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New Light Tannery Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Allahabad
Decided On
Judge
Reported in(1982)1ITD733(All.)
AppellantNew Light Tannery
Respondentincome-tax Officer
Excerpt:
.....expenditure incurred before 1-4-1978" refer only to that expenditure which has been incurred in india, 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, and that the other expenditure even though incurred after 1-4-1978 is governed by the main sub-clause (iii) and is entitled to the required relief.6. the next contention canvassed before us on behalf of the assessee was that the expenditure under consideration was covered by sub-clause (viii). we cannot accept this submission of the assessee in view of the decision of the full bench in the case of happy sound industries (supra). in para 19 of the order in this case, it was held that sub-clause (viii) covered the expenditure which an.....
Judgment:
1. The common contention in these appeals relate to the assessee's claim under Section 35B of the Income tax Act, 1961 ("the Act"). The assessee is an exporter. It, among others, claimed the relief under Section 35B on the following expenses incurred by it in connection with the export of its goods :1. Cost of polythene and plastic sheets, steel patti, stencils patti and hessian jute, etc., for packing of goods 34,519 The ITO disallowed the claim of the above items on the ground that they were not covered by any of the sub-clauses of Clause (b) of Section 35B(1).

2. The assessee came in appeal to the Commissioner (Appeals). It was submitted before him that in view of the decision of the Bombay High Court in the case of CIT v. Eldee Wire Ropes Ltd. [1978] 114 ITR 485, the assessee was entitled to the relief under Section 35B in respect of the above items. It was also submitted before the Commissioner (Appeals) that similar claim of the assessee had been accepted in the assessment year 1978-79. The Commissioner (Appeals) dealt with the matter in paragraphs 4 to 6 of his order in the following words : 4. I have considered the matter and I find that in respect of item Nos. 1,2, 3 and 4, these are all covered by Section 35B(1)(6)(iii) as these are related to distribution, supply or provision outside India of such goods in which the appellant is dealing and under the amended law any such expenditure after 1-4-1978, is not to be allowed for relief under Section 35B. Shri Agarwal has contended that these items are covered under Sub-clause (viii) as the contracts entered into were c.i.f. and c. & f. In my opinion the claim is not justified as the expenditure of packing, insurance and transport is not an expenditure incurred outside India and the items are squarely covered under Sub-clause (iii). The appellant's claim in this regard is, therefore, rejected.

5. However, I find that the appellant is entitled to relief under Section 35B on bank commission of Rs. 3,400 and miscellaneous expenditure of Rs. 1,215 being expenditure on samples. These would be covered under Sub-clause (v) and Sub-clause (vi). The other expenditure of Rs. 943 is a capital expenditure and is not allowed.

6. In the result, the appellant would get relief under Section 35B of Rs. 4,615.

3. Against the above findings of the Commissioner (Appeals), both the assessee and the department are now in appeal before us. The assessee is aggrieved with the rejection of its claim in respect of the first four items, while the department is aggrieved with the allowance of the claim in regard to the last two items. We will first deal with the assessee's appeal. The learned counsel for the assessee submitted before us that in the first place its claim could not be rejected under Sub-clause (iii) of Clause (b) of Section 35B(1) as was contended on behalf of the department. He pointed out that after the addition of the words "where such expenditure is incurred before the 1st day of April, 1978" at the end of the above clause, the prohibition obviously related only to such expenditure, which was incurred before 1-4-1978 and there was no such prohibition even under Sub-clause (iii) in respect of expenditure incurred after 1-4-1978. He pointed out that the assessee's accounting year was, 1-4-1978 to 31-3-1979 and, therefore from the prohibition contained in Sub-clause (iii) had no application to it. His alternative plea was that the assessee's claim was also governed by Sub-clause (viii) of Clause (b) of Section 35B(1). According to this clause, the expenditure incurred wholly and exclusively on performance of services outside India in connection with or incidental to, the execution of any contract for the supply outside India of the goods, services or facilities in which the assessee dealt with, was entitled to the required relief. The learned counsel argued that this clause was applicable to pre-existing contracts as was the case with the assessee.

