1984 (1) TMI 89 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to relief under section 35B of the Income-tax Act, 1961.
2. Quantum of relief allowed under section 35B.
3. Specific expenses qualifying for weighted deduction under section 35B(1)(b)(iv).

Detailed Analysis:

1. Entitlement to Relief Under Section 35B of the Income-tax Act, 1961:
The primary issue in the appeals was whether the assessee, a nationalized bank, was entitled to relief under section 35B of the Income-tax Act, 1961. The revenue argued that the routine banking services rendered by the foreign branches of the assessee could not be treated as the export of services. They contended that the foreign branches were merely extensions of the bank's existing facilities and did not constitute the export of banking services. The revenue also argued that earning foreign exchange alone did not qualify the assessee for weighted deduction under section 35B.

The assessee countered by relying on section 35B(1)(b)(iv), arguing that the foreign branches promoted banking services outside India, thereby qualifying for weighted deduction. The assessee cited the dictionary meaning of 'promotion' and referenced legal precedents, including the Supreme Court's rejection of the Special Leave Petition in CIT v. India Hotels Ltd., and the Tribunal's decision in Indian Overseas Bank, to support its claim.

The Tribunal concluded that the revenue's stance was untenable, noting that the assessee's foreign branches indeed promoted banking services outside India, thus qualifying for relief under section 35B. The Tribunal rejected the revenue's argument that there was no export of banking services by the assessee.

2. Quantum of Relief Allowed Under Section 35B:
The next issue was the quantum of relief allowed by the Commissioner (Appeals), which was Rs. 1,50,04,362. The Commissioner (Appeals) had computed this relief by allowing weighted deduction on expenses incurred outside India, excluding law charges, auditor's fees, and repairs, which were deemed not to have a nexus with export market development expenses.

The revenue argued that the Commissioner (Appeals) had not thoroughly examined the nature of each expense item to determine its eligibility for weighted deduction. They contended that the expenses should be bifurcated between those incurred for carrying on the banking business and those for maintaining the foreign branches. The revenue also argued that the expenses should be apportioned to ascertain which portion was incurred wholly and exclusively for the promotion of the sale of services outside India.

The Tribunal agreed with the revenue's contention that the Commissioner (Appeals) had not adequately examined the expenses. The Tribunal noted that a detailed examination of each expense item was necessary to determine its eligibility for weighted deduction. Consequently, the Tribunal set aside the order of the Commissioner (Appeals) and remanded the matter for fresh disposal, instructing a fair apportionment of the expenses relating to the maintenance of the foreign branches for promoting the sale of services outside India.

3. Specific Expenses Qualifying for Weighted Deduction Under Section 35B(1)(b)(iv):
The assessee also contested the disallowance of weighted deduction for specific expenses, including law charges, auditor's fees, and repairs. The assessee argued that these expenses were incurred for complying with legal requirements and maintaining the foreign branches, thus qualifying for weighted deduction.

The revenue countered that these expenses represented post-export charges and were for the recovery of dues, thus not qualifying for weighted deduction under section 35B(1)(b)(iv).

The Tribunal acknowledged the need for a detailed examination of these expenses to determine their eligibility for weighted deduction. The Tribunal emphasized that a fair apportionment of the expenses was necessary to ascertain which portion was incurred wholly and exclusively for the promotion of the sale of services outside India.

Conclusion:
The Tribunal concluded that both the revenue's and the assessee's appeals were partly allowed for statistical purposes. The matter was remanded to the Commissioner (Appeals) for fresh disposal, with instructions to thoroughly examine each expense item and make a fair apportionment to determine the eligibility for weighted deduction under section 35B.