V.D Swami And Co. Ltd. v. Commissioner Of Income-Tax

The Judgment of the Court was delivered by

K.A Thanikkachalam, J.:— At the instance of the assessee, the Tribunal referred the following two questions for the opinion of this court under section 256(1) of the Income-tax Act, 1961, for the assessment year 1978-79:

“1. Whether the Tribunal was right in holding that the depreciation on lift has to be allowed only at ten per cent, instead of 15 per cent.?

2. Whether the Tribunal was right in holding that the relief under section 35B is not allowable to the applicant on (a) attestation and legalisation of export invoices and legal expenditure incurred in connection with export, and (b) salaries, allowances, contribution to provident fund paid for the members of the staff attributable for services rendered in processing and shipping materials, preparation of export documents, negotiation of the same through banks and allied correspondence?”

2. In the assessment relating to the assessment year 1978-79, the Income-tax Officer had allowed depreciation on the lift in the assessee-company's office building at ten per cent, applicable to the category coming under “General electric machinery” as against the assessee's claim for its classification as “rope-way structures-carriers” entitled to the higher rate of 15 per cent, as per entry III(ii)B(15) of the depreciation Schedule. The Commissioner of Income-tax (Appeals) upheld the Income-tax Officer's finding. The assessee appealed to the Tribunal. The Tribunal concurred with the Commissioner of Income-tax (Appeals)’ finding in the following words:

“Ropeway is defined in Chamber's Twentieth Century Dictionary as ‘a means of transmission by ropes’.

3. Rope is defined as ‘a stout twist of fibre, wire, etc.’ The term ‘lift’ is defined as an enclosed platform moving in a well to carry persons or goods up and down. Though a lift carries passengers or goods, we are of the view that it is a different species from what is contemplated under the cited entry. The term “carrier” therein is related to ropeway structure which is totally distinct from a lift. We are hence of the view that the assessee is entitled only at the lower rate of ten per cent.”

4. Before us learned counsel appearing for the assessee submitted that a lift can also be considered as a ropeway structures-carrier since it also carries men and materials with the help of rope. Rope is defined as a stout twist of fibre, wire, etc. The term “lift” is defined as an enclosed platform moving in a well to carry persons or goods up and down. The Tribunal has not given any reason for not considering lift as ropeway structures-carriers. In the Schedule for depreciation, such of these machinery which are entitled to ten per cent, depreciation are enumerated under entry III(i). These machinery which are entitled to the special rate of 15 per cent, depreciation are mentioned in entry III(ii). Lift is not excluded in the special category of machinery entitled for depreciation at 15 per cent. Lift is also operating through twisted steel wire rope. It moves up and down. It carries both men and materials. If it is stated that only elevators and conveyor belt machines which are running horizontally alone can be considered as ropeway structures-carriers, lift which is used for carrying men and materials up and down with the help of steel wire twisted rope can also be considered as ropeway structures-carriers.

5. The Gujarat High Court in CIT v. Jyoti Ltd. [1987] 163 ITR 274, while considering the grant of development rebate under section 33(1)(a) of the Income-tax Act, 1961, held that the lift was a machinery or a mechanical device for transporting men and materials from one place to another. It was, therefore, a machinery within the meaning of section 33(1)(a) of the Income-tax Act, 1961. As per the Concise Oxford Dictionary, “lift” means, an apparatus for raising and lowering persons or things to other floors of building; apparatus for carrying persons up or down mountains, etc. Therefore, it is clear that according to the decision of the Gujarat High Court cited supra, lift is a machinery. In view of the fact that the lift is moving up and down with the help of twisted steel rope within a structure, it can also be considered as a ropeway structures-carrier entitled to the higher rate of 15 per cent, depreciation as per entry III(ii)B(15) of the depreciation Schedule. Further, inasmuch as the lift is used in the office building for business purposes, the higher depreciation is allowed in the case of lift. Accordingly, we hold that for the lift, the assessee is entitled to 15 per cent, depreciation. In that view of the matter, we answer question No. 1 referred to us in the negative and in favour of the assessee.

6. So far as question No. 2 is concerned, it relates to weighted deduction claimed under section 35B of the Income-tax Act, 1961. The assessee claimed in the assessment year 1978-79 weighted deduction under section 35B(1) in respect of expenditure incurred for attestation and legalisation of export invoices, (ii) in respect of legal expenses incurred in connection with export of flats to Pakistan both amounting to Rs. 570, and (iii) in respect of salary, allowances, contribution to provident fund paid to the members of the staff attributable for services rendered in processing and shipping materials, preparation of export documents, negotiation of the same through banks and allied correspondence amounting to Rs. 28,172. The Income-tax Officer rejected the assessee's claim for weighted deduction in respect of the above items as in the earlier years. On the assessee's appeal, the Commissioner of Income-tax (Appeals) rejected the assessee's claim stating that it was identical to that for the earlier year which had been disallowed by his predecessor. Aggrieved, the assessee filed a second appeal before the Tribunal. The Tribunal upheld the Commissioner's direction regarding the disallowance of weighted deduction on the items mentioned above.

