1981-VIL-627-MP-DT

Equivalent Citation: [1982] 134 ITR 651, 26 CTR 169, 10 TAXMANN 188

MADHYA PRADESH HIGH COURT

Date: 08.09.1981

COMMISSIONER OF INCOME-TAX, MP -II

Vs

KN OIL INDUSTRIES

BENCH

Judge(s)  : G. P. SINGH., FAIZAN-UD-DIN 

JUDGMENT

The judgment of the court was delivered by

G. P. SINGH C. J.- This is a reference made by the Income-tax Appellate Tribunal. The questions of law referred are as follows:

" 1. Whether on the facts and in the circumstances of the case, the assessee was eligible for the export markets development allowance in respect of expenditure on the carriage of goods to their destination outside India or on the insurance of such goods while in transit under section 35B(1)(b)(iii) of the Income-tax Act ?

2. Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief under section 80J of the Income-tax Act on the basis of the gross capital without deducting the value of the borrowed capital employed in the undertaking ?"

The relevant assessment year is 1973-74. The assessee claimed weighted deduction in respect of shipping freight, railway freight and insurance charges relating to export of some of its commodities. This claim was made under s. 35B(1)(b)(iii) of the I.T. Act, 1961. The ITO was of the opinion that the assessee could not get weighted deduction in respect of the expenditure incurred on the carriage of goods to their destination outside India or on the insurance of goods while in transit. The AAC, however, allowed the claim made by the assessee following decision of the Bombay Bench of the Tribunal. The same view was taken by the Tribunal in further appeal. Another point of dispute related to the interpretation of s. 80J of the Act. The assessee claimed that borrowed capital should also be taken into account as capital employed for granting relief under s. 80J. The ITO did not accept this claim of the assessee but the same was accepted in appeal by the AAC and the Tribunal.

Section 35B(1) provides for export markets development allowance. Clause (a) of s. 35B(1) enacts that if any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in cl. (b) has been incurred by an assessee, 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. Clause (b)(iii) of s. 35B(1), then, reads as follows:

" (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. "

The words " 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 " were inserted in cl. (b)(iii) of s. 35B(1) by the Finance Act, 1970, with effect from 1st April, 1968. The first part of this clause which reads " distribution, supply or provision outside India of such goods, services or facilities " deals with the expenditure which qualifies for grant of development allowance. The second part of the clause which starts with the words " not being " and which was added by the Finance Act, 1970, deals with the expenditure which is not to be taken into account in granting the development allowance. The second part of the clause, in our opinion, has to be read as " not being expenditure incurred in India in connection therewith, or not being expenditure (wherever incurred) on carriage of such goods to their destination outside India or on the insurance of such goods while in transit. The presence of a comma after the word " facilities " and the omission of a comma after the words " in connection therewith " and the presence of the word " or " before the words " expenditure (wherever incurred)" supports this construction. Further, a reference to cl. (a) of s. 35B(1) will show a similar style of drafting in the words " not being in the nature of capital expenditure or personal expenses of the assessee ". These words clearly mean not being in the nature of capital expenditure or not being in the nature of personal expenses of the assessee. Similar interpretation is to be adopted of the words " not being " occurring in the second part of cl. (b)(iii). In our opinion, expenditure on the carriage of goods to their destination outside India and on the insurance of the goods while in transit cannot be taken into account for the grant of weighted deduction. This is how the clause has been read by the Madras High Court in CIT v. Kasturi Palayacat Co. [1979] 120 ITR 827 (Mad) and by three leading commentaries: Iyengar on Income Tax, 6th Edn., Vol.I, p. 861 ; Sundaram's Law Pi Income-Tax, 11th Edn.,Vol. 2, pp. 1162-1163 and Chaturvedi and Pithisaria's Income Tax Law, 2nd Edn., Vol. I, pp. 653-654. The second part of cl. (b)(iii), as rightly stated by Sampath Iyengar, excludes from the computation of export markets allowance the following:

(a) expenditure incurred in India in connection with the distribution, supply or provision of the goods, etc., outside India ;

(b) expenditure wherever incurred for the carriage of the goods to their destination outside India; and

(c) expenditure incurred to insure the goods while in transit.

Learned counsel for the assessee relied upon the observations in Aiyar's Income Tax Act, 2nd Edn., p. 544. This does support the learned counsel, but for the reasons already stated by us, we are unable to agree with the meaning of the section as given in this book.

As regards the second question, which deals with s. 80J, the answer is concluded in favour of the department by a Division Bench case of this court in CIT v. Anand Bahri Steel and Wire Products [1982] 133 ITR 365 (MP). Further this section has been amended by the Finance (No. 2) Act of 1980, with effect from 1st April, 1972, and the amendment makes it specific that borrowed money and debts owed by the assessee are to be excluded in computing the capital employed. As we are dealing with the assessment year 1973-74, the amendment introduced by the Finance Act is applicable in the instant case.

For the reasons given above, we answer the questions in favour of the department and against the assessee as follows:

(1) The assessee was not eligible for the export markets development allowance in respect of expenditure on the carriage of goods to their destination out side India or on the insurance of such goods while in transit.

(2) The assessee was not entitled to relief under section 80J on the basis of the gross capital without deducting the value of the borrowed capital employed in the undertaking.

There will be no order as to costs of this reference.

 

 

 

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