1993 (6) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Eligibility for weighted deduction under section 35B of the Income-tax Act, 1961, for brokerage expenses paid in India for export sales.

Issue-wise Detailed Analysis:

1. Eligibility for Weighted Deduction under Section 35B:

The primary issue revolves around whether the brokerage expenses paid in India for export sales qualify for a weighted deduction under section 35B of the Income-tax Act, 1961. The relevant assessment years are 1978-79 and 1980-81, with brokerage expenses amounting to Rs. 2,61,827 and Rs. 3,65,768, respectively.

Facts and Initial Proceedings:

The assessee, a limited company engaged in manufacturing and exporting jute and jute articles, claimed relief under section 35B for the brokerage paid on export sales. The Income-tax Officer initially allowed relief on 50% of these amounts, considering the Special Bench decision in J. Hemchand and Co. (1 SOT 150).

Upon appeal, the Commissioner of Income-tax (Appeals) directed the Income-tax Officer to reconsider the allowability in light of CIT v. Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855 (Mad). The assessee contested this directive, arguing that the Commissioner should have upheld the initial allowance.

Tribunal's Decision:

The Tribunal sided with the assessee, noting that the relief was initially granted based on the Special Bench decision in J. Hemchand and Co. Consequently, the Tribunal allowed the assessee's claim.

Revenue's Argument:

At the hearing, the Revenue's counsel argued that the assessee did not satisfy any conditions under section 35B(1)(b) as the commission was paid in India. They cited several decisions, including CIT v. Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855, where the Madras High Court held that procuring export orders did not qualify for weighted deduction under sub-clauses (ii), (iv), or (viii) of section 35B(1)(b).

Assessee's Argument:

The assessee's counsel pointed out that neither the Income-tax Officer nor the Commissioner of Income-tax (Appeals) disallowed the expenses on the ground that they were incurred in India. The Commissioner had only questioned whether the expenses fell within the purview of section 35B. The counsel relied on CIT v. Bata India Ltd. [1989] 178 ITR 669, which held that expenses under sub-clauses other than (iii) of section 35B(1)(b) qualify for weighted deduction even if incurred in India.

Court's Analysis:

The court examined various precedents, including CIT v. G. E. C. of India Ltd. [1991] 192 ITR 559, which held that weighted deduction is available even if the manufacturer exports through a commission agent. The court also considered the Central Board of Direct Taxes Circular dated December 28, 1981, which supported the allowance of weighted deduction for commission payments made to secure export sales, irrespective of whether incurred in India or abroad.

Conclusion:

The court concluded that the brokerage paid for procuring export orders qualifies for weighted deduction under section 35B. The payment, though made in India, was for procuring the export market, thus fitting within clauses (i) and (ii) of section 35B(1). The court answered the question in the affirmative and against the Revenue, validating the assessee's claim.

Final Judgment:

The court ruled in favor of the assessee, affirming their entitlement to weighted deduction under section 35B for the brokerage expenses paid in India for export sales. There was no order as to costs.

Concurring Opinion:

Shyamal Kumar Sen J. concurred with the judgment.