1991 (12) TMI 35 - HC - Income Tax

Summary

Issues:
- Entitlement to weighted deduction under section 35B of the Income-tax Act, 1961 for 100% export business expenses.
- Justification of full relief of 100% under section 35B on specific items of expenditure.
- Entitlement to 100% deduction on all other items except those specifically mentioned.

Analysis:
The High Court of GUJARAT examined the controversy surrounding the entitlement of a partnership firm, engaged in the manufacturing and export of guar gum splits and raw guar, to weighted deduction under section 35B of the Income-tax Act, 1961. The firm claimed export markets development allowance for the entire expenditure incurred. The Tribunal had to consider the claim for weighted deduction for expenses not already granted relief. The Court noted that the questions referred for opinion were repetitive and clarified that the dispute revolved around the relief under section 35B, not the entitlement to a 100% deduction on all expenditure. The Tribunal had disallowed certain items of expenditure incurred in India, falling under sub-clause (iii) of section 35B(1)(b), for which no relief was granted, a decision upheld by the Court.

The Court highlighted that the firm had already received relief for specific expenses like foreign telegram charges, foreign telephone charges, salary to export staff, ECGC Insurance expenses, export promotion expenditure, and telex charges. The remaining items of expenditure, not granted relief, were those incurred in India, making them ineligible for weighted deduction under section 35B. The Court emphasized that 25% of the salary paid to staff and other such expenses also fell under sub-clause (iii) of section 35B(1)(b), disqualifying them for relief. The firm's counsel had conceded that relief could only be claimed for foreign charges, not for other items, leading to the conclusion that weighted deduction was not applicable to the remaining expenditure.

Consequently, the Court answered the referred questions in the affirmative, ruling against the firm's entitlement to weighted deduction under section 35B for the disputed expenditure. The judgment clarified the scope of relief under section 35B and affirmed the Tribunal's decision to disallow certain items of expenditure incurred in India. The reference was answered accordingly, with no order as to costs, concluding the legal proceedings in this matter.