1998 (12) TMI 63 - HC - Income Tax

Export Market Development Allowance, Weighted Deduction, Reference, Business Expenditure, Question Of Fact, New Industrial Undertaking

Summary

Issues involved:
1. Deduction under section 35B for commission paid to foreign agents.
2. Deletion of ex gratia payment under section 36(1)(ii).
3. Disallowance of building fund payment as a business expenditure.
4. Deletion of addition under section 40(c) based on case references.
5. Deletion of addition under section 80J for separate industrial undertakings.

Issue 1: Deduction under section 35B for commission paid to foreign agents:
The court examined the deduction claimed under section 35B for commission paid to foreign agents. The Tribunal allowed a deduction of Rs. 19,021, but it was unclear under which sub-clause of section 35B(1)(b) the deduction was granted. Citing a Supreme Court ruling, the court emphasized the need for specific verification to ensure the expenditure qualifies for deduction under the relevant sub-clauses. The matter was remitted to the Tribunal for further examination to determine if the expenditure aligns with the specified activities under section 35B(1)(b).

Issue 2 and 3: Ex gratia payment and building fund disallowance:
The court found that these issues were decided based on factual evidence and did not raise any legal questions. The matters related to ex gratia payment and building fund payment were declined as they were determined through factual findings and evidence appreciation.

Issue 4: Deletion of addition under section 40(c) based on case references:
The court addressed the deletion of an addition under section 40(c) concerning reimbursement of medical expenses. Referring to previous judgments, the court clarified that cash reimbursements for medical expenses to employees do not constitute a benefit or amenity under the Act and cannot be disallowed. Therefore, the court declined this issue as it was not a question of law.

Issue 5: Deletion of addition under section 80J for separate industrial undertakings:
The court analyzed the deduction claimed under section 80J for setting up separate industrial undertakings. The Assessing Officer had denied the deduction, stating that the new unit did not fulfill the conditions of section 80J. However, the Commissioner allowed the deduction, directing verification of capital employed in each unit. The Tribunal upheld this decision. The court acknowledged the legal controversy raised by the Department, citing Supreme Court precedents. A question of law was identified regarding the allowance of deduction under section 80J despite the lack of separate accounts and no increase in capital employed. The Tribunal was instructed to refer this question to the court for opinion.

This comprehensive analysis covers the issues raised in the judgment, addressing each issue in detail and highlighting the legal considerations and decisions made by the court.