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Commissioner of Income Tax, Bombay Vs. Dr. Beck and Co. (ind.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberI.T.R No. 464 of 1987
Judge
Reported in2000(3)BomCR401; (2000)1BOMLR162; [1999]239ITR561(Bom); 1999(3)MhLj587
ActsIncome Tax Act, 1961 - Sections 35-B(1), 36(1) and 256(1); Income Tax Rules, 1962 - Rules 6-AA, 87 and 88 - as Amended by Rules 1981; Wealth-tax Rules, 1957 - Rule 1-BB
AppellantCommissioner of Income Tax, Bombay
RespondentDr. Beck and Co. (ind.) Ltd.
Appellant AdvocateP.S. Jetly and; R.V. Desai, Advs.
Respondent AdvocateA.P. Sathe, Adv.
Excerpt:
.....charges paid to government agencies - rule 6aa - a substantive provision and not a procedure rule - deduction claimed not admissible prior to 1.8.1998.;it is well-settled that weighted deduction under section 35b(1)(a) is available to an assessee specified therein only in respect of expenditure incurred wholly and exclusively on the activities specified in any of the sub-clauses of clause (b). at the material time, clause (b) had nine sub-clauses. export inspection charges admittedly do not fall under any of the first eight sub-clauses. the ninth sub-clause, which is the last sub-clause, reads as follows : ;'such other activities for the promotion of the sale outside india of such goods, services or facilities as may be prescribed.' ;no activities were prescribed for the purposes..........specified in any of the sub-clause of clause (b). at the material time, clause (b) had nine sub-clauses. export inspection charges admittedly do not fall under any of the first eight sub-clauses. the ninth sub-clause, which is the last sub-clause, reads as follows ; ' such other activities for the promotion of the sale outside india of suchgoods, services or facilities as may be prescribed.'no activities were prescribed for the purposes of that sub-clause at the material time. hence that sub-clause can be of no avail to the assessee in support of its claim for weighted deduction in respect of assessment years 1977-78 and 1978-79. it was only with effect from 1st august 1981 that certain activities were prescribed for the purposes of sub-clause (ix) of clause (b) of sub-section (1) of.....
Judgment:
ORDER

Dr. B.P. Saraf, J.

1. By this reference under section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following questions of law to this Court for opinion at the instance of revenue as well as at the instance of assesses :

At the instance of revenue :

'1. Whether, on the facts and in the circumstances of the case and having regard to the interpretation of section 36(1)(iv) of the Income-tax Act, 1961, and Rules 87 and 88 of the Income-tax Rules, 1962, the Tribunal was right in law in holding that the assessee was entitled to a deduction of the entire initial contribution to the superannuation fund as a liability in computing the income of the assessee for the assessment years 1977-78 and 1978-79?'

At the instances of assessee :

'2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amounts representing commission paid to Dr. Beck & Co. A.G. West Germany were not eligible for weighted deduction under section 35B for the assessment years 1977-78 and 1978-79?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure on export inspection charges paid to Government agencies was not eligible for weighted deduction under section 35B for the assessment years 1977-78 and 1978-79?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the expenses incurred on loading and unloading would not be eligible for weighted deduction under section 35B for the assessment years 1977-78 and 1978-79?'

2. The learned Counsel for the parties are agreed that question No. 1 is covered by the decision of the Supreme Court in C.I. T. v. Sirpur Paper Mills, 1999(237) I.T.R. 141, and following the same it should be answered in favour of the assessee. In view of the above, question No. 1 is answered in the affirmative i.e. in favour of assessee and against the revenue.

3. The learned Counsel for the parties are further agreed that the controversy in question No. 2 stands concluded in favour of revenue by the decision of this Court in Dr. Beck & Co. (India) Ltd. v. C.I.T., : [1993]202ITR922(Bom) . In view of the above, question No. 2 is answered in the affirmative i.e. in favour of revenue and against the assessee.

4. The learned Counsel for the parties are further agreed that question No. 4 is covered by the decisions of this Court in M.H. Daryani v. C.I.T., : [1993]202ITR731(Bom) and Carona Sahu Co. Ltd. v. C.I.T., : [1995]213ITR106(Bom) , in favour of revenue. Following the same we answer question No. 4 accordingly in favour of revenue.

5. So far as question No. 3 is concerned, there is no dispute that the controversy therein stands concluded in favour of revenue by the decision of this Court in assessee's own case in respect of earlier assessment year reported in : [1994]206ITR311(Bom) , Dr. Beck & Co., (India) Ltd. v. C.I.T., and in Forbes Forbes Campbell & Co. Ltd. v. C.I.T. : [1994]206ITR495(Bom) . In the assessee's case cited above, it was contended by the assessee that export inspection charges fall in sub-clause (vi) of Clause (b) of section 35B(1) of the Act which allows weighted deduction in respect of expenditure incurred by assessee wholly and exclusively on furnishing to a person outside India samples or technical information for the promotion of sale of goods, services or facilities which the assessee deals or provides in the course of its business. This contention was rejected by this Court. It was held :

'On a careful consideration of sub-clause (vi) of Clause (b) of section 35B(1) of the Act, we find it difficult to hold that the export inspection charges paid by the assessee can be termed as expenses incurred wholly and exclusively 'on furnishing to a person outside India technical information for the promotion of the sale of such goods' within the meaning of sub-clause (vi). A close reading of sub-clause (vi) clearly goes to show that it refers to expenditure on furnishing 'to a person outside India' samples or technical information for the promotion of sale of such goods, etc., meaning thereby sales promotion expenditure restricted to furnishing of samples and technical. Export inspection charges are paid at the time of the export of the goods for inspection thereof by the appropriate authorities which is a condition precedent for export. In fact and in reality it is an expenditure incurred wholly and exclusively on the despatch of the goods out of India. It, therefore, does not fall within sub-clause (vi) of section 35B(1)(b).'

