1985 (2) TMI 72 - AT - Income Tax

Summary

Issues:
1. Entitlement to weighted deduction under section 35B(1A) of the Income-tax Act, 1961 for the assessment year 1979-80.
2. Interpretation of the conditions for claiming weighted deduction as a small-scale exporter under section 35B(1A).
3. Determining the proportion of qualifying expenditure eligible for weighted deduction for a small-scale exporter.

Detailed Analysis:
Issue 1: The department appealed against the order of the Commissioner (Appeals) regarding the entitlement of the assessee-company to weighted deduction under section 35B(1A) for the assessment year 1979-80. The dispute arose as the department contended that the assessee did not meet the conditions specified in the said section, while the Commissioner (Appeals) ruled in favor of the assessee's entitlement.

Issue 2: The crux of the matter revolved around the interpretation of the conditions for claiming weighted deduction as a small-scale exporter under section 35B(1A). The assessee, engaged in the export of diamonds, argued that it satisfied the conditions despite exporting only a small percentage of diamonds manufactured by itself. The department, on the other hand, argued that the assessee could not claim to be a small-scale exporter when it manufactured less than 10% of the exported diamonds.

Issue 3: The Tribunal analyzed the provisions of section 35B(1A) and emphasized that the eligibility for weighted deduction was severely curtailed during the relevant period. The Tribunal interpreted the sub-section to conclude that only the expenditure incurred wholly and exclusively as a small-scale exporter would qualify for weighted deduction. The Tribunal held that the assessee was entitled to weighted deduction only in regard to the proportion of qualifying expenditure corresponding to the percentage of diamonds exported as a small-scale exporter.

In conclusion, the Tribunal partially allowed the department's appeal, ruling that the assessee was entitled to weighted deduction only for the proportion of qualifying expenditure corresponding to the percentage of diamonds exported as a small-scale exporter. The judgment clarified the restrictive nature of the provisions under section 35B(1A) during the relevant period and highlighted the specific conditions that needed to be met for claiming weighted deduction as a small-scale exporter.