1986 (10) TMI 83 - AT - Income Tax

Issues Involved:
1. Eligibility of weighted deduction under section 35B of the Income-tax Act, 1961 for charter expenses paid by the appellant company.

Issue-wise Detailed Analysis:

1. Eligibility of Weighted Deduction under Section 35B:

The primary issue in this case is whether the appellant private limited company, engaged in the business of deep sea fishing and export of fish, is entitled to a weighted deduction under section 35B of the Income-tax Act, 1961, for the charter expenses paid to Seawest Co. Ltd. of Bangkok.

Relevant Facts:
- The appellant company commenced its business in January 1979.
- A charter agreement was entered into on 30-12-1978 between the appellant and Seawest Co. Ltd., approved by the Government of India.
- Under the agreement, Seawest Co. Ltd. provided 20 Deep Sea Fishing Trawlers to the appellant for fishing operations within 200 miles of the Indian Exclusive Economic Zone.
- The appellant paid charter hire charges amounting to Rs. 49,50,016 to Seawest Co. Ltd., which was part of the total expenditure of Rs. 60,51,040 incurred on deep sea fishing operations.
- The appellant claimed this expenditure as eligible for export markets development allowance under section 35B.

Findings of the IAC and Commissioner (Appeals):
- The IAC allowed some expenses for weighted deduction but rejected the claim for Rs. 49,50,016, holding it as trading expenditure not falling under any clauses of section 35B.
- The Commissioner (Appeals) upheld the IAC's decision, stating the expenditure was for bringing into existence the commodity (fish) to be exported, which did not qualify for allowance under section 35B.
- The Commissioner (Appeals) referred to various judicial decisions, including the Special Bench of the Tribunal in J.H. & Co. v. Second ITO and the Hon'ble Delhi High Court in Handicrafts & Handloom Export Corpn. of India v. CIT, to support his conclusion.
- The Commissioner (Appeals) also emphasized that the appellant failed to provide evidence that the expenditure incurred fell within any prescribed activities under section 35B.

Arguments by the Appellant:
- The appellant contended that the Exclusive Economic Zone did not form part of Indian territory, and the services performed by Seawest Co. Ltd. fell under section 35B(1)(b)(viii).
- The appellant expanded its claim to include sub-clauses (ii) and (iv) of section 35B(1)(b) and argued that the expenditure was for varied services, including publicity and advertisement, and not merely for procuring the commodity.
- The appellant referred to the agreement and other correspondence with Seawest Co. Ltd. to support its claim.

Tribunal's Analysis:
- The Tribunal scrutinized the agreement and relevant clauses, finding that the payment was made for charterage of vessels to gain fish for export.
- It determined that the expenditure did not fall under sub-clause (ii) (obtaining information regarding markets), sub-clause (iv) (maintenance of a branch office or agency), or sub-clause (viii) (performance of services outside India) of section 35B(1)(b).
- The Tribunal noted that the appellant failed to provide evidence of existing contracts with foreign buyers or services rendered by Seawest Co. Ltd. that qualified under section 35B.
- It concluded that the expenditure was for procuring fish, which was the stock-in-trade, and thus, not eligible for weighted deduction under section 35B.

Conclusion:
The Tribunal upheld the findings of the Commissioner (Appeals) and dismissed the appeal, concluding that the appellant was not entitled to the weighted deduction for the charter hire charges of Rs. 49,50,016 under section 35B of the Income-tax Act, 1961. The appeal was dismissed in favor of the revenue.

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