7. In so far as item No. 3 relating to claim of weighted deduction under section 35B in respect of salary, allowance, contribution to provident fund paid to the members of the staff attributable for services rendered for export trade, learned counsel appearing for the assessee submitted that this item of expenditure would be allowed under clauses (v) and (viii) of section 35B(1)(b). According to learned counsel, these expenditures relating to foreign trade are entitled to be considered for allowing weighted deduction under section 35B of the Act even though they are incurred in India since they are not falling under sub-clause (iii) of section 35(1)(b) of the Act. According to learned counsel, preparation of export documents would include purchase and processing of tender forms. In the present case, the assessee purchased tender forms and processed the same for getting the foreign contract. The export department in the assessee's concern is engaged in doing work for the promotion of foreign trade. Therefore, the employees working in the export department were paid salary, allowance, contribution to provident fund. Hence, the amounts paid to the employees as salary, allowance, contribution to provident fund, etc., are entitled to be considered for weighted deduction under section 35B of the Act. In support of his contention, learned counsel appearing for the assessee also relied on decisions rendered by various High Courts.

8. On the other hand, learned standing counsel appearing for the Department, while supporting the order passed by the Tribunal, submitted that sub-clause (v) of section 35B(1)(b) of the Act would relate to preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities and activities incidental thereto. In the present case, the expenditure was incurred for services rendered in processing and preparing shipping materials, preparation of export documents, negotiation of the same through banks and allied correspondence. Therefore, the expenditure incurred did not relate to the activity mentioned under sub-clause (v) inasmuch as the expenditure was not incurred for preparation and submission of tenders.

9. It remains to be seen that a sum of Rs. 28,172 was incurred as expenditure by way of salary, allowance, contribution to provident fund paid to the members of the staff attributable to services rendered in processing and shipping materials, preparation of export documents, negotiation of the same through banks and allied correspondence. Weighted deduction is claimed under sub-clause (v). Sub-clause (v) relates to expenditure incurred for preparation and submission of tenders. According to the facts arising in this case, the assessee purchased tender forms and after processing the same, the foreign contract was obtained for export of the goods to foreign countries. Purchase of tenders and processing of the same were stated to be done by the staff of the export wing. One of the activities done by the staff of the foreign wing is stated to be preparation of export documents. Export commences from offering to accept the tender for the export of goods. Therefore, purchase and processing of tender forms would come under preparation of export documents. When preparation of export documents includes purchasing and processing of tender forms, then the expenditure incurred by way of payment of salary, allowance, etc., to the staff working in the foreign wing would qualify for weighted deduction under section 35B of the Act.

10. It was submitted that as per the decision of this court in V.D Swami and Co. Pvt. Ltd. v. CIT [1984] 146 ITR 425 in the case of the same assessee, this court held that sub-clause (iii) of section 35B(1)(b) of the Act expressly excludes expenditure incurred in India in connection therewith. It was further held, that to maintain that weighted deduction will be available even where expenditure is incurred in India would go against the teeth of the specific exclusionary provision. A look at the other sub-clauses of section 35B(1)(b), such as for instance 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”, is a phrase which occurs again and again in the various sub-clauses. Therefore, it was submitted that weighted deduction under sub-clause (v) cannot be granted if it is incurred in India. The same assessee's case came up for consideration before this court in a subsequent assessment year 1975-76 in V.D Swami and Co. Ltd. v. CIT [1995] 216 ITR 129, wherein this court held that, in case it is found that the assessee was required to employ someone for the activities stipulated under section 35B(1)(b)(v) of the Income-tax Act, 1961, and pay any wages or emoluments or engage some one who also worked for matters falling under section 35B(1)(b)(v), the assessee can claim apportionment and seek allowances. The expenditure referable under sub-clause (v) of clause (b) of sub-section (1) of section 35B is that incurred wholly and exclusively on the preparation and submission of tenders for the supply or provision outside India of goods, services or facilities and activities incidental thereto.

11. It was further pointed out that if weighted deduction is claimed in respect of the expenditure under sub-clause (iii) alone, the expenditure ought to have been incurred outside India. The stipulation found in subclause (iii) does not find a place in sub-clause (v). Therefore, it cannot be said that under section 35B(1)(v) for claiming weighted deduction, the expenditure ought not to have been incurred in India. It is only under sub-clause (iii) alone the expenditure claimed cannot be allowed unless it is incurred in a foreign country.

