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TMI Blog1998 (1) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... 18,052. (ii) For the assessment year 1978-79 : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that weighted deduction was allowable on : 1. Participation and exhibition charges. 2. Expenses on subscription to foreign magazines. 3. Expenses for obtaining photocopy of various documents. 4. Service charges to representative at Bombay. 5. A portion of common expenses on postage, telegram, printing, stationery, telephones and travelling expenses. 6. A proportion of export establishment expenses." The Assessing Officer, during the course of assessment relating to the assessment year 1977-78, did not allow deduction under section 35B of the Act on certain expenditures on the ground that those expenditures did not fall under any of the sub-clauses of section 35B(1)(b) of the Act. The assessee had claimed deduction under section 35B in the original return of income on total expenditure amounting to Rs. 5,97,202. Revised returns were filed subsequently. In the latest revised return, deduction was claimed for the purposes of section 35B on a total amount of Rs. 6,27,147. Total sales in the previous year re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of samples or technical information for promotion of exports, as claimed by the assessee. The Assessing Officer noticed that the main object of the services of the stenographer was the handling of correspondence relating to exports. In the next assessment year, the assessee had shown expenditure on export establishment at Rs. 15,211 for purposes of claiming deduction under section 35B of the Act. The Assessing Officer did not allow deduction in this year also. In appeal, for both the assessment years, the Commissioner of Income-tax allowed 50 per cent. of the expenditure incurred on export establishment on the ground that these expenditures had been incurred in connection with the promotion and development of the export market. In further appeal, the Tribunal increased the proportionate deduction from 50 per cent. to 60 per cent. of the total expenditure on export establishment. The Tribunal took the view that such expenditure had been rightly allowed by the Commissioner inasmuch as the expenditure had been incurred for obtaining information, developing foreign market and facilitating the sending of samples and tenders outside India. Shri R. P. Sawhney, learned senior counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a for such goods, services or facilities ; (iii) distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit, where such expenditure is incurred before the lst day of April, 1978 ; (iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities ; (v) preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities, and activities incidental thereto ; (vi) furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services or facilities ; (vii) travelling outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outward from, and return to, India ; (viii) performance of services outside India in connection with, or incidental to, the execution of any contract for the supply outside India of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of export markets for Indian goods. The provision in section 35B is not intended to cover expenditure which the assessee incurs on activities inside India for his export business except where those are incidental to the activities outside India. Preparation and submission of tenders referred to in sub-clause (v) or furnishing of samples or technical information referred to in sub-clause (vi) shall qualify for weighted deduction, because these activities are incidental to the activities outside India. Shri Ajay Mittal, learned counsel for the assessee, has argued that the assessee's exports outside India were about 85 per cent. of the total sales and, therefore, the assessee had rightly claimed deductions on several expenditures. The Commissioner of Income-tax as well as the Tribunal gave a clear finding of fact that expenditure, incurred on various activities, were in respect of the development of the export market. Shri Mittal has explained that expenditure on export establishment specifically related to the activities of collecting information about the export market, sending of samples and preparation of tenders. The export establishment engaged itself in the various activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as noticed that the Department had only objected to the apportionment of the claim at 75 per cent. The court took the view that there was no need to interfere in regard to the claim at 75 per cent. because the Revenue did not dispute the allowability of the claim of weighted deduction in respect of salary expenses. Shri Mittal has thus argued, on the strength of the aforesaid decision, that the deduction under section 3.5B may be allowed in respect of expenditure on export establishment incurred by the assessee. Reliance has also been placed by Shri Ajay Mittal on a decision of the Delhi High Court in CIT v. Raunaq International Ltd. [1986] 158 ITR 701. The assessee had claimed deduction under section 35B in relation to certain items of general expenditure. The Tribunal allowed such deduction for the assessment year 1973-74 in respect of 75 per cent. of the repairs and renewals, director's remuneration and electricity and power and 100 per cent. of expenditure on foreign customers. The Tribunal, for the assessment year 1976-77, held that the assessee was entitled to deduction in respect of 50 per cent. of rent and printing and stationery and 75 percent. of the publication of pam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 35B had been allowed to the assessee by the Tribunal in respect of customs duty, repairs and reassembly, clearing and storage, and expenditure which were general in nature, the Supreme Court disallowed the claim. Similarly, in