1986 (2) TMI 130 - AT - Income Tax

Tribunal Grants Weighted Deduction on Expenses: Detailed Analysis Ensures Assessee Receives Proper Benefits

The Tribunal partly allowed the appeal, granting weighted deduction on several items of expenditure under Section 35B based on a detailed interpretation ... - Issues Involved:1. Weighted deduction under Section 35B for various expenses.2. Allocation and eligibility of specific expenses for weighted deduction.3. Interpretation of Section 35B(1)(b) and its sub-clauses.4. Applicability of precedents and High Court decisions.Detailed Analysis:Issue 1: Weighted Deduction under Section 35B for Various ExpensesThe primary issue revolves around the assessee's claim for weighted deduction under Section 35B of the Income Tax Act on various expenses incurred for export activities. The assessee claimed a total expenditure of Rs. 3,25,677, while the Income Tax Officer (ITO) allowed weighted deduction on Rs. 2,43,897. The Commissioner of Income Tax (Appeals) [CIT(A)], however, reduced the allowable expenditure to Rs. 17,957.Issue 2: Allocation and Eligibility of Specific Expenses for Weighted DeductionThe specific items of expenditure and their eligibility for weighted deduction were contested. The items included forms and stamp papers, printing and stationery, sending of samples, postage and telegram charges, certifying charges, export inspection fees, commission to brokers, and salary paid to export executives.Forms and Stamp Papers (Rs. 5,586)- Assessee's Argument: Expenses should be allowed under sub-clauses (v), (vi), and (viii) of Section 35B(1)(b) as they were incurred for obtaining export licenses, which are incidental to the execution of export contracts.- CIT(A)'s View: Disallowed on the ground that the expenditure was incurred in India and falls under sub-clause (iii).- Tribunal's Decision: Allowed in full, following the Delhi High Court decision in CIT vs. Jay Engineering Works Ltd., distinguishing the Madras High Court decision in V. D. Swami & Co. (P) Ltd. vs. CIT.Printing and Stationery (Rs. 20,915)- Assessee's Argument: One-sixth of the total expenditure relates to export sales.- CIT(A)'s View: Allowed only Rs. 1,022, considering 90% of the expenditure as falling under sub-clause (iii).- Tribunal's Decision: Allowed 50% of the expenditure, following the Bombay Special Bench decision in J. Hemachand & Co. vs. Second ITO.Sending of Samples (Rs. 9,692)- CIT(A) and ITO: Allowed in full.- Tribunal's Decision: No further consideration needed.Postage and Telegram Charges (Rs. 38,402)- Assessee's Argument: Proportionate to export turnover.- CIT(A)'s View: Allowed only Rs. 1,871, considering 90% as falling under sub-clause (iii).- Tribunal's Decision: Allowed 80% of the claimed amount, following the decision in Maddi Lakshmaiah & Co. (P) Ltd.Certifying Charges (Rs. 26,754) and Export Inspection Fees (Rs. 34,580)- CIT(A)'s View: Disallowed as they fall under sub-clause (iii).- Tribunal's Decision: Allowed in full, following the Bombay Special Bench decision in J. Hemchand & Co.Commission to Brokers (Rs. 1,67,285)- CIT(A)'s View: Allowed only Rs. 4,237, disallowing the rest on various grounds.- Tribunal's Decision: Allowed 85% of the total commission, following the Special Bench decision in J. Hemchand & Co. and other precedents.Salary Paid to Export Executives (Rs. 22,463)- CIT(A)'s View: Allowed only Rs. 1,137, considering 90% as falling under sub-clause (iii).- Tribunal's Decision: Allowed 75% of the salary, following the Bombay Special Bench decision in J. Hemchand & Co.Issue 3: Interpretation of Section 35B(1)(b) and its Sub-ClausesThe interpretation of Section 35B(1)(b) and its sub-clauses was crucial in determining the eligibility of the expenses for weighted deduction. The Tribunal considered various sub-clauses, particularly (v), (vi), and (viii), to allow deductions for expenses that were incidental to the execution of export contracts.Issue 4: Applicability of Precedents and High Court DecisionsThe Tribunal relied on various precedents, including decisions from the Delhi High Court, Bombay Special Bench, and other Tribunal decisions. The Tribunal preferred the Delhi High Court decision over the Madras High Court decision where there was a conflict, ensuring a consistent approach in allowing deductions.ConclusionThe appeal was partly allowed, with the Tribunal granting weighted deduction on several items of expenditure based on detailed interpretation of Section 35B and relevant precedents. The Tribunal's decision provided a comprehensive analysis of each item of expenditure, ensuring that the assessee received the appropriate deductions under the law.