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TMI Blog1986 (2) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Certifying charges paid to Surveyors Rs. 26,754 6. Export inspection fees paid to Govt. Rs. 34,580 7. Commission to brokers Rs. 1,67,285 8. Salary paid to Export executives Rs. 22,463 . Total : Rs. 3,25,677 As against the claim of the assessee the ITO allowed weighted deduction on a total expenditure of Rs. 2,43,897 the particulars of which are as follows: 1. Froms, stamp papers etc. for obtaining export licences (This was wrongly mentioned by the ITO as relating to the printing and stationery charges) Rs. 5,586 2. Sending of samples Rs. 9,692 3. Certifying charges paid to Surveyors Rs. 26,754 4. Export inspection fees paid to Govt. Rs. 34,580 5. Commission to brokers Rs. 1,67,285 . Total : 2, 43,897 The ITO actually granted weighted deduction of Rs. 81,299 representing 1/3rd of Rs. 2,43,897. 3. Aggrieved by the ITO s assessment order dt. 12th Nov., 1981 for the short allowance of weighted deduction under s. 358 the assessee went i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred in India and it is covered by sub-cl. (iii) of s. 35B(i)(b) and secondly it is an expenditure incurred after 1st April, 1978. According to the assessee these expenses were not covered by sub-cl. (iii) at all but were covered by sub-cl. (v), (vi) and (viii) of s. 35B(1)(b). Clauses (v), (vi) and (viii) were removed from the section by Act 44 of 1980 w.e.f. 1st April, 1981. But however, we are concerned with asst. yr. 1980-81 for which the previous year is date much prior to 1st April, 1981. Sub-cl. (v) allows weighted deduction when the expenditure is incurred in preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities and activities incidental thereto. In fact the forms and stamp papers should be taken to have been required for obtaining export licences as this fact was found by the ld. CIT(A) in his orders. Sub-cl. (vi) deals with expenditure in connection with furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services or facilities whereas sub-cl. (viii) deals with expenditure incurred on performance of services outside India in connection with or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second items is printing and stationery expenses. The total claim of expenditure on which weighted deduction as claimed is Rs. 20,915. The total expenditure incurred by the assessee towards printing and stationery expenses was Rs. 1,22,637. One sixth of the above amount was allocated by the assessee as relating to export sales. The ld. CIT(A) held that the held that the total expenditure would not only relate to the selling activity but also to the purchasing activity and he presumed that 50 per cent of the expenditure on printing and stationery would relate to the selling activity. Out of the remaining 50 per cent viz., Rs. 61,319 only 1/6th i.e. Rs. 10,220 could be allocated to export sales. Again out of Rs. 10,220, 90 per cent could be allocated to the activity specified in s. 35B(1)(b)(iii) and therefore the considered the balance of Rs. 1,022 only for weighted deduction holding that so much amount only falls under sub-clause other than sub-cl. (iii). The matter is already covered by the Bombay Special Bench of the Tribunal in J. Hemachand Co. vs. Second ITO (1982) 1 SOT 150 (Bom) (SB) according to which 50 per cent of the printing and stationery expenses are allowed. We foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the B Bench of the Tribunal dt. 5th Jan., 1984 in the case of Maddi Lakshmaiah Co. (P) Ltd., ITA No. 470 (Hyd) 1983. 9. The next item is certifying charges paid to Surveyors and the claims was of Rs. 28,754. The immediately next items also can be taken up along with this item. That item was the expenditure incurred for export inspection fee paid to government and the claim was of Rs. 34,580. Both these items were allowed by the ITO whereas they were withdrawn by the ld. CIT(A) on the ground that they fall under s. 35B(1)(b)(iii) as they were incurred in India. These two items represent the same nature of expenditure. Unless these expenses are incurred the goods cannot be exported outside India. They are expenses essentially to be incurred for the execution of any contract for the supply outside India of goods, services and facilities and directly covered by sub-cl. (viii) of s. 35B(1)(b). These expenses were allowed in full by the Bombay Special Bench in J. Hemcahnd s case, and hence we allow both these items in full and direct the ITO to consider them for weighted deduction. We set aside the CIT(A) s order with regard to these two items and restore that of the ITO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... several materials placed before the ld. CIT(A). The ld. CIT(A) also held in his orders that no evidence is produced before the ITO to show that the expenditure was made out for any of the activities listed in sub-cls. (1) to (viii) of s. 35B(1)(b) other than sub-cl. (iii). As regards the type of services rendered by the parties mentioned in the list the certificates obtained from 3 of them were filed in the paper compilation. For instance, the certificate obtained from M/s Globe Marketing Service, Bombay, concerning item No. 7 of the list above is to the following effect: The certificate is dt. 13th Jan., 1983. "This is to certify that we are Brokers and to not trade on our own. We keep overseas Buyers and domestic sellers informed of market conditions and try to bring them together. We do brokerage business mainly for Oilcakes and Cattle Feed. We did business for M/s T. G. Lakshmaya Setty Sons, Adoni, during the period 1st Nov., 1978 to 20th Oct., 1979. We charge commission of 1/2 per cent on the contract value, goods shipped or hot shipped contract cancelled or not cancelled." This certificate is admitted to have been filed before the ld. CIT(A). So also, the certificate dt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the payment to middleman who arranged for the services of STC evidently partakes same nature as the services rendered by the STC and so qualifies for relief under s. 35B. However, they had contemplated one exception. Services of the middleman in the case before them also were utilised for purposes of negotiations for the bank documents which are apparently services connected with the realisation of sale proceeds and that part of the services rendered by the agent would not fall under any of sub-clauses under s. 35B(1)(b). The services which are not qualified for deductions under s. 35B were determined at 10 per cent of the total services and so excusing 10 per cent of the total paid to the agents they have directed 90 per cent of the expenditure paid as agent s commission. As already stated, the Bombay Bench decision was furnished at pages 13 to 33. The assessee s counsel relied on the same in support of his contention. The next order on which he relied upon was of the orders of B-Bench of this Tribunal dt. 5th Jan., 1984 passed in ITA No. 470 (Hyd)-1983 in the case of Maddi Laxmaiah Co. (P) Ltd. In the case also payments were made besides State Trading Corporation to of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal dt. 13th Sept., 1985 passed in the case of Narne Tulaman Manufactures (P) Ltd. ITA No. 643 (Hyd) 1983 in which one of us is a party. It is no doubt true that we have disallowed the commission payment by applying the decision in Southern Sea Food (P) Ltd. s case but in that case we have specifically held that the facts of the case before us were quite similar to the facts dealt with by the Madras High Court. That means we have found that the expenditure fell within s. 35B(1)(b)(iii). Further all these decisions were not placed before us at that time and therefore we feel that the said order cannot be followed and cannot be given precedence over the Special Bench decision in J. Hemchand Co. s case. Therefore, we hold that the commission payment of Rs. 1,67,285 is entitled for weighted deduction under s. 35B. We therefore, hold that excluding 15 per cent of the total of Rs. 1,67,285 paid as commission to brokers rest of the amount is entitled to weighted deduction under s. 35B as the said expenses fall within sub-cls. (i) and (ii) under s. 35B(1)(b) and not under s. 35B(1)(b)(iii). 12. The last item which remains for our consideration is the salary paid to executives. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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