1997 (8) TMI 5 - SC - Income Tax

Development Allowance - weighted deduction u/s 35B in respect of commission payment - No particulars of the expenditures were furnished by assessee before Income-tax Officer or the Appellate Assistant Commissioner to them - onus of proving the facts and getting the benefit of the deduction lies on the assessee - Tribunal cannot allow the claim on assumption of facts - The Tribunal was also in error in not referring the case to the High Court

Summary

Issues Involved:
1. Entitlement to weighted deduction under section 35B of the Income-tax Act, 1961.
2. Onus of proof for claiming deductions.
3. Specific nature of expenditures qualifying for deductions under section 35B.
4. Examination of claims by the Tribunal and the High Court.
5. Remanding cases for re-examination by the Tribunal.

Issue-Wise Detailed Analysis:

1. Entitlement to Weighted Deduction Under Section 35B:
The primary issue across the cases was whether the assessee was entitled to weighted deduction under section 35B of the Income-tax Act, 1961. The court consistently emphasized that for an expenditure to qualify for deduction under section 35B, it must be incurred wholly and exclusively for the purposes set out in sub-clauses (i) to (ix) of clause (b) of section 35B(1). The court clarified that merely because some activities took place outside India, it does not automatically qualify the expenditure for deductions under section 35B. The assessee must establish that the expenditure was incurred for purposes such as advertisement or publicity outside India on behalf of the assessee, or for maintaining a branch office or agency for promoting sales outside India.

2. Onus of Proof for Claiming Deductions:
The court underscored that the onus lies heavily on the assessee to prove that the expenditure falls within any of the purposes set out in the various sub-clauses of clause (b) of section 35B(1). The assessee must provide sufficient evidence to satisfy the Income-tax Officer that the expenditure was incurred wholly and exclusively for the specified purposes. The court noted that there cannot be any blanket allowance or disallowance of the expenditure; each case must be examined individually based on the specific facts and the provisions of the sub-clauses.

3. Specific Nature of Expenditures Qualifying for Deductions:
The court examined various types of expenditures claimed by the assessees, such as commission payments, advertisement expenses, registration charges, director's salary, postage, and telegrams. The court ruled that expenditures incurred in India in connection with the sale of goods do not qualify for deduction under section 35B. For instance, payments made to middlemen for sales commission were not considered as obtaining information regarding markets outside India. Similarly, expenditures such as customs duty paid for sending goods to foreign branches were deemed internal transactions and not qualifying for deductions.

4. Examination of Claims by the Tribunal and the High Court:
The court found that in several cases, the Tribunal and the High Court had not thoroughly examined the claims of the assessees by reference to the specific sub-clauses of section 35B(1)(b). The court emphasized that no expenditure can be allowed under section 35B generally; the assessee must establish that the expenditure falls within the ambit of the specified sub-clauses. The court set aside the orders of the High Court and the Tribunal in multiple cases, remanding them back to the Tribunal for re-examination with proper scrutiny of the facts and applicable law.

5. Remanding Cases for Re-examination by the Tribunal:
In numerous appeals, the court remanded the cases back to the Tribunal for fresh examination. The court directed the Tribunal to give the assessees an opportunity to prove that their claims for weighted deduction were for activities falling within the sub-clauses of clause (b) of section 35B(1). The court reiterated that the onus is on the assessee to establish the facts to obtain the claimed deductions. The appeals were allowed with the above observations, and no order as to costs was made in most cases.

Conclusion:
The judgment consistently highlighted the stringent requirements for claiming weighted deductions under section 35B of the Income-tax Act, 1961. The onus of proof rests on the assessee to demonstrate that the expenditure was incurred wholly and exclusively for the specified purposes. The Tribunal and the High Court must thoroughly examine each claim based on the specific facts and the provisions of the sub-clauses of section 35B(1)(b). The court's decision to remand multiple cases back to the Tribunal underscores the necessity for meticulous scrutiny and adherence to legal standards in determining the eligibility for deductions.