TMI Blog2009 (1) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... that following items were not eligible for weighted deduction u/s. 35B of the Income Tax Act,1961? a) Insurance- Rs.8,82,300/- b) Freight- Rs.91,67,940/- c) Export Inspection Agency charges-Rs.1,31,077/- 2. Whether on the facts and in the circumstances of the case and in law the tribunal was right in holding that the revised rates of depreciation as per the Income Tax Fourth Amendment Rules 1983 inserted w.e.f. 2.4.1983 will not applicable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, we would confine our discussion only to that clause A reading of the above provision, leaving such portions as are not relevant for the present discussion, shows that where an assessee, being a domestic company or a person other than a company who is resident in India has incurred and expenditure, not being in the nature of capital expenditure or personal expenses of the assessee, wholly and exclusively, on performance of service outside India in connection with or incidental to the execution 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de deduction of all expenses incurred including interest paid on in connection with export of goods. It has already been noticed that the phraseology of the said provision is so designed as to permit deduction of an expenditure which is not in the nature of capital expenditure nor personal expenses of the assessee but is an expenditure incurred wholly and exclusively on the items enumerated in clause (b) thereof including the expenditure incurred on the performance of service outside India 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 Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Madhya Pradesh High Court in CIT V. Vippy Solvex Product Pvt. Ltd. [1986] 159 ITR 487 was relied upon to show that the expenditure of the nature as in the present case was held to qualify for deduction under section 355B(1)(b)(viii). There the assessee was exporting deoiled crakes. Among others he claimed interest of Rs.3,65,875/- paid to the bank on export packing credit as allowable deduction. The Income Tax Officer allowed the deduction but in exercise of his power under Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans". This court has took a view that a weighted deduction was not permissible on such loans. 9. Counsel appearing for the assessee relied upon a judgment of the Madhya Pradesh High Court in CIT Vs. Vippy Solvex Product Pvt. Ltd. (supra). In the said case the Madhya Pradesh High Court held that interest on a packing credit loan was deductible as the certificate issued by the bank showed that the loan was utilised for the purpose of raw material and that the loan was given only after the contract of supply of 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 ..... 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