Apeego Corporation Vs. Commissioner of Income-tax - Court Judgment

Excerpt:
- - .5. a bare reading of sub-clauses (iii) and (viii) clearly goes to show that these sub-clauses are confined to expenditure incurred by the assessee wholly and exclusively on the activities therein.dr. b.p. saraf, j.1. by this reference under section 256(1) of the income-tax act, 1961, at the instance of the assessee, the income-tax appellate tribunal has referred the following question of law to this court for opinion : 'whether, on the facts and in the circumstances of the case, the tribunal was justifies in holding that the assessee was not entitled to the relief under section 35b of the income-tax act, 1961, in respect of the following items : rs.1. bank interest and bank charges 1,70,9642. insurance 5,2393. loss on account of fluctuations in the rateof exchange 1,14,442.' 2. it is evident from the question itself that the controversy in this case pertains to the allowability of export markets development allowance ('weighted deduction') in respect of items of expenditure falling under three heads. the first items is 'bank interest and bank charges'. so far as this items of expenditure is concerned counsel for the parties are agreed that no weighted deduction would be allowable in respect thereof in view of the decision of this court dated february 8, 1993, in income-tax reference no. 530 of 1978 (cit v. jaipur metals and electricals ltd. : [1995]215itr413(bom) ). the controversy in regard to allowance of the claim for weighted deduction in respect of insurance charges also stand concluded in favour of the revenue by the decision of this court in m. h. daryani v. cit : [1993]202itr731(bom) and in view of the above decision, no weighted deduction would be allowable in respect of insurance charges. 3. the only surviving controversy is in regard to the third item of expenditure, viz., 'loss on account of fluctuations in the rate of exchange amounting to rs. 1,14,442.' the assessment year involved is 1977-78. counsel for the assessee submits that weighted deduction would be allowable in respect of the above items of loss under section 35b(1)(a) of the act as it falls under sub-clauses (iii) and (viii) of section 35b(1)(b) of the act. 4. we have considered the submission of learned counsel for the assessee. there is no dispute about the nature and character of the loss. the assessee entered into forward contract for purchase of dollars in order to avoid future loss on the supply of goods outsides india. the shipment of goods usually takes place after three to six months. this loss was occasioned due to fluctuation in the rate of exchange of dollars. according to the assessee, such loss is an expenditure incurred wholly and exclusively on the activities specified in sub-clauses (iii) and (viii) of section 35b(1)(b) of the act. we find it difficult to accept the above contention of assessee. section 35b, so far as relevant, as it stood at the material time, reads as follows : '35b. export markets development allowance. - (1) (a) where an assessee, being a domestic company or a person (other than a company) who is resident in india, has incurred after the 29th day of february, 1968, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in clause (b), he shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year : .... (b) the expenditure referred to in clause (a) is that incurred wholly and exclusively on - .... (iii) 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; ..... (viii) performance of services outside india in connection with, or incidental to, the execution of any contract for the supply outside india of such goods, services or facilities; ....' 5. a bare reading of sub-clauses (iii) and (viii) clearly goes to show that these sub-clauses are confined to expenditure incurred by the assessee wholly and exclusively on the activities therein. sub-clause (iii) refers to 'distribution, supply or provision outside india of goods or services in which the assessee deals'. sub-clause (viii) refers to 'performance of services outside india in connection with the execution of contract for the supply outside india of such goods, etc.' we do not find any nexus between the loss suffered by the assessee on account of fluctuation in the rate of exchange of dollars and any of the activities specified above. it is difficult to hold such a loss to be an expenditure incurred wholly and exclusively on any of the above activities. we are, therefore, of the clear opinion that the tribunal was justified in not allowing weighted deduction on the loss suffered by the assessee in the instant case on account of fluctuation in the rate of exchange of dollars purchased by it to avoid future loss due to exchange fluctuation.6. in view of the discussion, we answer the question referred to us in the affirmative, i.e., in favour of the revenue and against the assessee. 7. having regard to the facts and circumstances of the case, we make no order as to costs.