1990 (1) TMI 7 - HC - Income Tax

Business Expenditure, Export Market Development Allowance, Gratuity, Provision For Gratuity, Remuneration, Weighted Deduction

Summary

Issues:
1. Whether contributions made to group gratuity insurance scheme in excess of the statutory limit are allowable deductions?
2. Whether the assessee is entitled to claim export markets development allowance under section 35B of the Income-tax Act?
3. Whether commission paid to agents in India and administrative expenses incurred in India qualify for weighted deduction under section 35B of the Income-tax Act?

Analysis:

Issue 1: Contributions to Group Gratuity Insurance Scheme
The court addressed the issue of whether contributions made to a group gratuity insurance scheme in excess of the statutory limit are allowable deductions. The assessee had made a provision for payment to an approved gratuity fund, which was challenged by the Income-tax Officer. The Tribunal held that any contribution made in the approved manner is allowable as long as the approval by the Commissioner of Income-tax stands. The court emphasized the need for proper consideration of the provision made for payment to the gratuity fund, the provisions of the Gratuity Act, and rule 103 of the Income-tax Rules. It was concluded that the Tribunal should reexamine the matter, distinguishing between incremental liability and employer's share contribution under the Gratuity Act.

Issue 2: Claim for Export Markets Development Allowance
The court considered the entitlement of the assessee to claim export markets development allowance under section 35B of the Income-tax Act. Referring to previous decisions, the court declined to answer the question directly but directed the Income-tax Appellate Tribunal to adjudicate the matter afresh. The Tribunal was instructed to confine the entitlement to weighted deduction on commission paid and administrative expenses incurred in India, excluding commission on foreign sales and foreign travel expenses.

Issue 3: Weighted Deduction under Section 35B
The court addressed the issue of weighted deduction under section 35B of the Act. Citing previous bench decisions, the court declined to answer the specific questions but directed the Tribunal to restore the appeals and consider the matter in light of relevant decisions and circulars. The Tribunal was instructed to confine the entitlement to weighted deduction to commission paid and administrative expenses incurred in India, excluding foreign sales commission and foreign travel expenses.

In conclusion, the court provided detailed guidance on the interpretation of statutory provisions, the Gratuity Act, and Income-tax Rules concerning deductions and allowances claimed by the assessee. The Tribunal was directed to reexamine the issues and make decisions consistent with the legal principles outlined in the judgment.