Commissioner of Income-tax Vs. Victor Tools Corporation. - Court Judgment

Excerpt:
head note: income tax export market development allowance--scope--expenditure not falling under s. 35b(1)(b) ratio: under section 35b(1)(b), if expenditure was not falling under any one of the categories enumerated therein, it could not be allowed as deduction. held: in order to get deduction under section 35b(1)(b), the assessee will have to prove that the expenditure was incurred during the previous year wholly and exclusively for the purposes set out in clause (b) of section 35b(1). there cannot be any blanket allowance of the expenditure nor can there be any blanket disallowance. every case has to be discussed specifically and the expenditure must be found to be of the nature mentioned in any one of the sub-clauses. if the expenditure does not fall in any of these categories, it cannot be allowed as a deduction. some of the sub-clauses provide that if the expenditure is incurred in india, it cannot be allowed but in some of the sub-clauses this requirement is not there. in such cases, the expenditure may or may not be incurred in india. every case will have to be examined in the light of the provisions of the sub-clauses and the facts proved by the assessee. case law analysis: cit v. stepwell industries ltd. (1997) 228 itr 171 (sc) applied. application: not to current assessment year. income tax act 1961 s.35b(1)(b) g. c. garg and n. k. agrawal jj. december 14, 1998. counsel : r. p. sawhney, senior advocate, with rajesh bindal, for the commissioner. a. k mittal for the assessee. - n. k. agrawal j.-this is a reference by the income-tax appellate tribunal, amritsar bench (the 'tribunal'), under section 256(1) of the income-tax act, 1961 (for short, 'the act'), at the instance of the commissioner of income-tax, relating to the assessment year 1979-80, seeking the opinion of this court on the following question of law :'whether, on the facts and in the circumstances of the case, the appellate tribunal is right in holding that the assessee is entitled to the allowance of weighted deduction under section 35b of the income-tax act in respect of the expenses incurred and debited under the heads inland travelling, printing and stationery, telephone, rent, car expenses, advertisement, workers' welfare, gratuity, property tax and miscellaneous expenses ?'the assessee was engaged in the manufacture and sale of hand tools. sales were made by exports outside india to the extent of 77.91 per cent. of the total sales during the previous year relevant to the assessment year 1979-80. the assessee claimed deduction under section 35b of the act for total expenditures amounting to rs. 6,47,255. these expenditures related to foreign travelling, foreign commission, air freight on sending samples, cost of samples, telex, postage and telegrams (78 per cent. of total expenditures), export office rent and salary to export staff. the assessing officer allowed either full deduction or proportionate deduction in respect of these items of expenditures amounting to rs. 4,97,978 out of rs. 6,47,255.further deduction under section 35b was claimed by the assessee on rs. 35,65,209.50 in respect of telephone charges (78 per cent.), bank commission, printing and stationery (78 per cent.), rate difference in exchange, dock charges, export clearing and forwarding charges, measurement charges, insurance, travelling expenses -in india, ocean freight, etc. these expenditures were disallowed by the assessing officer.the assessee made further claim under section 35b in respect of more expenditures like staff salaries, travelling allowance, car expenses, workers' welfare, interest, gratuity, sales promotion, municipal taxes, entertainment expenses, advertisement expenses, inward carriage, etc. the assessing officer disallowed deduction on these expenditures also observing that these were not connected with the development or promotion of export, but were directly linked with the purchases, distribution and supply of goods.the assessee went in appeal. the commissioner of income-tax (appeals) allowed further deduction under section 35b on proportionate or percentage basis in respect of expenditures on establishment, travelling, postage and telegrams, telex, printing and stationery, telephone, etc.the revenue went in appeal before the tribunal against the appellate order of the commissioner. the tribunal remitted the matter to the commissioner of income-tax (appeals) for fresh determination of expenditure on establishment amounting to rs. 80,081 so as to adopt the percentage of expenditure keeping in view the order of the tribunal for the preceding year. certain other items of expenditure were also required to be examined afresh.the expenditures mentioned in the question, reproduced in para. 1 above, would qualify for the purposes of deduction under section 35b of the act if these expenditures fall under any of the sub-clauses to clause (b) of sub-section (1) of section 35b of the act. this section permits deduction in respect of the expenditures incurred on the development of export markets. sub-clauses (i) to (ix) of clause (b) of section 35b(1) specify the various activities in respect of which expenditures have been made eligible for deduction.the supreme court in cit v. stepwell industries ltd. : [1997]228itr171(sc) has held as under (page 174) :in order to get this kind of deduction, the onus lies heavily on the assessee to prove that the expenditure falls within any of the purposes set out in the various sub-clauses of clause (b) of section 35b(1). merely because some activities took place outside india that will not qualify the expenditure for the deductions mentioned in section 35b ...n order to get deduction, the assessee will have to prove that the expenditure was incurred during the previous year wholly and exclusively for the purposes set out in clause (b) of section 35b(1). there cannot be any blanket allowance of the expenditure nor can there be any blanket disallowance. every case has to be discussed specifically and the expenditure must be found to be of the nature mentioned in any one of the subclauses. if the expenditure does not fall in any of these categories, it cannot be allowed as a deduction. some of the sub-clauses provide that if the expenditure is incurred in india, it cannot be allowed but in some of the sub-clauses this requirement is not there. in such cases, the expenditure may or may not be incurred in india. every case will have to be examined in the that of the provisions of the sub-clauses and the facts proved by the assessee.in the light of the aforesaid observation of the supreme court, it is necessary to see that the expenditure distinctly falls under clause (b) of section 35b(1).since none of the expenditures mentioned in the question falls under any of the sub-clauses of clause (b) of section 35b(1) of the act, these cannot be said to be eligible for deduction.the question is, therefore, answered in the negative, i.e., in favour of the revenue and against the assessee. however, in case certain expenditures under. any head owed for deduction under section 35b of the act by the assessing officer and those were not under challenge before the tribunal at the instance of the revenue, those deductions shall not be withdrawn as the order of the assessing officer to that extent has attained finality.