Delhi High Court
Commissioner Of Income-Tax vs International Exporters on 9 March, 1998
Equivalent citations: 1998 233 ITR 23 Delhi
Author: R Lahoti
Bench: R Lahoti, M Mudgal
JUDGMENT
R.C. Lahoti, J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961, arising out of the assessment year 1974-75, made at the instance of the Revenue, and seeking the opinion of the High Court on the following question of law :
"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the assessee is entitled to the weighted deduction on the following expenditure-commission Rs. 10,390, foreign telephones Rs. 2,302, salaries 75 per cent, of Rs. 50,754, insurance (ECGC) Rs. 774, sale promotion expenses Rs. 6,300, rent 50 per cent, of Rs. 6,000 and printing and stationery 50 per cent, of Rs. 5,119 ?"
It is not disputed that the assessee is a firm carrying on business in the export of readymade garments, handloom clothes and handicrafts. The assessee claimed weighted deduction under Section 35B by reference to several items of expenditure. Each of them may be dealt with individually.
Commission Rs. 10,390
2. The Income-tax Officer disallowed this item of expenditure on account of having been incurred in India and not "wholly and exclusively" for the purpose referred to in Clause (b) of Sub-section (1) of Section 35B. A perusal of the order of the Appellate Assistant Commissioner shows that though the commission was paid for export business in India, the same was held to be allowable on account of having been incurred "wholly and exclusively" for export business. It was held allowable under Sub-clause (i) of Clause (b) of Sub-section (1) of Section 35B because the learned Appellate Assistant Commissioner was of the opinion that it was only in the case of Sub-clause (iii) that the expenditure should have been incurred outside India. He directed the Income-tax Officer to allow the claim.
3. The Tribunal did not deal with this item in detail but allowed the same in view of the Special Bombay Bench of the Tribunal having held it to be allowable. A copy of the order of the Special Bench in the case of J. H. and Co. is available in the paper book. Para. 28 of that order shows that the Special Bench had held the commission paid to parties who brought about the export sales allowable under Sub-clauses (i) and (ii) without regard to the fact as to where it was incurred.
4.
In CIT v. Step well Industries Ltd. [1997] 228 ITR 171 (SC), their Lordships have held that merely because some activities took place outside India will not qualify the expenditure for the deduction mentioned in Section 35B. The onus is on the assessee to prove his entitlement to the weighted deduction allowable under Section 35B.
5. In our opinion the amount of commission paid in India, though on export sales would not qualify for weighted deduction under Sub-clause (i) or (ii) or (iii). Sub-clause (i) deals with development or publicity outside India which was not the activity undertaken by the parties obtaining the commission. Payment of commission on export sales does not also amount to obtaining information regarding markets outside India within the meaning of Sub-clause (ii). To attract the applicability of sub- Clause (ii) the expenditure must have been incurred outside India, which, admittedly, is not so in the case at hand.
6. For the foregoing reasons, it is held that the commission of Rs. 10,390 was not entitled to weighted deduction under any of the sub-clauses of Clause (b) of Sub-section (1) of Section 35B.
Foreign telephone Rs. 2,302
7. 'Foreign telephones', the phrase as occurring in the question, means the expenditure on foreign telephone calls. There is nothing available on the record to hold that the expenditure was incurred 'wholly and exclusively' for any of the purposes set out in Clause (b) of Section 35B(1). The expenditure, therefore, was not allowable under Section 35B.
Salaries, rent, printing and stationery
8. The Tribunal has allowed 75 per cent, of the salaries, 50 per cent, of rent, and 50 per cent, of printing and stationery expenses as entitled to weighted deduction. The very fact that these expenses have not been allowed in their entirety goes to show that the expenses were not incurred 'wholly and exclusively' on any of the items referred to under Section 35B(1). So is the view taken in CIT v. Hero Cycles Pvt. Ltd. . These expenses were not, therefore, entitled to weighted deduction.
Insurance (E. C. G. C.) Rs. 774
9. This item of expenditure has been held not entitled to weighted deduction by the Supreme Court in the case of CIT v. Step well Industries Ltd. [1997] 228 ITR 171 ; so is the view taken by us in Indian Aluminium Cables v. CIT [1998] 232 ITR 192 (Delhi) (I. T. C. No. 75 of 1983 decided on March 5, 1998).
Sale promotion expenses Rs. 6,300
10. A perusal of the order of the Appellate Assistant Commissioner shows that these expenses were incurred on foreign customers. There is nothing available on record to show that these were expenses incurred 'wholly and exclusively' on any of the purposes set out in Clause (b) above said. The assessee was, therefore, not entitled to weighted deduction on this item too.
11. For the foregoing reasons, the question is answered in the negative, i.e., in favour of the Revenue and against the assessee.
