2002 (11) TMI 47 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction under section 35B of the Income-tax Act, 1961, in respect of the foreign travel expenditure of Rs. 38,689 of Mr. R. Chand ? - In our opinion, in the instant case, the Tribunal has failed to apply the parameters laid down by the apex court in the aforenoted decisions and, therefore, the matter requires to be reconsidered by the Tribunal. - Accordingly, without rendering any opinion on the question referred, we remit the matter back to the Tribunal

Summary

Issues:
1. Entitlement to weighted deduction under section 35B of the Income-tax Act, 1961 for foreign travel expenditure.

Analysis:
The case involved a private limited company engaged in consultancy services, which claimed revenue expenditure for foreign travel expenses of its managing director, seeking weighted deduction under section 35B of the Income-tax Act, 1961. The Income-tax Officer disallowed the expenses, stating that the managing director's trip was for a project that did not materialize, and since there were no exports, the company was not eligible for the deduction. The Commissioner of Income-tax (Appeals) upheld the disallowance, but the Tribunal allowed the expenditure as business expenditure and granted the weighted deduction under section 35B, emphasizing that the company was promoting the export of services, citing the Eastern Bulk Services case. The Revenue challenged this decision, arguing that the Tribunal did not specify the sub-clause of section 35B(1)(b) under which the claim fell, and the expenses were not incurred for the business purpose as required by law.

The High Court noted that the Tribunal failed to consider the Supreme Court decisions in Stepwell Industries and Hero Cycles cases, which emphasized that the onus is on the assessee to prove entitlement to weighted deduction under section 35B by demonstrating that the expenditure falls under one of the sub-clauses of section 35B(1)(b). The Court found that the Tribunal did not address the findings of the Commissioner of Income-tax (Appeals) and merely stated that the company was promoting the export of services without providing a basis for this conclusion. As a result, the Court remitted the matter back to the Tribunal for reconsideration in light of the Supreme Court decisions, without expressing an opinion on the referred question.

In conclusion, the High Court directed a reconsideration of the case by the Tribunal to ensure compliance with the legal parameters set by the Supreme Court regarding the entitlement to weighted deduction under section 35B of the Income-tax Act, 1961. The Court emphasized the importance of demonstrating that the expenditure aligns with the specified sub-clauses of the Act and placed the burden of proof on the assessee to establish eligibility for the deduction.