2003 (7) TMI 31 - HC - Income Tax

Whether the assessee was entitled to weighted deduction under section 35B(1)(b)(viii) of the Income-tax Act in connection with expenditure incurred for performance of service outside India? - we answer the above question in the affirmative, i.e., in favour of the assessee and against the Department.

Summary

Issues:
1. Entitlement to weighted deduction under section 35B(1)(b)(viii) for expenditure incurred for service outside India.
2. Obligation of Tribunal to adjudicate on allowance of expenditure for guarantee commission under section 35B(1)(b)(viii).

Issue 1: Entitlement to weighted deduction under section 35B(1)(b)(viii) for expenditure incurred for service outside India.

Analysis:
The case involved the question of whether the assessee was entitled to a weighted deduction under section 35B(1)(b)(viii) of the Income-tax Act for expenses incurred for the performance of services outside India. The Department contended that both conditions of the provision needed to be satisfied, i.e., the expenditure should be incurred wholly and exclusively on the performance of service outside India and the expenditure should be incurred outside India. However, the Assessing Officer, the first appellate authority, and the Tribunal did not accept this argument. The court referred to previous judgments to clarify that sub-clause (viii) did not have a prohibition on weighted deduction if the expenditure was incurred in India. It distinguished sub-clause (viii) from sub-clause (iii) and emphasized that the assessee needed to prove that the expenditure was incurred for the specific purposes outlined in the provision. Ultimately, the court held in favor of the assessee, stating that the expenditure met the criteria for weighted deduction under section 35B(1)(b)(viii).

Issue 2: Obligation of Tribunal to adjudicate on allowance of expenditure for guarantee commission under section 35B(1)(b)(viii).

Analysis:
The second question pertained to whether the Tribunal was obliged to adjudicate on the allowance of expenditure for guarantee commission under section 35B(1)(b)(viii). However, since the court had already answered the first question in favor of the assessee, rendering the second question academic, it was not necessary to provide a separate answer. The court concluded that the assessee was entitled to the weighted deduction for the expenditure under section 35B(1)(b)(viii). Consequently, the reference was disposed of with no order as to costs.

In conclusion, the judgment clarified the conditions for claiming a weighted deduction under section 35B(1)(b)(viii) of the Income-tax Act, emphasizing the need for the assessee to demonstrate that the expenditure was incurred for the specified purposes outlined in the provision. The court's decision favored the assessee, highlighting the distinction between different sub-clauses and affirming the entitlement to the weighted deduction for the expenses incurred.