12. In the case of CIT v. Aspinwall and Co. Ltd. [1993] 204 ITR 225, the Kerala High Court while considering section 35B of the Act along with the Central Board of Direct Taxes Circular F. No. 268/738.SI.I.T.J dated December 28, 1981, held that the amounts came under sub-clauses (ii), (v) and (vi) of section 35B(1)(b) for weighted deduction and the fact that expenditure was incurred in India was of no consequence.

13. The Gujarat High Court in Testeels Ltd. v. CIT [1994] 205 ITR 230 held that salary paid to employees working in the foreign wing is entitled to weighted deduction under section 35B(1)(b) of the Act.

14. In the case of Associated Stone Industries Ltd. v. CIT [1994] 210 ITR 821 (Raj), a question arose whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that weighted deduction under section 35B of the Income-tax Act was not allowable in respect of expenditure of Rs. 4,287 being 25 per cent, of salary of staff looking after export business. While answering this question, the Rajasthan High Court held that the expenditure incurred by the assessee for payment of salary to its staff to the extent of 75 per cent, represented the work for handling the export business of the assessee. The assessee effected sales within India as well as exports out of India and, therefore, a finding had been given that out of the claim of salary only 75 per cent, related to export business and so weighted deduction under section 35B was allowable only on 75 per cent, of the salary of the staff. This was a finding of fact. Hence, the Tribunal was justified in disallowing weighted deduction on 25 per cent, of the salary of the staff.

15. In the case of Commissioner Of Income-Tax v. Continental Device India Ltd. [1992] 198 ITR 680 (Delhi), the assessee claimed weighted deduction under section 35B(1) of the Income-tax Act, 1961, in respect of expenses incurred on salaries, bonus, provident fund, staff welfare. After satisfying itself that the expenditure incurred towards salary and bonus was in respect of those employees who were directly connected with the export, the Tribunal allowed a proportionate part of the expenses towards development allowance. On a reference, the Delhi High Court affirming the decision of the Tribunal held that the expenses were directly related to export and were covered by section 35B was a finding of fact. In view of this finding the assessee was entitled to the claim for deduction under section 35B on the proportionate part of the aggregate of those expenses.

16. In the case of K. Vensimal and Sons v. CIT [1986] 157 ITR 807 (Mad) the assessee claimed weighted deduction under section 35B of the Income-tax Act, 1961, in respect of the expenditure relating to salary. On a reference, this court held that the. Tribunal had adopted 50 per cent, of 99.4 per cent, of the expenditure in respect of salary and rent as relatable to sales activities and restricted the weighted deduction to that extent and no question of law could be said to arise out of the said decision.

17. The instructions given by the Central Board of Direct Taxes Circular in F. No. 268/738.Sl. ITJ dated December 28, 1981, is reproduced in the judgment in Commissioner Of Income-Tax v. 1. Kerala Nut Food Co. [1991] 192 ITR 585 (Ker). On the basis of the abovesaid circular, the assessee had been held entitled to weighted deduction under section 35B of the Act in respect of expenses on salary and expenses on staff engaged in the export sale (Commissioner Of Income-Tax v. Bakul Cashew Company. [1992] 197 ITR 135 (Ker)), irrespective of the fact whether the same was incurred in India or outside India.

18. Thus, we have seen various High Courts including this court have allowed salary paid to employees working in the export wing who were allowed weighted deduction under section 35B(1) of the Act proportionately relatable to the export trade. In the present case, the assessee claimed weighted deduction under section 35B(1)(b)(v) of the Act on the expenditure incurred amounting to Rs. 28,172 by way of salary, allowances, contributions to provident fund paid to the members of the staff attributable to services rendered in respect of foreign trade. Here also the assessee is doing business in both local sale as well as in export sale. So, therefore, the weighted deduction claimed under section 35B(1) of the Act is allowable proportionately relatable to foreign trade on the expenditure claimed at Rs. 28,172. Considering the various decisions cited supra, we hold that the assessee is entitled to weighted deduction under section 35B(1)(b)(v) of the Act in respect of 50 per cent, of the expenditure claimed, since the quantum of foreign trade was not furnished by the assessee.

19. In so far as the weighted deduction in respect of attestation and legalisation of export invoices and legal expenses incurred in connection with the export of flats to Pakistan is concerned, both these items of expenditure cannot be considered to be eligible for weighted deduction in view of the decisions of this court in K. Vensimal and Sons v. GIT [1986] 157 ITR 807 and V.D Swami and Co. Pvt. Ltd. v. CIT [1984] 146 ITR 425. Accordingly, we answer question No. 2 in the affirmative and against the assessee in so far as weighted deduction claimed under section 35B of the Act in respect of items (a) as mentioned in question No. 2. In respect of item (b) mentioned in question No. 2 is concerned, we answer the question referred to us in the negative and in favour of the assessee. There will be no order as to costs.