Commissioner Of Income-Tax vs Aristocraft International (P.) ...
1999 Latest Caselaw 105 Del

ORDERS--Weighted deduction under section 35(1)(b)

Ratio:

Expenditure in relation to payment of commission to an Indian agent for arranging export order from foreign customers was not eligible for weighted deduction under section 35(1)(b)

Held:

Payment of commission was paid to Indian agent in India for the services, which fall in sub-clauses (i) and (ii) of section 35B(1)(b) of the Act. Such deduction is not allowable the ratio of the decision in CIT v. Stepwell Industries' (1997) 228 ITR 171 (SC), the question has to be answered in the negative, namely, in favour of the revenue and against the assessee.

Case Law Analysis:

CIT v. Stepwell Industries Ltd. (1997) 228 ITR 171 (SC) followed.

Application:

Not to current assessment year

Dt. Judg. 5-2-1997

Decision:

In favour of revenue

Income Tax Act 1961 s.35(1)(b)

Income Tax Act 1961 s.256(1)

Export market development allowance--ENTERTAINMENT EXPENSES IN INDIA--Weighted deduction

Ratio & Held:

Since expenditure on entertaining foreign customers was incurred in India, it was not deductible under sections 35(1)(b) and 37(2A) of the Act.

Application:

Not to current assessment year.

Income Tax Act 1961 s.35(1)(b)

Income Tax Act 1961 s.37(2A)

JUDGMENT

Devinder Gupta, Actg. C.J.

1. The following questions of law have been referred to the court under Section 256(1) of the Income-tax Act, 1961 (for short "the Act"), for its opinion :

"1. Whether, the Tribunal was right in holding that the expenditure on payment of commission to an Indian agent for procuring orders for export of goods from foreign customers was eligible for weighted deduction under Section 35B of the Income-tax Act, 1961 ?

2. Whether, the Tribunal was right in holding that expenditure incurred by the assessee for entertaining foreign customers in India was eligible for weighted deduction under Section 35B of the Income-tax Act and further that Section 37(2A) of the Act had no application to such expenditure ?"

2. The admitted facts are that the assessee is an exporter and during the relevant accounting period ending March 31, 1980, amount was paid for procuring export orders to the foreign parties. Weighted deduction under Section 35B of the Act was claimed by the assessee on this expenditure. The assessee's claim was turned down on the ground that commission paid to an Indian agent was not eligible for weighted deduction under Section 35B of the Act. On appeal, the Tribunal held that expenditure on payment of commission to Indian agent for the services fell within the Sub-clauses (i) and (ii) of Section 35B(1)(b) of the Act and was, therefore, eligible for weighted deduction.

3. In addition, the assessee also claimed weighted deduction in respect of expenditure incurred on entertaining foreign customers. The Income-tax Officer disallowed the expenditure, which was upheld by the Commissioner of Income-tax (Appeals). The Tribunal, however, held the expenditure allowable.

4. Both the questions referred are now squarely covered by a decision of the Supreme Court in CIT v. Stepwell Industries Ltd. [1997] 228 ITR 171, wherein it has been held that in order to get deduction, the assessee will have to prove that the expenditure was incurred during the previous year wholly and exclusively for the purposes set out in Clause (b) of Section 35B(1) of the Act. There cannot be any blanket allowance of the expenditure nor can there be any blanket disallowance. Every case has to be discussed specifically and the expenditure must be found to be of the nature mentioned in any one of the sub-clauses. If the expenditure does not fall in any of these categories, it cannot be allowed as a deduction. Some of the sub-clauses provide that if the expenditure is incurred in India, it cannot be allowed but in some of the sub-clauses this requirement is not there. Every case will have to be examined in the light of the provisions of the sub-clauses and the facts proved by the assessce.

5. In the instant case, the facts stand duly proved. In so far as the first question is concerned, it was found that payment of commission was paid to Indian agent in India for the services, which fall in Sub-clauses (i) and (ii) of Section 35B(1)(b) of the Act. Such deduction is not allowable and on the ratio of the decision in Stepwell Industries' case [1997] 228 ITR 171 (SC), the question has to be answered in the negative, namely, in favour of the Revenue and against the assessce.

6. For the second question, there is a clear finding of fact recorded that the expenditure was incurred in India on entertaining foreign customers. Such an expenditure is also not deductible under any of the clauses of Section 35B and Section 37(2A) of the Act has no applicability to the facts found. The question has to be answered in the negative, i.e., in favour of the Revenue and against the assessee. The reference is answered accordingly.