1988 (8) TMI 147 - AT - Income Tax

Tribunal upholds Commissioner's decision on weighted deduction under section 35B

The Tribunal upheld the Commissioner (Appeals)'s decision allowing the weighted deduction under section 35B, determining that the payment to EPI ... Assessment Year, Development Allowance, Indian Company Issues Involved:1. Entitlement to weighted deduction under section 35B.2. Inclusion of cash compensatory scheme receipts in total income.3. Delay in filing cross-objection.Analysis:1. Entitlement to Weighted Deduction under Section 35B:The primary issue in the departmental appeal was whether the assessee-company was entitled to the weighted deduction under section 35B in respect of certain expenditures incurred in selling products to the Government of Iraq. The department contended that no expenditure had been incurred and that what was claimed as expenditure was merely a trade discount given to the buyer, EPI.The assessee had entered into a contract with EPI, a public sector undertaking, for the supply of asbestos cement pressure pipes for the Basra Water Supply Scheme. The contract involved several terms, including a service charge of 10% of the total contract price to be paid to EPI for marketing the product in Iraq. The assessee claimed deduction under section 35B for this payment.The Income-tax Officer denied the deduction, considering it a trade discount rather than an expenditure. However, the Commissioner of Income-tax (Appeals) allowed the deduction, noting that the goods were exported directly by the assessee, and the payment to EPI was for services rendered in connection with the export.Upon appeal, the Tribunal considered the submissions and referred to the Kerala High Court's decision in CIT v. Orion Coir Mats & Matting Mfrs. (P.) Ltd., which distinguished between trade discounts and commissions. The Tribunal concluded that the payment to EPI was indeed a commission for services rendered in marketing the product abroad, not a trade discount. Therefore, the assessee was entitled to the deduction under section 35B.2. Inclusion of Cash Compensatory Scheme Receipts in Total Income:In the cross-objection, the assessee contended that the sum received under the cash compensatory scheme should be considered a capital receipt and not included in computing the total income. The assessee cited the Special Bench's decision in Gedore Tools (India) (P.) Ltd. v. IAC.The Tribunal noted that the cross-objection was filed after a delay of 1102 days. The explanation provided by the assessee was that they became aware of the legal position only after the Special Bench's decision. However, the Tribunal found that the issue was not raised before the Income-tax Officer or the Commissioner (Appeals), and the necessary facts were not on record. Consequently, the Tribunal dismissed the cross-objection.3. Delay in Filing Cross-Objection:The assessee's cross-objection was delayed by 1102 days. The Tribunal analyzed the conditions under section 253(4) for filing a valid cross-objection, noting that it must be against a part of the order of the first appellate authority. Since the issue of cash compensatory scheme receipts was not raised before the lower authorities, the Tribunal held that the cross-objection was invalid.Even assuming the cross-objection was valid, the Tribunal found that the delay was not satisfactorily explained. The assessee's claim that they became aware of the legal position only after the Special Bench's decision was not sufficient, as the necessary facts were not on record. Therefore, the Tribunal dismissed the cross-objection.Conclusion:The Tribunal upheld the Commissioner (Appeals)'s decision allowing the weighted deduction under section 35B, concluding that the payment to EPI was a commission for services rendered in connection with the export. The cross-objection by the assessee was dismissed due to the delay and the absence of necessary facts on record. The departmental appeal was partly allowed, and the cross-objection was dismissed.