1982 (5) TMI 71 - AT - Income Tax

Summary

Issues Involved:
1. Claim for 35B deduction on bank interest paid on packing credit.
2. Deduction under section 80J for partial year operation of the industrial undertaking.
3. Deduction under section 35B for expenditure on freight insurance, forwarding and clearing, banking charges, and subscription to membership fees.

Issue-wise Detailed Analysis:

1. Claim for 35B Deduction on Bank Interest Paid on Packing Credit:
The primary issue raised by the Department concerns the assessee firm's claim for a 35B deduction on the bank interest paid on packing credit. The assessee, an exporter of readymade garments, claimed that interest paid on packing credits was eligible for deduction under section 35B. The Commissioner allowed the claim, stating that the interest paid did not form part of the cost of the goods exported and was directly linked with export development. The Department contended that the packing credit interest was intimately connected with the cost of the goods and should not be eligible for deduction under section 35B. The Tribunal upheld the Commissioner's finding, concluding that the interest on packing credit was an expenditure incurred wholly and exclusively for the export market and thus eligible for deduction under section 35B.

2. Deduction under Section 80J for Partial Year Operation of the Industrial Undertaking:
For the assessment year 1977-78, the Department objected to the deduction under section 80J, arguing that the deduction should be reduced proportionately to the actual period the industrial undertaking worked during the year. The Tribunal referred to the Bombay High Court's decision in the case of Union Carbon Ltd., which held that no such proportionate reduction was necessary. Consequently, the Tribunal upheld the Commissioner's findings, allowing the full deduction under section 80J.

3. Deduction under Section 35B for Expenditure on Freight Insurance, Forwarding and Clearing, Banking Charges, and Subscription to Membership Fees:
The assessee's cross-objection for the assessment year 1977-78 included a claim for deduction under section 35B for expenditures on freight insurance, forwarding and clearing, banking charges, and subscription to membership fees. The Tribunal rejected these objections, citing the Special Bench of the Tribunal's decision in the case of J. Hemchand & Co., which determined that such expenditures were not eligible for deduction under section 35B.

Conclusion:
The Tribunal dismissed the Department's appeals and the assessee's cross-objections. The Tribunal upheld the Commissioner's findings on the eligibility of the interest on packing credit for deduction under section 35B and the full deduction under section 80J without proportionate reduction. The assessee's claims for deductions on freight insurance, forwarding and clearing, banking charges, and subscription to membership fees under section 35B were rejected based on the precedent set by the Special Bench of the Tribunal.