1986 (1) TMI 148 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining the disallowance of Rs. 7,91,079 claimed as deduction by the assessee.
2. Allowing weighted deduction under section 35B of the Income-tax Act.
3. Determining interest under section 215 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Sustaining the Disallowance of Rs. 7,91,079 Claimed as Deduction:
The assessee appealed against the order of the Commissioner (Appeals) who sustained the disallowance of Rs. 7,91,079 claimed as a deduction on account of export duty refundable. The assessee argued that the Commissioner (Appeals) failed to appreciate the terms and conditions of the contract for sale, which should have been considered for ascertaining the liability to refund the amount during the accounting year. The Income Tax Officer (ITO) noted that the assessee's accounting period ended on 30-9-1975 and the method of accounting was mercantile. The ITO observed that the customs duty on hessian goods was abolished from June 1975, and the assessee was not required to pay any customs duty on shipments made after this date. The ITO found no claim from the Egyptian party for a refund of customs duty and concluded that there was no enforceable legal liability accrued to the assessee during the year. The Commissioner (Appeals) agreed with the ITO, noting that the assessee exported goods on behalf of the State Trading Corporation (STC) and any claim for refund would be against the STC, not the assessee. The Tribunal upheld the view that the customs duty collected by the assessee constituted trading receipts and that deduction could only be allowed when such payment was made to the Government or refunded to the customer. Since neither payment nor refund occurred during the year, the Tribunal sustained the disallowance.

2. Allowing Weighted Deduction Under Section 35B of the Income-tax Act:
The assessee contended that the Commissioner (Appeals) erred in directing the ITO to allow weighted deduction under section 35B relating to the salary of employees engaged entirely in export business to only 75% of such salary. The Commissioner (Appeals) had directed the ITO to ask the assessee to furnish the amount of salary of employees exclusively employed for export section and to allow 75% thereof, following the decision of the Tribunal, Special Bench in J.H. & Co. v. Second ITO. The Tribunal found no scope to interfere with the order of the Commissioner (Appeals) on this point, thereby not accepting the assessee's appeal.

3. Determining Interest Under Section 215 of the Income-tax Act:
The assessee argued that the Commissioner (Appeals) erred in directing the ITO to determine the interest under section 215 after giving effect to the appellate order, whereas the assessee contended it was not liable to be charged with any interest. The Commissioner (Appeals) noted that the assessee disputed the imposition of interest and sought only consequential relief if the assessment was reduced in appeal. The Tribunal agreed that the interest chargeable would depend on the computation of income as a result of the appellate orders in the quantum of appeals and directed the ITO to work out the relief admissible and dispose of the assessee's application under rule 40 expeditiously.

Conclusion:
The Tribunal upheld the disallowance of Rs. 7,91,079 claimed as a deduction, sustained the Commissioner (Appeals) decision on weighted deduction under section 35B, and directed the ITO to determine interest under section 215 after giving effect to the appellate order. The appeal by the assessee was treated as partly allowed.