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PUNJAB & HARYANA HIGH COURT
Ashok Bhan and N.K.Agrawal JJ.
Commissioner Of Income-tax
Versus
F.C.Sondhi And Co.(India) Pvt.Ltd.
Income tax Reference No. 78 of 1982,79 of 1982,
Decided On : JULY 15, 1997
INCOME TAX - Weighted deduction - Export markets development allowance - Whether assessee entitled to weighted deduction on certain expenses incurred for export promotion - Whether expenditure of Rs. 5,000 incurred by assessee on advertisement in souvenir brought out by Indian National Congress allowable as business expenditure.
Fact of the Case:
The assessee, a private limited company engaged in the manufacture and sale of sports goods, claimed weighted deduction under Section 35B of the Income-tax Act, 1961 on certain expenses incurred for export promotion. The Assessing Officer allowed weighted deduction only on export markets development expenses after deducting entertainment expenses. The Commissioner of Income-tax (Appeals) allowed weighted deduction on certain other expenses, though proportionately. The Income-tax Appellate Tribunal upheld the Commissioner's order.
Finding of the Court:
The High Court held that the assessee was entitled to weighted deduction under Section 35B of the Act on the following expenses incurred for export promotion: establishment expenses, printing and stationery, vehicle repairs and maintenance, meeting fees, export promotion expenses, travelling expenses, foreign telex and telephone expenses, and foreign postage. The Court also held that the expenditure of Rs. 5,000 incurred by the assessee on advertisement in the souvenir brought out by the Indian National Congress was allowable as business expenditure.
Issues: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing weighted deduction under Section 35B to the assessee on a part of the following expenses, viz., establishment expenses, printing and stationery expenses, expenses on vehicle repairs, meeting fees, export promotion expenses, travelling expenses, foreign telex and telephone expenses and foreign postage? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure of Rs. 5,000 incurred by the assessee on advertisement in the souvenir brought by the Indian National Congress was allowable as business expenditure?
Ratio Decidendi: 1. The Court held that the expenses incurred on the payment of salary were eligible for deduction under Section 35B of the Act, and the question of apportionment was a question of fact. The other expenses incurred on printing and stationery, vehicle repairs and maintenance, travelling expenses, foreign telex and telephones, and foreign postage were also allowed, if such expenses were incurred in connection with the export promotion. 2. The Court held that the payment of Rs. 5,000 for the purpose of publishing an advertisement of its product in the souvenir was an expenditure on advertisement and, therefore, it cannot be treated to be a donation.
Final Decision: Question No. 1 is, therefore, answered in the affirmative, in favour of the assessee and against the Department. Question No. 2 is answered in the affirmative, against the Revenue and in favour of the assessee.
N.K.Agrawal, J.
1. The following two questions of law have been referred to this court for opinion under Section 256(1) of the Income-tax Act, 1961 (for short "the Act") :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing weighted deduction under Section 35B to the assessee on a part of the following expenses, viz., establishment expenses, printing and stationery expenses, expenses on vehicle repairs, meeting fees, export promotion expenses, travelling expenses, foreign telex and telephone expenses and foreign postage ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure of Rs. 5,000 incurred by the assessee on advertisement in the souvenir brought by the Indian National Congress was allowable as business expenditure ?"
2. The assessee, a private limited company, was engaged in the manufacture and sale of sports goods. A return of income for the assessment year 1976-77 (accounting year ending on March 31, 1976), was filed, declaring a total income at Rs. 6,45,800. The assessee subsequently revised the return showing total income at Rs. 5,56,800. Relief under Section 35B of the Act in respect of certain expenses aggregating to Rs. 4,79,868, as against the earlier claim on expenses amounting to Rs. 2,12,863 was claimed. Again, during the assessment proceedings, the assessee revised its claim under Section 35B on the expenses totalling Rs. 5,93,638 as under: Rs.Rs. "(i)Establishment including salary to the managing director3,98,495 Commission to the managing director, 75 per cent. thereof relating to promotion of exports70,7095,41,902 (ii)Export markets development expenses 1,74,668 (iii)Printing and stationery, 50 per cent thereof relating to promotion of export18,6189,509 (iv)Vehicle repairs and maintenance, 50 per cent. thereof relating to promotion of export15,0047,502 (v)Meeting fee to directors Rs. 250, 75 per cent. thereof relating to promotion of exports 187 (vi)Export promotion expenses 1,568 (vii)Travelling expenses 8,496, 50 per cent. thereof 4,245 (viii)Foreign telex and telephone expenses 10,020 (ix)Promotion council debited to cash assistance account22,514 (x)Foreign postage 5,661 (xi)E. C. G. C. charges 3,957 (xii)Bank commission on export bills 12,105 Total 5,93,638."
3. The Assessing Officer allowed weighted deduction under Section 35B of the Act only on the export markets development expenses amounting to Rs. 1,73,412 after deducting a sum of Rs. 1,256 on account of expenses in the nature of entertainment expenses. The assessees claim in respect of all other expenses was rejected.
4. In appeal filed by the assessee, the Commissioner of Income-tax (Appeals) took the view that weighted deduction was also allowable on Rs. 1,256 under the head "Export markets development expenses". Weighted deduction was also allowed on certain other expenses, though proportionately. However, expenditures shown by way of contribution to the export promotion council, export guarantee charges and bank commission on export bills were totally disallowed by the Commissioner.
5. The assessee went in further appeal before the Income-tax Appellate Tribunal (for short the "Tribunal"), but the order of the Commissioner was upheld there and whatever proportionate expenditures had been held to be eligible for the purposes of weighted deduction under Section 35B, those were maintained.
6. The benefit of weighted deduction was available for certain specified categories of expenditure only. Such expenditures have been mentioned in various sub-clauses under Clause (b) of Sub-section (1) of Section 35B of the Act. There are two preliminary requirements to be seen while examining as to whether an expenditure fell under any of the sub-clauses of Clause (b) and these are (i) that the expenditure should neither be capital expenditure nor in the nature of personal expenses, and (ii) that the expenditure should be incurred whol
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