2009 (1) TMI 242 - HC - Income Tax

Weighted Deduction u/s 35B Held that - in view of the admitted fact that as a major percentage of the goods advertised were in fact sold within India it cannot be said that the expenditure was incurred wholly and exclusively for the sale of exported goods - the expenditure on fees paid for certificates of origin legalisation of export documents and stamp fees on such documents would also not amount to expenditure on performance of services outside India or expenditure on activities for the promotion of sale outside India - export inspection charges brokerage insurance bank charges and clearing charges are not entitled to weighted deduction - printing and stationery and rent for teleprinter and direct telephone lines is merely normal business expenditure - that fees paid to the Registrar of Companies amounts to a capital expenditure - expenditure had been incurred on obtaining market survey for setting up of a new unit of manufacturing the said expenditure amounted to capital expenditure assessee not entitled for weighted deduction u/s 35B

Issues:
1. Claim for weighted deduction on advertisement and publicity expenses.
2. Allowability of fees for certificates of origin and export documents under weighted deduction.
3. Disallowance of weighted deduction on inspection charges.
4. Eligibility of expenses like special packing, gifts to foreign parties, and printing for weighted deduction.
5. Deduction of fees paid to Registrar of Companies.
6. Entitlement to revenue deduction for market survey expenses.
7. Claim for deduction of surtax liability.

Analysis:
1. The court addressed whether the claim for weighted deduction on advertisement and publicity expenses in newspapers and magazines in India was justifiable under section 35B of the Income-tax Act. The court emphasized that the expenditure must be incurred wholly and exclusively for publicity outside India to qualify for the deduction. As a significant portion of the goods advertised were sold within India, the expenditure did not meet the criteria for the deduction, leading to a ruling in favor of the Revenue.

2. The issue of fees paid for certificates of origin and export documents was examined in light of previous judgments. The court referenced cases related to export inspection charges and held that such fees did not qualify for weighted deduction under section 35B. Consequently, the court ruled in favor of the Revenue, denying the deduction for these expenses.

3. The court considered the disallowance of weighted deduction on inspection charges paid to specific entities. Citing a previous judgment, it was established that certain charges like export inspection charges were not entitled to weighted deduction. Therefore, the court ruled in favor of the Revenue on this issue.

4. The eligibility of various expenses, including special packing, gifts to foreign parties, and printing costs, for weighted deduction under section 35B was analyzed. While some expenses like gifts to foreign parties were deemed eligible based on specific provisions, other expenses like printing and stationery were considered normal business expenditure, not exclusively for promoting sales outside India. The court's decision varied for each type of expense, ruling in favor of the Revenue on some aspects and against on others.

5. The deduction of fees paid to the Registrar of Companies was deliberated, drawing upon relevant case law. Following established judgments, the court concluded that such fees constituted capital expenditure, leading to a ruling in favor of the Revenue for disallowing a portion of the deduction claimed by the assessee.

6. The court examined the entitlement to revenue deduction for market survey expenses incurred by the assessee. Drawing on precedent, the court determined that expenses related to obtaining market surveys for setting up new manufacturing units amounted to capital expenditure. As the market survey in question pertained to a different line of business, the court ruled in favor of the Revenue, disallowing the deduction claimed by the assessee.

7. The final issue addressed the rejection of the assessee's claim for the deduction of surtax liability. Citing a relevant judgment, the court ruled in favor of the Revenue based on established legal principles, thereby denying the deduction claimed by the assessee.

In conclusion, the court provided detailed analyses and rulings on each issue raised, considering relevant legal provisions, precedents, and the specific circumstances of the case to deliver a comprehensive judgment.

← Previous Next →