1. The appellant-assessee filed this second appeal on 15-2-1982 against the order dated 2-1-1982 passed by the Commissioner (Appeals). In the memorandum as many as four effective grounds were taken, which we are reproducing below, the fifth is stated to be general ground which craves leave to add to, alter, vary or amend grounds of appeal: 1. It is submitted that the learned Commissioner (Appeals) should have allowed the relief under Section 80J of the Income-tax Act, 1961, in respect of the appellant's production Unit-Ill at Rs. 19,11,831 instead of at Rs. 16,02,611 only.
1.1 It is further submitted that the assessee's claim under Section 80J was based on a correct application of the provisions of the Act, as evidenced by various High Courts, which have ruled that for the purpose of Section 80J 'capital employed' should not be confused with 'capital used'. To that extent, Rule 19A(2)(i) of the Income-tax Rules, 1962, which talks of written down value of the fixed assets, does not bring out the intentions and purpose of the incentive under Section 80J correctly. It is, therefore, contended that only the actual cost of the fixed assets should be taken for the purpose of average capital employed under Section 80J. It is submitted that the learned Commissioner (Appeals) should have taken this into account.
2. The learned Commissioner (Appeals) has erred in law in not allowing weighted deduction under Section 35B of the Income-tax Act, 1961 on exchange rate difference of Rs. 7,75,211, inland freight on export consignments of Rs. 7,68,173 and packing materials consumed exclusively for exports of Rs. 25,02,836.
3. The learned Commissioner (Appeals) has erred in law in not allowing the claim made by the appellant by way of deduction of surtax liability from the total income as a necessary business expenditure under Section 28 or 37 of the Income-tax Act, 1961.
4. Without prejudice to the above grounds, it is submitted that the appellant is of the opinion that the assessment for this year is barred by limitation.
4.1 The Income-tax Officer has passed the order under Section 144B/143(3). Section 144B was introduced from 1-1-1976 and the amount fixed by the Board is a necessary pre-condition under Section 144B(1). The Board has issued the order fixing up the amount on 23-12-1975 by virtue of the power given under Section 144B(6). As the Section 144B becomes effective only from 1-1-1976 the Board's order dated 23-12-1975, exercising powers conferred by Section 144B(6) becomes invalid. Therefore, it is contended that the assessment get time barred on this account.
2. On 25-5-1982 for the assessee additional grounds of appeal dated 27-4-1982 were submitted in the Registry of Delhi Benches of the Tribunal, reading as follows : 1. That the learned ITO and Commissioner (Appeals) failed to recognize and give due legal relief owing to the fact that 'cash compensatory support' received by the appellant of the amount of Rs. 86,73,677 was in the nature of capital receipt and that it was not taxable, notwithstanding the fact that the same has been treated as a 'revenue receipt' and included in the taxable profits of the appellant.
2. That the learned ITO and Commissioner (Appeals) failed to recognise and give due legal relief owing to the fact that 'draw-back of duty' of the amount of Rs. 18,17,445 was in the nature of capital receipts and that it was not taxable notwithstanding the fact that the same has been treated as a 'revenue receipt' and included in the taxable profit of the appellant.
3. That the learned ITO and Commissioner (Appeals) failed to recognise and give due legal relief owing to the fact that 'income from sale of import entitlement' of the amount of Rs. 47,38,202 was in the nature of capital receipt and that it was not taxable notwithstanding the fact that the same has been treated as a 'revenue receipt' and included in the taxable profit of the appellant.
4. That without prejudice to any of the aforesaid grounds of appeal, the appellant also claims that the learned assessing authority failed to apply the provisions of Section 1O(17B) of the Income-tax Act which, as a matter of duty, cast on it and determine that none of the amounts indicated above could be included by virtue of these provisions in the total income of the appellant.
5. That without prejudice to any one or more of the aforesaid grounds of appeal, the appellant submits that the assessing authority failed to determine the correct head of income under which the impugned receipts were to be brought to tax as income and, that in any event, they erred in law in bringing them to tax under the head 'Profits and gains of business or profession'.
6. That without prejudice to any one or more of the aforesaid grounds of appeal, the appellant submits that the assessing authority errred in taxing the grants made by the Government from the Consolidated Fund of India for specific purpose-for export promotion-under the various schemes, to the exporters ignoring that the same are not taxable as per the charging provisions of the Income-tax Act, 1961, thus violating Article 266(3) of the Constitution of India.
3. It may be mentioned here that in respect of the assessment year 1975-76 also the assessee filed additional grounds of appeal in relation to its second appeal submitted on 30-3-1979. For that year even the revenue filed additional grounds before the Tribunal. Further the additional grounds filed for this year are more or less on the same pattern as for the assessment year 1975-76.
4. We have dealt with most of the additional grounds vide our order of even date in IT Appeal Nos. 1143 and 1826 (Delhi) of 1979, but before referring to the same, we like to bring in focus the grounds in the original memorandum.
