1989 (6) TMI 4 - HC - Income Tax

Summary

Issues:
Interpretation of section 35B of the Income-tax Act, 1961 for export market development allowance.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, for the assessment year 1976-77, regarding the eligibility of certain expenses for deduction under section 35B. The assessee claimed export market development allowance for expenditure totaling Rs. 8,16,274. The Income-tax Officer disallowed most expenses except for Rs. 1,30,500 incurred on foreign traveling. The Commissioner of Income-tax (Appeals) reviewed the expenses and allowed certain items for weighted deduction under section 35B based on a Special Bench order of the Tribunal. The Tribunal, on second appeal, upheld the Commissioner's decision, following the Special Bench order. The Tribunal considered various expenses, including fees paid to the Export Credit Guarantee Corporation, salary of the Export Department, postage, telephone, trunk-call expenses, and expenditure on foreign periodicals. The Tribunal relied on decisions of other High Courts to support the allowability of these expenses under section 35B.

One significant item was the fees paid to the Export Credit Guarantee Corporation, which was held eligible for weighted deduction under section 35B(1)(b) by the Karnataka and Andhra Pradesh High Courts. The Tribunal agreed with these views and allowed the deduction for this expense. Another item was 75% of the salary of the Export Department, which was also allowed based on the decision of a Special Bench of the Tribunal, accepted by the Board. The Tribunal upheld the decision to restrict the salary allowance to 75% of the claim, considering it a question of fact. Additionally, expenses related to postage, telephone, and trunk-call, as well as the purchase of foreign periodicals, were deemed allowable under section 35B as they directly contributed to export promotion activities.

In conclusion, the Tribunal affirmed the allowability of various expenses for weighted deduction under section 35B, as supported by decisions of other High Courts and the Board's acceptance of certain precedents. The judgment favored the assessee, answering the reference question in the affirmative and in favor of the assessee, with no order as to costs. Both judges, Bhagabati Prasad Banerjee and Ajit Kumar Sengupta, concurred with the decision.