High Court allows deduction for storage and duty expenses under Income-tax Act

The High Court upheld the assessee's claim for weighted deduction under section 35B of the Income-tax Act for expenses incurred towards storage and duty. The court clarified that expenses incurred on the carriage of goods to destinations outside India do not qualify for deduction, including expenses for carriage of goods after landing at the port of destination. As the goods were not carried beyond New York by or on behalf of the assessee, deductions for storage and local duty were deemed permissible under section 35B. The court ruled in favor of the assessee and directed parties to bear their respective costs.

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Issues:
Interpretation of section 35B of the Income-tax Act regarding weighted deduction for expenses incurred towards storage and duty.

Analysis:
The judgment pertains to a case where the Income-tax Appellate Tribunal referred two questions regarding the entitlement of weighted deduction under section 35B of the Income-tax Act for expenses incurred towards storage and duty. The Tribunal upheld the assessee's claim for weighted deduction, which was initially disallowed by the Income-tax Officer but allowed on appeal by the Appellate Assistant Commissioner. The key issue revolved around the interpretation of section 35B, specifically clause (b)(iii), which outlines the conditions for claiming weighted deduction. The section states that the expenditure must be incurred outside India and not on the carriage of goods to destinations outside India or on the insurance of goods while in transit.

The High Court referred to a previous interpretation of section 35B in K. E. Kesavan & Co. v. CIT, emphasizing that expenses incurred on the carriage of goods to destinations outside India do not qualify for weighted deduction. The court rejected the assessee's argument that expenses incurred for carriage of goods after landing at the port of destination qualify for deduction, stating that such expenses still constitute carriage of goods to destinations outside India. The court highlighted that the term 'destination' extends beyond the port of discharge to include the ultimate places where goods are sold.

The court analyzed the facts of the case, emphasizing that if the goods were carried hinterland by or on behalf of the assessee for sale to customers, the storage expenses at the port of discharge and local duty paid thereafter would not be allowable deductions. The Income-tax Officer's disallowance of the claim based on a misinterpretation of the law was deemed incorrect. The court noted that there was no finding indicating that the carriage of goods continued after the sea voyage ended at the port of discharge. The Appellate Assistant Commissioner's decision to allow the deductions was based on a proper understanding of the law and relevant facts.

The Revenue's appeal primarily focused on the alleged misinterpretation of section 35B by the Appellate Assistant Commissioner, without challenging the factual basis of the deductions. The court highlighted that there was no contention from the Revenue that the goods were carried beyond New York, where the voyage ended. The Tribunal's order confirmed that the goods were not carried further than New York by or on behalf of the assessee. Consequently, the court concluded that the deductions for storage and local duty were permissible under section 35B, answering the referred questions in favor of the assessee and against the Revenue.

In conclusion, the court directed the parties to bear their respective costs, and a copy of the judgment was to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.

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