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Commissioner of Income-tax Vs. Quilon Marine Produce Company - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 90 and 91 of 1980
Judge
Reported in(1985)48CTR(Ker)135; [1986]157ITR448(Ker)
ActsIncome Tax Act, 1961 - Sections 35B and 154
AppellantCommissioner of Income-tax
RespondentQuilon Marine Produce Company
Appellant Advocate P.K.R. Menon and; N.R.K. Nair, Advs.
Respondent AdvocateParty in Person
Excerpt:
- .....incurred wholly and exclusively on- (i) advertisement or publicity outside india in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business ; (ii) obtaining information regarding markets outside india for such goods, services of facilities ; (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; (iv) maintenance outside india of a branch office or agency for the promotion of the sale outside india of such goods, services or facilities ; (v) preparation and submission of tenders.....
Judgment:

Radhakrishna Menon, J.

1. The reference is at the instance of the Commissioner of Income-tax, Kerala-I, Ernakulam.

2. Pursuant to the directions in the judgment in O. P. No. 83 of 1977-I, the Appellate Tribunal, Cochin Bench, has referred the following questions to this court :

' 1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in confirming the order of the Appellate Assistant Commissioner dismissing the application for rectification under Section 154 of the Income-tax Act, 1961 ?

2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the reassessment initiated under Section 147(b) of the Income-tax Act, 1961, is not valid in law '

3. The assessment year is 1969-70. While making the original assessment, the Income-tax Officer had disallowed the benefit of Section 35B claimed by the assessee in respect of an amount of Rs. 3,21,965. In appeal, the Appellate Assistant Commissioner allowed the benefit. Subsequently, on the basis of an audit note that a portion of the above-said amount which was taken into account by the Appellate Assistant Commissioner for allowing the benefit was only trade discount and hence would not qualify for ' weighted deduction ' within the meaning of Section 35B of the Income-tax Act. The Income-tax Officer filed a petition under Section 154 of the Act before the Appellate Assistant Commissioner seeking rectification of his order. The Appellate Assistant Commissioner, however, found that the materials furnished before him were not sufficient to invoke his jurisdiction under Section 154 of the Act and, accordingly, the petition was dismissed.

4. The second appeal filed against the said order was heard along with the appeal filed by the Revenue against the order of the Appellate Assistant Commissioner setting aside the order of reassessment passed in a proceeding simultaneously initiated by the Income-tax Officer under Section 147 of the Act, by a common order dated February 4, 1961.

5. The counsel for the Revenue contended that trade discount is not an expenditure within the meaning of Section 35B and, hence, the Appellate Assistant Commissioner who had allowed the claim under Section 35B, ought to have rectified his order. The learned counsel, in this connection, called our attention to Section 35B(1)(b) as it stood at the relevant time. Relevant provisions of Section 35B are extracted hereunder :

' 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-

(i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business ;

(ii) obtaining information regarding markets outside India for such goods, services of facilities ;

(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;

(iv) maintenance outside India of a branch office or agency for the promotion of the sale outside India of such goods, services or facilities ;

(v) preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities, and activities incidental thereto ;

(vi) furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services or facilities;

(vii) travelling outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outward from, and return to, India ;

(viii) performance of services outside India in connection with, or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities;

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

6. Trade diseount is not an expenditure within the meaning of this provision. Non-consideration of the said provision indisputably is a glaring, obvious and self-evident mistake apparent from the record and as such the Appellate Assistant Commissioner has ample jurisdiction to amend the order. The Appellate Assistant Commissioner, however, refused to exercise the said jurisdiction wrongly. We, therefore, are of the view that the Appellate Assistant Commissioner should have amended the order and rectified the mistake. The Appellate Tribunal in confirming the order of the Appellate Assistant Commissioner has committed the same error. The decision of the Supreme Court in M.K. Venkatachalam, ITO v. Bombay Dyeing and ., : [1958]34ITR143(SC) , supports this view.

7. Since we have accepted the above contention of the counsel for the Revenue, it is unnecessary for us to consider the larger question he raised, that trade discount allowed in the course of the business cannot be said to partake of the character of expenditure within the meaning of Section 37 of the Income-tax Act and, hence, the assessee is not entitled to claim the deduction at all.

8. In the above view, question No. 1 is answered in the negative, that is, in favour of the Department and against the assessee. In the light of the answer given above, we decline to answer question No. 2.

9. A copy of this judgment under the seal of the High Court and signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.


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