1982 (5) TMI 53 - AT - Income Tax

Summary

Issues:
1. Interpretation of provisions under section 35B and section 40(c) of the Income-tax Act, 1961 regarding the allowance of commission paid to directors.
2. Whether the weighted deduction under section 35B should be restricted in accordance with the ceiling imposed by section 40(c).

Detailed Analysis:
1. The appeal involved a dispute over the relief under section 35B of the Income-tax Act, 1961, concerning the commission paid to directors. The Income Tax Officer (ITO) disallowed a portion of the commission under section 40(c), leading to a restriction in the allowance under section 35B. However, the Commissioner (Appeals) held that the assessee was entitled to the claim under section 35B for the entire commission paid to the directors. The argument centered on whether the restriction imposed by section 40(c) should also apply to the weighted deduction under section 35B. The assessee contended that section 35B should be construed liberally to encourage export, emphasizing that the expenditure incurred for business purposes should be entitled to weighted deduction. On the other hand, the revenue argued that section 40(c) prevails over general provisions like section 35B, and the deduction should be restricted based on the ceiling set by section 40(c.

2. The Tribunal found that the commission paid to directors was partially disallowed by the ITO under section 40(c), with a weighted deduction allowed only for a portion of the commission. The IAC directed the ITO to restrict the total expenditure to Rs. 72,000 for each director, despite acknowledging that the expenditure was reasonable and incurred for business purposes. The Tribunal concluded that the restriction imposed by section 40(c on the total expenditure should also apply to the allowance under section 35B. It emphasized that section 35B provides for an additional 1/3rd deduction of the expenditure incurred, but this should not override the ceiling set by section 40(c. The Tribunal held that the provisions of section 40(c) were clear and unambiguous, and the allowance of expenditure under section 35B should be restricted in line with the restriction imposed by section 40(c.

In conclusion, the Tribunal accepted the grounds raised by the revenue, thereby reversing the decision of the Commissioner (Appeals) regarding the allowance of commission paid to directors under section 35B. The judgment highlighted the importance of interpreting statutory provisions in a manner that ensures consistency and compliance with the specific restrictions and ceilings set forth in the law.