Civil Appeal No. 8482 of 1995, it was held that weighted deduction could not be allowed without examining the claim. It was noticed that the assessee had failed to adduce proper evidence and make out a proper case under clause (b) of section 35B(1). Deduction under section 35B had been allowed by the Tribunal in respect of travelling expenses, service charges, commission to various agencies, expenditure on foreign delegation to India, bank interest on packing credit, subscription, commission, brokerage, proportionate salary, telex, telephone, telegram, postage, printing, stationery, electricity, Jamnagar office expenses, bank charges, etc. Shri Ajay Mittal, learned counsel for the assessee, has argued that, while considering certain other appeals in the aforesaid case, the Supreme Court remanded certain matters where the details of expenditure had not been properly examined by the Tribunal. lie has, therefore, put forward a plea that, in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the sub-clauses and the facts proved by the assessee." While examining Civil Appeals Nos. 2324-26 of 1995, the Supreme Court again observed that : "...the onus is on the assessee to prove that he was entitled to the expenditure by reference to the various sub clauses of section 35B(1)(b). The expenditure cannot generally be allowed as claimed." While examining a similar question in Civil Appeal No. 3975 of 1995 in Stepwell Industries' case [1997] 228 ITR 171, the Supreme Court further observed as under : "The Tribunal was wrong in allowing the claim of the assessee for weighted deduction under section 35B without going into the facts of the case. The claim was not made before the Income-tax Officer or the Appellate Assistant Commissioner. No particulars of the expenditure were furnished to them. The particulars should have been placed before the Income-tax Officer or the Appellate Assistant Commissioner for examination. The onus of proving the facts and getting the benefit of the deduction lies on the assessee. The assessee not having proved anything either before the Income-tax Officer or the Appellate Assistant Commissioner cannot get this deduction. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd printing of foreign catalogue were also allowed for deduction under section 35B of the Act. When deductions have already been allowed specifically on foreign travelling and on the cost of samples as well as the freight incurred on sending samples outside India, there appeared no justification for raising a presumption that other expenditure incurred on travelling, postage, telex, telegram, telephone, printing and stationery were also incurred in connection with the sending of samples or furnishing of tenders outside India. There seems, therefore, no justification to allow expenditure on postage, telex telegram, telephone, printing stationery and travelling. In the next assessment year (1978-79) also, the Assessing Officer had already allowed deduction under section 35B on foreign travelling expenses, export expenses, air-freight for sending samples and the cost of samples. In this assessment year, no further presumption was required to be raised, as done by the Commissioner and the Tribunal, that the assessee was entitled to claim deduction under section 35B of the Act in respect of the other expenditure also relating to postage, telex, telegram, telephone, printing, statione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure can be given weighted deduction. Under section 35B, it is the assessee's duty to prove facts which will bring the case within any of these sub-clauses. Unless that is done, the assessee will not be entitled to get this deduction. The Tribunal has allowed the deduction without verifying or examining the sub-clauses under which this could be allowed." Therefore, general expenditure of Rs. 3,176 is found to be not eligible for deduction under section 35B of the Act. IV. Advertisement : In the assessment year 1977-78, expenditure on advertisement (Rs. 2,585), was not allowed under section 35B of the Act by the Assessing Officer after finding that this expenditure related to the purchase of blocks, diaries and trade publicity and not on any advertisement abroad. The Commissioner, however, allowed 50 per cent. of this expenditure and the Tribunal raised it to 60 per cent. in further appeal, Looking to the nature of the expenditure as noticed by the Assessing Officer, this expenditure is again found to be not eligible for deduction under section 35B of the Act. It would serve no purpose to remand the case to the Tribunal for further examination inasmuch as the detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record, it would be difficult to accept the assessee's claim that this expenditure was allowable under sub-clause (ii) of section 35B(1)(b) of the Act. In Hero Cycles' case [1997] 228 ITR 463, it has been further observed by the Supreme Court at page 473 as under : "We are of the opinion that the Tribunal cannot allow any weighted deduction without linking the expenditure to one or more of the activities referred to in various sub-clauses of section 35B(1)(b)." This matter is also, therefore, remitted back to the Tribunal for verifying and ascertaining the correct nature of the expenditure and thereafter to decide if sub-clause (ii) could be invoked so as to allow this expenditure. VIII. Service charges : In the assessment year 1978-79, the 'assessee claimed deduction under section 35B on service charges (Rs. 10,300) paid to its representative at Bombay. The Assessing Officer declined to allow deduction. It was allowed by the Commissioner as well as the Tribunal without any discussion as to which sub-clause was attracted so as to allow this expenditure. The nature of the expenditure is, however, clear and does not call for any further details. In Stepwell Industries' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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