TARA AGENCIES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Tribunal, Cochin Bench, has referred the following two questions of law, at the instance of the applicant an assessee to income tax for the decision of this Court :

(2.) THE respondent is the Revenue. We are concerned with the asst. year 1978 79. The assessee is a firm. It is engaged in export of tea. For the accounting period ended on 31st March, 1978, the assessee claimed an amount of Rs. 9,36,198 by way of deduction. According to the assessee, this sum represented interest that has accrued to be paid to the bank. The assessee made exports to Sudan. It was as made on the basis of rates fixed in the agreement entered into between the Indian Govt. and the Sudan Govt. There was paucity of foreign exchange with the Sudan Govt. So, the documents of sale were discounted by the assessee through the local bank. They were not cleared immediately. They were cleared under an arrangement described as "foreign documentary bill purchased". As per the arrangement, normal rates of interest are levied upto 60 days from the date of presentation and for delay beyond 60 days, penal rates of interest were collected by the clearing bank in India. The interest was actually determined at the time the bills are realised and adjusted against the bill amounts. The assessee had invariably to pay the extra interest on the bills, since there was substantial time lag for the actual clearance or realisation of the bills. This resulted in payment of extra interest on those bills by the assessee. The said sum was quantified at Rs. 9,36,198. The assessee filed a detailed list of the pending bills, showing the date on which each bill was discounted, the bill amount, the date on which the bill was realised by the bank, the interest charged by the bank and other details, before the Tribunal. The ITO held that the liability to pay interest did not arise or accrue during the asst. year 1978 79, during the relevant previous year ended. He allowed only a sum of Rs. 4,480 by way of deduction. The CIT(A) held that the assessee would be entitled to the interest that had accrued upto the last day of the previous year only. In further appeal, the Tribunal affirmed the order passed by the authorities below. The Tribunal found that the liability of the assessee to pay interest depended upon the time taken for the bills to be cleared, that the exact delay for each bill could not be anticipated, that the quantum of interest depended upon the period of delay and in the absence of any definiteness regarding the period of delay, there was no certain liability to pay interest or any definite amount quantified by way of interest and in this view the liability to pay interest cannot be said to have arisen or accrued due on any day prior to the happening of the event, namely the realisation of the amounts due under the bill and so the liability of the assessee to pay interest could arise only then and in this view of the matter the assessee was entitled to the amount that accrued on the last day of the previous year. The assessee had also claimed weighted deduction under S. 35B of the Act. A sum of Rs. 19,233.38 was claimed under S. 35B of the Act towards certifying charges and inspection fees. The assessee put forward, a plea that it is entitled to deduction of the said amount under s. 35B(1)(b)(v) of the Act. The ITO as well as the CIT(A) negatived the said plea. The Tribunal held that the expenditure was incurred only for the supply of goods outside India and not for the purpose of preparation of the contracts. The assessee was held disentitled to the weighted deduction under S. 35B of the Act. Thereafter, on motion by the assessee under S. 256(1) of the IT Act, the above two questions have been referred to this Court, by the Tribunal, for decision.

(3.) THE only other question is regarding the entitlement of the weighted deduction under S. 35B of the IT Act. Sec. 35B(1)(b)(v) of the Act is as follows :. . . . .