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1997(8) Supreme 476
SUPREME COURT OF INDIA
(From Delhi High Court)
Suhas C. Sen and Saghir Ahmad, JJ.
Commissioner of Income Tax, Delhi -Appellant
versus
Stepwell Industries Ltd. etc. etc. -Respondents
Civil Appeal No. 1275 of 1997
With
(C.A. Nos. 3280/95, 1465/81, 1466/81, 1624-25/88, 2365/94, 9105/94, 2324-26/95, 3200/95, 3201/95, 3975/95, 4106/95, 6411/95, 6715/95, 6941/95, 8044-8045/95, 8482/95, 8790/95, 9835/95, 2293/96)
Decided on 27-8-1997
Counsel for the Parties :
For the Appearing Parties : T.V.L. Iyer, G.C. Sharma, Sr. Advocates, Ms. Renu George, B.K. Prasad, H.K. Puri, Rajesh Srivastava, Ujjwal Banerjee, Vineet Kumar, Ms. Janki Ramachandran, S. Ganesh, K.J. John, Ms. Manju Mishra, B. Kanta Rao, K. Janjani, K.L. Janani, Advocates.
Held : The weighted deduction is allowed for activities carried out wholly and exclusively on the various purposes set out in sub-clauses (i), (ii), (v), (vii), (viii) and (ix) of Section 35B(1)(b). Section 35B allowed at the material time deduction of a sum equal to one and one third times of the amount of such expenditure incurred during the previous year. In order to get this kind of deduction, the onus lies heavily on the assessee to prove that the expenditure falls within any of the purposes set out in various sub-clauses of Clause (b) of Section 35B(1). Merely because some activities took place outside India will not qualify the expenditure for the deductions mentioned in Section 35B. (Para 3)
Further held : When a claim for weighted deduction is made, it is for the assessee to satisfy the Income Tax Officer that the expenditure falls in any of the sub-clauses of Clause (b) of Section 35B(1). The onus is on the assessee to prove that he is entitled to the weighted deduction allowed under Section 35B. In order to get this deduction the assessee will have to prove that the expenditure was incurred during the previous year wholly and exclusively for the purposes set out in sub-clause (b) of Section 35B(1). There cannot be any blanket allowance of the expenditure nor can there be any blanket disallowance. Every case has to be discussed specifically and the expenditure must be found to be of the nature mentioned in any one of the sub-clauses. If the expenditure does not fall in any of these categories, it cannot be allowed as a deduction. Some of the sub-clauses provide that if the expenditure is incurred in India, it cannot be allowed but in some of the sub-clauses this requirement is not there. In such cases, the expenditure may or may not be incurred in India. Every case will have to be examined in the light of the provisions of the sub-clauses and the facts proved by the assessee. (Paras 6 & 7)
No expenditure can be allowed under Section 35B generally. The assessee must be able to establish the facts to prove that the expenditure falls within the ambit of sub-clauses (i) to (ix) of clause (b) of Section 35B(1). (Para 14)
(ii) Income Tax Act, 1961-Section 35B-Weighted deduction-Claim of-Assessee s goods were sold by State Trading Corporation of India Limited to various parties outside India-Commission payment to State Trading Commission-Whether assessee was entitled to weighted deduction u/s 35B of the Act in respect of commission payment?-(No).
Held : If the State Trading Corporation incurs expenditure for an advertisement or publicity outside India, the assessee will not be entitled to any deduction unless the assessee can establish that the advertisement or publicity was being done outside India for and on behalf of the assessee and in respect of goods the assessee deals in or provides in course of his business. Likewise, if the State Trading Corporation maintains a branch office or agency for the promotion of sale outside India, the assessee cannot claim any deduction on account of maintenance of such branch office or agency but if such branch office or agency is maintained by the assessee himself for the promotion of sale outside India of his goods, services or facilities, then the assessee will be entitled to a deduction under Section 35B. (Para 3)
Further held that the High Court should have called for a reference of this question. However, at this stage, there is no point in sending the case back to the High Court. We treat the reference as to have been made to this Court and answer the question in the negative and in favour of the Revenue. (Para 4)
(iii) Income Tax Act, 1961-Section 35B(ii) & (iii)-Weighted deduction-Claim of-Payment of sales commission to a middleman for effecting sales-Foreign buyer located assessee through the middleman-Expenditure wholly incurred in India-Whether assessee is entitled to weighted deduction u/s 35B (ii) or (iii) of the Act?
