments, the petition was pressed qua questions Nos. 1 and 2 only which read as under :

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the Commissioner of Income Tax (Appeals) was justified in admitting fresh grounds of appeal in respect of deduction u/s 35B on items with respect to which no claim had been made before the Income Tax Officer ?

(2) Whether, on the facts and in the circumstances of the case and on a proper interpretation of Section 35B of the Income Tax Act, 1961, the Appellate Tribunal was right in law in allowing weighted deduction in respect of the commission paid to the STC/HHEC particularly when no such claim had been made before the Income Tax Officer during the course of assessment proceedings and there was no material on record supporting such a claim ?

The assessee, a public limited company, is engaged in the manufacture of woollen yarn, worsted yarn, woollen tops, textile garments, hosiery goods, vanaspati, ghee, etc., for the assessment year 1974-75, the annual return showing an income of Rs. 43,61,020 was filed but the said amount was later on reduced to Rs. 30,03,620 in the revised return filed on November 1, 1974. Though the commission/services charges paid to the STC/HHEC were duly entered in the return and deduction claimed on their count, further deduction thereon known as weighted deduction was not claimed. At the appellate stage, the Appellate Assistant Commissioner entertained the claim for weighted charges and allowed the same. In the appeal filed before the Tribunal, the Revenue challenged the weighted deduction allowed by the Appellate Assistant Commissioner on two grounds, namely, that no fresh ground could be admitted at the appellate stage and that the said deduction was not permissible in law, but both of them were turned down. Thereafter, the Revenue moved an application u/s 256(1) of the Income Tax Act for referring the above said questions for the opinion of this court but that too was declined.

Learned counsel for the Revenue has rightly urged that both the above-noted questions are questions of law. Learned counsel for the respondent also did not controvert this stand of the Revenue but urged that the right to weighted deduction u/s 35B having been upheld by the Central Board of Direct Taxes, the Department is bound by the same and as such it would be futile to get this question referred to this court On question No. 1, he argued that the answer being self-evident and quite obvious, reference would serve no purpose. Although instructions dated October 19, 1982, a photostat copy of which has been placed on record by the respondent, were issued by the Board on a reference by an assessee dealing in castor oil, the decision of the Board covers all sorts of assesses, as would be apparent from the following passage :

"Under Section 35B, as it stood prior to 1st April, 1981, excepting assessment years 1978-79 and 1979-80, domestic companies and also non-corporate taxpayers resident in India, who incur any expenditure, under specified heads after the 29th day of February, 1968, whether directly or in association with any other person to promote sales outside India of any goods, services or facilities dealt in or provided by them in the course of their business are entitled to export markets development allowance. The expenditure qualifying for this weighted deduction is that incurred by the taxpayer during the previous year wholly and exclusively on the activities as given in Sub-clauses (i) to (ix) of clause (b) of this section as it stood then."

It is not disputed that the instructions issued by the Board are binding on the Department. It would, therefore, be wholly futile to get the second question referred for the opinion of this court.

As to the question of allowing weighted deduction, a bare perusal of Section 35B(1) would show that the moment an assessee is allowed any expenditure referred to in Clause (b), a duty is cast on the assessing authority to allow weighted deduction as well on such expenditure. The assessee had duly entered in the return commission and service charges paid to the STC/HHEC. So all the necessary facts for allowing weighted deductions were available on record and the claim of the assessee in these circumstances could not be said to be a fresh claim set up at the appellate stage. The power to admit an additional ground to give relief to the assessee when admissible to him on the material already available on the record was recognised long back by the Supreme Court in Commissioner of Income Tax, U.P.,Lucknow Vs. Kanpur Coal Syndicate, and the rule reiterated recently in Atlas Cycle Industries Ltd. Vs. Commissioner of Income Tax, . In view of the said decision of the Supreme Court, the answer to question No. 1 would be self-evident. In this situation, as held in Commissioner of Gift Tax, Bombay Vs. Smt. Kusumben D. Mahadevia, , it would be futile to get the reference made and the Tribunal rightly declined to do so.

For the reasons recorded, this petition is dismissed but without any order as to costs.