1979 (10) TMI 45 - HC - Income Tax

Development Allowance, Question Of Fact, Question Of Law, Reference To High Court, Weighted Deduction

Summary

Issues:
1. Interpretation of Section 35B of the Income-tax Act, 1961 regarding weighted deduction.
2. Determination of the eligibility of expenditure for weighted deduction under Section 35B.
3. Assessment of the percentage of expenditure eligible for weighted deduction under Section 35B.
4. Jurisdiction of the High Court in directing the Income-tax Appellate Tribunal to state a case.

Analysis:
The case involved an application under Section 256(2) of the Income-tax Act, 1961, where the Commissioner of Income-tax sought a direction for the Income-tax Appellate Tribunal to refer a question regarding the eligibility of weighted deduction under Section 35B. The dispute centered around a sum paid by the respondents to the Indian Cotton Mills' Federation for their Export Fund, which was utilized for various purposes related to promoting export of cotton textile products. The Income Tax Officer (ITO) disallowed the weighted deduction claimed on a specific amount, contending it was for importing cotton, not for promoting export markets. However, the Appellate Authority Commissioner (AAC) estimated the portion of the expenditure attributable to promoting export markets at 40% of the total sum paid.

Subsequently, the Tribunal determined that only 20% of the total sum should be allowed as a weighted deduction. The Commissioner challenged this percentage through an application under Section 256(1) of the Income-tax Act. The Tribunal dismissed the application, stating that the determination of the percentage for weighted deduction was a question of fact, not requiring a reference to the High Court. The High Court concurred with the Tribunal's decision, emphasizing that the percentage for weighted deduction is an estimation based on facts and evidence, devoid of any legal question.

Ultimately, the High Court dismissed the application and discharged the rule with costs, affirming that the determination of the percentage for weighted deduction did not raise any legal issue warranting the High Court's intervention. The case underscored the discretionary nature of estimating the percentage of expenditure eligible for weighted deduction under Section 35B, emphasizing the factual assessment required in such matters.

This judgment elucidated the application and interpretation of Section 35B of the Income-tax Act, 1961 concerning weighted deduction, emphasizing the need for a factual basis in determining the eligibility and percentage of expenditure for such deductions.