2005 (1) TMI 29 - HC - Income Tax

Ownership Proof Essential for Exporter Deduction

Commissioner of Income-Tax Versus JC Bhatia.

Commissioner of Income-Tax Versus JC Bhatia. - [2006] 287 ITR 356 Issues:Interpretation of section 35B of the Income-tax Act, 1961 for deduction eligibility based on ownership of industrial undertaking for small scale exporters.Analysis:The case involved a question of law referred by the Income-tax Appellate Tribunal regarding the eligibility of an assessee as an industrial undertaking entitled to deduction under section 35B of the Income-tax Act, 1961 for the assessment year 1979-80. The assessee, an exporter of brass articles, claimed relief under section 35B(1A) as a small scale exporter. The Income-tax Officer initially rejected the claim, stating that the goods exported were not produced in an industrial undertaking owned by the assessee. However, the Appellate Assistant Commissioner overturned this decision, asserting that the goods were indeed manufactured by the assessee in a small scale undertaking. This decision was upheld by the Tribunal.The key contention revolved around the interpretation of section 35B(1A) of the Act, which required the assessee to own an industrial undertaking to qualify as a small scale exporter. The Explanation to the section clarified that a small scale exporter is a person who exports goods produced in an industrial undertaking owned by them. The court emphasized the significance of the phrase 'owned by him' in determining eligibility for the deduction under section 35B.In its analysis, the court referenced a previous judgment, Orient Arts and Crafts v. CIT, which established that ownership of the industrial undertaking is a prerequisite for claiming the weighted deduction under section 35B. Despite the manufacturing activities and financial involvement of the assessee in production, the court noted that neither the Assistant Commissioner nor the Tribunal had conclusively established ownership of an industrial undertaking by the assessee. The court highlighted the lack of consideration given to the Explanation attached to section 35B(1A) in the previous decisions.Based on the absence of evidence confirming ownership of an industrial undertaking by the assessee, the court concluded that the assessee could not be classified as a small scale exporter and therefore was not entitled to the weighted deduction under section 35B of the Act. Consequently, the court ruled in favor of the Revenue and against the assessee, denying the deduction. No costs were awarded in the judgment.