TMI Blog1983 (10) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... 35B ? So far as the first question is concerned, we find that in the assessee's own case for an earlier assessment year, a similar question was referred to this court in T.C. Nos. 774 and 775 of 1976 CIT v. Madras Rubber Factory Ltd. [1983] 144 ITR 678), and this court after a detailed consideration answered the question against the Revenue by its judgment dated September 17, 1982. Since the decision rendered in that case is squarely applicable to the facts of this case, following the said decision we have to answer the first question against the Revenue. Coming to the second question, we find that in assessee's own case for the earlier assessment year, a similar question was referred to this court in T.C. No. 188/78 and this court by its order dated July 5, 1983, answered the question in the affirmative and against the Revenue. Therefore, following the said decision of this court in T.C. No. 188 of 1978, CIT v. Madras Rubber Factory Ltd. [1984] 149 ITR 405 the second question is answered in the affirmative and against the Revenue. The third question relates to the point as to whether the assessee is entitled to a deduction of incremental liability of the provision for gratui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. [1983] 141 ITR 415, it has now become well established that where an employer has gratuity scheme rendering him liable to pay gratuity to workmen and where having regard to the liability which might arise under the scheme, the employer obtains a scientific actuarial calculation under which the present discounted value of the gratuity liability is ascertained and where the employer charges his profit and loss account with the incremental value of the year and also makes a provision for that amount, the employer will be entitled to compute his net profits after deducting the figure of incremental liability. That the assessee will be entitled to deduct the incremental liability for payment of gratuity during the accounting year, if he had made a claim on the basis of actuarial valuation, is clear from the decision of the Supreme Court in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 (SC). it has been held by the Supreme Court that the assessee is entitled for deduction of incremental liability towards the gratuity payable by him and if the incremental liability has been worked out on the basis of an actuarial valuation. The assessee cannot be deprived of that benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 35B. The ITO disallowed this claim on the following grounds. The royalty was paid only for technical assistance rendered in India for the establishment of the factory and the manufacture of tyres and tubes and not for enabling the assessee to export goods. Therefore, the payment of technical services charges was not specifically connected with the export made by the assessee and, therefore, (not ?) entitled to the allowance under s. 35B of the Act. The matter was taken to the AAC, but without success. Then the matter was taken to the Tribunal by the assessee contending that under the collaboration agreement, the royalty has been paid for technical and advisory service, that the percentage fee referred to is on the gross sales price of the goods exported and sold outside India, as per clause 2(f) and 4 of the Collaboration Agreement and, therefore, the entire royalty paid should be taken to be a payment made in respect of the export of sales price effected by the assessee and, therefore, the relief under s. 35B should be granted. Before the Tribunal, the Revenue, on the other hand, contended that the royalty paid was not for export, but for the manufacture of goods in India by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a particular percentage of the gross sales price arises only when tyres and tubes are sold for export. The Tribunal in its order refers to clause 2(f) of the Collaboration Agreement as supporting its view. But a scrutiny of the said clause in the collaboration agreement shows the contrary. The royalty is payable for the service rendered by the foreign collaborator by furnishing the know-how in the matter of manufacture of tyres and tubes and also for the use of the name of the foreign collaborator and it has nothing to do with exports. The quantum of the royalty is determined with reference to the gross sales price received by the assessee in any particular year. Merely because the royalty is quantified with reference to the sales price it cannot be said that the royalty is payable on realisable sales. Clause 2(f) of the Agreement which has been referred to by the Tribunal clearly shows that the royalty is payable at a particular percentage of the sales price in respect of the sales effected by the assessee whether they are local or export sales. Therefore, the payment of royalty is contemplated between the parties without reference to the export. It is not, therefore, possible ..... X X X X Extracts X X X X X X X X Extracts X X X X
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