1993 (10) TMI 77 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the eligibility of the assessee for weighted deduction under section 35B(1) of the Income-tax Act, 1961, on interest paid on post-shipment loans and professional charges paid for designing for undertaking the export contract.

Eligibility for Weighted Deduction on Interest Paid on Post-Shipment Loans:
The assessee, a limited company engaged in various businesses including exports, claimed export markets development allowance under section 35B of the Act. The claim for weighted deduction in respect of interest paid on post-shipment loans and professional charges for designing the export contract was disallowed by the authorities. The contention was that the interest paid on loans obtained from banks in India did not meet the requirements of section 35B(1) of the Act. The court analyzed the provisions of section 35B(1)(b) and emphasized that the expenditure must be incurred wholly and exclusively on services outside India in connection with the execution of contracts for supply outside India. It was concluded that the interest paid on loans obtained in India did not qualify as expenditure on services outside India related to the contract for supply outside India. The court held that no material was presented to demonstrate that the expenditure on interest met the criteria of section 35B(1)(b), thus upholding the Tribunal's decision to disallow the deduction.

Eligibility for Weighted Deduction on Professional Charges for Designing Export Contract:
Regarding the professional charges paid for designing the export contract, the court noted that the counsel for the assessee failed to establish how such expenditure could fall under the relevant clause of section 35B(1)(b) of the Act. The court reiterated that the expenditure must be directly linked to services outside India in connection with the execution of contracts for supply outside India to qualify for weighted deduction. As the professional charges for designing the export contract did not meet this criterion, the court upheld the Tribunal's decision to deny the deduction for this item as well.

Conclusion:
In conclusion, the court affirmed that the Tribunal was justified in not allowing the deduction for both the interest paid on post-shipment loans and the professional charges for designing the export contract. The court answered both questions in the affirmative and in favor of the Revenue, emphasizing the importance of satisfying the authorities with requisite material to claim deductions under section 35B(1) of the Income-tax Act. No costs were awarded under the circumstances of the case.