Hindustan Ferodo Ltd. vs Commissioner of Income Tax

R.S. Mohite, J.—By this reference, the following four questions of law have been referred by the Tribunal for the opinion of this Court u/s 256(1) of the Income Tax Act at the instance of the assessee:

Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the following expenditure incurred on:

(a) Export certification fees Rs. 4,400

(b) Freign charges on goods exported Rs. 80,609

(c) Packing materials on goods exported Rs. 2,38,468

(d) Discounting and other bank charges of export documentation for opening L/C etc. Rs. 6,566

(e) Difference in exchange on remittance received Rs. 12,852 do not qualify for weighted deduction u/s 35B of the Income Tax Act ?

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the commission of Rs. 57,500 paid to the applicant employee-director ought to be included as part of remuneration for the purpose of computing the disallowance u/s 40(c) of the Income Tax Act?

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses incurred during the entire period of stay outside the headquarters has to be included for the purpose of disallowing travelling expenses under Rule 6D of the Income Tax Rules ?

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the surtax payable by the applicant under the Companies (Profits) Surtax Act, 1964 ought not to be allowed as a deduction in computing the applicants income under the Income Tax Act, 1961 ?

The counsel for the parties have agreed that all the questions are covered either by a decision of this Court or of the Supreme Court and they may be decided in the light thereof. We therefore, proceed to answer the aforesaid questions as follows.

Question No. 1(a) which pertains to export certification fees is covered by a decision of this Court in the case of Dr. Beck and Co. (India) Ltd. Vs. Commissioner of Income Tax, . In the said case the Division Bench has laid down that export inspection charges are paid at the time of export of the goods for inspection thereof by the appropriate authorities which is a condition precedent for export. It does not fall in Sub-clause (vi) of Section 35B(1)(b). That expenditure incurred on inspection of goods in India for export, commonly referred to as "export inspection charges", is undoubtedly an expenditure incurred in India in connection with the supply of goods outside India and, as such, falls in the exclusion contained in Sub-clause (iii) of Clause (b) of Section 35B(1) and hence, no weighted deduction u/s 35B is allowable on export inspection charges. Being in agreement, we answer this question in the affirmative and against the assessee.

Question No. 1(b) pertains to freight charges on goods exported. This question is covered by the decision of this Court in the case of M.H. Daryani Vs. Commissioner of Income Tax, in which this Court held that the expenditure on the carriage of goods to their destination outside India, was taken out of the ambit of Section 35B(1)(b)(iii) by Finance Act, 1970 and therefore, was not eligible for weighted deduction under this section. Being in agreement, we answer this question in the affirmative and against the assessee.

Question No. 1(c) pertains to packing material on goods exported. This question has been answered by this Court in the case of Sam Fashion Wear Pvt. Ltd. Vs. Commissioner of Income Tax, . In the said judgment, this Court has held that packing expenses cannot be given weighted deduction u/s 35B of the Income Tax Act. Being in agreement, we answer this question in the affirmative and against the assessee..,

Question No. 1(d) pertains to discounting and other bank charges for export documentation and for opening L/C etc. This question is covered by the decision of this Court in the case of Forbes Forbes Campbell and Co. Ltd. Vs. Commissioner of Income Tax, in which this Court has taken a view that bank charges are not eligible to a weighted deduction in view of specific exclusion made in Sub-clause (ii) of Section 35B(1)(b) of the Income Tax Act, 1961. Being in agreement, we answer this question in the affirmative and against the assessee.

Question No. 1(e) pertains to difference in exchange on remittances received. This question is decided by the judgment of this Court in the case of Apeego Corporation Vs. Commissioner of Income Tax, in which this Court has held that there was no nexus between the loss suffered on account of fluctuations in rate of exchange and activities specified in sub-clauses (iii) and (viii) of Section 35B(1)(b). Being in agreement, we answer this question in the affirmative and against the assessee.

Question No. 2 is covered by the judgment of this Court in the case of Godavari Sugar Mills Ltd. Vs. Commissioner of Income Tax, in which this Court held that remuneration and commission paid to director are includible in computing amount for the purpose of disallowance u/s 40(c) of the Income Tax Act, 1961. Being in agreement, we answer this question in the affirmative and against the assessee.

Question No. 3 is covered by the judgment of this Court in the case of Inaroo Limited Vs. Commissioner of Income Tax, . In the said case this Court has laid down that the Income Tax Officer is required to make a disallowance of certain expenditure incurred on travelling outside the headquarters u/s 37 of the Income Tax Act, 1961 and the Rule 6D of the Income Tax Rules, 1962. Being in agreement, we answer this question in the affirmative and against the assessee.

Question No. 4 is also covered by the decision of this Court in the case of Smith Kline and French (India) Ltd. and Others Vs. Commissioner of Income Tax, in which this Court laid down that surtax levied on the profits under the Companies (Profits). Surtax Act, 1964 was not deductible under the Income Tax Act, 1961. Being in agreement, we answer this question in the affirmative and against the assessee.

In the net result, the reference is answered in the aforesaid terms and stands disposed of with no order as to costs.