1989 (5) TMI 32 - HC - Income Tax

Summary

Issues:
1. Disallowance of interest deduction for the period ensuing subsequent to the end of the previous year.
2. Eligibility for weighted deduction under section 35B of the Income-tax Act.

Analysis:

Issue 1: Disallowance of Interest Deduction
The case involved the disallowance of a part of the interest claimed by the assessee for the assessment year 1978-79. The assessee, a firm engaged in tea export, claimed an amount as deduction representing interest accrued to be paid to the bank. The interest was on bills discounted through local banks for exports to Sudan. The Income-tax Officer, Commissioner of Income-tax (Appeals), and the Appellate Tribunal held that the liability to pay interest did not arise or accrue during the relevant previous year as the exact delay for each bill could not be anticipated. The liability to pay interest was said to arise only upon the realisation of the bills. The court affirmed the Tribunal's decision, stating that interest accruing subsequent to the last day of the accounting period did not arise as a liability during that period. Therefore, the interest deduction was disallowed for the period ensuing subsequent to the end of the previous year.

Issue 2: Eligibility for Weighted Deduction under Section 35B
The second issue pertained to the eligibility of the assessee for weighted deduction under section 35B of the Income-tax Act. The assessee claimed deduction for certifying charges and inspection fees under section 35B(1)(b)(v). However, both the Income-tax Officer and the Commissioner of Income-tax (Appeals) denied the claim. The Appellate Tribunal also held that the expenditure was incurred for the supply of goods outside India and not for the preparation of tenders, thus disentitling the assessee from the weighted deduction. The court agreed with the Tribunal's decision, stating that the expenditure for obtaining a certificate of fitness did not fall under the category of expenditure for the preparation and submission of tenders as required by section 35B(1)(b)(v). The court clarified that the location of the expenditure, whether in India or outside, was irrelevant, and the crucial aspect was whether the expenditure was incurred wholly and exclusively for tender preparation and related activities. The court upheld the Tribunal's decision on this issue, denying the assessee the weighted deduction under section 35B.

In conclusion, the court ruled in favor of the Revenue on both issues, disallowing the interest deduction for the period ensuing subsequent to the previous year and denying the weighted deduction under section 35B of the Income-tax Act.