He submitted that the prohibition contained in Sub-clause (iii) applied only to consignment sales, where there was no specific contract. His next submission was that the assessee's contracts were either c.i.f. or c. & f. and, therefore, they were otherwise also entitled to the required relief even under Sub-clause (iii) as was held by the Chandigarh Bench of the Tribunal in the case of Roadmaster Industries of India (P.) Ltd. v. ITO, IT Appeal No. 463 of 1977-78. Referring to the decision of the Full Bench of the Tribunal in the case of ITO v.Happy Sound Industries [1981] 8 Taxman 89 (Delhi), he submitted that the arguments as made by him above were not advanced in that case and, therefore, the findings given in the case of Happy Sound Industries (supra) were of no avail to the department. His further submission was that the case of Happy Sound Industries (supra) related to the assessment year 1975-76, while the amendment, as pointed out above, was carried out in Sub-clause (iii) by the Finance Act, 1978, with effect from 1-4-1978 and, therefore, also that decision had no application to the present case. To support his submissions, he relied upon the decisions of the Bombay High Court in Eldee Wire Ropes Ltd. (supra) and the Madras High Court in CIT v. Kasturi Palayacat Co. [1979] 120 ITR 827. In particular, he invited our attention to the last para at page 836 of the report, according to which the packing charges incurred did not fail within Sub-clause (iii). His submission was that in any case, cost of packing charges were clearly entitled to the relief under Section 35B.4. The learned departmental representative, on the other hand, submitted that the nature of the contracts as to whether they were c.i.f. or c. & f. was not either pointed out or enquired into by the lower authorities and, therefore, the decision of the Chandigarh Bench in the case of Roadmaster Industries of India (P.) Ltd. (supra) could not be relied upon. He further submitted that in any case, that decision had not been followed by the Full Bench of the Tribunal in the case of Happy Sound Industries (supra). His further submission was that the addition of the clause "where such expenditure is incurred before the 1st day of April, 1978" at the end of Sub-clause (iii) made that clause applicable only to the expenditure incurred before 1-4-1978 and had no application to any expenditure incurred after that date.

According to him, therefore, Sub-clause (iii) was non-existent so far as the expenditure incurred after 1-4-1978 was concerned, as was the case here. He also argued that the expenditure of the nature incurred by the assessee was not covered by Sub-clause (viii) as was held by the Full Bench of the Tribunal in the case of Happy Sound Industries (supra).

5. We have carefully considered the rival submissions placed before us.

The question which is relevant for our consideration is whether Sub-clause (iii) is applicable to the case of the assessee where admittedly the expenditure was incurred after 1-4-1978. The said clause reads as under : (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 *where such expenditure is incurred before the 1st day of April 1978." ""(Inserted by the Finance Act, 1978 with effect from 1-4-1978) In our opinion, the word "such" appearing at the end of the clause refers to expenditure incurred wholly and exclusively on distribution, supply or provision outside India of such goods, services or facilities. The further clause "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" will also refer only to such expenditure which is incurred before 1-4-1978. In other words, the entire Sub-clause (iii) applies only to such expenditure, which has been incurred before 1-4-1978. It has no application to the expenditure incurred after 1-4-1978. Admittedly, the assessee's accounting year starts on 1-4-1978 and, therefore, the expenditure in question was also incurred after that date. Thus, Sub-clause (in) has no application to the case of the assessee. We do not agree with the submission of the learned counsel for the assessee that the words "such expenditure incurred before 1-4-1978" refer only to that expenditure which has been incurred in India, 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, and that the other expenditure even though incurred after 1-4-1978 is governed by the main Sub-clause (iii) and is entitled to the required relief.

