1991 (9) TMI 45 - HC - Income Tax

Summary

Issues:
1. Entitlement to weighted deduction for expenses on salary and staff engaged in export sales.
2. Reasonableness of treating 75% of salary and allowances as eligible for weighted deduction.

Entitlement to Weighted Deduction:
The case involved a cashew company acting as an exporter for the assessment year 1977-78. The company claimed a deduction for expenses on salary and allowances to staff engaged in export sales, which was initially denied by the Income-tax Officer but allowed by the Commissioner of Income-tax (Appeals) at a rate of 75%. Upon further appeal by the Revenue, the Tribunal upheld the decision of the Commissioner. The High Court analyzed previous decisions and circulars related to weighted deduction under section 35B and held that the company was entitled to the deduction for expenses on salary and staff engaged in export sales, irrespective of where the expenses were incurred. The court referred to a specific circular supporting this interpretation and ruled in favor of the assessee.

Reasonableness of 75% Deduction:
The High Court found that the Commissioner of Income-tax (Appeals) and the Tribunal did not provide a sufficient basis for limiting the deduction to 75% of the salary and allowances for clerical staff. The court emphasized that the Tribunal, as the final fact-finding authority, should have provided detailed reasons for their decision. Since the Commissioner did not provide any reasoning, the court deemed the 75% estimate as arbitrary and unsupported by evidence. The High Court directed the Tribunal to reevaluate the quantum of deduction permissible for salary and allowances to staff engaged in export sales, emphasizing the importance of considering all relevant facts and circumstances before determining the final amount eligible for deduction.

In conclusion, the High Court ruled in favor of the assessee regarding the entitlement to weighted deduction for expenses on salary and staff engaged in export sales. However, the court found the 75% estimate for deduction to be arbitrary and lacking a proper basis. The Tribunal was directed to reassess and determine the appropriate quantum of deduction based on all relevant factors.