1983 (11) TMI 9 - HC - Income Tax

Summary

Issues:
Claim of relief under section 35B of Income-tax Act in the case of salary, rent, and other expenses.
Disallowance of claim under section 35B in respect of packing, freight, insurance, cooly, trade expenses, and legal expenses.

Analysis:
The assessee, a firm engaged in exporting handloom fabrics, sought weighted deduction under section 35B of the Income-tax Act for various expenditures incurred. The Income-tax Officer initially rejected the claim, leading to an appeal before the Commissioner of Income-tax (Appeals), who partially allowed the deduction. Both the Revenue and the assessee then appealed to the Income-tax Appellate Tribunal. The Tribunal upheld the weighted deduction only to the extent of 50% for salary and rent, disallowing the claim for other expenses like packing, freight, insurance, cooly, trade expenses, and legal expenses based on section 35B(1)(b)(iii) of the Act.

The learned counsel for the assessee argued that all expenses were related to export activities and should be eligible for weighted deduction under section 35B. The counsel contended that even if there were some domestic sales, the majority of expenses were for export sales, justifying a higher deduction percentage. However, the Tribunal found that only expenses directly linked to export activities could be considered for weighted deduction, as per the provisions of section 35B(1)(b)(iii) of the Act.

The Tribunal's decision was based on the exclusion clause in section 35B(1)(b)(iii), which specifies that expenses incurred in India for goods intended for export are not eligible for weighted deduction. The Commissioner of Income-tax (Appeals) had already apportioned salary and rent expenses between purchase and sales activities, allowing only 50% for export-related activities. The Tribunal upheld this decision, concluding that only expenses directly attributable to export activities could qualify for weighted deduction.

Regarding insurance premia paid to the Export Credit and Guarantee Corporation, the Tribunal granted full relief as it was solely related to export trade. However, for other expenses like freight, cooly, packing, etc., the Tribunal correctly applied the exclusion clause of section 35B(1)(b)(iii), disallowing weighted deduction. The Tribunal's interpretation of the provision was deemed appropriate, leading to the dismissal of the petition seeking a reference on the two questions raised by the assessee.