6. The next contention canvassed before us on behalf of the assessee was that the expenditure under consideration was covered by Sub-clause (viii). We cannot accept this submission of the assessee in view of the decision of the Full Bench in the case of Happy Sound Industries (supra). In para 19 of the order in this case, it was held that Sub-clause (viii) covered the expenditure which an exporter incurred on the performance of services outside India after the goods had been delivered to or were received by the foreign buyers at the destination.

The Full Bench was of the view that this sub-clause did not include expenditure on carriage of goods to their destination outside India and on insurance of such goods while in transit. The Full Bench gave a categorical finding in para 19 of the order that the assessee was not entitled to weighted deduction under Sub-clause (viii) in respect of the expenditure on carriage of goods exported to their destination outside India or on the insurance of such goods while in transit. We do not agree that some of the arguments which the counsel made before us were either not advanced or were not considered by the Full Bench. It is possible that the arguments might have been made but the Bench might not have considered fit to refer to them in their order. In the light of the finding of the Full Bench, we cannot accept the claim of the assessee that Sub-clause (iii) applies only to consignment sales, while Sub-clause (viii) applies to pre-existing contracts.

7. We also do not think that either of the decisions referred by the counsel for the assessee is of any assistance to him. The decision of Eldee Wire Ropes Ltd. (supra) merely states that where the Legislature desired to exclude the expenditure incurred in India for the purpose of giving the benefit of deduction to the assessee by way of export development allowance, it expressly did so by specifically mentioning such exclusion as in Sub-clause (iii). In fact, this case is against the assessee. The Madras High Court in Kasturi Palayacat Co. (supra) also held that under Sub-clause (iii) only expenditure on the carriage of the goods to their destination outside India or on the insurance of such goods while in transit, was not entitled to the allowance.

8. The submission of the learned counsel, however, was that the decision of Kasturi Palayacat Co. (supra) allowed the weighted deduction on the packing charges. The reference is made to the last paragraph of the judgment at page 816 of the report. It is mentioned in this paragraph that the customs duty paid and the packing charges incurred by the said branches for the import of the textile goods from India were entitled to weighted deduction under Section 35B, as they did not fall in the category contemplated by Clause (b). The reference in this case is to those packing charges which are incurred by the branches for the export of the goods and not for those packing expenses which have been incurred in order to export the goods from India. The above decision, therefore, does not apply to the facts of the present case. This issue also came up for the consideration of the Full Bench in Happy Sound Industries (supra). The Bench agreed with the earlier view of the Special Bench expressed in the case of J. Hemchand & Co. in IT Appeal Nos. 3255 and 3330 (Bom.) of 1976-77. The Bench held that the weighted deduction was not admissible in respect of the expenditure on packing. The Bench also stated that the packing may be ordinary packing or special type of packing depending upon the nature of the goods exported, but such expenditure was not entitled to weighted deduction.

9. We, therefore, hold* that neither the cost of packing nor expenses incurred as transport freight or on insurance of goods are entitled to weighted deduction either under Sub-clause (iii) or under Sub-clause (viii). The assessee, therefore, fails in its appeals.

10. We now take the appeal by the department. As already stated, the Commissioner 'Appeals) held that the assessee was entitled to weighted deduction under Section 35B in respect of bank commission of Rs. 3,400.

We find that his view is contrary to the view expressed by the Special Bench of the Tribunal in the case of J. Hemchand & Co. (supra). The Bench in paragraph 36 of its order clearly stated that the bank commission was not entitled to any such relief. We, therefore, reverse the order of the Commissioner (Appeals) and restore that of the ITO.11. The next contention in the departmental appeal relates to the allowance of claim for miscellaneous expenses. The only submission in this connection is that the relief should be restricted to one-third of the expenditure of Rs. 1,215 and not to the entire expenditure. We agree with this submission and hold that the assessee would be entitled to relief of one-third of Rs. 1,215, i.e., Rs. 705, only.

12. In the result, while the assessee's appeal is dismissed, that of the department is allowed.


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