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TMI Blog1983 (8) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to the assessment year 1975-76, the assessee claimed weighted deduction under section 35B of the Income-tax Act, 1961 ('the Act'). In this year, weighted deduction was claimed in respect of the following expenses : Rs. 1. Telex expenses 1,85,408 2. Telephone expenses 18,164 3. Journals & periodicals 4,426 4. Postage and telegrams 2,533 5. Expenses through supply of articles 551 6. Foreign travelling 21,291 ------------------- 2,32,373 ------------------- Weighted deduction claimed being one-third of the above amount 77,458 The ITO did not accept the assessee's claim because he had not accepted a similar claim of the assessee in the assessment year 1975-76. According to the ITO, as the assessee was not engaged in the export of goods, services or facilities, it was not entitled to any weighted deduction under section 35B. The ITO further stated that the assessee was only a sub-agent of the agent stated to be in a foreign country, who arranged ships for import of goods on behalf of the foreign persons in India. The market for the services rendered by the assessee was, therefore, in India and not in any foreign country. The question, therefore, of developing any export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Services v. ITO [IT Appeal No. 1893 (Delhi) of 1978-79 dated 29-12-1979], which was followed in the case of Capt. K.C. Saigal v. ITO [IT Appeal Nos. 2074 and 2545 (Delhi) of 1978-79 dated 14-3-1980], pertaining to the assessment year 1973-74. The Commissioner (Appeals) observed that essentially the nature of the assessee's business was of arranging foreign bottoms for a carriage of the foreign goods to India as also arranging sale of foreign rigs in India. He further observed that it was patent that no goods manufactured in India or services or facilities, which, so to say, were the produce of India, were being exported by the assessee. In fact, the assessee was helping in import of foreign goods, services or facilities into India. The Commissioner (Appeals) did not accept the aforesaid orders of the Tribunal, because, according to him, these orders did not lay down a general proposition for allowing weighted deduction under section 35B. According to the Commissioner (Appeals), the Special Bench order of the Tribunal in the case of J.H. & Co. v. Second ITO [1982] 1 SOT 150 (Bom.) also did not support the assessee's claim. He, thus, did not accept the assessee's claim for weighte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vise and deliver this contract to all the parties concerned including port agents, suppliers, etc., and analyse terms, if required. e. To follow up ship's movements and cargo position and communicate to respective parties ensuring all needful notices and precautions necessary for the trade are followed and complied with in due time. f. To maintain close liaison with owners/charterers all through the currency of the charter and communicate information of requirements of either party to the other, in line with charter or otherwise, and, if necessary, follow up any fresh negotiations. g. To follow freight payments, etc. h. To facilitate coast and port declaration and berthing of vessel. i. To ensure satisfactory compliance of C/P terms and full and final settlement of all dues and claims. To prevent expensive dispute and misinterpretation of charterer, party terms, etc. j. If vessel involved in arbitration or litigation, to play due role as a broker. k. To render legal professional, technical advice and report market conditions or collect such information from various sources as and when asked for. It is also stated therein that from the charterer party file which was already b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 35B(1)(b)(i), (ii) and (vi). A reference was made to the order of the Tribunal in the case of Capt. K.C. Saigal pertaining to the assessment year 1973-74, wherein the expenditure involved was : (i) Telex charges for obtaining information regarding markets outside India. (ii) Overseas telephone calls for obtaining information regarding markets outside India. (iii) Postage expenses regarding markets outside India, and (iv) Advertisement expenses through supply of articles inclusive of postage. After referring to the judgment in the case of Global Chartering Services, it was held in the above order that weighted deduction in respect of the expenditure in question had been rightly claimed under sub-clause (i) for advertisement and sub-clauses (ii) and (vi) as regards other expenses. It was also held that Explanation 2 was not applicable to the facts of the case. Reference was also made to the order in the case of Capt. K.C. Saigal v. ITO [IT Appeal Nos. 2345 (Delhi) of 1980 and 788 (Delhi) of 1981 and cross-appeals in IT Appeal Nos. 2952 (Delhi) of 1980 and 1036 (Delhi) of 1981] pertaining to the assessment years 1976-77 and 1977-78, wherein the order of the Tribunal for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hted deduction was claimed, was covered by sub-clause (iii) of section 35B(1)(b). 