Court denies assessee export markets allowance under section 35B(1)(b)(iii) & capital relief under section 80J.

The court ruled against the assessee on both issues. The claim for export markets development allowance under section 35B(1)(b)(iii) of the Income-tax Act was disallowed as the expenditure on carriage of goods and insurance charges related to export commodities did not qualify for weighted deduction. Regarding relief under section 80J, the court held that borrowed capital should not be considered as capital employed, in line with an amendment specifying exclusion of borrowed money and debts for computing capital employed. The department's position was upheld, denying the assessee eligibility for both allowances.

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Issues involved: The eligibility of the assessee for export markets development allowance under section 35B(1)(b)(iii) of the Income-tax Act and entitlement to relief under section 80J of the Income-tax Act.

Export Markets Development Allowance (u/s 35B(1)(b)(iii)):
The assessee claimed weighted deduction for shipping freight, railway freight, and insurance charges related to the export of commodities under section 35B(1)(b)(iii) of the Income-tax Act. The Income Tax Officer (ITO) initially disallowed the deduction, but the Appellate Authority Commission (AAC) and the Tribunal allowed the claim based on a decision of the Bombay Bench of the Tribunal. The relevant clause (b)(iii) of section 35B(1) deals with expenditure incurred on the carriage of goods to their destination outside India or on the insurance of goods while in transit. The court interpreted this clause in line with previous judgments and commentaries, concluding that such expenditure cannot be considered for weighted deduction. The court referred to the Madras High Court case and various commentaries to support this interpretation.

Relief under Section 80J:
Another point of dispute was the interpretation of section 80J of the Act, where the assessee claimed that borrowed capital should be considered as capital employed for relief under section 80J. The ITO rejected this claim, but the AAC and the Tribunal accepted it. However, the court referred to a Division Bench case and an amendment introduced by the Finance Act, specifying that borrowed money and debts owed by the assessee should be excluded in computing the capital employed for section 80J relief. As the assessment year was 1973-74, the court held that the amendment applied in this case.

Conclusion:
The court ruled in favor of the department and against the assessee on both issues. It held that the assessee was not eligible for export markets development allowance concerning the expenditure on the carriage of goods to their destination outside India or on the insurance of goods while in transit. Additionally, the assessee was not entitled to relief under section 80J based on the gross capital without deducting the value of borrowed capital employed. No costs were awarded in this reference.

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