COMMISSIONER OF INCOME TAX Vs. MODERN CARPET CO

JUDGEMENT

(1.) BY this reference under Section 256(1) of the Income-tax Act, 1961 ("the Act"), made at the instance of the Revenue, the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar ("the Tribunal"), has referred the following question of law to this court for opinion :

(2.) THE assessee is engaged in the business of manufacture and sale of carpets. In the course of its business, the assessee also exported carpets out of the country. In its assessment for the assessment year 1980-81, the asses- see claimed weighted deduction under Section 35B of the Income-tax Act, 1961 ("the Act"), in respect of commission of Rs. 33,500 paid to a carpet and textile commission agent, Shri Vinod Mewawalla. According to the assessee, Shri Mewawalla was instrumental in bringing the assessee and the foreign customers together for the sale of carpels on CIF basis. He claimed weighted deduction under Section 35B in respect of the commission paid to Shri Mewawalla on the ground that he had procured information for him about the foreign buyers. THE Income-tax Officer rejected the claim of the assessee as in his opinion the expenditure incurred by the assessee by way of payment of commission did not fall under any of the Sub-clauses of Clause (b) of Sub-section (1) of Section 35B of the Act. Aggrieved by the decision of the Income-tax Officer, the assessee appealed to the Commissioner of Income-tax (Appeals). Before the Commissioner (Appeals), the assessee produced four letters to show that Shri Vinod Mewawalla to whom commission had been paid by the assessee, was instrumental in negotiating some sales to one Mr. Gall of France and one Mr. Gleen of West Germany. THE Commissioner (Appeals) observed that none of those letters indicated that Mr. Mewawalla had passed on to the assessee any information about the markets outside India of the goods manufactured and sold by him or that he did any publicity or advertisement for the assessee outside India. He also observed that none of the four letters showed that any technical information about the product of the assessee was provided to the prospective buyers outside India. THE Commissioner (Appeals) held that the services rendered by Shri Mewawalla were not of the type specified in Section 35B(1)(b) of the Act. He, therefore, dismissed the appeal of the assessee. THE assessee appealed to the Tribunal. THE Tribunal accepted the contention of the assessee and held that weighted deduction would be allowable to the assessee in respect of the amount of commission because there was a direct nexus between the expenditure incurred by the assessee and the export sales. THE Tribunal reversed the order of the Income-tax Officer and the Commissioner of Income-tax (Appeals) and directed that weighted deduction should be allowed to the assessee in respect of the commission payment of Rs. 33,500. Aggrieved by the above order, the Revenue is before us by way of the present reference.

(3.) IT is clear from a plain reading of the above Section that only such expenditure will qualify for weighted deduction which is incurred wholly and exclusively on any of the activities referred to in the various Sub-clauses of Clause (b) of Sub-section (1) of the Act. if the expenditure is not relatable to any of the activities referred to in the various Sub-clauses of Clause (b), no weighted deduction will be available. In order to get deduction under this section, the assessee will have to prove that the expenditure was incurred during the previous year wholly and exclusively for the purposes set out in Clause (b) of Sub-section f 1) of Section 35B. As observed by the Supreme Court in CIT v. Stepwell Industries Ltd. [1997] 228 1TR 171, there cannot be any blanket allowance nor can there be any blanket disallowance. Every case has to be discussed specifically and the expenditure must be found to be of the nature mentioned in any one of the Sub-clauses. If the expenditure does not fall in any of these categories, it cannot be allowed as a deduction. Every case will have to be examined in the light of the provisions of the sub-clauses of Clause (b) and the facts proved by the assessee. The onus lies heavily on the assessee to prove that the expenditure falls within any of the purposes set out in the various Sub-clauses of Clause (b) of Section 35B(1) and that he is entitled to weighted deduction. The authorities, including the Tribunal, are also required to give a finding as to the entitlement of the assessee to weighted deduction with reference to a particular Sub-clause of Clause (b) of Section 35B(1).