1995 (3) TMI 47 - HC - Income Tax

Development Allowance, Rule Against Retrospectivity, Taxing Statutes, Weighted Deduction, Wholly And Exclusively

Issues Involved:
1. Allowability of surtax payable as a deduction.
2. Allowability of interest on belated payment of surtax as a deduction.
3. Allowability of weighted deduction under section 35B of the Income-tax Act, 1961, for inspection agency fees and interest on export packing credit.

Issue-wise Detailed Analysis:

1. Allowability of Surtax Payable as a Deduction:
The court confirmed that the issue of whether surtax payable is an allowable deduction was already settled by the judgment in Sundaram Industries Ltd. v. CIT [1986] 159 ITR 646. Hence, surtax payable is not an allowable deduction.

2. Allowability of Interest on Belated Payment of Surtax as a Deduction:
Similarly, the court confirmed that the issue of whether interest on belated payment of surtax is an allowable deduction was also settled by the same judgment in Sundaram Industries Ltd. v. CIT [1986] 159 ITR 646. Therefore, interest on belated payment of surtax is not an allowable deduction.

3. Allowability of Weighted Deduction under Section 35B for Inspection Agency Fees and Interest on Export Packing Credit:
- Inspection Agency Fees:
The court discussed whether the fees paid to an inspection agency qualify for weighted deduction under section 35B(1)(b)(vi) of the Income-tax Act, 1961. The assessee argued that these fees were for furnishing technical information to a person outside India for promoting the sale of goods. The court noted that the Tribunal had not provided a complete statement of facts, which is essential for determining the applicability of section 35B(1)(b)(vi). The court emphasized that the expenditure must be "wholly and exclusively for the purpose of furnishing to a person outside India technical information for the promotion of the sale of goods." The court cited the Calcutta High Court's judgment in Union Carbide India Ltd. v. CIT [1987] 165 ITR 558, which allowed weighted deduction for export inspection agency fees, and the Andhra Pradesh High Court's judgment in CIT v. Navabharat Enterprises (P.) Ltd. (No. 2) [1988] 170 ITR 332, which required a clear necessity for such expenditure. The court remitted the case back to the Tribunal to determine if the inspection agency provided technical information to the buyer or the seller for export promotion.

- Interest on Export Packing Credit:
The assessee claimed weighted deduction under section 35B(1)(b)(viii) for interest on export packing credit paid to the State Bank of India. The court referred to various judgments, including CIT v. Vippy Solvex Product Pvt. Ltd. [1986] 159 ITR 487 (Madhya Pradesh High Court), which supported the deduction, and Brooke Bond India Ltd. v. CIT [1992] 193 ITR 390 (Calcutta High Court), which opposed it. The court also cited the Gujarat High Court's judgments in Isabgul Export Corporation v. CIT [1994] 205 ITR 227 and Testeels Ltd. v. CIT [1994] 205 ITR 230, which held that interest on bank loans does not qualify for weighted deduction under section 35B(1)(b)(viii). The court concluded that interest on export packing credit does not qualify for weighted deduction as it is not incurred for "performance of services outside India in connection with, or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities."

Conclusion:
The first two questions were answered as per the judgment in Sundaram Industries' case [1986] 159 ITR 646 (Mad), disallowing surtax payable and interest on belated payment of surtax as deductions. The third question was answered against the assessee regarding interest on export packing credit paid to the State Bank of India. The case was remitted back to the Tribunal for fresh determination regarding the expenditure on export inspection agency fees, in line with the court's opinion. The reference was disposed of accordingly with no order as to costs.

← Previous Next →