1997 (8) TMI 30 - HC - Income Tax

Summary

Issues:
- Interpretation of section 35B of the Income Tax Act, 1961 regarding weighted deduction for packing credit interest.
- Claim for weighted deduction on packing credit interest.
- Requirement of establishing expenditure incurred for specified activities.
- Precedents from various High Courts on similar cases.

Analysis:
The judgment delivered by the High Court of Punjab and Haryana pertains to a question of law referred by the Income-tax Appellate Tribunal regarding the allowance of weighted deduction under section 35B of the Income Tax Act, 1961 for packing credit interest. The case involved the assessment year 1979-80 and the main issue was whether the assessee was entitled to claim weighted deduction on packing credit interest, a claim not raised before the Assessing Officer or the Commissioner of Income-tax. The Tribunal allowed the claim based on a certificate from the bank, which was contested by the Department. The Department argued that necessary details regarding the services rendered for the packing credit interest were not provided, and merely taking a loan for manufacturing expenses did not qualify for weighted deduction.

The judgment emphasized that for claiming weighted deduction under section 35B, the assessee must establish that the expenditure was incurred for specified activities and wholly and exclusively for the business purposes. The burden of proof lies on the assessee to demonstrate that the expenditure falls within the sub-clauses of section 35B(1) and is related to activities conducted outside the country. The court highlighted that the purpose of the concession under section 35B is to facilitate export trade and that the expenditure must not be capital or personal expenses. The eligibility of expenditure is first tested with reference to section 35B before considering other sections.

The court referred to precedents from various High Courts where similar claims for weighted deduction on packing credit interest were disallowed due to the lack of evidence showing services performed outside India. The judgments emphasized that the services must be connected to the execution of a contract for supplying goods outside India. The court concluded that in the absence of evidence showing services rendered outside India by the bank for packing credit interest, the claim for weighted deduction was denied in favor of the Revenue and against the assessee.

In summary, the judgment clarifies the requirements for claiming weighted deduction under section 35B of the Income Tax Act, emphasizing the need to establish expenditure for specified activities conducted outside India. The court relied on precedents to support its decision to deny the claim for weighted deduction on packing credit interest due to the lack of evidence showing services performed outside India.