Commissioner Of Income Tax (Cntl) , Ludhiana vs Hero Cycles Private LTD. , Ludhiana

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1997 Supreme(SC) 1144

1997(8) Supreme 150
SUPREME COURT OF INDIA
(From Punjab & Haryana High Court)
Suhas C. Sen and S. Saghir Ahmad, JJ.
The Commissioner of Income Tax (CNTL), Ludhiana -Appellant
versus
M/s. Hero Cycles Pvt. Ltd., Ludhiana etc. etc. -Respondents
Civil Appeal No. 7665 of 1996
With
C.A. Nos. 7666, 7667, 7965/96, 1494-96/88, 5567/90, 5755/95, 4043/84, 7763/95, 7045/95, 12419/96, 5620-21/95, 6942/95, 387/85, 786-88, 7847, 2230-31, 3120/95
With
Civil Appeal Nos. 6085/97, 6087-6088/97, 6086/97, 6089-91/97, 6092/97, 6093/97, 6095/97, 6094/97
(Arising out of SLP (C) Nos. 7485/86, 4588-89/89, 9027, 10982/87, 4663-65/89, 8620, 10949/95, 4671/88 and 9065/94)
All Decided on 28.8.1997
Counsel for the Parties :
For the Appellant in C.A. No. 4671/88, 4043/84, 5755/95, 5620-21/95 and 2230-31/95 : T.L.V. Iyer, Sr. Advocate, Ms. Renu George, S. Rajappa, C. Radha Krishna, Ms. Janaki Ramachandran, Ms. Meenakshi Arora, A.T.M. Sampat Advocates.
For the Respondents : Uma Datta and B. Kanta Rao, Advocates.

Headnote:(i) TAXATION-Income Tax Act, 1961-Section 35-B-Claim for weighted deduction in respect of Export Sales Commission E.C.G.C. Charges and Foreign Dealers Visiting Expenses -Deduction permissible if expenditure is laid out wholly and exclusively for purposes mentioned in sub clause (b) of Section 35B-It is for assessee to prove that entire expenditure involved was exclusively for purposes mentioned-On facts, matter sent back to Tribunal to dispose it of after examining the facts afresh-Contribution to a general body or Chamber of Commerce cannot qualify for weighted deduction. (Paras 6, 25)
       (ii) Income Tax Act, 1961-Section 44-Scope of-Computation of profits and gains of insurance business-Only in accordance with rules contained in First Schedule-Claim of benefit of Section 35B-Disallowed.
       Held : The plain reading of the Section will go to show that notwithstanding the other provisions of the Income Tax Act, in particular provisions of Sections 28 to 43B, the profits and gains of any business of insurance shall be computed in accordance with the rules contained in the First Schedule. This is a non-obstante clause and rules have been specially made for computation of profits and gains of insurance business. The rules are contained in the First Schedule of the Act. There is a rule for computation of profits of Life Insurance Business (Rule 2). Another rule has been framed (Rule 5) for computation of profits and gains of other insurance business. This means that profits and gains of insurance business (Whether the Life Insurance of General Insurance) can only be assessed in the manner laid down in the rules contained in the First Schedule and not in any other manner. (Para 16)
       Further held; when the Act speaks of Section 28 to Section 43B then each one of the sections from Section 28 to Section 43B will be included. The newly inserted Section 35B was not specifically mentioned because it was not necessary to do so just as it was not necessary to specifically mention Section 35B in Section 29 which lays down that computation of profits and gains of business or profession shall be computed in accordance with the provisions contained in Sections 30 to 43C. Moreover, when the Act specifically says that profits and gains of insurance business shall be computed in accordance with the rules contained in the First Schedule then such computation has to be made according to that rule and not any other rule. We are unable to accept the contention of Ms. Ramachandran that the benefit of Section 35B should also be given to any Insurance Company. (Paras 18, 19)
       (iii) Income Tax Act, 1961-Section 154-Rectification-Can only be made when glaring mistake of fact or law has been committed by the officer passing the order becomes apparent from record-Rectification not possible if question debatable-Point not examined on facts or in law cannot be dealt as mistake apparent on record. (Para 3)

ORDER

Civil Appeal No. 7665/96

The following question of law was referred by the Tribunal to the High Court:

"Whether on the facts and in the circumstances of the case on a proper interpretation of Section 35-B of the Income Tax Act, 1961, the Appellate Tribunal was right in law in allowing assessee s claim for weighted deduction in respect of "Export Sales Commission" "E.C.G.C. Charges" and "Foreign Dealers Visiting Expenses"?

2. The High Court declined to call for a reference under Section 256(2) of the Income Tax Act, 1961. It appears that the claim for deduction under Section 358 was not originally allowed at all. Thereafter, on an assessee s application an order was passed by the Commissioner of Income Tax (Appeals), Jalandhar, in which he directed certain allowances to be given on proportionate basis after verification of the assessee s claim under Section 35B.

3. The Income Tax Officer thereafter entertained assessee s prayer for rectification of the order and allowed the assessee s claim in "respect of matters like Coloured Albums, Export staff travelling expenses, Export sales commission, E.C.G.C., foreign dealers visiting expenses. Rectification under Section 154 can only be made when glaring mistake of fact or law has been committed by the officer passing the order becomes apparent from the record. Rectification is not possible if the question is debatable. Moreover, the point which was not examined on fact or in law cannot be dealt as mistake apparent on the record. The dispute raised a mixed question of fact and law.

4. The Tribunal was in error in upholding the assessee s claim for weighted deductions.

5. There is no point in sending the matter to the High Court to deal with the question raised at this stage. We treat the question as referred to this Court and answer the question in the negative and in favour of the Revenue. There will be no order as to costs. The appeal is allowed.

C.A. Nos. 7666-7667/96, SLP (C) Nos. 7485/86, 4588-89/89

6. Leave granted in Special Leave Petitions.

The following questions of law was sought to be raised by the Revenue from the order of the Tribunal for reference to the High Court:

"(i) Whether on a proper interpretation of the agreements between the S.T.C. and its subsidiary HHEC, the Appellate Tribunal is right in law in holding that one per cent margin money earned by the HHEC under its agreement of Export Business Association with the assessee is in the nature of expenditure as contemplated by Section 35B and not the income of the HHEC on its own entitlement on the aforesaid agreements as held by the I.T.O.?

(ii) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in allowing weighted deduction under Section 35B of the Act to the total payment of Rs. 1,87,476/- to the HHEC without any bifurcation?

(iii) Whether on a true interpretation on Section 35B of the Act, the services rendered by the HHEC were to be related itemwise to the various sub-clauses of Clause (b) of sub-section (1) so as to entitle the assessee to weighted deduction in respect of them?

6. The Commissioner of Income Tax (Appeals) as well as the Tribunal allowed this claim of the assessee without examining the facts of this case. The deduction is permissible if the expenditure is laid out wholly and exclusively for the purposes mentioned in sub-clause (b) of Section 35B. It is for the assessee to prove that the entire expenditure involved was exclusively for the purposes mentioned in sub-clause (b) of Section 35B. The Tribunal has also to give a finding as to the entitlement of the assessee with reference to the particular of sub-clause (b) of Section 35B. The facts have to be found out and the law has to be applied to those facts. It appears that generally a certain percentage of the claim has been allowed under Section 35B without adverting to any of the sub-clauses of (b) of Section 35B. Under those circumstances, we think it fit to set aside the order of the Tribunal and send the mat

Click Here to Read the rest of this document