6. The learned departmental representative submitted that the role of the assessee was only that of a professional negotiator and it was helpful in getting the fixture executed. According to him, before the fixture was executed, the assessee obtained this offer and communicated the same to the other party and after receiving the acceptance, the same was communicated to the concerned party and, thereafter, the contract was executed. The point that he made was that the entire services rendered by the assessee were after the execution of the contract. He referred to sub-clause (viii) of section 35B(1)(b) and submitted that since expenditure had been incurred in connection with execution of the contract for the supply of services or facilities, no weighted deduction under section 35B was admissible. He referred to the meaning of the word 'Advertisement' in the Concise Oxford Dictionary, which means public announcement. He submitted that the word 'Publicity' in the same dictionary means a business of advertising (both goods and facilities). He referred to Words and Phrases Judicially Defined, Vol. I of Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. In reply, the learned counsel for the assessee submitted that the Explanation 2 to section 35B was not applicable in this case. He submitted that market for advertisement will be the place where services will be utilised. He reiterated his earlier arguments that the assessee's case was covered by sub-clauses (i), (ii) and (vi) of section 35B(1)(b) but also submitted that weighted deduction could also be claimed under sub-clause (v) of section 35B(1)(b). He reiterated his submission that weighted deduction under section 35B should be allowed to the assessee. 8. We have carefully considered the rival submissions. After going into the plethora of information furnished before us regarding activities of the assessee, we have no hesitation in our mind in coming to the conclusion that the expenditure incurred by the assessee is covered by sub-clauses (i), (ii) and (vi) of section 35B(1)(b). The major part of the expenditure is on telex messages sent to foreign parties and this expenditure is covered by sub-clauses (i), (ii) and (vi) of section 35B(1)(b). We cannot accept the submission of the learned departmental representative that the telex messages are in the nature of private co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal in the case of Global Chartering Services, Bombay Bench 'C' in the case of ITO v. J.B. Boda Marine General Survey Agencies (P.) Ltd., in the case of Oceanic Shipping Agency, in the case of Capt. K.C. Saigal, for the assessment years 1976-77 to 1977-78. We do not agree with the order of the Tribunal in the case of Shiplinks. 9. After holding that the assessee is entitled to weighted deduction under section 35B(1)(b) we have further to consider as to whether the assessee is entitled to weighted deduction on the entire expenditure as claimed or the weighted deduction should be allowed to the assessee on a part of the expenditure on which weighted deduction has been claimed. This matter has not been gone into by the lower authorities and we would, therefore, consider it appropriate to set aside the orders of the lower authorities on this point and would refer the matter back to the ITO for a decision on merits and according to law. While considering the allowability of the weighted deduction on different items of expenditure, the ITO may refer to the Special Bench orders of the Tribunal in the case of J.H. & Co. and in the case of ITO v. Happy Sound Industries [1982] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal being aggrieved by the order of the Commissioner (Appeals), who granted some reliefs to the assessee in regard to its claims. 13. In support of the principal question, raised in the grounds of appeal, filed by the assessee, Mr. S.E. Dastur, learned counsel submitted that, in the very nature of the business, which the assessee is carrying on, the commission has to be accounted for on the receipt basis. He has pointed out with reference to the various agreements entered into by the assessee with the foreign parties that the commission is received only when the freight is received by the consignor. Secondly, Mr. Dastur contended that there cannot be protective assessment of a particular amount in the case of the same assessee in the same year, while no doubt protective assessments are well recognised. Thirdly, he contended that the assessee is aggrieved by the method of assessment made by the ITO and the Commissioner (Appeals) is in error in holding that the assessee is not aggrieved. He pointed out that once the action of the ITO has an effect on the assessment, the assessee is entitled to file appeal. He has further argued that the expression 'denial of liability' occurring i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate that, with the Indian law having no jurisdiction over foreign owners and we having no facility or resources to go into expensive litigation abroad, it is in everybody's interest to recover those commissions with better method and established practices. Any unnecessary pressure leads to unpleasant reactions and rebuke from the owner/owner's broker and ultimate withdrawal and disposal of owner's support for Indian cargoes which is seriously prejudicial to our national interest. More ships offering means lower freight rates, and this is the first and the foremost service we are there to render and any other interest must play secondary role to this goal. You can clearly see that we have no control over these commissions and unless owner's claim is satisfactorily settled, we even run the risk of losing same altogether. The method of accounting adopted by us since the inception of the business is the commission on receipt basis and expenditure on accrual basis. The expenditure on accrual basis, mainly the telex and telephone expenses bills for which are received in the early part of the next year pertaining to the previous year (sic). Mostly, all the expenditure is on the payment b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has to be continued albeit the method of accounting. We do not find any principle coming in the way of accepting the method of accounting adopted by the assessee in this case. There is no dispute that this particular method of accounting, which is commended to us for acceptance is being followed regularly by the assessee right from the beginning. In fact, such method was accepted by the revenue authorities. May be, the