1988-VIL-412-BOM-DT
Equivalent Citation: [1989] 177 ITR 354, 75 CTR 71, 42 TAXMANN 168
BOMBAY HIGH COURT
Date: 02.12.1988
COMMISSIONER OF INCOME-TAX
Vs
SAHNEY STEEL AND PRESS WORKS PVT. LIMITED
BENCH
Judge(s) : T. D. SUGLA., S. P. BHARUCHA
JUDGMENT
The judgment of the court was delivered by
SUGLA J.-The two questions referred to us for opinion at the instance of the Department read thus :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing weighted deduction under section 35B of the Income-tax Act, 1961, on commission of Rs. 1,84,691 paid to Shri Pritam Singh Bedi ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing relief under section 80J of the Income-tax Act, 1961, in respect of the lamination unit set up by the assessee ? "
The assessee-company carries on business of manufacture of automobile spare parts. Its sales include exports. During the previous year relevant to the assessment year 1970-71, its exports worked out to about Rs. 16 lakhs. Exports were made through one Shri Pritam Singh Bedi of Messrs. Export Trading Company, Kurla, Bombay, with whom an agreement was entered into. The assessee claimed weighted deduction under section 35B on expenditure which included payment of commission of Rs. 1,691 to the aforesaid Shri Pritam Singh Bedi. The Income-tax Officer disallowed the claim on this amount for the reason that the payment was made in India.
The assessee had, inter alia, claimed relief under section 80J in respect of its lamination unit started during the previous year. The claim was denied by the Income-tax Officer following the decision of the Calcutta High Court in the case of CIT v. Textile Machinery Corporation [1971] 80 ITR 428, observing that the new unit was manufacturing articles which were to be used as raw material for the purpose of the assessee's existing business.
The Appellate Assistant Commissioner accepted the claim of the assessee both as regards weighted deduction under section 35B on Rs. 1,84,691 and under section 80J in respect of its new lamination unit.
The Tribunal referred to the main terms of the assessee's agreement with Shri Pritam Singh Bedi in paragraph 4 of its judgment. It agreed with the Appellate Assistant Commissioner that Shri Bedi had gone on tour to foreign countries and that during his visits abroad, he had not only booked orders but had also made contracts with foreign buyers for furthering the assessee's business and for popularising its products. Accepting the submission that the services were performed by Shri Bedi outside India for which he was paid remuneration by way of commission in India the Tribunal held that payment of commission outside India was not the requirement of section 35B and, therefore, the assessee was entitled to and rightly allowed relief under section 35B on this item by the Appellate Assistant Commissioner. As regards the Department's appeal against the grant of relief under section 80J to the assessee, the Tribunal observed that in the case of CIT v. Indian Aluminium Co. Ltd. [1973] 88 ITR 257, the Calcutta High Court itself had taken a different view, that the facts of the assessee's case were closer to the case of Indian Aluminium Co. Ltd. [1973] 88 ITR 257 and that, therefore, the assessee was rightly allowed relief under section 80J.
Shri Jetley, learned counsel for the Department, took us through the provisions of section 35B as were applicable during the material period. He reiterated that at best the expenditure in the form of commission paid to Shri Bedi would pertain to the distribution, supply or promotion of the assessee's goods outside India and even if it was so, the expenditure having been incurred in India, the relief under section 35B would not be available to the assessee, as it was hit by the specific provisions of clause (iii) of proviso (b) to section 35B(1). In support, Shri Jetley placed reliance on Kerala High Court decision in the case of CIT v. K. Ravindranathan Nair [1988] 170 ITR 411, which followed its own decision in the case of CIT v. C. Tharian and Sons, [1987] 166 ITR 607. Shri Dalvi, learned counsel for the assessee, on the other hand, stated that the mere fact that payment was made in India would not debar the assessee from claiming relief under section 35B if it was otherwise entitled to it. For this purpose, he relied on this court's decision in the case of CIT v. Eldee Wire Ropes Ltd. [1978] 114 ITR 485. He also stated that in the Kerala case, the decision depended on the question where the expenditure was incurred and not where the payment was made. In the instant case, the services were rendered outside India by Shri Bedi and thus the expenditure was incurred outside India. The payment in India was of little consequence.
In our view, there is no merit in the submissions made on behalf of the Revenue. The provisions of section 35B(1)(b) are very clear as to their contents. The payment of commission is made to Shri Bedi in terms of the agreement. The agreement clearly spells out services which are directly covered by sub-clauses (ii), (vi) and (vii) if not also under sub-clauses (v) and (viii). As regards sub-clause (iii), the distribution, supply or provision outside India of goods refer to, in our view, post-contract services and not prior services. Therefore, sub-clause (iii) is not applicable in this case. The Kerala High Court in Ravindranathan Nair's case [1988] 170 ITR 411 has merely followed its decision in Tharian and Sons' case [1987] 166 ITR 607. We were taken through that decision. We find that the decision is not really against the assessee. What has been held in that case is that the material question for the purpose of relief under section 35B is not where payment is made but where services are rendered. Since, in that case, the Tribunal had allowed the claim on the assumption of facts for which there was no evidence, the Tribunal's order was held to be vitiated. We fail to understand how this case supports the claim of Shri Jetley when the facts are otherwise. Accordingly, we hold that the Tribunal's decision in this regard is correct. The first question of law is, accordingly, answered in the affirmative and in favour of the assessee.
As regards the second question, there is no dispute so far as facts are concerned. The assessee's lamination division is a new division. It satisfies all the relevant conditions. The claim for relief was denied by the Departmental authorities solely on the ground that this unit was producing articles which were used in the existing business of the assessee and this was done following the Calcutta High Court decision in Textile Machinery Corporation's case [1971] 80 ITR 428. Shri Jetley has fairly brought to our notice that the Calcutta High Court decision has since been reversed by the Supreme Court in Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 and, therefore, whether the facts of this case are akin to the facts of that case or to the case of Indian Aluminium Co. Ltd. [1973] 88 ITR 257 is of little importance. In the above view of the matter, the second question is also answered in the affirmative and in favour of the assessee. No order as to costs.
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