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TMI Blog2009 (1) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment year 1980-81? 3. A third question is also referred to us at the instance of the department which is as follows: "Whether on the facts and in the circumstances of the case and in law the Appellate Tribunal was justified in holding that the weighted deduction under Section 35B(1)(b)(viii) on interest paid on export packing credit loans amounting to Rs.11,45,253/-will be deductible if on the facts of the case and the nature of the loans are similar?" 4. As regards the first question, in so far as it relates to insurance, freight and export inspection agency charges, the same has already been answered in the affirmative and in favour of the revenue by various judgments of this court. By a judgment of this court in the case of M.H. Daryani Vs. C.I.T. reported in 202 ITR 731 this court has held that expenditure on insurance and freight are not eligible for weighted deduction under section 35B. By the judgment in the case of Dr. Beck and Co. (India) Ltd. Vs. CIT reported in 206 ITR 311 this court has held that export inspection charges are not deductible under section-35B. Following these judgments, we answer this question in the affirmative and against the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of any contract for the supply outside India of such goods, services or facilities (it shall be allowed a certain deduction). It may be noted here that the deduction allowed under section 35B is in addition to the general deduction permissible under section 37 of the Act. That being the scope of the allowability of the deduction under section 35B of the Act, we shall now refer to the export credit scheme under which the assessee has availed of the benefit of the "packing credit loan" in respect of which the amount of interest in question has been paid. Under the scheme concessional rate of interest of six per cent , is charged on such loans. For that purpose sub section (3A) of section 17 of the Reserve Bank of India Act, 1934, inter alia, authorises the Reserve Bank to make over to any scheduled bank or State Cooperative bank, loans and advances, against promissory notes of such bank, repayable on demand or on the expiry of fixed periods not exceeding one hundred and eighty days on fulfilment of the requirements mentioned therein. The borrowing bank has to furnish a declaration in writing, inter alia, to the effect that it has granted pre shipment loan or advance to an expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in connection with or incidental to the execution of any contract for the supply outside India of such goods, services or facilities. These two benefits, viz. benefit of packing credit loan on concessional rate of interest under the scheme and the export markets development allowance, the benefit of deduction under Section 35B, are different and distinct,. It may be that in some cases the assessee will be entitled to get both the benefits but availing of one benefit does not automatically entitle the assessee to avail of the other benefit. Indeed it appears to us that a domestic company or a person who has not availed of the "packing credit advance" could still be entitled to the benefit of Section 35B.Similarly, a person who avails of the benefit of the scheme may not in given circumstances, be entitled to the benefit of export markets development allowance under section 35B. Now, we shall refer to the judgment of the Bombay Bench in AADEE Corporation Vs. ITO (1983) 15 TTJ 56 (Bom) which has been adopted by the Tribunal in the order from which the above question has arisen. In that case the assessee carried on business in export of ready-made garments and availed of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 263 of the Act the Commissioner held that the order of the Income tax Officer was erroneous in so far as it was prejudicial to the interest of the Revenue and could not be sustained and thus revised the same. He directed recomputation of the income after withdrawing the weighted deduction. On appeal the Tribunal was of the opinion that the assessee was entitled to weighted deduction. On a reference the Division Bench of the Madhya Pradesh High Court took note of the finding of fact recorded by the Tribunal that the expenditure was incurred for promoting export sale and that the assessee furnished a certificate from the Bank of Maharashtra to the effect that the assessee had maintained with it an export packing credit loan account and that advances in that account were given only for the purchase of raw materials for manufacturing goods to be exported out of India. It may be noticed that the Madhya Pradesh High Court proceeded on the finding of fact recorded by the Tribunal that the certificate issued by the bank showed that all those credits were given for purchase of raw materials and that credit was only given when the contract for supply of goods to the foreign parties was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods to the foreign parties was shown and as the finding of fact indicated that the expenditure was incurred in connection with the execution of contract for supply of goods outside India. The Madhya Pradesh High Court held that even incidental expenditure would be covered under Section 35B(i)(b)(viii) and therefore, such expenditure on payment of interest was a deductible expenditure. 10. In our view, the views taken by the Andhra Pradesh High Court, Calcutta High Court, Madras High Court are correct. We concur with the view taken in Walchandnagar Industries Ltd. (supra). We are not in agreement with the reasoning given by the Madhya Pradesh High Court in the case of CIT Vs. Vippy Solvex Product Pvt. Ltd. (supra). The very definition of the expression "packing credit" as advanced in the Export Credit Interest Subsidy Scheme 1968, indicates that it is a loan or advance for the purpose of purchase, processing and packing of goods. The Reserve bank requires the lending bank to furnish it a declaration in writing that the loan was granted for pre shipment activities. That necessarily means that the activities for which the loan has been granted have to be carried out within India. S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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