K VENSIMAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference petition, the assessee seeks a direction from this court to the Tribunal to refer the following two questions for the opinion of this court."1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in restricting the claim of relief under section 35B of 50 per cent. in the case of salary and rent ?(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in disallowing the claim under section 35B of the INcome-tax Act in respect of packing, freight and insurance, cooly, trade expenses and legal expenses and all or any of the above items of expenditure ?" *The assessee is a firm carrying on business in the export of handloom fabrics. It claimed weighted deduction under section 35B of the INcometax Act, 1961, in respect of the following expenditure.RsSalary 1, 35, 857Rent 16, 800Packing 2, 67, 279Freight and insurance 9, 70, 486Cooly 39, 422INsurance and E.C. & G.C. 81, 374Trade expenses 78, 927Legal expenses 15, 00016, 05, 146The INcome-tax Officer declined to grant the weighted deduction claimed by the assessee. Aggrieved by the order of the INcome-tax Officer, the assessee filed an appeal before the Commissioner of INcome-tax (Appeals).

(2.) THE Commissioner allowed weighted deduction to the extent of Rs.75, 870. He agreed with the Income-tax Officer with regard to the rest of the claim. Both the Revenue and the assessee filed appeals before the Income-tax Appellate Tribunal. THE Tribunal upheld the allowance of the weighted deduction to the extent of 50 per cent. which was allowed by the Commissioner in respect of salary and rent. With regard to packing, freight and insurance and cooly, the Income-tax Tribunal agreed with the Commissioner and held that the assessee is not entitled to any allowance in respect of those items as they will be hit by sub-clause (iii) of section 35B(1)(b) of the Income-tax Act. With regard to the expenditure under the head "Trade expenses" to the extent of Rs. 78, 927, the claim was disallowed by the Tribunal agreeing with the Commissioner. THE Tribunal also disallowed the claim for weighted deduction with regard to legal expenses to the extent of Rs. 15, 000. Aggrieved by the decision of the Tribunal, the assessee seeks to obtain a reference on the two questions set out aboveAccording to the learned counsel for the assessee, all the items of expenditure have been incurred only in connection with the export of handloom fabrics, and as the provision for weighted deduction under section 35B is for the development of export trade, all the items of expenditure should be taken to have been incurred by the assessee exclusively in connection with the export and, therefore, all the items of expenditure should have been allowed towards weighted deduction under section 35B of the Act. Alternatively, the learned counsel contends that even assuming that there were some sales in India, having regard to the fact that the local sale of handloom fabrics is only to the extent of one lakh of rupees as against the export value of one crore of rupees and more, all the expenditure should be deemed to have been incurred substantially for effecting export sales. He further submits that even if a proportion is to be Worked out, at 99.4 per cent. representing the export sale, the assessee will be entitled to claim 99.4 per cent. of this expenditure as relating to the export sale, and the Commissioner of Income-tax (Appeals) and also the Tribunal are not justified in restricting the deduction to 50 per cent. alone as relating to export sale.It is no doubt true that the Income-tax Officer held that the assessee is not entitled to the relief of weighted deduction in respect of all the items of expenditure on the ground that these expenditure have been incurred in India and, therefore, the assessee is not eligible for weighted deduction. According to the learned counsel, that view can no longer be sustained in view of the decisions in CIT v. Eldee Wire Ropes Ltd. and CIT v. Kasturi Palayacat Co. We have now to see whether all the items of expenditure incurred by the assessee in India could be allowed as deduction under section 35B of the Income-tax ActSection 35B(1)(b) of the Act sets out the details of expenditure which will be eligible for the weighted deduction under section 35B(1)(a). Clause (b)(iii) of sub-section (1) of section 35B refers to the expenditure incurred wholly and exclusively on distribution, supply or provision outside India of such goods, services or facilities.