TMI Blog1980 (8) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... lon for a foreign company.. The project was to design and erect a spinning and weaving mill at Colombo. This entailed travel expenses to the extent of Rs. 44,970. In connection with their firm's assessment to income-tax for the relevant assessment year 1972-73 the assessees claimed that they were entitled not only to a deduction of the actual travelling expenses to and from Ceylon in the sum of Rs. 44,970 but also to an extra allowance under s. 35B of the I.T. Act, 1961. Section 35B grants what its marginal note describes as an " export markets development allowance ". This provision came into the statute book in the year 1968, just about that time, the Central Government's industrial policy was to develop India's export markets and giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerally that all these items of expenditure are eligible for deduction in the normal course of computation of the assessee's taxable profits from business, subject only to the risk of disallowance if they are found to be capital in nature or if they smack of being only the personal expenses of the assessee. How s. 35B dealt with these familiar items of business expenditure was to take them up for special treatment and grant to the exporting assessee the actual cost of the expenditure plus something in addition. In the assessment of Indian companies, the plus element is 50 per cent. of the actual expenditure. In the case of other Indian exporters of goods and services, the extra allowance would be equal to one-third of the actual cost of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particularly as applied to works contract business, it would be necessary to balance the accounts every year by valuing the work-in-progress and give appropriate credit to such value in every year's profit and loss account, even though no actual receipts from the contract work might fructify during the year. In the assessee-firm's case, however, while there was actual expenditure during the year, there was no actual income. And this was how their accounts too recorded the position. The ITO thought that s. 35B does not apply to a case of this kind. He accordingly disallowed the entire expenditure. The Tribunal, however, took a different view and allowed the assessee's appeal. They held that the claim of an exporter under s. 35B cannot be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce is that the expenditure must have been laid out " to earn the income ". Despite the enacted words last mentioned, the Supreme Court has held that the making or earning of income is not a necessary pre-requisite for the allowance of expenditure even for purposes of computation of the taxable income under " Other sources ". Vide Eastern Investments case [1951] 20 ITR 1(SC) and Rajendra Prasad Moody's case [1978] 115 ITR 519 (SC). The position is a fortiori in the computation of business profits. Section 35B is among a whole gamut of statutory provisions governing deductions and allowances in the computation of taxable income under the head "Profits and gains of business or profession ". There is nothing either express or implied in any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r general provision. The Tribunal, while rendering their decision in the assessee's favour for the reasons aforesaid, took some pains to examine another aspect of factual nature. They entered into a debate whether the Ceylon contract was part and parcel of the assessee-firm's regular professional practice as architects or whether it was merely an odd kind of job which came their way. The Tribunal, after considerable discussion, concluded that it must be treated as part of the firm's regular professional practice as architects and engineers. Mr. Jayaraman, learned standing counsel for the Department, thought that as a piece of legal inference, the Tribunal's conclusion was not based on a reasonable view of the facts. All the same he did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separately for any deductions. There can be only one profit and loss account for a business. There cannot be as many profit and loss accounts as there are transactions in a business. It is not, therefore, surprising that the statutory allowances under Chap. IV-D should be business-wise and not transaction-wise. In this context s. 35B has perforce to be applied to the business as a whole and not fragmentally to each and every one of its transactions. One other reason mentioned by the ITO in his assessment order for not granting to the assessee-firm any weighted deduction under s. 35B was the possibility that the assessee-firm might any day become eligible for relief under s. 80-O of the I.T. Act. This latter provision gives an out-and-out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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