IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT: INCOME TAX MATTER. Judgment delivered on : ITR Nos. 159 to 161 /1988

Size: px

Start display at page:

Download "IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT: INCOME TAX MATTER. Judgment delivered on : ITR Nos. 159 to 161 /1988"

Solomon Parsons
5 years ago
Views:

1 IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT: INCOME TAX MATTER Judgment delivered on : ITR Nos. 159 to 161 /1988 M/S DELHI INTER EXPORTS PVT LTD... Appellant versus THE COMMISSIONER OF INCOME TAX... Respondent Advocates who appeared in this case: For the Appellant : Mr. Deepak Kumar with Ms. Neeru Verma. For the Respondent : Mr. Sanjeev Sabharwal CORAM :- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER BADAR DURREZ AHMED, J (Oral) 1. A common statement of the case and common question of law has been framed by the Income Tax Appellate Tribunal (hereinafter referred as the Tribunal ) in these references under Section 256 (1) of the Income Tax Act, 1961 (hereinafter referred as the said Act ). The assessment years which are relevant for the purposes of these references are , , and The question that has been referred for the opinion of this Court in respect of these three assessment years is :- Whether on the facts and in the circumstances of the case the Tribunal is correct in law in holding that the assessee company, who is procuring export orders from the foreign buyers

2 and passing on to the manufacturers or dealers is not entitled to weighted deductions under Section 35 B of the Income Tax Act 2. The facts as indicated in the statement of case are that the assessee which is a Private Limited Company followed the accounting year ending on 30th September. The assessee, admittedly, procured export orders from foreign buyers and passed them on to the manufacturers or dealers of various goods in India, who made the exports. The assessee earned commission on such exports from the said Indian manufacturers / dealers. It is indicated that the assessee did not directly export any goods and merely earned income from commission. The assessee s claim was that it carried on all the activities of developing export markets and, therefore, it was entitled to the export market development allowance under Section 35 B of the said Act. The Assessing Officer, as well as, the Commissioner of Income Tax (Appeals) rejected the assessee s claim for the weighted deductions under Section 35 B of the said act. 3. When the assessee preferred the said appeals before the Income Tax Appellate Tribunal, the same were dismissed by the Tribunal by a common order dated Certain mistakes had crept into the order of the Tribunal which were corrected through the corrigendum issued on The findings of the Tribunal, as corrected by the corrigendum, have been reproduced in the statement of case which reads as under:- 4. On a consideration of rival submissions, looking to the amendment made in Sec. 35 B and taking note of the authorities cited, we are inclined to hold that assessee is not entitled to weighted deductions under Section 35B of the Income-Tax Act. For the assessment year Section 35-B had in its sub- section (1A). This sub-section clearly provided for the engagement of the assessee in the business of export of goods etc. In that year the assessee who did not export any goods itself and merely earned commission, could not be allowed weighted deduction under Section 35B of the Income Tax Act. Further, the Madras High Court even prior to the introduction of subsection (1A) in Section 35B of the Income Tax Act, had construed Section 35B to be available to a person who in fact exports goods himself. In the case of 5 Muthish Vs. CIT Madras, 140 ITR 1030, the High Court has observed that a perusal of the provisions of Section 35B would show that the same is intended to develop the export markets for Indian goods and that the way in which the provisions are designed go to show that the expenditure must be incurred in effecting exports from India and the claim for relief must be by the person who makes the export. The High Court was following the

3 view also enunciated in an earlier decision of its in CIT Vs. Kasture Palayacat Co. (1979) 120 ITR 827. Respectfully following the view of Madras High Court it follows that the assessee is not entitled to weighted deduction for this reason for both the assessment years and The authorities relied upon by the assessee are of no assistance. 5. Coming now to assessment year , in addition to the view taken by the Madras High Court and followed by us above, it is to be noted that Finance (No.2) Act, 1980, restricted the expenditure to four sub-clauses and omitted the other five sub-clauses (i), (iv), (vii), and (ix) too refer to the assessee s dealing in goods, services or facilities. The view of the Madras High Court would continue to apply to this amended section 35B for the assessment year as well. Consequently we uphold the rejection of assessee s claim for weighted deduction for the assessment year Section 35B of the said Act as it stood in respect of the assessment year contained sub-section (1A). This provision was omitted by the Finance Act of 1979 with effect from , as such sub Section (1A) would not be applicable in respect of the assessment year The Tribunal while considering the three assessment years, was of the view that in so far as the assessment years and were concerned, the assessee was not entitled to the deductions under Section 35B in view of the provisions of sub- clause (1A) in as much as, the assessee was not engaged in the business of export of goods etc. However, in respect of the assessment year , the Tribunal was of the view that, even de hors the question of sub section (1A) of Section 35 B, the assessee would not be entitled to the deductions in as much as, the assessee itself did not carry out any export, which, according to the Appellate Tribunal was a necessary requirement for availing of the deductions. 5. Section 35B as it stood prior to deletion of Section (1A) read as under:- 35B. Export markets development allowance:- (1) (a) Where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred after the 29th day of February, 1968, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses or the assessee) referred to in clause (b), he shall, subject to the provisions of this section, be allowed a deduction of a sum of equal to one and one-third times the amount of such expenditure incurred during the previous year : Provided that in respect of the expenditure incurred after 28th day of February, 1973, but before the 1st day of April, 1978, by a domestic company, being a company

