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TMI Blog1984 (12) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the case, has stated that the appeal of the assessee is there to keep the matter alive on the following items : Rs. 1. General expenses 8,425 2. Repairs to building 9,675 3. Fire and general insurance 5,711 4. Bungalow maintenance 5,813 5. LTA, rent, bungalow and passage, 12,000 6. Passage and leave travel allowance 1,840 7. Godown rent 11,950 8. Garage rent 41,234 It was also stated that Ground No. 2 is not pressed. Therefore, we confirm the order of the Commissioner (Appeals) on the items mentioned hereafter for the disallowance of weighted deduction : Ground No. 1 Rs. 1. Bank charges 1,811 2. Repairs to machinery 3,922 3. Repairs to furniture 2,865 4. Rates and taxes 11,265 5. Marine insurance 1,298 6. Research and development expenses 594 Ground No. 2 1. Electricity 50 per cent 2. Newspapers and periodicals 50 per cent 3. Postage 50 per cent 4. Telegrams 50 per cent 5. Telephones 50 per cent 6. Medical expenses 75 per cent 7. Staff welfare 75 per cent 8. Uniforms 75 per cent Now we have to consider whether weighted deduction is to be allowed on the remaining items of expenditure mentioned above. The contention of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such employees resided, and the furniture used by them and taxes, etc., paid on the items of goods exported, are to be taken as expenses for the purpose of export. We do not accept this contention as there is no substance in it in view of the decision of the Hon'ble Madras High Court. Moreover, these expenses are in India and furniture in the bungalow and its repair is there to provide facility to the managing director and, therefore, it has no nexus with the export business and it cannot be taken as salary to the managing director and to the employees allowed at the rate of 75 per cent ; therefore, the weighted deduction is also not to be allowed accordingly, on these expenses. Similarly, we hold that building repairs, furniture, godown rent, garage rent, fire and general insurance are the expenses incurred within India and there is no material on record to prove that these are exclusively and solely for the purpose of export business and it cannot be there in the case of assessee in view of the fact that the assessee is having export and local business. Moreover, these expenses are in India and there is no nexus between the export business and these expenses to prove that these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, following the aforesaid decision of the Hon'ble Madras High Court, we hold that the assessee is not entitled to weighted deduction on these items of expenses. Since the authorities below have rejected the claim of the assessee for weighted deduction on these items of expenditure, hence, we confirm the impugned order holding further that it is in accordance with the decision of the Madras High Court. The appeals are dismissed. Per Shri C.R. Nair, Accountant Member --- I have gone through my learned brother, the Judicial Member's order. With great respect, I wish to dispose of the appeals differently. 2. The assessee-company has an export division for export of handloom goods. Regarding the export division expenditure, the assessee claimed deduction under section 35B for the assessment year 1974-75 before the ITO, inter alia, on the following items, consequent on the Tribunal's order, dated 28-1-1980, in IT Appeal No. 158 (Mad.) of 1978-79, re-storing the issues of weighted deduction for fresh decision to the ITO : Rs. 1. Provident Fund-General 13,825 2. Bank charges 1,811 3. General expenses 8,425 4. Repairs to machinery 3,922 5. Repairs to building 9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Credit Guarantee Corporation 100 per cent After ascertaining the eligible expenditure in this manner, the ITO should allow 50 per cent of the eligible expenditure as weighted deduction. It, must be noted that only expenditure debited to the profit and loss account will be eligible for weighted deduction but not the expenditure debited to the manufacturing account or the trading account." 3. The assessee is before us in appeal against the Commissioner (Appeals)'s order. Though the assessee's written grounds of appeal contained a number of items, the assessee's learned counsel, at the time of hearing, restricted the claim to the following items : 1. General expenses 8,425 2. Repairs to building 9,675 3. Fire and general insurance 5,711 4. Bungalow maintenance 5,813 5. LTA, rent, bungalow and passage 12,000 6. Passage and LTA 840 7. Godown rent 11,950 8. Garage rent (sic) 41,234 The learned counsel for the assessee submitted that the assessee was entitled to weighted deduction on 75 per cent of serial Nos. 4, 5 and 6, which related to the export manager, Mr. Kozcki, since this item should be treated as part of his remuneration and the ITO had allowed weighted d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in sub-clauses (i) to (ix). The Tribunal further went on to say : " . . . we would add that whatever of the common expenses incurred by an assessee that could properly and fairly be apportioned on any of the activities referred to above may also be taken for the purposes of the section as wholly and exclusively on such activity. As already mentioned, no hard and fast rule is possible to be outlined as to how such apportionment should be effected. Nor is it possible to postulate in a general discussion what all kinds of expenditure can properly be brought under the various sub-clauses of section 35B(1)(b). Whether a particular