1998 (3) TMI 47 - HC - Income Tax

Export Market Development Allowance, Weighted Deduction, Business Expenditure, Disallowance, Industrial Undertaking

Summary

Issues:
1. Eligibility of bank charges for relief under section 35B
2. Eligibility of expenditure on traveling in India for weighted deduction under section 35B
3. Treatment of gratuity paid to employees in excess of exemption under section 10(10)(iii) for ceiling limit under section 40A(5)
4. Qualification of proportionate cash assistance on exports for relief under section 80HH

Analysis:

Issue 1: Eligibility of bank charges for relief under section 35B
The court found that the bank charges incurred by the assessee did not fall within any sub-clause of section 35B(1)(b) of the Income-tax Act. Since the assessee failed to establish that the expenditure qualified for weighted deduction, the claim for relief under section 35B was denied. The court upheld the Tribunal's decision, ruling in favor of the revenue.

Issue 2: Eligibility of expenditure on traveling in India for weighted deduction under section 35B
The Tribunal rejected the claim for weighted deduction on traveling expenses in India by the export department, stating it did not fall under the relevant sub-clause of section 35B(1)(b)(vii). However, the court noted that the Tribunal overlooked the possibility that the expenditure could qualify under a different sub-clause, section 35B(1)(b)(ii), relating to obtaining information regarding markets outside India. The court directed the Tribunal to reexamine the claim based on this provision.

Issue 3: Treatment of gratuity paid to employees in excess of exemption under section 10(10)(iii) for ceiling limit under section 40A(5)
The court agreed with the Tribunal's decision that gratuity paid in excess of the exemption under section 10(10)(iii) should be considered as remuneration for determining the ceiling limit under section 40A(5). This interpretation was supported by a previous judgment of the Bombay High Court. The court ruled in favor of including the excess gratuity in the calculation of remuneration.

Issue 4: Qualification of proportionate cash assistance on exports for relief under section 80HH
The court referenced a previous judgment that cash assistance on exports does not qualify for deduction under section 80HH. Consequently, the court upheld the Tribunal's decision that the proportionate cash assistance on exports attributable to the new industrial undertaking did not qualify for relief under section 80HH. The ruling was made against the assessee.

In conclusion, the court answered the questions of law as follows:
1. Affirmative and against the assessee
2. Negative and in favor of the assessee, with a direction for the Tribunal to reconsider the claim
3. Affirmative and against the assessee
4. Affirmative and against the assessee. No costs were awarded in the circumstances of the case.