1992 (1) TMI 23 - HC - Income Tax

Issues Involved:
1. Advertisement (local)
2. 1/2 salary of Mr. T. S. K. Chari
3. Bank guarantee charges
4. Interest on export credits
5. Membership fees (for institutions out of India)
6. Interest paid to Central Bank
7. Freight (up to destination out of India)
8. Insurance (including insurance covered up to the point of destination)
9. Packing material
10. Tower testing charges
11. Fabrication (monies spent out of India)

Detailed Analysis:

1. Advertisement (local):
The assessee incurred Rs. 25,825 for an advertisement in Times of India during the President of Laos' visit to India. Under section 35B(1)(b)(i), only advertisement or publicity outside India qualifies for weighted deduction. Since the expenditure was incurred in India, it does not qualify. The Tribunal and lower authorities were right in disallowing the claim.

2. 1/2 salary of Mr. T. S. K. Chari:
The assessee claimed weighted deduction for the entire Rs. 50,000 salary paid to Mr. T. S. K. Chari, who was in charge of the export department. The Income-tax Officer allowed 20%, but the Commissioner and Tribunal allowed 50%. The Tribunal's decision was based on the fact that Mr. Chari's duties were not exclusively related to export. The Tribunal's view of allowing 50% of the salary as weighted deduction was upheld.

3. Bank guarantee charges:
The assessee incurred Rs. 93,024 for bank guarantee commission related to tenders submitted outside India. This expenditure falls under section 35B(1)(b)(iii), which excludes expenditure incurred in India. Since the expenditure was incurred in India, it does not qualify for weighted deduction.

4. Interest on export credits:
The assessee paid Rs. 10,98,881 as interest on advances and loans for purchasing raw materials. The claim for weighted deduction was rejected by the Income-tax Officer, Commissioner, and Tribunal. The expenditure does not fall under section 35B(1)(b)(viii) as it was not incurred for performance of services outside India. The Tribunal's rejection was upheld.

5. Membership fees (for institutions out of India):
The assessee incurred Rs. 48,867 for membership fees to institutions outside India. The Tribunal disallowed the claim due to lack of details on the purpose and sub-clause applicability under section 35B(1)(b). The Tribunal's view was upheld.

6. Interest paid to Central Bank:
The assessee paid Rs. 2,098 as interest to the Central Bank. The claim was disallowed, following the decision in Isabgul Export Corporation v. CIT. The Tribunal's decision was upheld.

7. Freight (up to destination out of India):
The assessee incurred Rs. 4,93,359 for freight. Under section 35B(1)(b)(iii), expenditure on freight for goods supplied outside India does not qualify for weighted deduction. The Tribunal's disallowance was upheld.

8. Insurance (including insurance covered up to the point of destination):
The assessee incurred Rs. 2,34,539 for insurance. Similar to freight, this expenditure falls under section 35B(1)(b)(iii) and does not qualify for weighted deduction. The Tribunal's disallowance was upheld.

9. Packing material:
The assessee incurred Rs. 49,945 for packing materials. The claim was disallowed, following the decision in Isabgul Export Corporation v. CIT. The Tribunal's decision was upheld.

10. Tower testing charges:
The assessee incurred Rs. 2,07,344 for testing towers. This expenditure, incurred in India, falls under section 35B(1)(b)(iii) and does not qualify for weighted deduction. The Tribunal's disallowance was upheld.

11. Fabrication (monies spent out of India):
The assessee incurred Rs. 16,14,703 for fabrication of towers in Nepal and Laos. This expenditure, incurred outside India, is directly connected with the supply of goods and falls under section 35B(1)(b)(iii). The Tribunal's disallowance was overturned, and the assessee was entitled to weighted deduction.

Conclusion:
The Tribunal's view was upheld for all items except for the expenditure incurred for fabrication of towers in Nepal and Laos, for which the assessee is entitled to weighted deduction under section 35B. The question was answered affirmatively against the assessee for all items except the last one, which was answered negatively against the Revenue.

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