2003 (3) TMI 90 - HC - Income Tax

Whether on the facts and in the circumstances of the case the Tribunal was right in allowing the assessee s claim of deduction of Rs. 19, 17, 820 on account of amount paid by the State Bank of India to its subsidiaries towards opening of new branches? - Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the assessee s claim for deduction under section 35B of the Act in respect of its foreign branches is allowable - the above quoted question is answered in the affirmative i.e. in favour of the assessee-bank and against the Department.

Summary

Issues:
1. Deduction of subsidy amount paid by State Bank of India to subsidiaries for opening new branches.
2. Claim for deduction under section 35B of the Income-tax Act in respect of foreign branches.

Issue 1: Deduction of subsidy amount
Arguments:
The Department argued that the subsidy provided by State Bank of India to its subsidiaries for opening new branches constituted capital expenditure, not eligible for deduction under section 37 of the Income-tax Act. It was contended that the subsidy created assets for the subsidiaries, not the State Bank of India, and therefore should be considered capital expenditure.

Findings:
The court rejected the Department's arguments, stating that the subsidy provided by State Bank of India to its subsidiaries was part of its business under the State Bank of India Act of 1955. The court held that the expenditure incurred by State Bank of India in giving subsidies to its subsidiaries represented revenue expenditure. Citing the case of Empire Jute Company Ltd. v. CIT, the court emphasized that a capital receipt for the payee does not necessarily translate to capital expenditure for the payer. Therefore, the court ruled in favor of the assessee-bank, allowing the deduction of the subsidy amount.

Issue 2: Claim for deduction under section 35B
Arguments:
The Department contended that State Bank of India was not eligible for weighted deduction under section 35B as it was not an exporter of goods or services. Additionally, it was argued that even if eligible, the bank had not provided evidence of expenditure on specified activities as required by section 35B(1)(b)(i) to (ix).

Findings:
The court disagreed with the Department's arguments, stating that section 35B allowed weighted deduction for expenditure incurred to develop export markets, irrespective of whether the assessee had exported goods or earned profits from exports. The court found that State Bank of India, with branches worldwide, promoted export markets and was eligible for the deduction under section 35B. The court noted that the Income-tax Officer had allowed the deduction under section 35B(1)(b)(iv) for maintaining branches outside India to promote sales abroad. Therefore, the court ruled in favor of the assessee-bank on this issue as well.

In conclusion, the court disposed of all three references, ruling in favor of the assessee-bank on both issues.