5. In ground Nos. 1 and 1.1, the assessee claimed relief under Section 80J of the Income-tax Act, 1961 ('the Act') to the tune of Rs. 16,02,611, which was reduced by the ITO to Rs. 11,89,718 in respect of production unit No. III.6. The Hon'ble Supreme Court had granted stay of retrospective operation of the amendment of Section 80J in the assessee's own case in the following words : (a) The operation of imposition of the income-tax as per Section 80J as amended by the Finance (No. 2) Act, 1980 for the assessment years 1974-75 to 1980-81 [that is in accordance with Section 8OJ(1A)] and the collection of the income-tax in pursuance of Section 80J(IA) insofar as first the petitioner's company is concerned be and are hereby stayed and (b) the collection of income-tax in pursuance of the order dated 25th day of August, 1980 passed by the 2nd respondent herein in appeal for the assessment year 1974-75 also be and is hereby stayed with liberty to the respondents herein to move the Court again in the matter of interim stay after notice to either side.
7. The Commissioner (Appeals) accepted the assessee's contention that the ITO would be free to recompute relief under Section 80J if the Supreme Court was to ultimately decide and upheld the validity of the retrospective amendment.
8. As far as above grounds are concerned, in view of the Supreme Court judgment in the case of Lohia Machines Ltd. v. Union of India  152 ITR 308, the ITO is directed to recompute Section 80J relief in accordance with the provision as held to be applicable for the year.
9. The assessee had claimed weighted deduction under Section 35B of the Act on exchange rate difference of Rs. 7,75,211, inland freight on export assignment of Rs. 7,68,173 and packing material consumed exclusively for export to the tune of Rs. 25,02,836. As far as first two of the three items are concerned, similar claims were made, but disallowed by the Tribunal in the assessee's case in respect of the assessment year 1973-74 in IT Appeal Nos. 184 and 878 (Delhi) of 1977-78 by order dated 21-3-1978. Making the said order as the basis and for the reasons recorded therein, we rejected the assessee's appeal in respect of such claim as untenable under Section 35B.10. However, in respect of packing materials, we are inclined to take a different view. In the Court before us, the assessee has pleaded that it was not entirely the packjng material but the goods were exported in attractive plastic wrappers which were more taken as samples of goods.
It was explained to us that the tools with wrappers are packed in boxes and if at all, box packing material would be disentitled for weighted deduction relief, rather the wrappers, which appeared to us also as attractive samples. The case before us is a peculiar one and when for the revenue it was not disputed that the assessee was introducing fresh evidence, we are inclined to direct the ITO that to the extent the assessee spent money for preparing wrappers for putting the tools for the purpose of exporting them, these would be entitled to weighted deduction, because it was entirely for the purpose of development of export markets that the assessee prepared beautiful and expensive plastic and colourful wrappers, which were more or less of durable nature and not wrappers as the term is generally understood. What was exhibited in the Court before us was that set of tools were neatly arranged in plastic containers, which were termed as samples for tools.
Considering the type of wrappers, we direct that these should be considered as samples and if the assessee was in a position to separate its cost, the same should be given the benefit of deduction under Section 35B. The total claim is in respect of Rs. 25,02,836 but it shall be subject to bifurcation, if necessary, after it is subject to the scrutiny of the ITO.11. We like to mention here that the Commissioner (Appeals) disallowed the claim by observing that packing expenses were incurred in the assessment year. As observed above, if part of the expenses reached the customers as beautiful souvenirs along with goods sold, these should better be considered in the category of samples of goods for export.
12. As far as ground No. 3 is concerned, the Commissioner (Appeals)'s order reads as follows : In ground No. 6 the appellant had objected to the disallowance of the claim made before the ITO for deduction of surtax liability from the total income. This claim has not been found to be admissible by the Tribunal in the case of Amar Dye Chemicals Ltd. v. ITO in April 1978 issue of the Tax Journal (Taxes & Planning) of Bombay. Surtax liability cannot be said to be a business expenditure as it is a tax on additional return of profits over the capital beyond the certain proportion and does not arise as an expenditure in the actual carrying on of the business. Such taxes or additional taxes on the profits earned are not deductible under the Income-tax Act as business expenditure. This claim is, therefore, rejected.
13. From the above we notice that the Commissioner (Appeals) relied on Amur Dye Chemicals Ltd.'s case (supra) to deny the assessee's claim.
Therefore, we find no occasion to interfere with the order on the point. The assessment is rejected on ground No. 3 also.
14. Shri G.C. Sharma, senior advocate appearing for the appellant, sought the Bench's permission to withdraw ground Nos. 4 and 4.1. The permission having been granted, these grounds are dismissed as withdrawn.
15. As far as additional grounds are concerned, these are identical, but for the figures. Therefore, making our order of even date in the assessee's own case in IT Appeal Nos. 1143 and 1826 (Delhi) of 1979 as the basis we allow the assessee's ground No. 1 and rejects ground Nos.
2 and 3. The other part of decision in respect of the assessment year 1975-76 shall also govern this year's assessee appeal. It may be mentioned here that there is no cross-appeal for the revenue.