Punjab-Haryana High Court
Oriental Science Apparatus Workshops vs Commissioner Of Income-Tax on 2 December, 1998
Equivalent citations: [1999]237ITR869(P&H)
Author: N.K. Agarwal
Bench: N.K. Agarwal
JUDGMENT N.K. Agrawal, J.
1. This is a reference under s. 256(1) of the IT Act, 1961 (for short, the 'Act') by the Tribunal, Chandigarh Bench, relating to the asst. yr. 1978-79, at the instance of the assessee, seeking opinion of this Court on the following question of law :
"Whether on the facts and circumstances of the case, the Tribunal was right in law in not having allowed weighted deduction under s. 35B of following expenditure :
(i) incurred on sea and air freight and marine insurance on exports;
(ii) incurred on air freight on goods sent for exhibition, which came back;
(iii) incurred on customs duty paid on designs received from foreign countries; and
(iv) incurred on internal telex, i.e., within the country."
2. The assessee was engaged in the business of export of goods outside India. The assessee claimed export markets development allowance under s. 35B of the Act in respect of certain expenditures. The AO allowed deductions under s. 35B concerning certain expenditures only. In appeal, CIT(A) allowed more deductions, but the assessee still felt aggrieved and went in further appeal before the Tribunal, which allowed still more deductions under s. 35B. However, the Tribunal did not allow deduction under s. 35B in respect of certain items of expenditures which have been specified in the question reproduced above.
3. (i) Expenditure on sea and air freight and marine insurance Both these expenditures, namely, freight cares and insurance premium are ineligible for deduction in view of sub-cl. (iii) or cl. (b) of s. 35B(1) of the Act. Sub-cl. (iii) reads as under :
"(iii) distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit, where such expenditure is incurred before the 1st April, 1978;"
Since by a specific provision, expenditures incurred on freight as well as insurance have been excluded and have been made ineligible,. the assessee cannot claim any deduction. It is, therefore, held that deduction under s. 35B was rightly not allowed in respect of expenditures incurred on sea and air freight and marine insurance on exports.
4. (ii) Expenditure on air freight on goods sent for exhibition Sub-cl. (i) of cl. (b) of s. 35B(1) is relevant and it reads as under :
"(i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business, where such expenditure is incurred before the 1st April, 1978;"
It is apparent from the nature of expenditure incurred by the assessee that certain goods were not (sic) sent for exhibition to a foreign country and the goods were received back thereafter. Goods were, thus sent for the purpose of advertisement and publicity through an exhibition. In this light, expenditure incurred on air freight in respect of the goods sent for advertisement or publicity may be covered under sub-cl. (i).
5. Sri R. P. Sawhney, learned senior counsel for the Revenue, has argued that sub-cl. (iii) did not permit deduction in respect of any expenditure incurred on the carriage of goods to any destination outside India or on the insurance of such goods while in transit. Sri Sawhney has contended that when such expenditures have been specifically excluded under sub-cl. (iii), these could not be allowed for the purposes of deduction under sub-cl. (i).
6. Sri S. S. Mahajan, learned counsel for the assessee has, on the other hand, argued that expenditures on the carriage and insurance of goods in transit are to be disallowed under sub-cl. (iii) if such expenditures are incurred in the course of distribution or supply of such goods outside India. In the case of the assessee, goods were not sent outside India by way of distribution, supply or provision but for the specific purpose of advertisement and publicity through an exhibition. In cl. (iii), expenditure on distribution, supply or provision of goods, services or facilities have been declared to be eligible for the purpose of deduction except expenditures on the carriage and insurance of such goods. It is, therefore, manifest that freight and insurance premium shall be disallowed only where such freight or insurance expenditures were incurred on the distribution or supply of the goods outside India.
7. On a consideration of the matter, it is found that sub-cl. (iii) is not attracted in respect of the expenditure incurred on air freight of the goods sent for exhibition outside India. There is no dispute to the claim of the assessee that the goods were sent outside India for the purpose of advertisement and publicity through an exhibition. When sub-cl. (i) specifically permits expenditures on advertisement and publicity outside India in respect of the goods, services or facilities, deduction shall have to be allowed under that specific sub-clause. Sub-cl. (iii) is not attracted inasmuch as it only prohibits expenditures on freight and insurance incurred on the distribution or supply of goods outside India.
In view of the above, it is held that the expenditure incurred by the assessee on air freight in respect of the goods sent from exhibition outside India is eligible for deduction under s. 35B(1)(b)(i) of the Act.
8. (iii) Expenditure on customs duty paid on designs received from foreign countries.
(iv) Expenditure on internal telex, i.e., within the country Any claim under s. 35B can be made if it falls under any of the sub-clauses of cl. (b) of s. 35B(1) of the Act. Payment of customs duty on items of designs received from foreign countries does not fall under any of the sub-clauses. Similarly, expenditure incurred on internal telex would also not fall under any of the sub-clauses.
The following observations of the Supreme Court in CIT vs. Stepwell Industries Ltd. & Ors. (1997) 228 ITR 171 (SC), are relevant :
"In order to get this kind of deduction, the onus lies heavily on the assessee to prove that the expenditure falls within any of the proposes set out in the various sub-clauses of cl. (b) of s. 35B(1). Merely because some activities took place outside India that will not qualify the expenditure for the deductions mentioned in s. 35B.
xxxxx xxxxx xxxxx In order to get this deduction, the assessee will have to prove that the expenditure was incurred during the previous year wholly and exclusively for the purposes set out in cl. (b) of s. 35B(1). There cannot be any blanket allowance. 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. Some of the sub-clauses provide that if the expenditure is incurred in India, it cannot be allowed but in some of the sub-clauses this requirement is not there. In such cases, the expenditure may or may not be incurred in India. Every case will have to be examined in the light of the provisions of the sub-clauses and the facts proved by the assessee. "
In the light of the above, the expenditures mentioned at (iii) and (iv) above are held to be not eligible for the purposes of deduction under s. 35B of the Act.
9. The reference stands answered in the above terms.