1997 (8) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Export expenses
2. Export inspecting agency charges
3. Bank commission

Detailed Analysis:

1. Export Expenses:
The primary issue was whether the assessee was entitled to an export markets development allowance under section 35B of the Income-tax Act, 1961, for export expenses, including freight, insurance, shipping port fees, and packing materials. The Tribunal denied the weighted deduction for these expenses. The court examined sub-clauses (iii) and (viii) of clause (b) of section 35B(1). Sub-clause (iii) explicitly excludes expenditures on the carriage of goods to their destination outside India and on the insurance of such goods while in transit from the purview of weighted deduction. The court found that the assessee was not entitled to weighted deduction for the assessment year 1978-79 under sub-clause (iii) due to the specific exclusion. However, if the expenditure on sea freight and marine insurance was incurred in connection with the execution of a contract for the supply of goods outside India, it could be considered under sub-clause (viii). The court directed the Tribunal to verify if the expenditure was incurred on sea freight and marine insurance in connection with such a contract.

2. Export Inspecting Agency Charges:
The assessee claimed weighted deduction for export inspecting agency charges. The court held that sub-clause (viii) permits deduction only when the expenditure was incurred on the performance of any service outside India. Since there was no evidence that the inspection service was performed outside India, the expenditure did not qualify for weighted deduction. The court cited several cases, including H. M. M. Limited's case, where similar expenditures were held ineligible.

3. Bank Commission:
The assessee argued that bank commission paid in connection with the execution of contracts for the supply of goods to foreign countries should be eligible for weighted deduction under sub-clause (viii). The court found this argument unpersuasive, noting that sub-clause (viii) requires the performance of a service outside India. Since there was no evidence that the bank commission was paid for services performed outside India, the expenditure did not qualify. The court referenced decisions from other High Courts, including the Gujarat High Court in Isabgul Export Corporation's case, which held that bank charges were not eligible for weighted deduction.

Conclusion:
The court concluded that the assessee was not entitled to weighted deduction for export expenses, export inspecting agency charges, and bank commission under section 35B of the Income-tax Act, 1961. The Tribunal was directed to verify if the expenditure on sea freight and marine insurance was incurred in connection with the execution of a contract for the supply of goods outside India. If so, the weighted deduction should be allowed for those specific expenditures.