1989 PLP 256 (PTD)

DIPAK KUMAR SEN. J.--On an application of the assessee under Section 256 (1) of the Income Tax Act, 1961, the Tribunal has referred the following questions, as questions of law arising out of its order, for the opinion of this Court: "

1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the excess payments of Rs. 6,34,484 and Rs.42,284 made on account of fluctuations in the exchange rate of dollars, at the time of repayment of the dollar loan raised from EXIM Bank and ICICI, respectively, for purchasing machinery from abroad was a capital expenditure and not an allowable revenue expenditure? (2) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that the excess payments on account of fluctuations in the exchange rate of dollars for repayment of dollar loan should have been allowed as revenue expense since the payment under consideration had been incurred as an integral part of the profit-earning process and did not bring into existence any asset or right of a permanent character. (3) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held alternatively that the excess payments of Rs.6,34,484 and Rs.42,284 was a business loss under Section 28 (i)? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in drawing a distinction between the expenditure incurred in obtaining a loan and the expenditure incurred at the time of repayment of the loan for determining the deductibility of the expenses incurred in relation to either activity? (5) Whether, on the facts and in the circumstances of the case, the Tribunal erred in bolding that the expenditure incurred for repaying the loan in foreign currency would be allowable as revenue expenditure only if the loan in foreign currency was utilised for acquiring current assets?' On another application of the Revenue also under Section 256 (1) of the Income-tax Act, 1961, the Tribunal has referred the following questions, as questions of law arising out of its order, for the opinion of this Court: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the house rent allowance and reimbursement of medical expenses paid, by the assessee company to its employees are not perquisites within the meaning of Section 40-A (5) (ii) of the Income-tax Act, 1961? (2) Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 40 (c) of the Income-tax Act, the. Tribunal was justified in holding that commission paid to the directors should be excluded for the purpose of working out the disallowance under Section 40 (c) of the Income Tax Act? (3) Whether, on the facts and in the circumstances of the case and having regard to the fact that the assessee-company itself included commission paid to its directors for the purpose of disallowance under Section 40 (c) of the Income Tax Act the Tribunal was justified in upholding the decision of the Commissioner (Appeals) in entertaining the ground of appeal of the assessee claiming exclusion of commission for working out the disallowance under Section 40 (c) of the Income Tax Act? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the Deep Sea Fishing Division of the assessee was an industrial undertaking' within the meaning of Section 80-J of the Income-Tax Act, 1961? (5) Whether, op the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the expenses on account of export agency inspection fee are covered by Section 35-B of the Income Tax Act and in that view, such expenses are entitled to weighted deduction? (6) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the value of capital work-in-progress in its industrial undertaking, agricultural pesticide division, should be included in the computation of capital employed for the purpose of relief under Section 80-J of the Income Tax Act? (7) Whether, on the facts and in the circumstances of the case and having regard to the fact that the agricultural pesticide division of the assessee worked for four months only during the assessment year 1978-79, the Tribunal was justified in holding that the deduction under Section 80-J of the Income Tax Act should be allowed for the entire period instead of on a pro rata basis?" The Tribunal has sent up a consolidated statement of case in respect of all the questions. The controversy raised in question No.1 referred at the instance of the assessee is covered by a decision of this court in C I T v.Bharat General & Textile Industries Ltd. [1986] 157 I T R 158 as also an earlier decision of this court in Bestobell (India) Ltd. v. C I T [1979] 117 I T R

789. Following the said decisions we answer the question in the negative and in favour of the Revenue. In view of the answer to question No.1 we decline to answer questions Nos.2,3,4 and 5 referred at the instance of the assessee. The controversy raised in question No.l referred at the instance of the ' Revenue is covered by the following decisions of this Court: (a) C I T v.Kanan Devan Hills Produce Company Ltd. [1977] 119 I T R 431, (b) Indian Leaf Tobacco Development Co. Ltd. v. C I T [1982] 137 I T R 827, (c) C I T v. Alkali and Chemical Corpn. of India Ltd. [1986] 158 I T R 58, and (d) C I T v. General Marketing & Manufacturing Co.[1987] 165 ITR 566 (Cal) Cinfra. Following the said decisions we answer the question in the affirmative and in favour of thee assessee. The controversy raised in question No. (4) referred at the instance of the Revenue is covered by a judgment, dated July 9, 1986, delivered by this Bench in the case of the same assessee in Income-Tax Reference No.91 of 1983 (CIT v. Union Carbide India Ltd. [1987] 165 I T R 550 (supra). Following the said judgment, we answer the question in the affirmative and in favour of the assessee. The controversy raised in question No. (6) referred at the instance of the Revenue is covered by a decision of this Court in Indian Oxygen Ltd. [1978] 113 I T R

109. In the case of the same assessee in Income-Tax Reference No.379 of 1981 (CIT v. Union Carbide India Ltd. [1987]. 165 I T R 540), an identical question was answered on June 3, 1986. Following the said decisions, we answer the question in. the affirmative and in favour of the assessee. The controversy raised in question No. (7) referred at the instance of the, Revenue is covered by a decision of this Court in C I T v. Oyster Packagers (P.) Ltd. [1985] 152 I T R

