The central legal point established in the judgment is the interpretation and application of provisions under section 35B of the Income Tax Act, 1961, and the determination of the nature of receipts as revenue or capital.

S.J. Vazifdar, J.

1. This is a Reference under section 256(1) of the Income Tax Act, 1961. The Income Tax Appellate Tribunal, by an order dated 24th October, 1988, dismissed the applicant's appeal being ITA No. 2983/Bom/84, against the order of the Commissioner of Income-tax (Appeals) pertaining to assessment year 1980-81. The Tribunal has referred the following questions of law 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 assessee was not entitled to the weighted deduction under section 35B of the Income-tax Act, 1961 in respect of bank interest and bank charges of Rs.28,20,501/-incurred by it on Export Packing Credit facilities?

(2) Whether on the facts and in the circumstances of the case, the Tribunal erred in holding that the professional fees of Rs.71,200/-paid by the assessee in respect of its cement project was a capital expenditure and not revenue expenditure?

(3) Whether on the facts and in the circumstances of the case, the Tribunal erred in holding that Rs.75,00,000/-received by the assessee from B.B.C. Brown Broweri Company Limited, Switzerland under Memorandum of Settlement dated 12th March, 1979 was a revenue receipt?

2. The assessee filed Notice of Motion No.1679 of 1991, seeking a direction to annex thereto, the documents mentioned in the affidavit in support of the Notice of Motion and, in the alternative, seeking leave of the Court to refer to the said documents. As an order of remand would unnecessarily delay this Reference, which has already been pending for over twenty years, we permitted the respondent to refer to the documents.

Re: Question No.1.

3. The facts, so far as Question No.1 is concerned, are these:-

The assessee had availed of an export packing credit facility from the State Bank of India. The assessee relied upon the details of the expenses under section 35B as furnished in Exhibit-A to the Notice of Motion. We will, for the purpose of this Reference, presume the same to be correct. It shows that an amount of Rs.28,07,372/-was paid towards interest in India. The assessee claimed the benefit of section 35B in respect thereof. We will also presume that the applicant was a registered export house at the relevant time. Further, we will presume, as stated in the certificates furnished by the State Bank of India and by the Canara Bank, that the applicant availed of export credit facilities from them and that the advances from the account were given only for the purchase of raw material for manufacturing goods to be exported out of India / supplied under deemed exports and that the advances were made available only when the applicant submitted a copy of the export contract entered into with the foreign party and that these accounts were different from the normal cash credit accounts.

4. Mr. Mistri relied upon the judgment of the Madhya Pradesh High Court in Commissioner of Income Tax v. Vippy Solvex Product Pvt. Ltd. (1986) 159 ITR 487. It is not necessary to refer to the judgment in detail for it has admittedly been dissented from by a Division Bench of this Court in KEC International Limited v. Commissioner of Income-tax (2010) 322 ITR 465. The Division Bench held as under:-

“In our view, the views taken by the Andhra Pradesh High Court, Calcutta High Court, Madras High Court are correct. We concur with the view taken Walchandnagar Industries Ltd.'s case [1994] 206 ITR 328 (bom). We are not in agreement with the reasoning given by the Madhya Pradesh High Court in the case of Vippy Solvex Product (P.) Ltd.'s case [1986] 159 ITR 487. The very definition of the expression “packing credit” as advanced in the Export Credit (Interest Subsidy) Scheme, 1968, indicates that it is a loan or advance for the purpose of purchase processing and packing of goods. The Reserve Bank requires the lending bank to furnish it a declaration in writing that the loan was granted for pre-shipment activities. That necessarily mean