1991 (1) TMI 17 - HC - Income Tax

Summary

Issues:
Interpretation of section 35B of the Income-tax Act, 1961 regarding weighted deduction for export expenditure incurred by an assessee acting as an agent for goods manufactured by another company.

Analysis:
The High Court of Karnataka addressed the issue of whether an assessee, acting as an agent for the export of goods manufactured by another company, is entitled to weighted deduction under section 35B of the Income-tax Act, 1961. The assessee, a subsidiary of the manufacturing company, engaged in exporting products of the manufacturer and other engineering industries. The Income-tax Officer initially allowed the weighted deduction claimed by the assessee, but the Commissioner of Income-tax deemed the order erroneous and prejudicial to the Revenue's interests, citing a judgment from the Madras High Court. The Commissioner held that the assessee, acting as an agent for the sale of goods belonging to the manufacturer, was not entitled to the deduction under section 35B as the goods exported should have belonged to the assessee at the time of export to qualify as a dealer. The Tribunal concurred, stating that the assessee must be a dealer in the goods to claim the deduction under section 35B, emphasizing the requirement that the goods should be dealt with by the assessee as a dealer. The Tribunal's decision raised the question before the High Court.

The High Court analyzed the relevant provisions of section 35B, emphasizing that the expenditure must be incurred on goods, services, or facilities in which the assessee deals in the course of business to qualify for the deduction. In this case, the assessee was engaged in exporting goods of the manufacturer, of which it was a subsidiary, indicating that the assessee did deal in the goods of the manufacturer in the course of its business. The Court rejected the Commissioner's interpretation, stating that the judgment cited misread the law. The Court also referred to a judgment from the Bombay High Court, which supported the assessee's entitlement to the deduction under section 35B as an agent providing services or facilities. The Court concluded that the assessee, acting as an agent for the export of goods, was entitled to the weighted deduction under section 35B, answering the question in favor of the assessee.

Therefore, the High Court ruled in favor of the assessee, holding that the assessee, acting as an agent for the export of goods manufactured by another company, was entitled to the weighted deduction under section 35B of the Income-tax Act, 1961. The Court emphasized that the assessee's role as an agent providing services or facilities for the export qualified for the deduction under the law. The judgment clarified the interpretation of the relevant provisions of section 35B and upheld the assessee's claim for the deduction.