2002 (2) TMI 12 - HC - Income Tax

Claim for weighted deduction and interest on short term deposit - 1. Whether, Tribunal was correct in law in holding that the assessee is entitled to weighted deduction u/s 35B on foreign travel, advertisement, foreign branch expenses, etc., though the assessee was only purchasing goods from China and selling the same in USA and no export of Indian goods was carried on? Held that to avail of the benefit of weighted deduction the provision does not require that the export should be ex-India, hence this question is answered in favour of assessee - 2. Whether, Tribunal was correct in holding that the interest received by the assessee from the fixed deposit of surplus funds should be assessed under the head Income from business ? Held, no This question is answered against the assessee

Summary

Issues:
1. Entitlement to weighted deduction under section 35B on foreign travel, advertisement, foreign branch expenses.
2. Assessment of interest received from fixed deposit of surplus funds under the head 'Business.'

Analysis:
1. The first issue revolves around the entitlement of the assessee to weighted deduction under section 35B for expenses like foreign travel, advertisement, and foreign branch expenses, despite not exporting Indian goods. The Tribunal ruled in favor of the assessee based on previous orders for other assessment years. The Department argued that since the goods were purchased from China and sold in the USA without being exported from India, section 35B benefits should not apply. However, the Supreme Court precedent in CIT v. Bombay Burmah Trading Corporation clarified that exports need not be ex-India to avail of weighted deduction benefits. The apex court upheld the benefit of section 35B for an Indian resident company exporting tea from East Africa to the U.K., even though the exports were not from India. Given this precedent, the Tribunal's decision in favor of the assessee is justified, and the reference is answered accordingly in favor of the assessee on this issue.

2. The second issue pertains to the treatment of interest received from short-term deposits of surplus funds as either 'business income' or 'income from other sources.' The Tribunal considered it as 'business income' based on previous orders. However, the Department contended that the Supreme Court decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT established that such interest should be assessed as 'income from other sources.' The Division Bench of the High Court in South India Shipping Corporation Ltd. v. CIT also supported this view, emphasizing that income from sources other than business activities should be taxed accordingly. As the assessee had not commenced business and earned interest from short-term deposits, the interest income should be assessed under 'Income from other sources.' Therefore, the second question is answered against the assessee, aligning with the legal precedents set by the Supreme Court and the High Court.