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2016 (10) TMI 702 - BOMBAY HIGH COURT

2016 (10) TMI 702 - BOMBAY HIGH COURT - TMI - Entitlement to claim weighted deduction under Section 35B denied - Held that:- As noted whatever may have been the position under Section 35B as it existed prior to 1-4-1978, with effect from that day and till subsection (1A) remained on the statute book, the requirement of law to claim this deduction was that the assessee must be an exporter of goods or provider of technical knowhow to a person outside India and the expenditure must be incurred for .....

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e premises, there is no infirmity in the orders of the authorities below. Question of law as framed by the Tribunal is, accordingly, answered in the affirmative, that is to say, in favour of the Revenue and against the Assessee. - Income Tax Reference No. 76 of 1998 - Dated:- 13-10-2016 - M. S. Sanklecha And S. C. Gupte, JJ. Mr. Murlidhar a/w Mr. Rajesh Poojari i/b Mulla & Mulla & Craigie Blunt & Caroe, for the Applicant Mr. A.R. Malhotra a/w N.A. Kazi for the Respondent JUDGMENT ( P .....

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eighted deduction on expenditure amounting to ₹ 5,36,77,345/incurred by it on items enumerated in Section 35B of the Act. Section 35B provides for export markets development allowance, allowing weighted deduction in a sum equal to one and onethird times the amount of expenditure incurred for various export related activities enumerated in clause (1)(a) of Section 35B during the previous year by a domestic company. 4. The case of the assessee is that by an agreement dated 18 June 1977, ente .....

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ut of transmission lines, overhead lines and distribution lines. Under this agreement, the assessee agreed to discharge and fulfill all the duties, obligations and covenants of BHEL under the main agreement entered into between BHEL and ECSA insofar as it related to the work under the subcontract. The assessee claimed to have incurred expenditure, whilst executing this subcontract, in respect of its business of provision of technical knowhow or rendering services in connection with provision of .....

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Counsel appearing for the Revenue sought to contend that the work executed by the assessee does not amount to provision of technical knowhow within the meaning of subsection (2) of Section 80MM of the Act. It is true, the question of law framed by the Tribunal for our opinion appears on the face of it to be quite open ended. It requires us to consider whether or not, on the facts and in the circumstances, the assessee is entitled in law to the deduction, provided in Section 35B. We are, however .....

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decision of the Tribunal on facts is final, unless it can be successfully assailed on the ground that there was no evidence for the conclusion on facts recorded by the Tribunal. It is the duty of the High Court to start by looking at the facts found by the Tribunal and answer the questions of law on that footing. In the present case, the Tribunal in its order has not disputed the nature of services rendered by the assessee as provision of technical knowhow under subsection (2) of Section 80MM of .....

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s it existed at the relevant time (i.e. Assessment Year1979-80), is in the following terms. 35B. (1)(a) Where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred after the 29th day of February, 1968, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in clause (b), he shall, subject to the provisions of this section, .....

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e expenditure referred to in clause (a) is that incurred wholly and exclusively on- (i) advertisement of publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business [where such expenditure is incurred before the 1st day of April 1978]; (ii) obtaining information regarding markets outside India for such goods, services or facilities ; (iii) distribution, supply or provision outside India of such goods, services or f .....

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r provision outside India of such goods, services or facilities, and activities incidental thereto; (vi) furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services or facilities; (vii) travelling outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outward from, and return to, India; (viii) performance of services outside India in connection with, or incidental to, th .....

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(i) operation of any ship or other vessel, aircraft or vehicle, or (ii) carriage of, or making arrangements for carriage of, passengers, livestock, mail or goods, on or in relation to such operation or carriage or arrangements for carriage (including in each case expenditure incurred on the provision of any benefit, amenity or facility to the crew, passengers or livestock) shall not be regarded as expenditure incurred by the assessee on the supply outside India of services or facilities.] [(1A) .....

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nection with the provision of technical knowhow, to persons outside India; and (b) the expenditure referred to in that subsection is incurred by the assessee wholly and exclusively for the purposes of the business referred to in sub-clause (I) or, as the case may be, sub-clause (ii) of clause (a). Explanation : For the purpose of this subsection, (a) smallscale exporter means a person who exports goods manufactured or produced in any smallscale industrial undertaking or undertakings owned by him .....

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n 32A.] (2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in subsection (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year. 8. Clause (a) of Subsection (1) of Section 35B allows the assessee deduction provided therein in respect of expenditure referred to in clause (b) incurred by him, whether directly or in association wi .....

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duced by Finance Act, 1978, with effect from 141978, however, introduces a further condition for claiming deduction under subsection (1)(a). The condition required to be fulfilled under subsection (1A) for claiming deduction under clause (a) of Subsection (1) is that the assessee himself must be engaged in the business of export of goods and is either a smallscale exporter or a holder of an Export House Certificate or in the business of provision of technical knowhow or rendering of services in .....

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Section 35B has to be an exporter of goods or technical knowhow and the expenditure should have been incurred by him in connection with that business. 10. If one has regard to the agreement between the assessee and BHEL, which is described as a back to back agreement , the main contract for supply, delivery and provision to a person outside India, namely, in this case, ECSA, was entered into by BHEL and that it was at the instance of BHEL that the assessee had submitted its offer with regard to .....

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e drawings, documents and calculations were to be submitted at site. The contract price, which was stated to be payable in Saudi Riyals, was to be paid by BHEL to the assessee. The contract also makes it clear that the export incentives in respect of the execution of the contract would belong to BHEL, and, wherever applicable, would be passed on to the assessee by BHEL. On a bare reading of this contract, it clearly appears to be a subcontract where obligations are owed by the assessee to the ma .....

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ow to a person outside India and was not entitled to claim any deduction under Section 35B, as it was then applicable. All authorities below, namely, the Assessing Officer, the Commissioner of Income Tax (Appeals) and the Tribunal, came to a concurrent conclusion that the assessee was not an exporter of any goods or knowhow and was merely a subcontractor of BHEL, who provided these services to BHEL and not to the person outside India, namely, ECSA. As held by the Tribunal in its order dated 18 N .....

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the assessee concerned. The Tribunal rightly concluded that what was done by the assesseecompany, however technically specialized job it may be, it was done only for BHEL as a subcontractor and not for a person outside India and that, accordingly, it did not entitle the assessee to any deduction under Section 35B. 12. Mr. Murlidhar, learned Counsel for the Assesee, relied on the case of Commissioner of Income Tax Vs. Stepwell Industries Ltd. (1997) 228 ITR 171 In that case, the assessee's go .....

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