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TMI Blog1982 (3) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Company, Madras. It carries on general insurance business other than life insurance. For the assessment year 1969-70, the assessee claimed deduction of Rs. 7,78,001 under s. 35B of the Act. The amount represented one-third of the total working expenses of Rs. 23,34,303 expended by the assessee on its foreign branches for the year 1969-70. For the years 1970-71, the assessee claimed deduction of Rs. 8,14,282 and for the year 1971-72, it claimed deduction of Rs. 6,27,123 on the same basis. The deduction was claimed under the provisions of s. 35B of the Act. The ITO refused to allow the claim for deduction made by the assessee. On appeal by the assessee, the AAC dismissed the appeal. Thereupon, the assessee carried the matter in appeal before the Income-tax Appellate Tribunal. The question whether the assessee was entitled to the deduction claimed by it for the year 1969-70 was heard by the Tribunal in the first instance. The Tribunal by a majority held that the assessee was not entitled to any deduction under s. 35B of the Act. For the subsequent years, the Tribunal followed its earlier order and held against the assessee. Hence, the assessee obtained orders for referring the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is not entitled to the weighted deduction claimed under S.. 35B in view of s. 44 of the Act read with r. 5 of the First Schedule. Section 44 deals with computation of profits and gains of business of insurance companies. It reads as under: " Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head 'Interest on securities ', 'Income from house property ', ' Capital gains', or 'Income from other sources ', or in section 199 or in sections 28 to 43A, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule. " The effect of s. 44 is that the provisions of the Act relating to the computation of income chargeable under the heads " Interest on securities ", " Income from house property ", " Capital gains " or " Income from other sources " will not apply in the case of computation of income from insurance business. Similarly, the provisions of s. 44 will apply notwithstanding the provisions contained in s. 199 or ss. 28 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise, s. 43A could not be deemed to have been included in s. 44, when it referred to only ss. 28 to 43. The obvious reason is, s. 43A comes after s. 43. On the other hand, s. 35B falls between ss. 28 to 43A. In the circumstances, it was unnecessary on the part of Parliament to have again amended. s. 44 so as to specifically include s. 35B. We, therefore, overrule the contention of Mr. Balakrishnan that in view of the fact that after the insertion of s. 35B by the Finance Act, 1968, s. 44 too should have been amended so as to include s. 35B and that, inasmuch as that has not been done, s. 44 would not prevail over s. 35B. Apart from the above, we are of the opinion, that even assuming, without finding, that s. 35B could not be taken to be included in ss. 28 to 43A, as is now found, in s. 44, the assessee-company will not be entitled to the weighted deduction provided for under s. 35B. Section 44 clearly states that the profit and gains of any business of insurance including any such business carried on by a mutual insurance company or by co-operative society, shall be computed in accordance with the rules contained in the First Schedule. The First Schedule is a complete cod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of any provision in the rules contained in the First Schedule empowering the ITO to give such an allowance, the assessee will not be entitled to the same. What is granted under s. 35B is an allowance. The section itself calls it export markets development allowance. This clearly amounts to a relief granted to domestic companies and also non-corporate taxpayers resident in India which incur expenditure under specified heads to promote sale outside India of any goods, services, etc., in the course of their business. The language of the section itself shows that it applies only to domestic companies and also non-corporate taxpayers resident in India. It cannot apply to life insurance business or other kind of insurance business in respect of which separate rules are framed in the First Schedule. There is a difference between the relief to which an assessee is entitled under the different provisions of the I.T. Act and the deductions he may be entitled to claim in the computation of income chargeable under the head " Profits and gains of business or: profession ". The export markets development rebate is a relief granted to a domestic company or a resident in India by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which made it obligatory to invest the provident fund contribution in Singapore itself. The transfer of the provident fund account happened to be made soon after the devaluation of the Indian rupee. Naturally, therefore, there was a dimunition in value of the amount standing to the credit of the provident fund when converted into dollars. The employees of the Singapore branch, therefore, made representation to the assessee that a portion of the loss resulting from the devaluation to the extent of Rs. 26,955 should be made good. Accordingly, the assessee paid the said amount and claimed it as a deduction under the Act. It is in these circumstances that the question whether the said amount of Rs. 26,955 can be allowed as a deduction arises for consideration. It was contended on behalf of the Revenue that inasmuch as the amount was paid voluntarily by the assessee-company, the assessee would not be entitled to claim deduction of the said amount as an item of business expenditure. It is well settled that any payment made by an assessee in his character as a trader, not out of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the sum of money expended on the ground of commercial expediency and in order to indirectly facilitate the carrying on of the business. " In CIT v. Laxmi Cement Distributors Pvt. Ltd. [1976] 104 ITR 711 (Guj), the assessee-company had sent its secretary to the United States for training in sales technology of asbestos and cement products. Unfortunately, the said secretary died while in the States. The company thereupon paid a compensation of Rs. 12,500 to his daughter and claimed the amount as a deduction in its assessment for the relevant year. It was held by the Gujarat High Court that the tests laid down in Gordon Woodroffe Leather Mfg. Co. v. CIT[1962] 44 ITR 551 (SC), are independent and alternative tests and that any one of them can be applied to determine whether any such payment could be deducted as a permissible deduction. In CIT v. Fairdeal Corporation Pvt. Ltd. [1977] 108 ITR 280 (Bom), Tulzapurkar J. (as he then was), after setting out the tests and the relevant passages from the judgment of the Supreme Court in Gordon Woodroffe's case [1962] 44 ITR 551, has observed as follows (p. 287): "The aforesaid passage itself clearly brings out the fact that the three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tests laid down by this court in the above case, viz., (i) that the payment should have been made as a matter of practice which affected the quantum of salary; (ii) that there was an expectation by the employee of getting a gratuity, and (iii) that the sum of money was expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business of the assessee, have to be read disjunctively and if they are so read, the present case which satisfies the third test should be held as falling under s. 10(2)(xv) of the Act. " The principle that emerges from the above is that if any expenditure that has been incurred by an assessee has been dictated by commercial expediency and considerations directed towards facilitating directly or indirectly the carrying on of the business, that can be treated as permissible deduction. In this case, the Tribunal has found that the payment has been made by the assessee-company to the credit of the provident fund account of its employees of the Singapore branch to make good the loss resulting from devaluation of the Indian rupee and it has been solely made to maintain cordial relationship with its employees and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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