Tribunal disallows surtax liabilities as revenue expenditure, grants relief for export-promotion expenses

The Tribunal upheld the disallowance of surtax liabilities claimed as revenue expenditure for the assessee's business. Regarding the non-grant of relief under section 35B of the Income-tax Act, the Tribunal recognized the activities of the Government undertaking involved in promoting export activities and allowed relief for some expenses incurred. The matter was remitted back to the ITO for computation of the allowance based on the nature of expenses, with the assessee directed to provide necessary evidence. The appeals were partly allowed, with the Judicial Member concurring with the decision.

---

---

Issues Involved:
1. Disallowance of surtax liabilities claimed as revenue expenditure.
2. Non-grant of relief under section 35B of the Income-tax Act, 1961.

Detailed Analysis:

1. Disallowance of Surtax Liabilities:
The point relating to the allowance of surtax liability is covered by the decision of the Tribunal in the case of Amar Dye-Chem. Ltd. v. ITO [1983] 3 SOT 384 (Bom.) (SB) against the assessee. Therefore, the Tribunal upheld the disallowance of surtax liabilities claimed as revenue expenditure for the purpose of the assessee's business.

2. Non-Grant of Relief Under Section 35B:
The assessee, a Government undertaking, claimed weighted deduction under section 35B for various expenses incurred for the assessment years 1975-76, 1976-77, and 1977-78. The ITO disallowed the claim, stating that the assessee neither performed any services outside India nor executed any contract for the supply outside India of any goods, services, or facilities. The expenses were incurred in India, making the assessee ineligible for the relief.

On appeal, the Commissioner (Appeals) upheld the ITO's order, relying on his decision for the assessment year 1977-78 in the assessee's own case. The assessee argued that it provided valuable services to exporters in India, such as making enquiries about the status of foreign buyers and guaranteeing payments for goods sold and services rendered to foreign buyers on credit. The expenses were incurred wholly, necessarily, and exclusively for promoting the export of goods and services outside India.

The Tribunal noted that the assessee's business involves credit insurance, and even though it was argued that the assessee is a vicarious exporter of goods and services outside India, the factual position did not support this claim. The Tribunal emphasized the need for a detailed analysis of the assessee's activities and the expenses incurred to determine eligibility for relief under section 35B.

The assessee, initially known as ERIC (Export Risks Insurance Corporation) and later renamed ECGC (Export Credit & Guarantee Corporation Ltd.), provided various insurance and guarantee services to exporters. These services included covering risks such as insolvency, default, war, civil commotion, and restrictions on money transfer and imports/exports. The corporation also offered guarantees to banks and financial institutions to enable exporters to obtain increased credit facilities.

The Tribunal recognized that the activities of ECGC are directly connected with export activities and involve substantial work abroad, such as travelling and collecting information. The Tribunal held that the assessee is entitled to relief under section 35B for some of the expenses incurred, as these expenses facilitate export activity.

The Tribunal remitted the matter back to the ITO to proceed on the basis that the assessee carries on activities entitling it to allowance under section 35B. The ITO was directed to compute the allowance based on the details and nature of the expenses, allowing the assessee to produce all necessary evidence.

The appeals were partly allowed, with the Judicial Member concurring with the decision.

---