Commissioner Of Income-Tax vs Twinklers
1998 Latest Caselaw 621 Del

JUDGMENT

R.C. Lahoti, J.

1. These three references under Section 256(1) of the Income-tax Act, 1961, made at the instance of the Revenue raise the following common question of law arising out of the assessment years 1972-73, 1973-74, 1974-75 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing weighted deduction in respect of expenses on packing and forwarding and import licence fee under Section 35B(1)(b) of the Income-tax Act, 1961 ?"

2. From the statement of facts it is disclosed that the assessee had incurred expenses on packing and forwarding. The assessee had also incurred expenses on import licence fee. The assessee claimed entitlement for weighted deduction in respect of the said expenses which was disallowed by the Assessing Officer. The assessee preferred appeals to the Appellate Assistant Commissioner with whom the plea of the assessee prevailed and the assessee was held entitled to weighted deduction on both the counts. The Revenue preferred an appeal to the Income-tax Appellate Tribunal which has been dismissed.

3. So far as the packing and forwarding expenses are concerned, the Tribunal has found that these expenses were incidental to the business activities of the assessee outside India and, therefore, qualified for weighted deduction under Section 35B(1)(b)(viii) of the Income-tax Act, 1961 (the provision as it stood at the relevant time). As to the import licence fee the finding recorded by the Appellate Assistant Commissioner and upheld by the Income-tax Appellate Tribunal is :

"This import licence fee has been paid by the assessee in respect of import entitlements granted by the Government to the assessee in lieu of exports as an incentive for further promotion of export. Therefore, in our opinion, this is also an activity incidental to the promotion of exports and is eligible for weighted deduction under Section 35B(1)(b)(vii)/(viii) of the Act. The Income-tax Officer is directed to recompute the weighted deduction admissible to the assessee accordingly."

4. In CIT v. Step well Industries, [1997] 228 ITR 171 (SC), interpreting Section 35B of the Act, their Lordships have held that the expenses should have been incurred outside India and the onus of proving such entitlement is on the assessee. A bare reading of Sub-clause (viii) of Section (1)(b) of Section 35B shows that the expenditure should have been incurred wholly and exclusively on performance of services outside India and should have been in connection with or incidental to the execution of any contract for the supply outside India of such goods, services or facilities. Packing and forwarding expenses were obviously incurred within the country before exporting the goods. So also the expenses on import licence fee cannot be said to have been incurred outside India. None of the expenses is relatable to the performance of services outside India. The Tribunal was not, therefore, in our opinion, justified, in taking the view which it did. We are also fortified in our opinion by a Division Bench decision of the Punjab and Haryana High Court in Vijay Kumar Aggarwal v. CIT, [1998] 232 1TR 179.

5. For the foregoing reasons, the question is answered in the negative, i.e., in favour of the Revenue and against the assessee. Reference is answered accordingly.