TMI Blog1990 (1) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ing periods relevant to the assessment years 1972-73 and 1973-74 to its employees in its export promotion department ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the relief in terms of section 80J of the Income-tax Act, 1961, for each of the accounting periods relevant to the assessment years 1972-73 and 1973-74 should be computed in accordance with the decisions of the Calcutta High Court in the cases of Century Enka Ltd. [1977] 107 ITR 123 and C. R. No. 6564(W) of 1974 dated April 29, 1976 (Century Enka Ltd. v. ITO [1977] 107 ITR 909 (Cal))? 3. Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,97,72,039 representing actuarial valuation of the liability on account of gratuity payable by the assessee to its employees was an allowable deduction in computing the profits and gains of the assessee's business for the accounting period relevant to the assessment year 1972-73 ? 4. Whether, on the facts and in the circumstances of the case, the deduction under section 80-I of the Income-tax Act, 1961, was allowable in the assessment of the assessee for the accounting period relevant to the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y argued by the Departmental representative that, in order to succeed in its claim under section 35B of the Act, the assessee had to satisfy the Income-tax Officer about the purpose of the expenditure. Reference was made to the language of clause (b) of sub-section (1) of section 35B of the Act. The Tribunal held: "We have given consideration to the above arguments. As already stated, the assessee is maintaining an exclusive independent export promotion department for dealing with its exports. The Appellate Assistant Commissioner had gone through the details furnished and had been satisfied about the nature of the expenses qualified for weighted deduction under section 35B(1) of the Act. The said finding has not been challenged by the Department. Rather, the ground, accepted those findings, as correct, because it proceeds with the opening words : 'That, on the facts and in the circumstances of the case. Nor has the departmental representative been able to satisfy us that the said finding of the Appellate Assistant Commissioner is not correct. Furthermore, as rightly argued by Dr. Pal, the assessee cannot be denied the benefit under section 35B(1) of the Act simply because the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause under which the expenses were allowable was not mentioned or examined. It is true that some expenses incurred in India qualified for weighted deduction under section 35B. But all expenses incurred in India do not qualify for such deduction. Therefore, the nature of the expenditure has to be examined and a decision has to be taken as to under which sub-clause of section 35B(1)(b) the expenditures are allowable. The Appellate Assistant Commissioner has merely said : " I have gone through the details. I find that the appellant was maintaining an exclusive export promotion department and, therefore, the expenditure is allowable ". The Appellate Assistant Commissioner must come to a definite finding about the exact nature of the expenditure and the exact sub-clause under which such expenditure is allowable. Even assuming that the facts found by the Appellate Assistant Commissioner were binding on the Tribunal, the Tribunal could not have held that the expenditure was allowable or that the Appellate Assistant Commissioner was right in allowing the expenditure without examining the nature and details of the expenditure. Whether the expenditure is allowable or not under section 35B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax, following the order of this Bench of the Tribunal, decided on November 30, 1976, in the case of the assessee for the accounting period relevant to the assessment years 1968-69 and 1969-70, has directed the Income-tax Officer to recompute the relief admissible under section 80-I of the Act in the light of the said decision of the Tribunal. In the appeal before us, the arguments on the point at issue by the parties have proceeded on the same lines as were canvassed before the Tribunal on the earlier occasions. For the reasons stated in our earlier order with which we agree, we uphold the order of the Appellate Assistant Commissioner on this point also. For the assessment years 1968-69 and 1969-70, the question of allowability of the reliefs under section 80-1 was gone into at length by the Tribunal. The orders passed by the Tribunal for the assessment years 1968-69 and 1969-70 have been annexed to the statement of the case. On the point of insurance commission, the Department's case was that the commission was earned by the assessee as an agent of the insurance company and not as the owner of a priority industry. The Tribunal held: "The position in rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, 1961. The reasoning given in the earlier part of this order for allowing the claim of the assessee under section 80-I has, however, been followed by the Tribunal in the instant case. No separate reason has been given by the Tribunal. On the point of insurance commission, two facts were emphasised by the Tribunal. The appellant did not carry on any insurance business other than servicing its own factory building, plant and machinery, raw materials, stock-in-trade, etc. The company has its own insurance department for which a licence has been taken from the Controller of Insurance. The second important fact noted by the Tribunal is that the entire commission receipts were from the assessee's own payment of insurance premium and that they were in the nature of rebate allowed to the assessee from the insurance premium paid by it on its own policies. The first question that arises is this : did the assessee receive any payment by way of commission ? The answer must be in the affirmative. The assessee had two roles to play. As a client of the insurance company, it paid premium for the insurance cover provided to it by the insurance company. It also acted as an agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gains attributable to any priority industry " is construed, the commission received for the services rendered by an insurance agent to an insurance company cannot come within the ambit of that phrase merely because the insurance cover is in respect of the plant and machinery and stock-in-trade of the priority industry. The fact that the assessee-company has been treated as a priority industry and had itself acted as an insurance agent will not make any difference to the principle. When the assessee was acting as an insurance agent, it was carrying on an activity which was quite distinct and separate from the business of the priority industry. In fact, the Tribunal has pointed out that in order to carry on business as an insurance agent, it was necessary to obtain a licence. The assessee had actually taken out licence from the Controller of Insurance for this purpose. On the strength of this licence, the assessee acted as an insurance agent. The insurance agency business of the assessee may have been confined to the priority industry only. But that will not alter the position in any way. The agency business of the assessee was quite a distinct and separate business and did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principal company after making all proper allowances and deductions from revenue for working expenses chargeable against profits but without making any deduction for depreciation or in respect of any amount carried to reserve or sinking fund or any payment on account of super-tax or any deduction for expenditure on capital account provided that such commission should not in any year amount to a less sum than rupees ten thousand. The assessee claimed that a portion of the income received by the assessee from the principal company was agricultural income and as such, exempt from assessment tinder the Income-tax Act, 1961. Sir John Beaumont repelled this contention in the following words (at page, 3884): "...where an assessee receives income, not itself of a character to fall within the definition of agricultural income contained in the Act, such income does not assume the character of agricultural income by reason of the source from which it is derived, or the method by which it is calculated. But if the income received falls within the definition of agricultural income it earns exemption, in whatever, character the assessee receives it. In the present case, the assessee received ..... X X X X Extracts X X X X X X X X Extracts X X X X
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