1987 (6) TMI 2 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 35B of the Income-tax Act regarding weighted deduction for commission payments made in India for exports to U.S.S.R.
2. Discrepancy in the decision between the Income-tax Officer, Commissioner of Income-tax (Appeals), and the Appellate Tribunal.
3. Burden of proof on the assessee to establish expenses incurred outside India.
4. Reconsideration of the Division Bench decision in Tharian and Sons' case.
5. Applicability of section 35B(1)(b) and the necessity of establishing expenses incurred outside India.
6. Acceptance of Special Bench decision and circular by the Central Board of Direct Taxes.
7. Vagueness of the question referred in the Income-tax Referred Cases.

Analysis:

The judgment revolves around the interpretation of section 35B of the Income-tax Act concerning the eligibility for weighted deduction for commission payments made in India for exports to the U.S.S.R. The Income-tax Appellate Tribunal referred a common question of law to the High Court, questioning the entitlement of the assessees to weighted deduction under section 35B. The Income-tax Officer denied the claim, while the Commissioner of Income-tax (Appeals) supported it, aligning with the Appellate Tribunal's decision in similar cases. The High Court directed the Appellate Tribunal to refer three specific questions for decision, highlighting the discrepancies in the reasoning and findings of the Tribunal regarding the nature of services rendered by the agents in obtaining information about markets outside India for the goods.

The judgment delves into the burden of proof on the assessee to establish that expenses were incurred outside India for specified activities to qualify for weighted deduction under section 35B. The counsel for the Revenue argued that the Division Bench decision in Tharian and Sons' case necessitates proving expenses outside India, while the counsel for the assessee contended that different sub-sections of section 35B(1)(b) may not always require establishing expenses outside India. The High Court acknowledged the need for a second look at these contentions but directed the Tribunal to refer the questions for a decision.

Furthermore, the judgment addresses the acceptance of a Special Bench decision and a circular by the Central Board of Direct Taxes regarding the allowability of weighted deduction under section 35B. The counsel for the assessee argued that the matter should be considered closed based on these precedents, but the High Court emphasized the need for the Tribunal to provide relevant documents for consideration in the interest of justice.

Regarding the Income-tax Referred Cases, the High Court found the question referred to be vague and ambiguous, aligning it with the questions directed for reference in the original petitions. Consequently, the Court declined to answer the question in the Income-tax Referred Cases due to its ambiguity and the need for further materials or amendments. The original petitions and income-tax references were disposed of accordingly, with no order as to costs, and the judgment was forwarded to the Appellate Tribunal for compliance.