Shri Ambica Mills Ltd. vs Commissioner of Income Tax

J.N. Bhatt, J.—By this reference, the Income Tax Appellants, Tribunal (""the Tribunal"" for short) has refereed to us, for our opinion, the

following questions u/s 256(1) of the Income Tax Act, 1961 (""the Act for short) :

Whether on the facts and the circumstances of the case, the tribunal was right in holding that the assessee was not entitled to claim weighted

deduction u/s 35B on Rs. 45,70,837 (exports inspection fees paid in India Rs. 31,520, export freight paid in India Rs. 44,77,604 and foreign

travailing expenses Rs. 61,713) ?

Whether on the facts and in the circumstances of the case, the Tribunal was right in law in lot admitting the additional ground claiming deduction

of Rs. 1,88,743 being customs duty payable by the assessee ?

The assessee-company carries on the business of manufacturing textiles, steel tubes, machineries, cylinders and chemicals. During the course of

assessment proceedings for the assessment year 1975-76, the assessee had made, inter alia claims for weighted deduction under the provisions of

section 35B of the Act. The assessee claimed weighted deduction on export commission, foreign travailing expenses, export inspection fees and

export freight paid in India.

The Income Tax Officer rejected the claim of the assessee for weighted deduction in respect of foreign travailing expenses amounting to Rs.

61,713. According to the Income Tax Officer, the expenditure was not incurred for the purpose of export but it was incurred for the purpose of

starting a new project. He had also rejected the claim for weighted deduction on export inspection fees, in India, of Rs. 31,520 and export freight

paid, in India, of Rs. 44,77,604 on the ground that they were not falling in any of the sub-clauses of section 35B(1)(b) of the Act. Thus, the claims

for weighted deduction in respect of the aforesaid three items of expenditure came to be rejected by him.

The assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals) (""the Commissioner"" for short). However, the

Commissioner confirmed the disallowance of weighted deduction claimed u/s 35B of the Act by dismissing the appeal. Being aggrieved by the said

decision of the commissioner, the assessee challenged its legality and validity before the Tribunal. The Tribunal also confirmed the decision of the

Income Tax Officer and the Commissioner, following the decision of a special bench of the Tribunal in J. Hemchand and Company (ITA No. 3255

& 3330/Bom/76-77, dated June 17, 1978). In short, the assessee failed in the proceedings before the department and also before the Tribunal.

In so far as the second question in concerned it may, be stated that it was raised for the first time on behalf of the assessee before the Tribunal,

During the course of the appeal before the Tribunal, the assessee held advanced it as an additional ground where under the assessee claimed

weighted deduction on customs duty amounting to Rs. 1,88,743. As such a claim was not made either before the Income Tax Officer or before the

Commissioner, the additional ground raised on behalf of the assessee claiming weighted deduction of customs duty was not accepted by the

Tribunal.

In the aforesaid facts, at the instance of the assessee, the Tribunal has referred to us, for our opinion, the aforesaid two questions.

In so far as question No. 1 it conceded the assessee had claimed weighted deduction u/s 35B on the following items :

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Sl. No. Items of expenditure Amount claimed

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Rs.

Export inspection fees paid in India 31,520

Export freight paid in India 44,77,604

Foreign travelling expenses 61,713

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In all, the assessee claimed Rs. 45,70,837 ways of weighted deduction.

As regards export inspection fees, it is contended on behalf of the assessee that the authorities below have committed a serious error in

disallowing the said amount by way of weighted deduction. In that, it is further contended that this amount could have been allowed u/s 35B(1)(b)

(vi) of the Act. Learned counsel for the assessee has also placed reliance on a decision of the Calcutta High Court in the case of Union Carbide

India Ltd. Vs. Commissioner of Income Tax, . Relying on the said decision, it is contended that the assessee would be entitled to claim weighted

deduction u/s 35B(1)(b)(vi) of the Act. Prima facie, this contention may appear to be subtle and captivating, but it is not acceptable in view of the

fact that, in the present case, sufficient materials are absent.

In other words, the nature of expenditure incurred, the purpose of the expenditure and other material facts which led to the incurring of the

expenditure of Rs. 31,520 by way of export inspection fees are absent.