4 in which the public are substantially interested, the provisions of this clause shall have effect as if for the words one and one-third times, the words one and one-half times had been substituted. (b) The expenditure referred to in clause (a) is that incurred wholly and exclusively on (i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business, where such expenditure is incurred before the 1st day of April, 1978; (ii) obtaining information regarding markets outside India for such goods, services or facilities; (iii) distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit, where such expenditure is incurred before the 1st day of April, 1978; (iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities; (v) preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities, and activities incidental thereto; (vi) furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services or facilities; (vii) travelling outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outwards from, and return to, India; (viii) performance of services outside India in connection with, or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities; (ix) such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed. Explanation 1. In this Section, domestic company shall have the meaning assigned to it in caluse (2) of Section 80B. Explanation 2. For the purpose of sub-clause (iii) and sub clause (viii) of clause (b), expenditure incurred by an assessee engaged in the business of : (i) operation of any ship or other vessel, aircraft or vehicle, or (ii) carriage of, or making arrangements for carriage of, passengers, livestock, mail or goods, on or in relation to such operation or carriage or arrangements for carriage (including in each case expenditure incurred on the provision of any benefit, amenity or facility to the crew, passengers or livestock) shall not be regarded as expenditure incurred by the assessee on the supply outside India of services or facilities. (1A) Notwithstanding anything contained in sub-section (1), no deduction under this Section shall be allowed in relation to any expenditure incurred after the 31st day of March, 1978, unless the following conditions are fulfilled, namely (a) the assessee referred to in that sub section is engaged in (i) the business of export of goods and is either a small-scale

5 exporter or a holder of an Export House Certificate; or (ii) the business of provision of technical know-how, or the rendering of services in connection with the provision of technical know-how, to persons outside India; and (b) the expenditure referred to in that sub section is incurred by the assessee wholly and exclusively for the purpose of the business referred to in subclause (i) or, as the case may be, sub-clause (ii) of clause (a). Explanation :-- For the purpose of this sub-section:- (a) small-scale exporter means a person who exports goods manufactured or produced in any small-scale industrial undertaking or undertakings owned by him: Provided that such person does not own any industrial undertaking which is not a small-scale industrial undertaking : (b) Export House Certificate means a valid Export House Certificate issued by the Chief Controller of Imports and Exports, Government of India; (c) provision of technical know-how has the meaning assigned to it in sub section (2) of Section 80MM: (d) small-scale industrial undertaking has the meaning assigned to it in clause (2) of the Explanation below sub section (2) of Section 32A. (2) Where a deduction under this Section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year. 6. A plain reading of the said provision indicates that a deduction is to be allowed in respect of the expenses with the object of developing markets. Sub-Section (1) (a) of Section 35 B, stipulates that an assessee company being a domestic company or a person other than a company who is a resident in India having incurred, directly or in association with any other person, any expenditure referred to in clause (b), subject to the other provisions of this Section, would be allowed a deduction of a sum equal to one and one-third times, the amount of such expenditure incurred during the previous year. 7. The types of expenditure have been indicated under Section 35 B (1) (b). Sub-clause (i) of clause (b) indicates that the expenditure must have been incurred wholly or exclusively on development or publicity outside India in respect of goods, services or facilities which the assessee deals in or provides in the course of his business, where such expenditure is incurred before the 1st day of April, It is an admitted position that sub-clause (i) of clause (b), does not directly apply in the present case as the assessee is claiming deductions in respect of the expenditure which is relatable to subclauses (ii) and (vii). However, reference to sub clause (i) is necessary

6 because, both the sub clauses (ii) and (vii) carry the expression such goods, services or facilities. It is obvious that the expression such goods, services or facilities has reference to the goods, services or facilities which have been specified in sub- clause (i), that is, goods, services or facilities in which the assessee deals in or provides in course of his business. The admitted position in the present case is that the assessee procured export orders from foreign buyers and passed them on to the manufactures or dealers of various goods in India, who in turn, made the exports. The assessee by itself did not deal in goods which were exported. It merely acted as an agent who procured export orders and passed the orders on to the manufacturers or dealers, who made the exports in respect thereof. It is the manufacturers and dealers who deal in the goods and not the assessee. 9. From the aforesaid discussion, it is clear that although, the assessee may have helped in procuring the export orders and may have incurred expenses in obtaining the information regarding markets outside India or on travel outside India or on the promotion or sale outside India, the same cannot be said to have been done in respect of such goods, services or facilities, as referred to in sub- clauses (ii) and (vii) of clause (b) of Section 35B of the Act. The expression - such goods, services or facilities - as we have already pointed out above, bears relation to goods, services or facilities which the assessee deals in or provides in the course of its business. Consequently, we are of the opinion that the decision of the tribunal in this regard cannot be faulted. 10. It is pertinent to note that this conclusion has been arrived at de hors the consideration of the provisions of sub-section (1A) of Section 35 B of the Act, which if taken into consideration would only relate to the assessment year For that assessment year, in any event, in view of sub- section (1A), which is a non obstante provision, since the assessee is not engaged in the business of export of goods, the deductions cannot be allowed to the assessee. 11. The question that has been referred to us by the Tribunal for our opinion is decided in favour of the revenue and against the assessee. The references stand answered accordingly. Sd/-

7 BADAR DURREZ AHMED, J Sd/- RAJIV SHAKDHER, J

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO.76 OF 1998

Chittewan 1/11 1.ITR76-98.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO.76 OF 1998 Bombay Suburban Electric Supply Ltd.... Applicant Versus