1995 (2) TMI 23 - HC - Income Tax

Development Allowance, Expenditure Incurred, Income Tax Act, Weighted Deduction, Wholly And Exclusively

Summary

Issues Involved:
1. Eligibility for relief under Section 35B(1)(b)(iii) for specific expenses.
2. Eligibility for relief under Section 35B(1)(b)(v) for specific expenses.

Detailed Analysis:

1. Eligibility for Relief under Section 35B(1)(b)(iii):

The Tribunal had to determine whether the assessee was entitled to a weighted deduction under Section 35B(1)(b)(iii) for various expenses, including legal expenses, stationery, telex and telephone charges, cable expenses, and salaries of employees involved in export activities. The Tribunal disallowed the deduction, citing that these expenses did not fall under the purview of Section 35B(1)(b)(iii).

The Tribunal's decision was based on the principle that the relief under Section 35B(1)(b)(iii) is not available for expenditure incurred in India. This principle was upheld in previous cases, such as CIT v. Southern Sea Foods Ltd. [1995] 215 ITR 176 (Mad), where it was established that expenditure for distribution, supply, or provision outside India is eligible for weighted allowance only if it is not incurred in India. The Tribunal found that the assessee's claims for legal expenses, stationery, telex and telephone charges, and cable expenses did not qualify for the deduction as they were incurred in India and did not meet the specific requirements of Section 35B(1)(b)(iii).

2. Eligibility for Relief under Section 35B(1)(b)(v):

The assessee alternatively claimed that the expenses should be allowed under Section 35B(1)(b)(v), which pertains to the preparation and submission of tenders for the supply or provision outside India of goods, services, or facilities. The Tribunal rejected this claim as well, stating that the expenses in question were not incurred for the preparation and submission of tenders.

The Tribunal noted that the assessee's explanation for the salary expenses was that they were for services rendered in procuring and shipping materials, preparing export documents, negotiating with banks, and related correspondence. These activities did not fall under the specific activities mentioned in Section 35B(1)(b)(v). Moreover, the Tribunal emphasized that the assessee did not provide sufficient material to show that the expenditure was incurred for the preparation and submission of tenders.

The Tribunal's decision was consistent with the interpretation of Section 35B(1)(b) in previous judgments, such as CIT v. Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855, where it was held that the expenditure must be incurred outside India for it to be eligible for weighted deduction under sub-clause (iii). The Tribunal also referred to the judgment in V. D. Swami and Co. P. Ltd. v. CIT [1984] 146 ITR 425, which clarified that the exclusionary provision in sub-clause (iii) does not apply to other sub-clauses, but the expenditure must still be closely connected with activities outside India.

Conclusion:

The Tribunal's decision to disallow the weighted deduction under Section 35B(1)(b)(iii) and Section 35B(1)(b)(v) was upheld. The Tribunal found that the expenses claimed by the assessee did not meet the specific requirements of these sub-clauses, as they were incurred in India and were not for the preparation and submission of tenders. The reference was answered accordingly, and the Tribunal was directed to re-examine the matter in light of the observations made.