Commissioner Of Income Tax vs Romin Consulting Services (P) ...
2002 Latest Caselaw 1996 Del

JUDGMENT

D.K. Jain, J.

1. At the instance of the Revenue, the Income-tax Appellate Tribunal, New Delhi (for short 'the Tribunal'), has referred under Section 256(1) of the IT Act, 1961 (for short 'the Act'), the following question for our opinion :

"Whether, on the facts and in the circumstances of the case, the assessed is entitled to weighted deduction under Section 35B of the IT Act, 1961, in respect of the foreign travel expenditure of Rs. 38,689 of Mr. R. Chand ?"

2. Briefly stated, the material facts giving rise to the present reference are ;

The assessed is a private limited company engaged in the business of consultancy services. During the previous year ended 30th June, 1977, for which the relevant assessment year was 1978-79, the assessed claimed as revenue expenditure the expenses amounting to Rs. 38,689, incurred on the foreign travel of its managing director, namely, Mr. R. Chand, abroad. Weighted deduction on the said amount under Section 35B of the Act was also claimed. However, while completing assessment for the relevant assessment year, the ITO took the view that the managing director had gone abroad in order to instal a separate manufacturing concern in India and as the project for installation did not materialise, the expenses on foreign tour could not be allowed as revenue expenditure. The ITO also held that since the assessed had not made any exports, it was not entitled to weighted deduction under Section 35B of the Act on the aforenoted amount. Accordingly, he disallowed the said expenses as also the weighted deduction under Section 35B of the Act thereon. Against the said disallowance, the assessed preferred appeal to the CIT(A), but without success. The matter was taken in further appeal to the Tribunal. Allowing the said expenditure as business expenditure, the Tribunal held that on the said amount the assessed was also entitled to weighted deduction under Section 35B of the Act. Insofar as the claim of weighted deduction was concerned, the Tribunal held as follows :

"The second ground relates to allowance of weighted deduction in respect of the above expenditure. The assessed is undoubtedly entitled to the weighted deduction also as per the provisions of Section 35B as existing at the relevant time. The assessed is promoting the export of its services. It is not necessary that actual export is to be effected. Even in respect of services an assessed is entitled to weighted deduction as has been held by the Special Bench decision in the case of Eastern Bulk Services v. ITO (1983) 5 ITD 471 (Del)(SB). In my opinion, the assessed satisfied all the conditions required for grant of weighted deduction in respect of the expenditure incurred. Accordingly, the assessed is entitled to the weighted deduction claimed."

On Revenue's moving an application under Section 256(1) of the Act, the aforenoted question has been referred.

3. We have heard Mr. R.D. Jolly, learned senior standing counsel for the Revenue. There is no appearance on behalf of the respondent-assessed.

4. It is vehemently submitted by Mr. Jolly that while holding that the assessed was entitled to weighted deduction, the Tribunal has not indicated under which sub-clause of Section 35B(1)(b) of the Act the claim of the assessed would fall. It is urged that a bare observation that "the assessed is promoting export of its services" is not sufficient for allowing weighted deduction. In support of the said proposition, learned counsel has placed strong reliance on the decisions of the Supreme Court in CIT v. Stepwell Industries Ltd. and Ors. (1997) 228 ITR 171 (SC) and CIT v. Hero Cycles (P) Ltd. and Ors. (1997). (1997) 228 ITR 463 (SC). Learned counsel asserts that in the present case the expenses were not incurred either for obtaining any information with regard to the markets outside India for the type of services rendered by the assessed or in connection with promotion of sale outside India of any services.

5. From the record it appears that the expenditure incurred by the assessed on foreign travel of its managing director was disallowed by the AO as also the CIT(A) on the ground that the same was not laid out wholly and exclusively for the purpose of assessed's business. Furthermore, while holding that the assessed was not entitled to weighted deduction, the CIT(A) had also noticed that the assessed-company had not carried out any activity of consultancy services outside India as there was no firm commitment by M/s Steel and Allied Products Ltd., who had retained the assessed to prepare a feasibility report for setting up a tungsten carbide tool tips project in collaboration with the foreign party. On the contrary, we find that while holding that the assessed was entitled to weighted deduction on the said amount, the Tribunal has not even remotely adverted to the findings recorded by the CIT(A), The Tribunal has merely observed that "the assessed is promoting export of its services". The basis for arriving at this conclusion is not indicated by the Tribunal.

6. The principles and parameters, governing the allowance of weighted deduction under Section 35B of the Act, are now well settled. In Stepwell Industries case (supra) and Hero Cycles case (supra), while disapproving the logic of the decision of the Special Bench of the Tribunal in J. Hemchand & Co. v. ITO (1982) 1 SOT 150 (Bom)(SB), applied by the Tribunal in the instant case, their Lordships of the Supreme Court have been pleased to observe that when a claim for weighted deduction is made, it is for the assessed to satisfy the ITO that the expenditure falls in any of the sub-clauses of Clause (b) of Section 35B(1) and the onus is on the assessed to prove that he is entitled to the weighted deduction under Section 35B. It has been emphasised that for relief under Section 35B, the expenditure incurred must fall under one of the sub-clauses of Clause (b) of Section 35B(1) of the Act.

7. In our opinion, in the instant case, the Tribunal has failed to apply the parameters laid down by the apex Court in the aforenoted decisions and, therefore, the matter requires to be reconsidered by the Tribunal.

Accordingly, without rendering any opinion on the question referred, we remit the matter back to the Tribunal to reconsider the same in the light of the aforenoted decisions.

The reference stands disposed of in the above terms.