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D and H Secheron Electrodes Pvt. Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 287 of 1982
Judge
Reported in(1984)40CTR(MP)366; [1984]149ITR400(MP)
ActsIncome Tax Act, 1961 - Sections 35B, 35B(1) and 36(1)
AppellantD and H Secheron Electrodes Pvt. Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateG.M. Chaphekar, Adv.
Respondent AdvocateR.C. Mukati, Adv.
Excerpt:
- - this contention is not well founded......on the facts and in the circumstances of the case, the appellate tribunal was right in holding that the assessee was not entitled to weighted deduction under section 35b of the act in respect of transportation and freight expenses. question no. 2 is answered accordingly.10. the reference is answered accordingly. there shall be no order as to costs of this reference.
Judgment:

Vijayvargiya, J.

1. By this reference under Section 256(1) of the I.T. Act, 1961 (for short ' the Act '), the Income-tax Appellate Tribunal, Indore,has referred the following questions of law for the opinion of this court:

' (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disallowing a part of the interest as not being deductible under Section 36(1)(iii) of the I.T. Act, 1961, out of the interest paid by the assessee-company on its borrowings ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to weighted deduction under Section 35B of the I.T. Act, 1961, in respect of transportation and freight expenses and on foreign travelling expenses of directors incurred towards export sales '

2. The material facts giving rise to question No. 1 are as follows: The assessee is a company engaged in the manufacture of electrodes and various other goods. For the assessment years 1975-76 and 1976-77, the ITO disallowed part of interest paid by the assessee on the capital borrowed by it for the purpose of its business on the ground that the assessee had made advances to three concerns without charging any interest. The order of the ITO was upheld by the Commissioner (Appeals) and the Income-tax Appellate Tribunal. At the instance of the assessee, the Tribunal has referred question No. 1 for the opinion of this court.

3. Similar question was referred to this court, by the Tribunal in respect of the asseseee for the assessment year 1972-73 which was considered by a Division Bench of this court in D. & H. Secheron Electrodes Pvt. Ltd. v. CIT : [1983]142ITR528(MP) (Misc. Civil Case No. 147 of 1980, decided on July 2, 1982). This court held that the Tribunal was not justified in disallowing a part of the interest as not being deductible under Section 36(1)(iii) of the Act out of the interest paid by the assessee company on its borrowings. Similar question in respect of the assesse company for the assessment years 1973-74 and 1974-75 came up for consideration before us in D. & H. Secheron Electrodes Pvt. Ltd. v. CIT (Misc. Petition No. 90 of 1981, decided on November 23, 1982). Following the aforesaid decision we answered the question in that case in the negative and against the Revenue. The facts of the present case are similar, and as mentioned in the statement of case, no fresh material has been brought to the notice of the Tribunal in the present case. Following the aforesaid decisions of this court our answer to question No. 1 referred to us is in the negative and against the Revenue.

4. The facts giving rise to question No. 2 referred to above are as follows; The assessee claimed weighted deduction under Section 35B of the Act in respect of transportation and freight expenses and on foreign travelling expenses of directors incurred towards export sales. The ITO did not allow weighted deduction in respect of transportation and freight expenses.

5. As regards the deduction in respect of travelling expenses the assessee claimed deduction amounting to Rs. 9,100 under the said head. However, the ITO allowed the deduction to the extent of Rs. 7,000. The order passed by the ITO was upheld by the Commissioner (Appeals) and also by the Income-tax Appellate Tribunal. At the instance of the assessee, the Tribunal has referred question No. 2 for the opinion of this court.

6. As the Tribunal has allowed the claim of the assessee for deduction in respect of travelling expenses of directors incurred towards export sales although it reduced the amount, the question of deduction on account of foreign travelling expenses of the directors incurred towards export sales does not arise for consideration and that part of the question is not required to be answered.

7. As regards the weighted deduction in respect of transportation and freight expenses the learned counsel for the assessee contended that the Tribunal committed an error of law in not allowing the same because according to him, this deduction is covered by Section 35B(1)(b)(iii) of the Act. This contention is not well founded. Section 35B(1)(b)(iii) of the Act reads as follows:

'35B. (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.'

8. A Division Bench of this court in CIT v. K. N. Oil Industries [1982] 134 ITR 651, had occasion to construe the provisions of Clause (b)(iii) of Section 35B(1) of the Act. It was held that (p. 653):

' 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 totheir destination, outside India or on the insurance of such goods while intransit. '

9. We are in respectful agreement with the view taken by this court in the aforesaid decision. Following the aforesaid decision we hold that on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was not entitled to weighted deduction under Section 35B of the Act in respect of transportation and freight expenses. Question No. 2 is answered accordingly.

10. The reference is answered accordingly. There shall be no order as to costs of this reference.


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