1997 (12) TMI 39 - HC - Income Tax

Summary

Issues Involved:
1. Weighted deduction under section 35B for export promotion and foreign delegate expenses.
2. Allowability of weighted deduction under section 35B despite non-allowability under other provisions of the Act.
3. Weighted deduction on royalty paid on export sales.

Issue-wise Detailed Analysis:

1. Weighted Deduction under Section 35B for Export Promotion and Foreign Delegate Expenses:
The assessee, a public limited company manufacturing tyres, claimed weighted deduction under section 35B of the Income-tax Act, 1961, for export promotion expenses of Rs. 20,587 and foreign delegate expenses of Rs. 64,420. The Income-tax Officer disallowed these claims, categorizing them as entertainment expenditure, but allowed Rs. 10,000. The Commissioner of Income-tax (Appeals) reversed this decision, holding that the expenses were for export purposes and thus eligible for weighted deduction under section 35B, independent of section 37's restrictions on entertainment expenditure. The Appellate Tribunal upheld this view, stating that the expenses were for securing export orders and developing markets, thus qualifying under section 35B(1)(b)(ii) for obtaining information regarding markets outside India.

2. Allowability of Weighted Deduction under Section 35B Despite Non-Allowability under Other Provisions:
The Tribunal and the Commissioner of Income-tax (Appeals) held that section 35B is independent of section 37, and restrictions under section 37 do not affect the allowability under section 35B. The Tribunal found that the expenses were incurred for joint publicity and securing export orders, which fall under section 35B(1)(b)(ii). The court affirmed this interpretation, stating that sections 35B and 37 operate in independent fields, and non-allowability under section 37 does not preclude deductions under section 35B if its conditions are met.

3. Weighted Deduction on Royalty Paid on Export Sales:
The Tribunal had allowed weighted deduction on royalty paid for export sales, but this was contested by the Revenue. The court referenced its earlier decision in CIT v. Madras Rubber Factory Ltd. (No. 2) [1984] 149 ITR 411, which ruled against such deductions. Consequently, the court held that the Tribunal was incorrect in allowing the deduction for royalty paid on export sales, answering this question in favor of the Revenue.

Conclusion:
The court answered the first two questions in the affirmative and against the Revenue, affirming that the assessee was entitled to weighted deductions under section 35B for export promotion and foreign delegate expenses, and that section 35B operates independently of section 37. The third question was answered in the negative and in favor of the Revenue, denying the weighted deduction on royalty paid on export sales. The court noted the divided success and ruled no order as to costs.