Bombay High Court
Commissioner Of Income-Tax vs Jaipur Metals And Electricals Ltd. on 8 February, 1993
Equivalent citations: [1995]215ITR413(BOM)
Author: Sujata V. Manohar
Bench: Sujata V. Manohar
JUDGMENT
U.T. Shah J.
1. In this reference, the issue involved pertains to the assessee's claim for weighted deduction of certain expenses incurred.
2. The assessee is a company. The assessment year is 1969-70 and the relevant previous year is the year ended on March 31, 1969. The assessee is carrying on the business of manufacture and sale of electrical motors, aluminium and copper electrical machinery, electrical instruments, etc.
3. In the assessment, the assessee had claimed weighted deduction under section 35B of the Income-tax Act, 1961 ("the Act"), in respect of Rs. 36,63,463. Ultimately, the dispute was restricted to the amount of Rs. 18,32,262.
4. Under section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the following expenditure incurred by the assessee qualified for relief under section 35B :
Rs.
(i) Guarantee charges 5,98,228 (ii) Interest 6,36,605 (iii) Commission 3,75,000 (iv) Miscellaneous expenses like telephone and trunk call charges, letter of credit charges, bank charges, stamp duty charges and loss on account of exchange difference, sample expenses and travelling expenses. 2,22,429 ?"
5. As regards the guarantee charges of Rs. 5,98,228, the facts are - the assessee had paid this amount to the Export Credit Guarantee Corporation of India, a Government of India undertaking for getting information regarding the credit worthiness and reputation of foreign constituents and for fixing the limits up to which the supplies can be made. The assessee claimed weighted deduction under clauses (ii) and (iv) of section 35B(1)(b) of the Act. The Income-tax Officer had disallowed the assessee's claim on the ground that the payment was made in India. The Appellate Assistant Commissioner of Income-tax as well as the Income-tax Appellate Tribunal accepted the assessee's contention that it would be entitled to weighted deduction in respect of this item as the expenditure so incurred by the assessee falls under section 35B(1)(b)(ii) of the Act. The Tribunal has given a clear finding that the function of the Export Credit Guarantee Corporation of India is to supply information to the assessee relating to markets outside India for goods, services and facilities in which the assessee is engaged. In view of this clear finding of the Tribunal, we entirely agree with the stand taken on behalf of the assessee that the assessee would be entitled to claim weighted deduction in respect of Rs. 5,98,228 under section 35B(1)(b)(ii) of the Act.
6. As regards the interest amount of Rs. 6,36,605 the facts are - the assessee paid this interest to the State Bank of Bikaner and Jaipur and to the Central Bank of India in connection with the advances received from the banks for the manufacture of the goods which were ultimately exported outside India. The assessee's case before the income-tax authorities was that these banks gave the said facility of providing funds to it for the purposes of execution of the export orders and these funds were to be used for making the next consignment of goods to the foreign constituents and should not be used for any other business activities. The assessee discounted the bills sent by the foreign constituents with the banks and obtained the advances to be used for executing further export orders. The assessee made a claim before the income-tax authorities as well as before the Tribunal that the banks rendered services outside India of collecting money from the foreign customers on its behalf. However, there is no evidence brought on record to substantiate the assessee's contention that the banks had rendered services to the assessee outside India in connection with the export of the goods. Learned counsel for the Revenue, relying on the decision of the Calcutta High Court in the case of Brooke Bond India Ltd. v. CIT [1992] 193 ITR 390 and of the Gujarat High Court in the case of Walker Anjaria and Sons Pvt. Ltd. v. CIT [1992] 197 ITR 568, submitted that on almost identical facts and circumstances obtaining in those cases, the High Courts were pleased to hold that the assessees in those cases were not entitled to weighted deduction in respect of interest paid to the bank. He, therefore, strongly urged that following the said two decisions, we must reverse the order of the Tribunal in respect of interest payment of Rs. 6,36,605. Learned counsel for the assessee, on the other hand, supported the action of the Tribunal by relying on the decision of the Madhya Pradesh High Court in the case of CIT v. Vippy Solvex Product Private Limited [1986] 159 ITR 487. According to her, since the Tribunal has given a finding that the banks have rendered services outside India for collecting money from the foreign customers, we should uphold the order of the Tribunal granting weighted deduction on the interest payment of Rs. 6,36,605.
7. We have considered the submissions of the parties as well as carefully gone through the aforesaid reported decisions and we find force in the stand taken on behalf of the Revenue. We have come to this conclusion as we find from the paper book that no evidence has been brought on record to support the assessee's contention that the banks had rendered services to the assessee outside India. We find from the decision of the Madhya Pradesh High Court that the High Court was pleased to take its decision in favour of the assessee mainly on the ground of the finding of fact by the Tribunal and nothing else. In the instant case, for want of such findings, we have no hesitation in holding that the Tribunal was not justified in granting weighted deduction to the assessee in respect of interest payment of Rs. 6,36,605.
8. The next item pertains to the commission payment of Rs. 3,75,000. Here, we find that apart from the clear finding given by the Tribunal, that this payment was made to an Iranian party, Messrs. Metalco, there are two decisions of this High Court which clearly support the action of the Tribunal granting weighted deduction on the commission payment. The said two decisions are in the case of CIT v. Godrej and Boyce Manufacturing Co. P. Ltd. [1984] 149 ITR 594 (Bom) to which one of us Smt. Sujata V. Manohar J., was a party and in the case of CIT v. Sahney Steel and Press Works (P.) Ltd. [1989] 177 ITR 354 (Bom). Following the said decisions, we would uphold the action of the Tribunal in granting weighted deduction in respect of the commission payment of Rs. 3,75,000.
9. The last item pertains to miscellaneous expenses like telephone and trunk call charges, letter of credit charges, bank charges, etc., amounting to Rs. 2,22,429. We find from the assessment order that the Income-tax Officer himself has granted weighted deduction on an ad hoc basis on an amount of Rs. 2,00,000 out of Rs. 2,22,430. Therefore, in the question referred to us the correct amount is Rs. 22,429 and not Rs. 2,22,429. We find from the assessment order that the Income-tax Officer has not given any basis as to why he is not granting weighted deduction to the assessee on the entire amount of Rs. 2,22,429. It appears to us that on an estimate basis, he has held that the assessee would not be entitled to weighted deduction on Rs. 22,429. Surely, this is not the way of disposing of an issue while framing the assessment. It is this action of the Income-tax Officer that the appellate authorities did not approve and held that the assessee would be entitled to weighted deduction on the balance amount of Rs. 22,429 also. We do not find any infirmity in the action of the Tribunal in granting weighted deduction on Rs. 22,429.
10. In the result, we hold that the assessee would be entitled to weighted deduction under section 35B of the Act in respect of :
Rs.
(i) Guarantee charges 5,98,228 (ii) Commission 3,75,000 (iii) Miscellaneous expenses 22,429
and that it would not be entitled to such deduction in respect of interest payment of Rs. 6,36,605.
11. No order as to costs.