1993 (2) TMI 13 - HC - Income Tax

High Court ruling on deductions under Income-tax Act: Guarantee charges allowed, interest denied.

The High Court ruled in favor of the assessee for weighted deduction under section 35B of the Income-tax Act, 1961, allowing the deduction for guarantee ... Commission Payment, Development Allowance, Interest On Advance, Weighted Deduction Issues:Claim for weighted deduction of expenses under section 35B of the Income-tax Act, 1961.Analysis:The judgment by the High Court of Bombay addressed the issue of the assessee's claim for weighted deduction of expenses incurred during the assessment year 1969-70. The relevant expenses in question included guarantee charges, interest, commission, and miscellaneous expenses. The primary contention was whether these expenses qualified for relief under section 35B of the Income-tax Act, 1961.Regarding the guarantee charges of Rs. 5,98,228 paid to the Export Credit Guarantee Corporation of India, the Income-tax Officer initially disallowed the claim, citing that the payment was made in India. However, both the Appellate Assistant Commissioner of Income-tax and the Income-tax Appellate Tribunal accepted the assessee's contention that the expenditure fell under section 35B(1)(b)(ii) of the Act. The Tribunal found that the Corporation provided information related to markets outside India, supporting the assessee's claim for weighted deduction. The High Court agreed with this finding, allowing the deduction for guarantee charges.Concerning the interest payment of Rs. 6,36,605 made to banks for advances related to exported goods, the Tribunal granted weighted deduction based on the banks' alleged services outside India. However, the High Court, after considering relevant precedents and lack of evidence supporting the services being rendered outside India, reversed the Tribunal's decision, disallowing the deduction for interest payment.The commission payment of Rs. 3,75,000 to an Iranian party was upheld for weighted deduction by the Tribunal, supported by previous High Court decisions. The High Court, following the precedents, confirmed the deduction for commission payment.Lastly, the miscellaneous expenses totaling Rs. 2,22,429 were partially granted weighted deduction by the Income-tax Officer on an ad hoc basis. The Tribunal disagreed with the Officer's approach and allowed the deduction for the entire amount. The High Court upheld the Tribunal's decision, granting weighted deduction for the miscellaneous expenses.In conclusion, the High Court ruled in favor of the assessee for weighted deduction under section 35B of the Act for guarantee charges, commission, and miscellaneous expenses, but denied the deduction for interest payment.