Calcutta High Court
Commissioner Of Income-Tax vs Moran Tea Co. (India) Ltd. on 4 February, 1991
Equivalent citations: [1992]194ITR429(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue, the following question of law for the assessment year 1982-83 has been referred to this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to deduction of the entire expenditure of Rs. 12,54,382 under rule 6AA of the Income-tax Rules which was inserted with effect from 1st August, 1981, and not of Rs. 5,75,392 on pro rata basis for the period 1st August, 1981, onwards ?"
2. Shortly stated, the facts are that the assessee-company filed a return for the assessment year 1982-83 (previous year being calendar year 1981) declaring loss of Rs. 21,04,910 on June 25, 1982. The claim of loss was enhanced to Rs. 22,60,350 in the revised return. The assessee also claimed weighted deduction under Section 35B of the Income-tax Act; in particular, it claimed deduction of Rs. 12,54,382 expended on maintenance of a warehouse outside India. Under Clause (ix) of Section 35B(1)(b) of the Income-tax Act, weighted deduction is also permissible on expenditure incurred wholly and exclusively on such other activities for promotion of sale outside India of goods, etc., as may be prescribed. In exercise of the power given under the above Clause, rule 6AA was framed and brought into force through the Income-tax (Eighth Amendment) Rules, 1981, with effect from August 1, 1981. Clause (b) of the above rule 6AA provided as under :
"Maintenance outside India of a warehouse for the promotion of the sale outside India of such goods."
3. The Assessing Officer was of the view that as the said rule came into force with effect from August 1, 1981, the assessee was entitled to deduction for five months, i.e., from August 1, 1981, to December 31, 1981, and not for the period earlier to August 1, 1981. He accordingly, allowed deduction on a proportionate basis for five months amounting to Rs. 5,22,659 out of the total claim of Rs. 12,54,382 for the whole period.
4. The assessee challenged the above order before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) agreed with the order of the Inspecting Assistant Commissioner (Assessment) on this point.
5. Being aggrieved, the assessee brought the issue before the Appellate Tribunal and contended that, although Rule 6AA was inserted by the Income-tax (Eighth Amendment) Rules, 1981, with effect from August 1, 1981, the income of the assessee was to be computed as per the law in force on April 1, 1982, and as on the above date the rule was in force, "the asses-see was entitled to weighted deduction on the entire expenditure incurred on payment of warehousing charges. The Tribunal held as follows :
"It is well-settled that though the subject of the charge is the income of the previous year, the law to be applied is that in force in the assessment year unless otherwise stated or implied. If any authority is required on the point, reference may be made to the decision of the Supreme Court, in the case of Isthmian Steamship Lines [1951] 20 ITR 572. In the instant case, we are concerned with the assessment year 1982-83. Rule 6AA inserted with effect from 1st August, 1981, was in force during the assessment year and will, therefore, be applicable with the result that the assessee will be entitled to weighted deduction under Section 35B on the entire expenditure claimed on payment of warehousing charges outside India. The case clearly falls under Clause (b) of Rule 6AA of the Income-tax Rules, 1962."
6. By Rule 6AA, export markets development allowance has been specified. Rule 6AA was inserted by the Income-tax (Eighth Amendment) Rules, 1981, with effect from August 1, 1981. Therefore, the rule was operative during the previous year relevant to the assessment year 1982-83. It is now well-settled that the law as on first day of the assessment year will govern the assessment. It cannot be disputed that Rule 6AA came into force during the previous year relevant to the assessment year and that it was in force on the first day of the assessment year in question. In that view of the matter, the assessee was entitled to weighted deduction on the expenditure on maintenance outside India of a warehouse for the promotion of sale outside India of such goods. There cannot be any question of pro rata allowance on weighted deduction on such item where the only dispute before the Tribunal was whether Rule 6AA was applicable to the case of this assessee. There is no dispute otherwise as to the allowability of the claim, What the Department contended is that since the rule came into force with effect from August 1, 1981, the assessee would be entitled only to the benefit of weighted deduction on expenditure incurred from August 1, 1981, to December 31, 1981, and not for the entire period. In our view, this contention cannot be accepted. Once the rule has come into force, it will govern the case of the assessee and the assessee was entitled to the expenditure incurred by the assessee during the relevant previous year. Therefore, the Tribunal was right in allowing the entire deduction on items covered by Rule 6AA of the Rules.
7. We, therefore, answer this question in this reference in the affirmative and in favour of the assessee.
8. There will be no order as to costs.
Shyamal Kumar Sen, J.
9. I agree.