It was further held that export inspection charges did not qualify for weighted deduction even under sub-clause (iii) of clause (b). It was observed :

'No weighted deduction is allowable in respect of such expenditure by virtue of the specific exclusion contained in sub-clause (iii) of Clause (b). Sub-clause (iii), which refers to expenditure incurred on 'distribution, supply or provision outside India of such goods, services or facilities', specifically excludes expenditure incurred in India in connection therewith when it says :

'distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith. .....'

Expenditure incurred on inspection of goods in India for export, commonly referred to as 'export inspection charges', is undoubtedly an expenditure incurred in India in connection with the supply of goods outside India and, as such, falls in the exclusion contained in sub-clause (iii) of Clause (b) of section 35B(1) of the Act.

..... .... ....

In our opinion, 'any expenditure incurred in India' for the purpose of export squarely falls in the exclusion contained in sub-clause (iii) of section 35B(1)(b) of the Act as it is an expenditure in connection with 'the supply outside India of such goods'.'

6. The learned Counsel for the assessee, however, submits that the said decision requires reconsideration in view of the provisions of Rule 6-AA of the Income-tax Rules 1962 ('Rules') which has prescribed certain activities as activities for promotion for sale outside India of goods and service for the purposes of sub-clause (ix) of Clause (b) of sub-section (1) of section 35B. He contends that in view of the above rule, the assessee is entitled to weighted deduction under section 35B of the Act on the expenditure incurred on export inspection charges.

7. Mr. Jetly, learned Counsel for the revenue, on the other hand, submits that the above rule having been inserted by the Income-tax (Eight Amendment) Rules, 1981 with effect from 1st August, 1981, has not application to the present reference which pertains to the assessment years 1977-78 and 1978-79. He further submits that in that view of the matter, it is not necessary for this Court to examine Rule 6-AA of the Rules and to decide whether the assessee is entitled to deduction on export inspection charges.

8. In reply, Mr. Sathe, learned Counsel for the assessee, submits that though the said rule has been incorporated with effect from 1st August, 1981, it should be applied retrospectively to the assessment years in question. In support of his contention, he relies on the ratio of the decision of the Supreme Court in C.I.T. v. Sharvan Kumar Swarup & Sons, 1994(210) I.T.R. 886.

9. We have given our careful consideration to the rival submissions of the learned Counsel for the parties in the regard to applicability of Rule 6-AA which came into force on 1st August 1981 for deciding whether expenditure incurred in the previous years relevant to the assessment years 1977-78 and 1978-79 qualifies for weighted deduction under section 35B(1)(a) of the Act. We have also perused the decision of the Supreme Court in C.I.T. v. Sharvan Kumar Swamp & Sons (supra). The ratio of the above decision, in our opinion, has no application to the present case. The controversy in that case was whether Rule 1-BB of the Wealth-tax Rules, 1957 which came into force on 1st April, 1979, prescribing the method for valuing a house wholly and mainly used for residential purposes would apply to proceedings pending on 1st April, 1979, when the rule came into force. The Supreme Court held that the said rule being procedural was applicable to all proceedings pending on the date on when it came into force. The ratio of that decision obviously has noapplication to the applicability of Rule 6-AA to expenditure incurred prior to 1st August 1981 when it came into force because it is not procedural. Obviously, it forms part of the substantive law.

10. It is well-settled that weighted deduction under section 35B(1)(a) is available to an assessee specified therein only in respect of expenditure incurred wholly and exclusively on the activities specified in any of the sub-clause of Clause (b). At the material time, Clause (b) had nine sub-clauses. Export inspection charges admittedly do not fall under any of the first eight sub-clauses. The ninth sub-clause, which is the last sub-clause, reads as follows ; '

such other activities for the promotion of the sale outside India of suchgoods, services or facilities as may be prescribed.'

No activities were prescribed for the purposes of that sub-clause at the material time. Hence that sub-clause can be of no avail to the assessee in support of its claim for weighted deduction in respect of assessment years 1977-78 and 1978-79. It was only with effect from 1st August 1981 that certain activities were prescribed for the purposes of sub-clause (ix) of Clause (b) of sub-section (1) of section 35B of the Act by insertion of Rule 6-AA by the Income-tax (Eighth Amendment) Rules, 1981 as activities for the promotion of sale outside India of the goods, services or facilities expenditure which would qualify for weighted deduction under section 35B(1)(a). The case of the assessee is that export inspection charges would fall under that rule.

11. We do not find any merit in the above contention of the assessee. Rule 6-AA prescribes certain other activities expenditure on which would qualify for weighted deduction under section 35B(1)(a) of the Act. It is a substantive provision which creates new rights in favour of the assessee. It cannot operate retrospectively. It is not a procedural rule like Rule 1-BB of the Wealth-tax Rules. It would, therefore, be applicable only to expenditure incurred by an assessee after 1st August, 1998 when it came into force. It cannot be applied to expenditure incurred prior to that date.

12. In view of the above legal position, it is not necessary for us for the purposes of present reference, which pertains to assessment years 1977-78 and 1978-79 to examine the said rule to decide whether expenditure on export inspection charges would qualify for weighted deduction under section 35B of the Act. In the premises, question No. 3 is answered in the affirmative i.e. in favour of revenue and against the assessee.

This reference is disposed of accordingly with no order as to costs.

13. Order accordingly.


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