claim raised by an assessee falls under any one or more of the activities specified in those sub-clauses can at best be judged only with reference to the facts of the particular case and the nature of the claim." It will, thus, be seen that the Special Bench also insisted that the expenditure should be wholly and exclusively incurred on the specified activities in section 35B(1)(b) but regarding common items of expenditure such as salary, stationery, etc., where the expenses would also include items not related to the specified activities, the Tribunal d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture specified in the sub-clauses of section 35B(1)(b). Regarding bungalow maintenance, LTA, rent, bungalow and passage, passage and LTA, it is the assessee's contention that they, in effect, form part of the remuneration paid to the export manager and, therefore, eligible for weighted deduction. Similarly, regarding repairs to building, godown rent and garage rent (stated to be actually export office rent), the assessee's contention is that these items represent rent and other incidental expenses relating to the office premises. However, the orders of the ITO and the Commissioner (Appeals) do not give the details regarding the nature of the expenditure nor the reasons for the rejection of the assessee's claim. The factual position regarding the above items is not clear and, hence, it becomes difficult to adjudicate on the assessee's claim. I am, hence, of the view that the Commissioner (Appeals)'s finding regarding weighted deduction on the above items should be vacated and the matter should go back to the Commissioner (Appeals) for fresh decision according to law after giving due opportunity to both the parties. 6. For the assessment year 1975-76, the position is similar. Thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision : " Whether, on the facts and in the circumstances of the case, the Tribunal should consider the assessee's claim for weighted deduction under section 35B in respect of the items of the expenditure in question incurred in the export division on the basis of the Bombay Special Bench decision of the Tribunal in the case of J.H. Co. [IT Appeal Nos. 3255 and 3330 (Bom.) of 1976-77, dated 17-6-1978] as not being contrary to the Madras High Court decision in CIT v. Southern Sea Foods (P.) Ltd. [1983] 140 ITR 855 or whether it should be held by the Tribunal that the ratio laid down by the above decision of the Tribunal is not good law in view of the Madras High Court decision in Southern Sea Foods (P.) Ltd.'s case ". 2. The assessee-company, inter alia, carries on export business in handlooms. For the assessment years 1974-75 and 1975-76, it claimed weighted deduction under section 35B in respect of certain items of expenditure. The ITO disallowed the claim. On appeal, the Commissioner (Appeals) partly allowed the same. On further appeal by the assessee, the Tribunal set aside the order of the Commissioner (Appeals) and restored the case to the file of the ITO for re-decidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s High Court in Southern Sea Foods (P.) Ltd.'s case was to be taken in view and not that of the Special Bench of the Tribunal in the case of J. H. Co. 6. The learned Judicial Member observed that the weighted deduction was to be allowed on the items of expenditure incurred wholly and exclusively for the purpose of export business and, therefore, the ratio laid down by the decision of the Tribunal in J.H. Co.'s case was not good law in view of the decision of the Hon'ble Madras High Court in the case of Southern Sea Foods (P.) Ltd. On merits, the learned Judicial Member held that the assessee was not entitled to weighted deduction as the expenditure, apart being incurred in India, had not been wholly and exclusively expended for the purpose of export business. 7. The learned Accountant Member, on the other hand, observed that the ratio of the decision of the Special Bench of the Tribunal in the case of J.H. Co. was not, in any way, contrary to the decision of the Madras High Court in the case of Southern Sea Foods (P.) Ltd. He pointed out that the Madras High Court had laid down in Southern Sea Foods (P.) Ltd.'s case that the conditions of section 35B should be strictly co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Special Bench of the Tribunal has held, in para 22 of its judgment in the said case, that the expenditure, as contemplated under section 35B, must be incurred wholly and exclusively on activities referred to in sub-clauses (i) to (viii) of clause (b) of sub-section (1) of section 35B. Evidently, therefore, there is no contradiction between the views taken by the Madras High Court and the Special Bench of the Tribunal. It cannot, therefore, be held that the Madras High Court has overruled the decision of the Special Bench of the Tribunal in the case of J. H. Co. or that it has declared that the decision of the Special Bench is not good law. Each case has to be disposed of in accordance with its own facts and so, in my opinion, the learned Accountant Member has rightly directed the Commissioner (Appeals) to re-examine the claim of the assessee in respect of certain specific items of expenditure after ascertaining further facts and then to re-decide the matter in accordance with law. 10. Thus, my answer to the question posed to me is that the decision of the Special Bench of the Tribunal in J.H. Co.'s case is not contrary to the decision of the Madras High Court in Southern ..... X X X X Extracts X X X X X X X X Extracts X X X X
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