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TMI Blog1996 (1) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the surtax paid is not an allowable deduction ?" By the Department : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is a company in which the public are substantially interested within the meaning of section 2(18)(b) ?" In so far as question No. 1 is concerned, the Income-tax Officer had disallowed the assessee's claim for weighted deduction under section 35B of the following items : Rs. 1. Export inspection agency fee 826 2. Export Credit and Guarantee Corporation 315 3. Export pre-shipment advance interest 16,511 On appeal by the assessee, the Commissioner of Income-tax (Appeals) held that item No. 1 was an obligatory item in all exports, since without such inspection, the goods could not be exported and that it was hence expenditure on the distribution of the goods within the meaning of the first part of section 35B(1)(b)(iii). Regarding item No. 2, this sum, according to the Commissioner of Income-tax, was paid by way of premium partly for covering risk during the transit of goods and partly for the Corporation's standing guarantors to the assessee in respect of the goods exported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld by the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), on the assessee's appeal, had reversed the Income-tax Officer's finding on this point against the assessee, following an earlier order of the Tribunal, in the assessee's own case, for the assessment years 1967-68 to 1972-73. Thus the Tribunal upheld the Commissioner's view on this aspect. In so far as question No. 1 is concerned, export inspection agency fee of Rs. 826 was paid, since it is obligatory on the part of the assessee in all exports and was done before the export. Without such inspection, the goods could not be exported. The Tribunal agreed with the view taken by the Commissioner of Income-tax (Appeals) that this would be part of the expenditure of the distribution of the goods exported and would come under the first part of sub-clause (iii) of clause (b) of section 35B(1). The assessee claimed weighted deduction on the fees paid for export inspection agency. The admitted position is that the expenditure mentioned in the abovereferred question was incurred by the assessee in India, though in connection with carriage of goods to the destination outside India. Since this expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to the coverage of risk in transit and is entitled to weighted deduction, but not on the balance relating to the recovery of the invoice amount which was after the export of the goods. Having regard to the nature of the service rendered by the above, the Tribunal agreed with the finding of the Commissioner of Income-tax (Appeals). In CIT v. Navabharat Enterprises (P.) Ltd. (No. 1) [ 1988] 170 ITR 326, the Andhra Pradesh High Court held that the payment made to the Export Credit Guarantee Corporation to ensure the financial capacity of the foreign buyer to fulfil the commitment of deferred payment and insulate the assessee against the risk of non-recovery from the foreign buyer was covered by sub-clause (viii) of section 35B(1)(b). The assessee is, therefore, entitled to weighted deduction under section 35B in respect of the abovesaid expenditure. This was the view taken by the Karnataka High Court in CIT v. J. B. Advani and Co. (Mysore) (Pvt.) Ltd. [1987] 163 ITR 638. This was also the view taken by the Kerala High Court in CIT v. Alleppey Co. Ltd. [1994] 207 ITR 598. The same view was taken by the Kerala High Court again in CIT v. N. C. John and Sons Ltd. [1994] 208 ITR 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst two items we answer the question referred to us in the negative and in favour of the assessee and in so far as the third item is concerned, we answer the question in the affirmative and against the assessee. In so far as question No. 2 is concerned, it relates to whether the expenditure incurred would go for increasing the capital. The Commissioner of Income-tax (Appeals) upheld the Income-tax Officer's disallowance of the assessee's claim for deduction of the registration fees of Rs. 33,900 for increasing the capital, as capital expenditure being incurred towards the capital structure of the company, relying on Mohan Meakin Breweries Ltd. v. CIT (No. 2) [1979] 117 ITR 505 (HP). On the assessee's appeal, the Tribunal upheld the finding of the Commissioner of Income-tax on this point, relying upon the decision of the Calcutta High Court in Hindustan Gas and Industries Ltd. v. CIT [1979] 117 ITR 549. The point whether the registration fees paid would go to increase the capital base or not, came up for consideration before this court in CIT v. Kisenchand Chellaram (India) P. Ltd. [1981] 130 ITR 385, wherein this court held that without capital a company cannot carry on its busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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