1991 (3) TMI 205 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax under section 263.
2. Entitlement to weighted deduction under section 35B(1)(b)(ix) of the Income-tax Act.
3. Validity and applicability of Rule 6AA of the Income-tax Rules, 1962.
4. Authority of rule-making bodies to prescribe time limits for substantive provisions.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income-tax under section 263:
The Tribunal previously affirmed that the Commissioner of Income-tax had jurisdiction to exercise his powers under section 263 of the Income-tax Act, 1961, as per its order dated 29-8-1988 in ITA No. 214(Gau)/86. This jurisdictional point was upheld, and the Assessing Officer completed the assessment under section 143(3) read with section 263 following the directions from the Commissioner.

2. Entitlement to weighted deduction under section 35B(1)(b)(ix) of the Income-tax Act:
The assessee claimed weighted deduction for expenses incurred on maintaining a warehouse outside India under section 35B(1)(b)(ix). The Assessing Officer disallowed this claim, reasoning that Rule 6AA, which enumerates "such other activities," became effective from 1-8-1981, while the assessee's accounting year ended on 30-6-1980. The CIT(A) upheld this disallowance, stating that the rule-making authority's power to prescribe activities implicitly included the power to fix the effective date.

3. Validity and applicability of Rule 6AA of the Income-tax Rules, 1962:
The assessee contended that Rule 6AA, effective from 1-8-1981, should be construed as part of section 35B from 1-4-1968, and that the rule-making authority exceeded its jurisdiction by prescribing an effective date. The CIT(A) dismissed this argument, maintaining that the rule-making authority was within its rights to fix the date of operation for the rule.

4. Authority of rule-making bodies to prescribe time limits for substantive provisions:
The Tribunal considered various judicial precedents to determine whether the rule-making authority had the power to prescribe a time limit. It was noted that rules cannot override substantive provisions of the Act unless explicitly authorized. The Tribunal cited decisions such as Shree Sajjan Mills Ltd. v. CIT and South India Paper Mills Ltd. v. Director of Inspection and Audit, emphasizing that substantive rights conferred by the Act cannot be curtailed by rules.

Conclusion:
The Tribunal concluded that Rule 6AA, which particularized activities for weighted deduction under section 35B(1)(b)(ix), should be considered part of the substantive provision. It held that the rule-making authority did not have the power to retrospectively limit the applicability of section 35B. Therefore, the Tribunal directed the Assessing Officer to allow the assessee's claim for weighted deduction on the expenditure incurred for maintaining a warehouse outside India, subject to verification and examination of admissible items in accordance with the law.

Final Judgment:
The appeal was allowed, and the Assessing Officer was instructed to grant the weighted deduction after due verification and providing the assessee an opportunity to be heard.