Held : The expenditure which qualifies for deduction under Section 35B(iii) will have to be the expenditures incurred outside India in connection with distribution, supply or provision outside India of such goods, services or facilities. No deduction under Section 35B can be allowed to the assessee for expenditure incurred in India in connection with sale of goods. There is no dispute that the expenditure was wholly incurred in India. (Para 11)
Sub-clause (ii) speaks of "obtaining information regarding market outside India of such goods, service or facilities". From the facts stated by the Tribunal it appears that a middleman approached the assessee for purchase of its goods for and on behalf of the foreign buyer. The assessee agreed to sell his goods. The middleman obtained the commission. This does not amount to obtaining information regarding "market outside India of such goods, services or facilities". This is nothing but payment of sales commission to a middleman for the purpose of effecting sales. (Para 12)
(iv) Income Tax Act, 1961-Section 35B-Claim for weighted deduction under-Claim not made before Income Tax Officer or Appellate Assistant Commissioner-No particulars of expenditure furnished to them -Tribunal was wrong in allowing the claim of assessee-Tribunal was in error in not referring question of law sought to be raised to the High Court-High Court was also in error in not calling for a reference in this case. (Paras 20 & 22)
(v) Income Tax Act, 1961-Section 35B-Claim for weighted deduction u/s 35B on expenditure incurred by it under heads Customs Duty Repairs and reassembly, clearing and storage and certain expenditure incurred by foreign branches-Most of the expenditures were of custom duty paid for sending goods by Indian party to its foreign branches -Claim allowed by Tribunal-Transaction was internal transactions of sending goods by the Company to its own branches abroad-Order of High Court as well as of appellate order of Tribunal set aside. (Para 30)
(vi) Income Tax Act, 1961-Section 35B-Claim of weighted deduction-Payment of commission to S.T.C. and H.H.E.C. by assessee Company-Admissibility of this expenditure u/s 35B will depend upon facts of the case-Case sent back to Tribunal. (Para 35)
ORDER
The following question of law came up for consideration before the High Court under Section 256(2) Income Tax Act, 1961:
"Whether on the facts and in the circumstances of the case, the I.T.A.T. was correct in law in holding that the assessee was entitled to weighted deduction u/s 35B of the Income Tax Act, 1961 in respect of commission payment of Rs. 1,46,678/- ?"
2. The High Court declined to entertain this question. Hence this appeal to this Court.
3. The assessee s goods were sold by the State Trading Corporation of India Limited to various parties outside India. The assessee claimed weighted deduction under Section 35B(1)(b)(i) and (iv). The claim of the assessee is not admissible on these facts. The weighted deduction is allowed for activities carried out wholly and exclusively on the various purposes set out in sub-clauses (i), (ii), (v), (vii), (viii) and (ix) of Section 35B(1)(b). Section 35B allowed at the material time deduction of a sum equal to one and one third times of the amount of such expenditure incurred during the previous year. In order to get this kind of deduction, the onus lies heavily on the assessee to prove that the expenditure falls within any of the purposes set out in various sub-clauses of Clause (b) of Section 35B(1). Merely because some activities took place outside India will not qualify the expenditure for the deductions mentioned in Section 35B. If the State Trading Corporation incurs expenditure for an advertisement or publicity outside India, the assessee will not be entitled to any deduction unless the assessee can establish that the advertisement or publicity was being done outside India for and on behalf of the assessee and in respect of goods the assessee deals in or provides in course of his business. Likewise, if the State Trading Corporation maintains a branch office or agency for the promotion of sale outside India, the assessee cannot claim any deduction on account of maintenance of such branch office or agency but if such branch office or agency is maintained by the assessee himself for the promotion of sale outside India of his goods, services or facilities, then the assessee will be entitled to a deduction under Section 35B.
4. We are of the view that the High Court should have called for a reference of this question. However, at this stage, there is no point in sending the case back to the High Court. We treat the reference as to have been made 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.
Civil Appeal No. 3280/1995
5. The following question of law was sought to be referred to the High Court :
"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount of Rs. 3,10,750/- paid as commission to M/s. Singh and Co. and HREC is entitled to weighted deduction under Section 35B(1)(b) of the Income Tax Act, 1961 ?"
6. The question was not referred to the High Court because in the view of the Tribunal the case was concluded by the decision of the Tribunal in M/s. J. Hem Chand & Co. It is difficult to follow the logic of this decision of the Tribunal. When a claim for weighted deduction is made, it is for the assessee to satisfy the Income Tax Officer that the expenditure falls in any of the sub-clauses of Clause (b) of Section 35B(1). The onus is on the assessee to prove that he is entitled to the weighted deduction allowed under Section 35B.
7. In order to get this deduction the assessee will have to prove that the expenditure was incurred during the previous year wholly and exclusively for the purposes set out in sub-clause (b) of Section 35B(1). There cannot be any blanket allowance of the expenditure nor can there be any blanket disallowance. Every case has to be discussed specifically and the expenditure must be found to be of the nature mentioned in any one of the sub-clauses. If the expenditure does not fall in any of thes
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