2008 (7) TMI 14 - HC - Income Tax

Tribunal is correct in law in holding that the assessee company, who is procuring export orders from the foreign buyers and passing on to the manufacturers or dealers is not entitled to weighted deductions u/s 35 B of Income Tax Act- in view of sub-section (1A) of 35B which is a non obstante provision, since the assessee is not engaged in the business of export of goods, the deductions cannot be allowed to the assessee question is answered in favour of the revenue

Summary

Issues Involved:
1. Entitlement to weighted deductions under Section 35B of the Income Tax Act.
2. Applicability of sub-section (1A) of Section 35B for different assessment years.
3. Interpretation of the term "such goods, services or facilities" in Section 35B.

Issue-wise Detailed Analysis:

1. Entitlement to weighted deductions under Section 35B of the Income Tax Act:
The primary issue revolves around whether the assessee company, which procures export orders from foreign buyers and passes them on to manufacturers or dealers in India, is entitled to weighted deductions under Section 35B of the Income Tax Act. The Tribunal held that the assessee company is not entitled to these deductions. The assessee claimed that it was involved in activities related to developing export markets, thus qualifying for the export market development allowance under Section 35B. However, both the Assessing Officer and the Commissioner of Income Tax (Appeals) rejected this claim. The Tribunal upheld this rejection, noting that the assessee did not directly export any goods but merely earned commission from the manufacturers or dealers who made the exports.

2. Applicability of sub-section (1A) of Section 35B for different assessment years:
For the assessment years 1978-79 and 1979-80, the Tribunal referred to sub-section (1A) of Section 35B, which was applicable at that time. This sub-section required the assessee to be engaged in the business of exporting goods to qualify for the deductions. Since the assessee was not directly exporting goods but only earning commission, it did not meet this requirement. For the assessment year 1980-81, sub-section (1A) was omitted by the Finance Act of 1979, effective from 01.04.1980. Despite this omission, the Tribunal still held that the assessee was not entitled to deductions because it did not carry out any exports itself, which was deemed a necessary condition for availing the deductions.

3. Interpretation of the term "such goods, services or facilities" in Section 35B:
Section 35B (1)(b) specifies the types of expenditures eligible for deductions, including advertisement or publicity outside India, obtaining market information, and traveling for promotion. The term "such goods, services or facilities" in sub-clauses (ii) and (vii) refers to goods, services, or facilities that the assessee deals in or provides in the course of its business. The Tribunal and the Court concluded that the assessee did not deal in the goods that were exported but merely acted as an agent. Therefore, the expenses incurred by the assessee could not be said to have been incurred in respect of "such goods, services or facilities," making the assessee ineligible for the deductions under Section 35B.

Conclusion:
The Court upheld the Tribunal's decision, stating that the assessee was not entitled to the weighted deductions under Section 35B for the assessment years 1978-79, 1979-80, and 1980-81. This conclusion was based on the interpretation of Section 35B and the fact that the assessee did not directly export goods but only earned commission by procuring export orders for manufacturers or dealers. The question referred by the Tribunal was decided in favor of the revenue and against the assessee.