1991 (2) TMI 28 - HC - Income Tax

Summary

Issues:
Interpretation of rule 6AA of the Income-tax Rules for weighted deduction on expenditure incurred for maintenance of warehouse outside India for promotion of sales.

Detailed Analysis:

The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the entitlement of the assessee to deduction of expenditure under rule 6AA of the Income-tax Rules for the assessment year 1982-83. The key question was whether the assessee was entitled to deduction of the entire expenditure of Rs. 12,54,382 or only a pro rata basis of Rs. 5,75,392 for the period from August 1, 1981, onwards. The rule in question, rule 6AA, was inserted with effect from August 1, 1981, and pertained to maintenance outside India of a warehouse for the promotion of sales outside India of goods.

The Assessing Officer allowed deduction on a proportionate basis for five months from August 1, 1981, to December 31, 1981, amounting to Rs. 5,22,659 out of the total claim. The Commissioner of Income-tax (Appeals) upheld this decision. However, the Appellate Tribunal ruled in favor of the assessee, stating that the rule in force during the assessment year would be applicable. The Tribunal emphasized that the law as on the first day of the assessment year governs the assessment.

The Tribunal held that since rule 6AA was in force during the assessment year 1982-83, the assessee was entitled to weighted deduction on the entire expenditure claimed for maintenance of the warehouse outside India. It was clarified that there was no dispute on the allowability of the claim, and the only point of contention was the applicability of rule 6AA. The Tribunal rejected the Department's argument that the assessee should only be entitled to deduction for the period from August 1, 1981, to December 31, 1981. The Tribunal concluded that once the rule came into force, it would govern the case, and the assessee was entitled to the entire deduction as per rule 6AA.

The judgment, delivered by Judge SHYAMAL KUMAR SEN and AJIT KUMAR SENGUPTA, answered the question in the reference in the affirmative and in favor of the assessee. It was established that the assessee was entitled to the expenditure incurred for the maintenance of the warehouse outside India for the promotion of sales outside India, as per the provisions of rule 6AA of the Income-tax Rules. The decision did not award costs to any party.