1998 (3) TMI 68 - HC - Income Tax

Business Expenditure, Foreign Technician, Weighted Deduction, Export Market Development Allowance

Summary

Issues:
1. Interpretation of section 40A(5)(b)/40(c) of the Income-tax Act regarding the taxation of remuneration paid to foreign directors and employees.
2. Determination of the extent of exemption available under sections 40A(5) and 40(c) of the Act.
3. Claim of deduction under section 35B of the Income-tax Act for certification charges and warranty claims.

Analysis:
The judgment addresses three common questions of law raised by the assessee regarding its assessment years 1982-83 and 1983-84. The first issue revolves around whether the remuneration paid to foreign directors and employees should be taxed under section 40A(5)(b)/40(c) beyond the exempted amount under section 10(6)(viia) of the Income-tax Act. The Tribunal held that the exclusion under these provisions is limited to the amount actually exempted, not the entire remuneration. This interpretation aligns with a previous decision by the court in CIT v. Lucas TVS Ltd., where it was established that the exemption is restricted to the extent granted by the Government of India. Consequently, the court's answer to the first two questions is in favor of the Tribunal's decision, denying the assessee's claim for full exemption.

Moving on to the second issue, the court delves into the claim of deduction under section 35B of the Act for certification charges and warranty claims. The assessee argued that these expenses should qualify for weighted deduction under section 35B. However, the Income-tax Officer and the first appellate authority rejected the claim, which was later accepted by the Appellate Tribunal. The court analyzed the amended provisions of section 35B introduced by the Finance (No. 2) Act, 1980, effective from April 1, 1981. It determined that the expenses incurred for certification and warranty claims did not fall under the specified clauses of section 35B(1)(b) for weighted deduction. Consequently, the court ruled against the assessee's claim, stating that the expenses did not align with the amended provisions of section 35B and therefore did not qualify for the deduction. As a result, the court's answer to the third question is also against the assessee, leading to the rejection of the claim for deduction under section 35B. The judgment concludes without any order as to costs.