Foreign arbitration award liability accrues on the award date; section 35B deductions were also partly allowed for export expenses.

A foreign arbitration award creates an accrued and binding liability for income-tax purposes when the award is made, and enforcement proceedings under the Foreign Awards (Recognition and Enforcement) Act, 1961 do not defer deductibility until the award is made a rule of court. The article also notes that weighted deduction under section 35B was allowed in part for salary and stationery expenses on the basis of the Special Bench view, and that commission paid to an export-related intermediary was treated as deductible expenditure under section 35B rather than as a mere trade discount.

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Issues: (i) Whether the compensation payable under foreign arbitration awards constituted an allowable business deduction in the year of the award; (ii) whether weighted deduction under section 35B was allowable in respect of salary and stationery expenditure; (iii) whether the commission paid to Kasturi Nagesh Pai was an allowable deduction under section 35B.

Issue (i): Whether the compensation payable under foreign arbitration awards constituted an allowable business deduction in the year of the award.

Analysis: The liability arose from foreign awards passed in respect of supply contracts. The Foreign Awards (Recognition and Enforcement) Act, 1961 was held to make a foreign award enforceable in India and binding for all purposes on the parties, while sections 5 and 6 provide only the procedure for filing the award and obtaining a decree for its execution. The Court rejected the view that liability arose only when the award was made a rule of court, and held that questioning of the award by the assessee did not prevent the liability from accruing on the passing of the award.

Conclusion: The deduction was allowable and the issue was decided in favour of the assessee.

Issue (ii): Whether weighted deduction under section 35B was allowable in respect of salary and stationery expenditure.

Analysis: The assessee claimed weighted deduction on salary and stationery expenses. Following the Special Bench view relied on by the assessee, the Court held that the relevant portion of such expenditure qualified for weighted deduction under section 35B.

Conclusion: The claim was allowed in part in favour of the assessee.

Issue (iii): Whether the commission paid to Kasturi Nagesh Pai was an allowable deduction under section 35B.

Analysis: The departmental objection that the payment was only a trade discount was not accepted. The payment was treated as expenditure incurred in connection with export business and was held to be deductible under section 35B.

Conclusion: The deduction was allowable and the issue was decided against the revenue.

Final Conclusion: The assessee succeeded on the principal foreign-claims issue and on the section 35B claims, while the revenue's challenge to the allowance of commission failed. The appeal was allowed in part and the connected revenue appeal was dismissed.

Ratio Decidendi: A foreign award gives rise to an accrued and binding liability when it is made, and the subsequent enforcement procedure under the Foreign Awards (Recognition and Enforcement) Act, 1961 does not postpone the deductibility of that liability for income-tax purposes.

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