assessments are sought to be reopened now in the view they have taken for the first time in the assessment year 1975-76. There is no real difficulty in accepting the method adopted nor there can be a legal objection to it. The assessee has also given reasons for adopting this particular method. The main source of income is the commission and its receipt by the assessee depended on various factors. It mostly depended upon how the third party acts, namely, in payment of the freight, etc. The assessee has to receive the amount from foreign parties. In case some small dispute arises and the assessee does not receive the commission, it may be very difficult for the assessee to start proceedings for recovery. Therefore, if commission is assessed on accrual basis, it migh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is not much of importance to the name of the accounting method but what is important is the method which is to be regularly employed. Once the concept of taxing the income is achieved, there remains no problem at all whatever be the method of accounting an assessee adopts. We are, therefore, clearly of the opinion that, having regard to the facts of the case and the legal principles involved, the method of accounting adopted by the assessee, should be accepted. 19. The question of maintainability of the appeal, having regard to the contentions of Mr. Kapila, will now have to be decided. The substance of the argument of Mr. Kapila is that, when there is only a protective inclusion of Rs. 5 lakhs and odd and what has resulted in was the acceptance of the amount shown by the assessee, there could be no grievance by the assessee against the assessment order. The argument may look very simple and attractive but we are unable to accept the same. Provision for appeal is always held to be a statutory right to be conferred specifically. There cannot be a general right of appeal without a provision for such a right. But, once a right of appeal is created, it should be liberally cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at so far as clause (c) is concerned, the four instances given thereunder, namely : where the assessee objects (a) to the amount of income assessed ; (b) to the amount of tax determined ; (c) to the amount of loss computed ; and (d) to the status under which he is assessed ; are only illustrative and not exhaustive. But we do not see any substance in this argument. The right of appeal is provided initially if an assessee is aggrieved but it is against the order of assessment under section 143 of the Act provided, however, that any of the above four objections are raised. But, however, we do not want to dilate on this argument any further because in our view the assessee is covered by the first two. The assessee is objecting to the amount of income assessed. The assessee returned the income on a particular basis but the assessment is on a different basis. In fact, the substantive assessment is on an amount other than what the assessee has claimed, with a rider that the difference is treated provisionally. As a consequence of this, the amount of tax determined also is varied. In our view, therefore, the assessee can be said to be objecting to the amount of income assessed or to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting may not effect the assessment for the year in question in the sense that, ultimately, whatever the assessee has returned, is accepted. But as already indicated, once the assessee objects to the computation of the income or the determination of the tax, whatever may be the method by which such process is arrived at, the assessee would be entitled to maintain an appeal. In this connection, we would like to refer to the decision in CIT v. Mahabir Parshad & Sons [1980] 125 ITR 165 (Delhi). Their Lordships were considering the scope of provision for appeal under section 246(1)(c). The following observations are very opposite and they fully support whatever we have stated above : " ... To say that an appeal cannot be preferred unless the assessee objects to the income, tax, loss or status does not mean that even where he has such a grievance and he prefers an appeal because of such grievance, the scope of the appeal is limited to these four subject-matters. We say this because what the clause envisages, where one of the four grievances exists, is an appeal against the order of assessment. In other words, once these grievances are there, what is before the AAC for consideration is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been tampered with, apparently on the face of it, there cannot be any grievance of the assessee. But the assessee can say that in that mode of acceptance of the returned income, his books of account and his system of maintaining the account books has been thrown out. Is that not a grievance ? It may affect his future assessment or it may affect his assessment presently pending. Will that not lead to fresh trouble for the assessee, fresh discomfort and fresh round of litigations ? Is it not enough to be concerned about ? Is it not enough to make a grievance of ? Just as in the case of a slander or defamation or libel, no physical injury is caused to the person, but the law recognises such a grievance of the human beings for the simple reason that it hurts the propensities of the individual, it hurts his self-respect, it projects his image which is not his, it depicts him before the people in a manner which he does not like, it gives a picture of the person concerned, which he does not relish. If the criminal law could take note of such a situation, why not the income-tax law. After all the assessee's system of accounting has been tampered with, it may not mean much in the shape ..... X X X X Extracts X X X X X X X X Extracts X X X X
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