Commissioner Of Income Tax vs Junach (P). Ltd.
2004 Latest Caselaw 890 Del

JUDGMENT

Badar Durrez Ahmed, J.

1. This reference, at the instance of the revenue, pertains to the assessment year 1983-84. The question that has been referred for the determination of this court is as under:

"Whether, on the facts and in the circumstances of the case, the ITAT was correct on facts and in law in directing that the weighted deduction u/s 35-B may be allowed to the assessed in respect of the sum of Rs.6,99,489/- incurred under the head export consultancy charges?"

2. Section 35-B of the Income-tax Act, 1961 relates to Export Markets Development Allowances and by virtue of the provisions of this section, inter alia, any expenditure referred to in clause (b) of Section 35-B(1) is to be allowed as a deduction to the extent of the sum equal to one and one-third times of the amount of such expenditure incurred during the previous year. Sub-clause (b) of sub-section (1) of Section 35-B details the expenditures referred to for which a deduction can be claimed. We are concerned with sub-clause (ix) which reads as under:

"(ix) such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed."

3. This provision clearly indicates that the eligible activities for the promotion of the sale outside India of such goods, services or facilities are to be prescribed. They are so prescribed by Rule 6-AA of the Income Tax Rules, 1962 which, to the extent relevant, reads as under:

"6AA. For the purposes of sub-clause (ix) of clause (b) of sub-section (1) of section 35B, other activities for the promotion of the sale outside India of the goods, services or facilities which the assessed deals in or provides in the course of his business shall be as follows, namely:-

(a) conducting of pre-investment surveys or the preparation of feasibility studies or project reports:

Provided that the pre-investment surveys are conducted or the feasibility studies are made or the project reports are prepared on the request in writing made by the Central Government or a foreign party to whom such goods, services or facilities are likely to be sold or provided by the assessed;

 (b)     xxxxx        xxxxx       xxxxx        xxxxx
 (c)     xxxxx        xxxxx       xxxxx        xxxxx 
 (d)     xxxxx        xxxxx       xxxxx        xxxxx
 (e)     xxxxx        xxxxx       xxxxx        xxxxx"  
 

4. We are concerned with sub-section (a) and the proviso thereto. There is no dispute that the expenditure of Rs.6,99,489/- incurred under the head export consultancy charges was, in fact, an expenditure for conducting pre-investment surveys or the preparation of feasibility studies or project reports. However, there is a dispute with regard to the fulfilllment of the conditions stipulated in the proviso. Before an amount expended on a pre-investment survey could be allowed as a deduction, one of the two conditions specified in the proviso needs to be fulfillled. A request in writing must have been made either by the Central Government or by a foreign party to whom such goods, services or facilities were likely to be sold or provided by the assessed. In this case, admittedly, there is no request in writing made by the Central Government and there is no evidence of any such written request on behalf of the foreign party either. In fact, we find that this aspect of the matter has not been discussed by the Tribunal at all. These conditions have to be fulfillled before the deduction is allowed and in this view of the matter, we feel that the matter ought to be remanded to the Tribunal for a determination on facts as to whether there was any request on the part of the foreign party to whom such goods, services or facilities were likely to have been sold or provided by the assessed.

Accordingly, we set aside the inmpugned order of the Tribunal inasmuch as it relates to the question involved in this reference and remand the issue to the Tribunal for a determination on facts as to whether there was any request on the part of the foreign party to whom such goods, services or facilities were likely to have been sold or provided by the assessed. As such, this reference stands disposed of.

ITR.No. 99/1994

This reference, which is also at the instance of the Revenue, is in respect of the assessment year 1983-84. The question involved in this reference is similar and reads as under:

"Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal was right in allowing weighted deduction u/s 35B in respect of marketing survey expenses claimed at Rs. 13,00,000/- and quality control expenses of Rs. 75,000/-?

In fact, the decision of the Tribunal rendered in this matter was on the basis of the observations of the Tribunal recorded at para 19 of its decision which reads as under:

" 19. After taking into consideration the rival submission and looking to the facts available on record and going through our earlier decision in case of Junach Pvt Ltd., we find that sum of Rs. 13 lacs had been allowed for the same assessment year in case of Junach Pvt Ltd by us and the said decision has been accepted by the Revenue. With regard to other two claims we are satisfied that these are covered by the provisions of sec 35-B. The commission to the foreign agents have been paid for multifarious activities. The payment on quality control is covered by Rule 6-AA. We, therefore, direct that weighted deduction u/s 35B be allowed on the said three items of expenditure."

It thus appears that the Tribunal in this matter followed its decision in the case of Junach Pvt Ltd, the reference (ITR No.5/1995) in respect of which has already been disposed of by us hereinabove. It must, however, be noted that in this matter, the Assessing Officer had specifically dealt with the issue of the conditions laid down in the proviso to Rule 6AA (a) in the following words:

"The exception carved out of the main rule is that such expenses are incurred on the request in writing made by the Central Govt. or the foreign party to whom such goods, services or facilities are likely to be sold or provided. On 29.1.1986 when Shri Cahdokh the learned A.R. of the assessed appeared Along with Shri Pradeep Sehgal, Finance Accountant they admitted that there is no correspondence to substantiate the claim that the expenses were incurred at the request in writing."

From the foregoing discussion, it does appear that while the Assessing Officer had, in fact, considered the applicability of the conditions prescribed in the proviso, the Tribunal had, merely following its decision in the case of the company referred to above, passed the order in favor of the asssessee. Since the impugned order of the 'Tribunal is also based on the earlier order and that order has already been set aside and the matter relating to the question referred has been remanded to the Tribunal for re-hearing, we also remand this matter to the tribunal.