1982 (8) TMI 92 - AT - Income Tax

Issues Involved:
1. Weighted deduction on melting and refining charges under section 35B of the Income-tax Act, 1961 for assessment years 1975-76, 1976-77, and 1977-78.

Detailed Analysis:

Issue 1: Weighted deduction on melting and refining charges under section 35B of the Income-tax Act, 1961 for assessment years 1975-76, 1976-77, and 1977-78

The primary issue in this case revolves around the eligibility of the assessee for weighted deduction under section 35B of the Income-tax Act, 1961, concerning the melting and refining charges paid for silver during the assessment years 1975-76, 1976-77, and 1977-78.

Assessment Year 1976-77 and 1977-78:

The Income Tax Officer (ITO) initially allowed the export market development allowance under section 35B on the melting and refining charges of Rs. 25,17,966 for the assessment year 1976-77 and Rs. 7,87,447 for the assessment year 1977-78. However, upon review, the Commissioner found the orders of the ITO to be erroneous and prejudicial to the interests of the revenue. The Commissioner noted that the expenses deducted from the sale price to determine the net amount payable to the assessee did not constitute expenses incurred by the assessee abroad.

The Commissioner reasoned that such deductions were part of the cost of the product exported and not eligible for weighted deduction under section 35B. Consequently, the Commissioner issued a notice under section 263, proposing to withdraw the weighted deduction allowed by the ITO and recompute the total income and tax accordingly.

The Commissioner observed, "If the assessee has agreed to sell to the persons abroad pure silver ingots as manufactured by the assayers and refiners abroad, the melting charges, etc., is nothing but part of the cost of the silver ingots." Thus, the Commissioner concluded that the assessee was not entitled to the weighted deduction under section 35B for the melting charges.

Assessee's Appeal:

The assessee contested the Commissioner's order, arguing that the expenditure on melting and refining silver was eligible for weighted deduction under section 35B(1)(b)(viii). The assessee's counsel reiterated the same stand before the Tribunal, relying on the paper book submitted.

Tribunal's Decision:

The Tribunal upheld the Commissioner's decision, agreeing that the melting and refining charges were part of the cost of goods sold and not an expenditure incurred for the performance of the foreign contract. The Tribunal stated, "The melting and refining charges incurred in London by the foreign buyers on the silver ingots manufactured and exported by the assessee... cannot be said to be an expenditure on the supply of silver in respect of the performance of foreign contract."

The Tribunal further noted that the expenses were either part of the cost of silver ingots or compensation for non-supply of silver as per the contract terms. Hence, these expenses were not eligible for weighted deduction under section 35B.

Assessment Year 1975-76:

For the assessment year 1975-76, the revenue's appeal included a similar issue regarding the weighted deduction on melting and refining charges amounting to Rs. 7,32,876. The Tribunal, consistent with its decision for the assessment years 1976-77 and 1977-78, held that no weighted deduction was allowable on the melting and refining charges for the assessment year 1975-76.

Conclusion:

In conclusion, the Tribunal dismissed the assessee's appeals for the assessment years 1976-77 and 1977-78 and partly allowed the departmental appeal for the assessment year 1975-76. The Tribunal determined that the assessee was not entitled to the weighted deduction under section 35B for the melting and refining charges incurred during the relevant assessment years.

← Previous Next →