2004 (9) TMI 51 - HC - Income Tax

Weighted deduction under section 35B - AO allowed the deduction under section 35B prior to April 1, 1978. However, for the period from April 1, 1978, to the end of October, 1978, he declined to grant deduction on the ground that the respondent is not a SSI undertaking and the certificate of export house issued by the Government of India, dated February 9, 1979, was effective from February 19, 1979, to June 30, 1979, and therefore could not be taken into consideration - Tribunal has considered the registration certificate issued by the State Government as also the Export House Certificate and has come to the conclusion that the respondent was a small scale industrial undertaking - Tribunal was legally justified in holding that the assessee was a recognised export house and a small scale exporter who was manufacturing and producing articles and hence was entitled to weighted deduction under section 35B

Summary

Issues:
1. Whether the assessee was entitled to weighted deduction under section 35B of the Income-tax Act, 1961?
2. Whether the case of the assessee fell under the definition of a small scale industrial unit as per the relevant provisions?
3. Whether the assessee was mainly engaged in the manufacture and processing of articles?

Analysis:

Issue 1:
The High Court was tasked with determining whether the assessee was entitled to weighted deduction under section 35B of the Income-tax Act, 1961. The respondent claimed this deduction during the assessment year 1979-80. The Assessing Officer had initially allowed the deduction before April 1, 1978, but refused it for the period from April 1, 1978, to the end of October, 1978. The Tribunal, however, granted the deduction for this period based on the certificates provided by the U.P. Government and the Government of India, Ministry of Commerce. The Tribunal concluded that the respondent was a recognized export house and a small scale exporter, meeting the requirements of law for the deduction under section 35B.

Issue 2:
Regarding whether the case of the assessee fell under the definition of a small scale industrial unit, the High Court delved into the legal provisions. It examined the conditions stipulated in sub-section (1A) of section 35B, which required the assessee to be engaged in the business of exporting goods and be either a small-scale exporter or a holder of an Export House Certificate. The definition of a small-scale exporter was crucial, as it meant a person exporting goods manufactured in a small-scale industrial undertaking owned by them. The Court analyzed the relevant Explanation and provisions related to small-scale industrial undertakings to ascertain the eligibility of the assessee. It was established that the respondent met the criteria of being a small scale industrial undertaking based on the machinery and plant investment limit set by the Government of Uttar Pradesh.

Issue 3:
Lastly, the Court addressed whether the assessee was primarily engaged in the manufacture and processing of articles. The Tribunal's decision was based on a thorough evaluation of the evidence and materials on record, affirming that the respondent was indeed a small scale industrial undertaking. The Court upheld the Tribunal's findings, emphasizing that the conclusion was legally sound and supported by the evidence presented. Consequently, the High Court ruled in favor of the assessee on all the questions referred, without any order as to costs.

In conclusion, the High Court's judgment affirmed the eligibility of the assessee for weighted deduction under section 35B, established their status as a small scale industrial unit, and validated their engagement in manufacturing and processing activities.