2000 (2) TMI 3 - SC - Income Tax

Assessee is an Indian resident company - business of exporting tea - claimed weighted deduction under section 35B in respect of the expenditure incurred on export of tea from East Africa to the United Kingdom - held that assessee is entitled to weighted deduction under section 35B

Summary

Issues:
1. Claim of weighted deduction under section 35B of the Income-tax Act for expenditure on exporting tea from East Africa to the United Kingdom.
2. Interpretation of the conditions for claiming the benefit of section 35B.
3. Dispute regarding the nature of expenditure claimed under sub-clause (viii) of section 35B.

Analysis:

Issue 1: Claim of weighted deduction under section 35B
The respondent, an Indian resident company engaged in tea export business, claimed weighted deduction under section 35B of the Income-tax Act for expenditure incurred on exporting tea from East Africa to the United Kingdom. The Income Tax Officer disallowed the claim, stating that section 35B applied only if exports were made from India. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this view. The High Court, however, ruled in favor of the assessee, stating that the provision does not require exports to be directly from India for claiming the benefit of weighted deduction under section 35B.

Issue 2: Interpretation of conditions for claiming the benefit of section 35B
Section 35B of the Income-tax Act provides for export markets development allowance, subject to certain conditions. The requirements for claiming the benefit of this section include the assessee being a domestic company resident in India, incurring expenditure after a specified date, the expenditure not being capital or personal expenses, and the nature of expenditure aligning with the specified sub-clauses. The judgment clarified that fulfilling these conditions entitles the assessee to the weighted deduction under section 35B, emphasizing that exports need not be directly from India.

Issue 3: Dispute regarding the nature of expenditure claimed under sub-clause (viii)
The Revenue contended that there was no factual finding by the Tribunal regarding the nature of expenditure claimed under sub-clause (viii) of section 35B. The respondent argued that there was no dispute about the nature of the expenditure based on the orders of the departmental authorities and the Tribunal. The court examined the records and found that the weighted deduction was claimed for expenditure related to services outside India in East Africa and the United Kingdom, in connection with a tea supply contract in the UK. The court dismissed the appeal, stating that there was no illegality in the orders under challenge.

In conclusion, the Supreme Court upheld the High Court's decision in favor of the assessee, emphasizing that the provision of section 35B does not mandate exports to be directly from India for claiming the weighted deduction. The judgment provided a detailed analysis of the conditions for availing the benefit of section 35B and resolved the dispute regarding the nature of the claimed expenditure under sub-clause (viii) in favor of the respondent.