2000 (7) TMI 23 - HC - Income Tax

Export Markets Development Allowance, Weighted Deduction, Condition Precedent, Revision, Reassessment

Issues Involved:
1. Validity of proceedings under section 263.
2. Eligibility for weighted deduction under section 35B for interest on foreign bills, bank charges on foreign bills, and differences in foreign exchange.
3. Eligibility for weighted deduction for the amount paid to a partner during his stay in the USA.
4. Eligibility for weighted deduction for incentives granted to dealers in the USA.

Detailed Analysis:

1. Validity of Proceedings Under Section 263:
The first issue was whether the Income-tax Appellate Tribunal (ITAT) was justified in holding that the proceedings under section 263 were validly initiated by the Commissioner of Income-tax for the assessment year 1979-80. The Tribunal upheld the validity of the action taken by the Commissioner under section 263, rejecting the assessee's contention that section 263 could not be invoked because action under section 147 had already been initiated and dropped. The court agreed with the Tribunal's view, referencing the Supreme Court's decision in CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297, and answered this question against the assessee.

2. Weighted Deduction Under Section 35B for Interest, Bank Charges, and Foreign Exchange Differences:
The second issue was whether interest on foreign bills, bank charges on foreign bills, and differences in foreign exchange constituted expenditure on the performance of services outside India under section 35B(1)(b) of the Income-tax Act, 1961. The Tribunal rejected the assessee's claim, stating that these payments were for providing credit facilities and collecting payments against foreign bills, which did not qualify as performance of services outside India. The court upheld this view, noting that such expenses were posterior to the export activity and were not incurred for the performance of services outside India. The court referenced decisions in Brooke Bond India Limited v. CIT [1992] 193 ITR 390 and Gedore Tools (India) Pvt. Ltd. v. CIT [1998] 233 ITR 712, agreeing that these expenses did not qualify for weighted deduction.

3. Weighted Deduction for Amount Paid to Partner in the USA:
The third issue was whether the amount paid to a partner during his stay in the USA was eligible for weighted deduction under section 35B(1)(b). The Tribunal held that the amount paid to the partner was for personal expenses and thus disallowable under section 40(b) and section 37(1) of the Act. The court agreed with the Tribunal, noting that the expenditure was personal in nature and could not be considered the firm's business expenditure. Therefore, it did not qualify for weighted deduction.

4. Weighted Deduction for Incentives to Dealers in the USA:
The fourth issue, raised by the Revenue, was whether the discounts or incentives granted to dealers in the USA were eligible for weighted deduction under section 35B(1)(b). The Tribunal had allowed the deduction, viewing the incentives as expenses incurred to promote export sales. However, the court disagreed, stating that such incentives were in the nature of trade discounts or rebates and did not constitute "expenditure" as contemplated in section 35B. The court referenced decisions in CIT v. Quilon Marine Produce Company [1986] 157 ITR 448 and Colour Chem Ltd. v. CIT [1997] 225 ITR 164, concluding that these incentives did not qualify for weighted deduction.

Conclusion:
The court answered all the questions in R.A. Nos. 931 of 1985 and 932 of 1985 in the affirmative, in favor of the Revenue and against the assessee. The question in R.A. No. 913 of 1985 was answered in the negative, also in favor of the Revenue and against the assessee. There was no order as to costs.

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