In the case relied on by learned counsel for the assessee, there were sufficient facts to hold that the claim of the assessee in that case fell u/s

35B(1)(b)(vi) of the Act. The amount claimed by the assessee in that case was disallowed by the Income Tax Officers. The Commissioner and the

Tribunal allowed the claim of the assessee for weighted deduction. On a reference, the Revenue contended that, for claiming weighted deduction

u/s 35B(1)(b)(vi) of the Act. the assessee had to establish that the expenses had been incurred outside India and since the inspection agency fees

had been paid in India, the assessee was not entitled to claim weighted deduction on the expenditure. It was held in the facts of that case that the

export agency inspection fees paid by the assessee for the purpose of obtaining the certificate, which was a necessary requirement for the export of

goods, amounted to expenditure incurred for furnishing to a person outside India technical information for the promotion of sales of such goods

within the meaning of section 35B(1)(b)(vi) of the Act and that the assessee was entitled to weighted deduction on such expenditure. In these

circumstance, in the light of the facts available on record in that case, the assessee was found entitled to weighted deduction on such expenditure

u/s 35B(1)(b)(vi) of the Act. So is not the factual situation in the present reference. Unfortunately, as observed hereinbefore, no particulars are

furnished. The purpose, requirement, nature, etc., relating to the expenditure of Rs. 31,520 are not borne out from the record. Therefore, we are

unable to agree with the contention of learned counsel for the assessee. In the absence, of material particulars of the expenditure incurred on this

item. i.e., export inspection fees, we are unable to agree with the submission made by learned counsel for the assessee. In the result, in the absence

of such material particulars and break-up of the purpose, nature, etc., of the said expenditure, the assessee would not be entitled to claim weighted

deduction u/s 35B(1)(b)(vi) of the Act.

This leads to the alternative submissions made by learned counsel for the assessee. He has alternatively submitted that, in the absence of

necessary formation and particulars, and particulars, the Tribunal may be directed to take appropriate steps to adjust its decision in that case in the

light of the answer of this court. This submission would have had greater force and we would have gone deeper into the matter had the amount

been substantial and significant. Since the amount involved is very small, we do not think it necessary to accept the alternative submission also.

Hence, this submissions is also rejected.

In so far as export freight paid in India of Rs. 44,77,604 is concerned, the Income Tax Officer had held that the expenditure claimed by the

assessee towards export freight would fall within sub-clause (iii) of clauses (b) of sub-section (1) of section 35B of the Act. Therefore, this claim

was rejected by the Income Tax Officer. The view of the Income Tax Officer was confirmed by the Commissioner as well as by the Tribunal. In

our opinion, the view of the Tribunal is quite correct in view of the clear provision in section 35B(1)(b)(iii) of the Act. The amount of Rs.

44,77,604 was paid for export freight in India. Sub-clause (iii) of clause (b) of sub-section (1) of section 35B of the Act reads as under :

35B. (1) (b) The expenditure referred to in clause (a) is that incurred wholly and exclusively on - ....

(iii) distribution, supply or provision outside India of such goods, services of facilities, not being expenditure incurred in India is connection

therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods

while in transit;

In view of the aforesaid clear provision, the said expenditure cannot be allowed by way of weighted deduction, we therefore, confirm, the view

taken by the Tribunal.

As regards foreign travelling expenses, the assessee had claimed Rs. 61,713. The Income Tax Officer rejected the claim of the assays holding

that the assessee was not entitled to claim weighted deduction as the expenses were referable and related to starting a new project and not

connected with the present business of the assessee. The decision of the Income Tax Officer was confirmed by the Commissioner and the

Tribunal. The assessee has not been able to show any material on record which would warrant interference of this court as far as this item of

expenditure is concerned. Therefore, we confirm the view taken by the taxing authorities.

In view of the aforesaid discussion, we decide question No. 1 in the affirmative and against the assessee.

In so far as the second question is concerned, it will not detain us any longer as it is directly covered by the Full Bench Decision of this court in

the case of Commissioner of Income Tax, Gujarat-I Vs. Cellulose Products of India Ltd., . The view taken by the Tribunal is fully justified an as it

in consonance with the ratio of the decision of the Full Bench of this court it is not necessary to enter into the factual aspects in greater detail.

In the result, we answer question No. 2 in the affirmative and against the assessee.

Reference answered accordingly, with no order as to costs.