471. Following the said decision, we answer the question in the affirmative and in favour of the assessee, The material facts and proceedings pertaining to question No. (5) referred at the instance of the Revenue are at follow: Union Carbide (India) Ltd. the assessee was assessed to income tax in the assessment year 1978-79, the accounting year ending on December 25, 1977. In its assessment, the assessee claimed weighted deduction under Section 35-B of the Income-Tax Act, 1961, in respect of export inspection agency fees paid on account of export of frozen shrimps. The Income Tax officer disallowed the same. Being aggrieved, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals). It was contended before the Commissioner (Appeals) that fees in respect of the export agency inspection were paid for the purpose of obtaining a certificate from the agency as to the quality of the goods. It was contended that the certificate amounted to technical information on the quality of the products sought to be exported and the production of such certificate was an essential condition for the saleability of the goods in a foreign country. It was contended that the assessee was entitled to weighted deduction on account of export markets development allowance in respect of the said expenditure. The Commissioner (Appeals) accepted the contentions of the assessee and allowed weighted deduction as claimed holding that the expenditure was wholly and exclusively incurred for certification of the quality of the goods which was an essential condition of export. Being aggrieved, the Revenue went up on further appeal before the Income Tax Appellate Tribunal. The Tribunal accepted the case of the assessee that unless the said certificates were obtained from the export agency inspection authorities,- it would not be possible for the assessee to export its goods. The assessee also produced before the Tribunal a Gazette of India notification, dated March 6, 1965, which prohibited export of fish and its products unless accompanied by such certificate. The Tribunal also accepted the contentions of the assessee that the certificate furnished technical information for promotion of sales of the assessee's goods outsidc.1ndia and that the expenditure to obtain such certificate was incurred -directly for export of goods overseas. The contentions of the Revenue to the contrary were rejected. At the hearing before us, the learned Advocate for the Revenue drew our attention to the decision of the Madras High Court in V.D. Swami & Co. Pvt. Ltd. v. C I T [1984] 146 I T R

425. In that case, a Division Bench of the Madras High Court considered Section 35-B (1)(b)(iii) of the Income Tax Act, 1961, and held that weighted deduction under the said clause of the section would' be available only m respect of expenses incurred outside India and not in respect of any expenditure incurred in India if .the distribution of the goods was outside India. The Court observed further as follows (at page 428): "A look at the other sub-clauses of Section 35-B (1) (b), such for instance as sub-clauses (i), (iv), (vi), (vii), (viii) and (ix); also shows the insistence of Parliament that the weighted deduction cannot` be exigible unless the expenditure under the different heads are incurred 'outside India', a phrase which occurs again and again in the various sub-clauses." Inspired by the said observation, the learned Advocate contended that in the instant case, where weighted deduction was being claimed under the said Section 35-B (i) (b) (vi), the assessee had to establish that the expenses had been incurred outside India. The inspection agency fees admittedly having been paid in India; the assessee was not entitled to clam weighted deduction. We are unable to accept the contentions of the Revenue. In V.D. Swami & Co. (Pvt.) Ltd.'s case [1984] 146I T R 425, the Madras High Court considered the-claim for weighted deduction made under Section 35-B (1) (b) (iii) and not under other clauses in the said section. The said observation of the Madras High Court has to be considered in the context of the controversy before it. With respect we hold that if the said observation is intended to cover other clauses of the said section, then it will be in the nature of an obiter. Other High Courts have considered Section 35-Band have categorically held that apart from Section 35 (1) (b) (iii), the expenditure referred to in the other clauses of the section would be eligible for weighted deduction even if they were, incurred in India. We note some of the said decisions: (a) C I T v. Eldee Wire Products Ltd. [1978] 114 I T R 485 (Bom). In this case a Division Bench of the Bombay High Court construing Section 35 B of the Income-Tax Act, 1961, observed that where the Legislature desired to exclude expenditure incurred in India for the purpose of giving the benefit of weighted, deduction, it expressly did so by specifically mentioning such exclusion in the sub-clause concerned, e.g., sub-clause (iii). The Court further observed that where this was not done, the expenditure incurred by the assessee either outside India or in India would be eligible for weighted deduction but must fulfil the other condition laid down in the said section. (b) C I T v. Jay Engineering Works [1984] 149 I T. R 297 (Delhi). In this case, the Delhi High Court construing sub-clauses (i); (ii), (v), (vi), (vii), (viii) and (ix) of Section 35B (1) (b) held that there was nothing in the said sub-clauses to indicate that in order to claim weighted deduction, the expenses must be incurred only outside India. In Bharat General & Textile Industries Ltd. v. C I T [1985] 153 I T R 747, this Court construed Section 35-B (1) (b) (iii) and, following the decisions of other High Courts, held that clearing and forwarding charges paid by the assessee in Indian ports on goods exported, expenditure incurred on the carriage of goods to their destination outside India or on the insurance of goods while id transit were not allowable for weighted deduction under the said sub-clause (iii) as they were incurred in India. In the instant case, the facts found by the Commissioner. (Appeals) and the Income 7 ax Appellate Tribunal on which weighted deduction on the export agency inspection fees has been allowed have not been challenged by the Revenue. The conclusion of the Tribunal that such export agency inspection fees paid by the assessee, for the purpose of obtaining a certificate, a necessary requirement for the export of the goods, amounted to expenditure incurred for furnishing to a person outside India technical information for the promotion of sale of such goods within the meaning of clause (vi) of Section 35-B (1) (b). The material part of the section is as follows: "(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 (vi) furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services or facilities." For the reasons as above, we are not inclined to interfere with the decision of the-Tribunal and we answer the question in the affirmative and in favour of the assessee. On the facts and circumstances, there will be no order as to costs. NONJULA BOSE, J.--I agree. M.BA./528/T Order accordingly.