Judgment:
1. The Income Tax Appellate Tribunal, New Delhi has referred the following question of law under section 256(1) of the Income Tax Act, 1961,( hereinafter ref erred to as 'the Act'), for opinion to this Court.
'Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the sales effected in India to foreign buyers against foreign currency and also received in India should be considered as export sales for the purpose of allowing deduction under section 35B of the Income-Tax Act, 1961?'
The Reference relates to assessment years 1977-78, 1980-81 to 1983-84.
2. Briefly stated the facts giving rise to the present reference are as follows:
The respondent is a firm and its main business is export of marble goods, some of which are manufactured by it while others are acquired from other manufacturers. In the course of its export business certain expenses were incurred by the respondent and weighted deduction under section 35B of the Act was claimed in respect of these expenses. While making the assessments, the Income Tax Officer had found that whereas some sales were by way direct exports, there were other sales which were made by the firm at its counter in Agra to foreigners against foreign currency. In respect of assessment year 1977-78 the break up of sales was as follows:
Sales against foreign currency at the counter of the Show-room
Rs. 1,70,882
Sales against foreign currency in respect of direct export:
Rs. 6,83,533
Sales in Indian Currency
Rs. 35,121
Rs. 8,89,536
3. As the sale in Indian currency was only about 4 per cent of the total sales, the respondent had claimed that while allowing weighted deduction the sales against foreign currency at the counter of the Showroom to foreigners should be treated as exports and while determining the quantum of expenses eligible for weighted deduction, a higher percentage should be taken having regard to the sales against foreign currency. The Income Tax Officer, however, did not accept the plea of the respondent and had held that sales made in India at the counter at Agra could not be considered to be exports for the purpose of allowing weighted deduction under section 35B of the Act. He excluded the sales at the counter for determining the quantum of expenses which were eligible for weighted deduction under section 35B of the Act. Similar view was taken by the Income Tax Officer in respect of the other assessment years. In appeal, the Appellate Assistant Commissioner, however, allowed the plea of the respondent, which order has been affirmed by the Tribunal.
We have heard the learned counsel for the parties.
4. Section 35B(1)(b)(iii) of the Act provides that weighted deduction is available in respect of distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit. It does not allow weighted deduction in respect of goods sold in India. The Apex Court in the case of CIT v. Stepwell Industries Ltd. : [1997]228ITR171(SC) has held that weighted deduction under section 35(1)(b)(iii) is available only on the expenses incurred on the sales outside India and not within India and the burden is upon the assessee to prove that such expenses have been incurred outside India.
5. This court in the case of CIT v. Ganeshi Lal & Sons : [2004]266ITR203(All) has held that section 35B is not attracted in a case where the sales were made in the country to foreign tourists. In the aforesaid case, the assessee was dealing in jewellery and antiques and was selling the same to the foreigners against the foreign currency at its showroom.
6. Respectfully following the aforesaid decision, we are of the considered opinion that the Tribunal has committed a manifest error in granting weighted deduction to the respondent in respect of the sales effected by it in India to the foreign buyers against foreign currency.
7. in view of the foregoing discussion, we answer the question referred to us in the negative i.e., in favour of the revenue and against the assessee. However, there shall be no order as to costs.