1989 (9) TMI 22 - HC - Income Tax

Summary

Issues:
- Whether the weighted deduction under section 35B should be allowed to the assessee?
- Whether the assessee's activities are covered by specific sub-clauses of section 35B(1)(b) and if the retrospective amendment by the Finance Act, 1973, applies?

Analysis:

The judgment pertains to an assessment dispute for the years 1970-71 and 1971-72 involving the assessee, a firm engaged in business as freight-brokers and shipping agents. The primary contention revolved around the deduction claim under section 35B for certain expenditures incurred by the assessee during the relevant years. The Income-tax Officer initially rejected the claim, citing that the assessee was not exporting any goods or providing services outside India, hence ineligible for the deduction. However, the Appellate Assistant Commissioner ruled in favor of the assessee, directing the allowance of the deduction after verification. The Department challenged this decision before the Tribunal, arguing that the assessee was not exporting goods and the retrospective amendment by the Finance Act, 1973, precluded the claim under specific sub-clauses of section 35B(1)(b).

The Tribunal rejected the Department's contentions, emphasizing that the assessee's role as a broker providing information crucial for deals between exporters and ship-owners qualified as services under section 35B. The Tribunal also dismissed the Department's argument regarding the retrospective amendment's applicability to the assessee's expenditures. The Department's counsel reiterated the position that the assessee's activities did not align with exporting goods or services, and the retrospective amendment barred the deduction for expenditures falling under specific sub-clauses of section 35B(1)(b).

The High Court analyzed the case, focusing on whether the assessee's activities fell within the ambit of section 35B(1)(a) and if the expenditures qualified under the sub-clauses of section 35B(1)(b) excluding those affected by the retrospective amendment. The Court noted that the assessee's provision of information for export deals constituted services eligible for deduction under section 35B. It further categorized the expenditures into foreign travel expenses and costs related to obtaining export-related information. The Court determined that the expenses aligned with sub-clauses (vii) and (ii) respectively, unaffected by the retrospective amendment barring deductions under specific sub-clauses.

Ultimately, the Court ruled in favor of the assessee, affirming their entitlement to the deduction under section 35B. Both questions raised by the Department were answered in the affirmative, favoring the assessee. The judgment concluded without any order as to costs, settling the dispute in favor of the assessee based on the interpretation of the relevant provisions and precedents.