1999 (6) TMI 10 - HC - Income Tax

Summary

Issues:
Whether the assessee is entitled to weighted deduction under section 35B(1)(b) of the Income-tax Act, 1961?

Analysis:
The High Court of Kerala addressed the issue of whether the assessee is entitled to weighted deduction under section 35B(1)(b) of the Income-tax Act, 1961. The case originated from an order of the Income-tax Appellate Tribunal Cochin Bench regarding the assessment year 1978-79. Initially, the High Court answered the reference in the negative, favoring the Revenue, based on a previous decision. However, the Supreme Court remanded the matter for reconsideration by the High Court due to a subsequent decision that deemed the earlier judgment per incuriam.

Upon rehearing the case, the High Court considered the nature of the assessee's business, which involved providing services to exporters by obtaining information from abroad, furnishing samples, and promoting sales. The assessee claimed weighted deduction for various expenses incurred in this process, which the Income-tax Officer initially rejected. The Commissioner of Income-tax (Appeals) later allowed the deduction, a decision upheld by the Appellate Tribunal.

The Revenue contended that the expenses claimed were not directly related to the assessee's business but rather to the export business of the principal. However, the High Court disagreed, emphasizing that the expenses were essential for the effective operation of the assessee's business. Citing precedent cases, the court highlighted that similar deductions had been allowed for expenses incurred in connection with business activities. The court distinguished cases where deductions were disallowed due to lack of connection to the business or insufficient evidence.

Referring to specific clauses of section 35B(1)(b) and relevant case law, the court found no legal basis to deny the assessee's claim for weighted deduction. It concluded that the assessee was entitled to claim the deduction for the expenses incurred under the mentioned heads. Therefore, the court answered the question in the affirmative, in favor of the assessee and against the Revenue.

In conclusion, the High Court's detailed analysis and application of legal principles led to the decision that the assessee was indeed entitled to claim the weighted deduction under section 35B(1)(b) of the Income-tax Act, 1961. The judgment provided a thorough examination of the facts, relevant laws, and precedents, ultimately upholding the assessee's right to the deduction.