Commissioner of Income Tax vs Subhdial Khanna

Ashok Bhan, J.—At the instance of the Commissioner of Income Tax, Amritsar, the following question of law has been referred to this court for its opinion by the Income Tax Appellate Tribunal, Amritsar (hereinafter referred to as "the Tribunal"), u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") :

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in allowing weighted deduction u/s 35B in respect of salary and bonus payments to Shri Raj Kumar and Shri Sohan Lal and to other employees and also in respect of expenses incurred on telex and stationery ?"

The facts relevant to the aforesaid question, in short, are : The relevant assessment year is 1978-79, accounting period of which ended on March 31, 1978. The assessee claimed weighted deduction u/s 35B of the Act amounting to Rs. 97,834 in respect of several expenses incurred by him for development of exports. The Income Tax Officer accepted the claim for weighted deduction in respect of commission on exports worth Rs. 37,423.56, foreign travelling expenses amounting to Rs. 16,275 and subscription to silk and rayon export amounting to Rs. 13,778.15 but turned down the claim of the assessee in respect of other expenses. The Income Tax Officer did not allow relief in respect of the following expenses u/s 35B of the Act :

"(i) Rs. 13,000 paid as salary and bonus to Shri Raj Kumar and Shri Sohan Lal.

(ii) Rs. 26,270 paid as salary and bonus to other employees.

(iii) Rs. 7,895 telex expenses.

(iv) Rs. 1,820 expenses on stationery."

The assessee, aggrieved against the aforesaid order of the Income Tax Officer, filed an appeal before the Commissioner of Income Tax (Appeals), which was accepted. It was observed by the Commissioner of Income Tax (Appeals) that 92 per cent. of the turnover of the assessee was accounted for by exports. Following the decision of the Special Bench in the case of J. Hemchand and Co., 75 per cent. of the expenditure on salary and bonus to the persons exclusively looking after the exports business was considered to qualify for weighted deduction, while 50 per cent. of the expenditure on salary and bonus paid to other staff members was given the advantage of extra deduction u/s 35B of the Act. Similarly, the Commissioner of Income Tax (Appeals) agreed with the assessee that most of the turnover being exports, the expenditure incurred on stationery and telex shall also qualify for weighted deduction. The Commissioner of Income Tax (Appeals) considered 50 per cent. of the expenditure incurred under these two heads for the purposes of allowing weighted deduction.

The Revenue filed a further appeal before the Tribunal which was rejected. The order of the Commissioner of Income Tax (Appeals) was affirmed. Thereafter, the Revenue filed a petition u/s 256(1) of the Act for referring the questions of law arising from the order of the Tribunal to this court for its opinion. Although the Revenue had claimed three questions of law, said to be arising from the order of the Tribunal, but the Tribunal has referred only one question to this court for its opinion, which has been reproduced in the earlier part of the judgment. Under the question referred to us, it has to be considered whether the Tribunal was right in law in allowing weighted deduction u/s 35B of the Act in respect of four items, i.e. :

(i) Salary and bonus paid to Shri Raj Kumar and Shri Sohan Lal, who were exclusively looking after the export business ;

(ii) Salary and bonus paid to other employees on proportionate basis ;

(iii) Telex expenses, and

(iv) Expenses on stationery.

The Tribunal, after satisfying itself that the expenditure claimed was in respect of those staff who were exclusively looking after the export business, allowed weighted deduction on 75 per cent. of the expenditure, while 50 per cent. of the expenditure on salary and bonus paid to other staff members was given the advantage of extra deduction u/s 35B of the Act. The Tribunal recorded a finding that the said expenses were directly relatable to exports and were covered by Section 35B of the Act. The finding recorded by the Tribunal is one of fact and calls for no interference.

Allowability of weighted deduction u/s 35B of the Act with regard to salary stands concluded by a judgment of this court in Commissioner of Income Tax Vs. Indo Asian Switch-Gears (P.) Ltd., . Bonus paid to an employee would also qualify for weighted deduction for the same reason as salary. There is no direct judgment of this court on this point but reference may be made to Commissioner of Income Tax Vs. Lall''s International, and Commissioner of Income Tax Vs. Continental Device India Ltd., . Similarly, expenditure incurred on telex and stationery would also qualify for weighted deduction as expenses incurred on stationery and mode of communication by telex would be directly relatable to the export promotion, thus, qualifying them for weighted deduction u/s 35B of the Act. In this regard, reference may be made to Commissioner of Income Tax, Delhi-I Vs. Indian Aluminium Cables Ltd. (No. 2), , Commissioner of Income Tax Vs. Continental Device India Ltd., and Commissioner of Income Tax Vs. Tungabhadra Industries Ltd., .

For the reasons stated above, the question referred to us is answered in the affirmative, i.e., against the Revenue and in favour of the assessee.