1996 (4) TMI 53 - HC - Income Tax

Court denies weighted deduction for export expenses under Income-tax Act

Premier Vegetable Products Limited Versus Commissioner Of Income-Tax

The court ruled in favor of the Revenue and against the assessee, denying the claim for weighted deduction of export expenses and export freight under ... Development Allowance, Weighted Deduction Issues:Interpretation of section 35B of the Income-tax Act, 1961 regarding weighted deduction for export expenses and export freight.Analysis:The case involved a dispute regarding the assessee's claim for deduction under section 35B of the Income-tax Act, 1961 for export expenses and export freight for the assessment year 1976-77. Section 35B was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant sub-clauses of section 35B were (iii) and (viii), which dealt with the distribution or provision of goods or services outside India and the performance of services outside India in connection with export contracts, respectively.The court examined Explanation 2 inserted by the Finance Act, 1973, which restricted the scope of exemption under sub-clauses (iii) and (viii) of section 35B. Explanation 2 specifically excluded expenditure related to the carriage of passengers, livestock, mail, or goods from being considered as expenditure on the supply of services or facilities outside India. This exclusion was crucial in determining whether the export freight charges could be claimed as a weighted deduction under section 35B.The court emphasized that sub-clause (iii) of section 35B referred to expenditure on the supply or provision of goods, services, or facilities outside India, while Explanation 2 clarified that expenses related to the carriage of goods were not eligible for deduction under this provision. The judgment cited a previous case, Associated Stone Industries Ltd. v. CIT [1994] 210 ITR 821, where it was held that freight and packing charges related to the carriage of goods to their destination outside India did not qualify for weighted deduction under section 35B(1)(b)(iii).Based on the interpretation of section 35B(1)(b)(iii) read with Explanation 2, the court concluded that the Tribunal was correct in denying the assessee's claim for weighted deduction of export expenses and export freight. Therefore, the reference was decided in favor of the Revenue and against the assessee, with no order as to costs.