1996 (6) TMI 73 - HC - Income Tax

Capital Or Revenue Expenditure, Development Allowance, Expenditure Incurred, Raw Material, Sales Promotion, Weighted Deduction

Summary

Issues:
1. Entitlement to weighted deduction on export sales commission under section 35B(1)(b)(viii) of the Income-tax Act, 1961.
2. Allowability of specific amounts under section 80VV of the Income-tax Act, 1961.
3. Deletion of an addition of Rs. 1 lakh.
4. Allowability of expenditure incurred for the assessee's proposed petro-chemical project.

Entitlement to Weighted Deduction on Export Sales Commission:
During the relevant assessment years, the Income-tax Officer disallowed the weighted deduction claimed by the assessee on export sales commission paid to a U.S. company. The Assessing Officer contended that the assessee was not eligible for the deduction due to changes in the law. However, the Tribunal upheld the claim, stating that the commission was for sales promotion, making it eligible for deduction under sub-clause (iv) of section 35B(1)(b) of the Act. The High Court, citing relevant precedents, affirmed the Tribunal's decision, emphasizing that the commission was indeed for sales promotion.

Allowability of Specific Amounts under Section 80VV:
The High Court found that the issue of specific amounts being allowable under section 80VV was settled by previous decisions. It was established that certain expenses, such as those related to legal fees for appellate proceedings, did not fall under section 80VV. Relying on various judgments, the Court answered this question in favor of the assessee, as the expenses in question did not come under the purview of section 80VV.

Deletion of an Addition of Rs. 1 Lakh:
The Court noted that the Revenue conceded that the third question was a pure question of fact and did not require an answer from the Court. Therefore, this issue was not further addressed in the judgment.

Allowability of Expenditure for the Petro-Chemical Project:
Regarding the expenditure incurred for the proposed petro-chemical project, the Tribunal found that the expenses did not result in the creation of a capital asset. Citing relevant precedents, the Court agreed with the Tribunal's decision to allow the expenditure as it was incurred wholly and exclusively for the purpose of the assessee's business. The Court answered this question in favor of the assessee, in line with the decisions referred to.

In conclusion, the High Court ruled in favor of the assessee on the issues of entitlement to weighted deduction on export sales commission and the allowability of expenditure for the petro-chemical project. The Court also addressed the question related to specific amounts under section 80VV, ruling in favor of the assessee based on established legal principles.