1993 (3) TMI 56 - HC - Income Tax

Amount Paid To Export Adviser Business Expenditure Export Market Development Allowance Weighted Deduction

Summary

Issues:
1. Entitlement to claim deduction under section 35B of the Income-tax Act, 1961.
2. Permissibility of deduction under section 37 for contribution made to the Executive Staff Provident Fund.

Analysis:

Issue 1: Entitlement to claim deduction under section 35B:
The case involved a public limited company engaged in the business of coffee manufacturing and coir yarn trading. The company claimed deductions under section 35B for the assessment year 1977-78. The Income-tax Officer initially disallowed the claim, citing non-fulfillment of conditions under section 36(1)(iv) and ineligibility of expenditure incurred in India for weighted deduction. On appeal, the Appellate Assistant Commissioner upheld the decision. However, the Income-tax Appellate Tribunal allowed the claim based on the company's compliance with section 40(a)(v) and permitted the deduction under section 37. The Tribunal also partially allowed the claim under section 35B, following a Special Bench decision. The Revenue challenged the Tribunal's decision, leading to a reference to the High Court.

The High Court examined the nature of the expenses claimed by the company, including salaries, provident fund contributions, and commission to the export adviser. The Tribunal found these expenses qualified under sub-clauses (ii), (v), and (vi) of section 35B(1)(b), irrespective of being incurred in India. The Court referred to its previous decision regarding commission payments for marketing goods, emphasizing the eligibility for weighted deduction under section 35B(1)(b)(i) and (ii). The Court upheld the Tribunal's decision to allow the deduction, considering the expenses related to the export department's operations.

Issue 2: Permissibility of deduction for contribution to the Executive Staff Provident Fund:
Regarding the contribution made to the Executive Staff Provident Fund, the Revenue contended that it was not deductible under section 37 due to the company's ineligibility under section 36(1)(iv). The High Court referred to a previous case involving the same assessee, where a similar deduction was allowed under section 37. The Court highlighted the Supreme Court's affirmation of the decision, emphasizing the residuary nature of section 37(1) and the exclusion of liabilities falling under other specified sections. The Court concluded that the Tribunal did not err in allowing the deduction for the contribution to the Executive Staff Provident Fund, based on the precedent and the provisions of the Income-tax Act.

In conclusion, the High Court ruled in favor of the assessee on both issues, affirming the Tribunal's decisions to allow deductions under section 35B and section 37. The judgment provided detailed reasoning based on legal provisions, previous decisions, and the specific circumstances of the case, ensuring a comprehensive analysis of the issues involved.