1999 (4) TMI 24 - HC - Income Tax

Weighted deduction under section 35B - expenditure incurred in India on insurance shipment freight despatch and clearing and transportation of the goods to their destination - Since the items of expenditure in question have been incurred in India in connection with supply of goods no weighted deduction under section 35B of the Act can be allowed on such expenditure

Summary

Issues:
Interpretation of section 35B(1)(b)(viii) of the Income-tax Act for weighted deduction on specific expenditures.

Analysis:
The High Court was tasked with interpreting the provisions of section 35B(1)(b)(viii) of the Income-tax Act regarding the eligibility for weighted deduction on certain expenditures incurred by the assessee. The case involved a registered firm engaged in tanning raw hides and exporting tanned leather, which claimed weighted deduction for insurance, shipment, freight, despatch, and transportation charges during the assessment year 1978-79.

The Income-tax Officer initially rejected the claim for weighted deduction, a decision upheld by the Commissioner of Income-tax (Appeals). The respondent-assessee appealed to the Income-tax Appellate Tribunal, arguing that the expenditures were permissible under section 35B(1)(b)(viii) based on the nature of their export contracts. The Tribunal, relying on a prior decision, allowed the claim of the respondent-assessee.

The Court examined the relevant provisions of section 35B, emphasizing that for weighted deductions under sub-clause (viii), the expenditure must be incurred for services performed outside India in connection with the execution of a contract for supply outside India. It noted that the respondent's expenditures were related to sending goods outside India, not for services performed outside India in connection with supply.

The Court referenced the specific exclusion in sub-clause (iii) of section 35B(1)(b), which prohibits the consideration of expenditures on freight, insurance, etc., incurred in India for weighted deduction. It concluded that the respondent was not entitled to weighted deduction under sub-clause (viii) for the mentioned expenditures.

The Department's counsel cited the Calcutta High Court and a previous decision of the same court to support the requirement that expenditure under sub-clause (viii) must be incurred for services performed outside India. The respondent's counsel argued that the expenditure need not be incurred outside India but should pertain to activities indicated in section 35B.

The Court referred to Supreme Court decisions emphasizing that expenditure for weighted deductions must be incurred wholly and exclusively for specific purposes outlined in section 35B(1)(b). It reiterated that the services for which the expenditure is claimed must be performed outside India to qualify for weighted deductions under sub-clause (viii).

Ultimately, the Court held that the respondent's expenditures did not meet the criteria for weighted deduction under section 35B(1)(b)(viii) as they were incurred in India in connection with sending goods outside India. The Tribunal's decision was deemed unjustified, and the question of law was answered in favor of the Department.