1984 (12) TMI 140 - AT - Income Tax

Issues Involved:
1. Market development allowance under section 35B of the Income-tax Act, 1961.
2. Weighted deduction on specific items of expenditure.
3. Application of the Madras High Court decision in CIT v. Southern Sea Foods (P.) Ltd. versus the Special Bench of the Tribunal decision in J.H. & Co.

Detailed Analysis:

Issue 1: Market Development Allowance under Section 35B of the Income-tax Act, 1961

The common issue in these appeals was the market development allowance under section 35B of the Income-tax Act, 1961. The assessee sought weighted deductions on various items of expenditure, which were detailed in the grounds of appeal. The learned counsel for the assessee argued that the appeal was to keep the matter alive on specific items of expenditure.

Issue 2: Weighted Deduction on Specific Items of Expenditure

For the assessment year 1974-75, the assessee claimed weighted deductions on the following items: general expenses, repairs to building, fire and general insurance, bungalow maintenance, LTA, rent, bungalow and passage, passage and leave travel allowance, godown rent, and garage rent. The Commissioner (Appeals) disallowed the weighted deduction on several items, including bank charges, repairs to machinery, repairs to furniture, rates and taxes, marine insurance, research and development expenses, electricity, newspapers and periodicals, postage, telegrams, telephones, medical expenses, staff welfare, and uniforms.

The Tribunal held that the weighted deduction should be allowed only if the expenditure was incurred wholly and exclusively for the purpose of export business. The assessee failed to provide sufficient evidence to prove that the expenses were solely for export purposes. Consequently, the Tribunal upheld the disallowance of weighted deduction on the items mentioned.

For the assessment year 1975-76, the claim included general expenses, repairs to building, fire and general insurance, bank charges, professional charges, repairs to machinery, repairs to furniture, rates and taxes, and marine insurance. The Tribunal reiterated that the assessee did not provide adequate evidence to prove that these expenses were incurred wholly and exclusively for export purposes. Therefore, the Tribunal confirmed the disallowance of weighted deduction on these items.

Issue 3: Application of the Madras High Court Decision in CIT v. Southern Sea Foods (P.) Ltd. versus the Special Bench of the Tribunal Decision in J.H. & Co.

The Tribunal considered whether the decision of the Madras High Court in CIT v. Southern Sea Foods (P.) Ltd. should prevail over the Special Bench decision in J.H. & Co. The Tribunal concluded that the Madras Benches of the Tribunal are bound by the decisions of the Madras High Court. Therefore, the decision of the Special Bench in J.H. & Co. was not to be followed by the Madras Benches.

The Madras High Court held that weighted deduction under section 35B should be allowed only on items of expenditure incurred wholly and exclusively for export business. The Tribunal noted that the decision of the Special Bench in J.H. & Co. was not good law in light of the Madras High Court decision.

Separate Judgments Delivered:

The Judicial Member and the Accountant Member delivered separate judgments. The Judicial Member held that the assessee was not entitled to weighted deduction on the disputed items of expenditure, as they were not incurred wholly and exclusively for export purposes. The Accountant Member, however, opined that the Special Bench decision in J.H. & Co. was not contrary to the Madras High Court decision and should be followed. He directed the Commissioner (Appeals) to re-examine the claim for weighted deduction on certain items.

Third Member Decision:

The Third Member agreed with the Accountant Member, stating that the Special Bench decision in J.H. & Co. was not overruled by the Madras High Court decision in Southern Sea Foods (P.) Ltd. The Third Member concluded that the principles laid down by the Special Bench should be followed, and the case was to be re-examined by the Commissioner (Appeals) for a fresh decision.

Conclusion:

The Tribunal dismissed the appeals for the assessment year 1974-75 and 1975-76, confirming the disallowance of weighted deduction on the disputed items of expenditure. However, the Third Member's decision required a re-examination of the claims by the Commissioner (Appeals) based on the principles laid down by the Special Bench in J.H. & Co. and the Madras High Court decision in Southern Sea Foods (P.) Ltd.

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