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I.C Gandhi Silk Mills Pvt. Ltd. v. Commissioner Of Income-Tax
Structured Summary of the Opinion (J.N. Bhatt, J.)
Factual and Procedural Background
The assessee is a private limited company engaged in the manufacture and sale of art silk cloth, purchase and sale of yarn, and job work. In assessment proceedings for the assessment years 1976-77 and 1977-78 the assessee claimed export markets development allowance (weighted deduction) under section 35B of the Income-tax Act, 1961 in respect of various expenses (packing and forwarding, insurance, audit fees, postage/telegrams/telephone, travelling, printing and stationery, advertisement, salaries/wages/bonus, miscellaneous expenses).
The Income-tax Officer disallowed those claimed items as not qualifying for weighted deduction. The assessee appealed to the Commissioner of Income-tax (Appeals), and at that stage filed a statement asserting that its Bombay office was wholly and exclusively run for export business and re-submitted a revised claim restricted to expenses attributable to the Bombay office. The Commissioner partly allowed the revised claims (granting allowances in specified percentages for some heads) and disallowed others. The assessee then appealed to the Income-tax Appellate Tribunal, which, by a common order dated 26 August 1982, confirmed the Commissioner's decision, applying the ratio of the Special Bench decision in Hemchand and Co. v. ITO (IT 50 T 150).
By a reference under section 256(1) of the Act, the Tribunal referred the question to this court for opinion.
Legal Issues Presented
- “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee is not entitled to weighted deduction under section 35B of the Income-tax Act, 1961, in respect of the items set out in paragraph 2 (of the statement of case)?”
Arguments of the Parties
Assessee's Arguments
- The assessee asserted that its Bombay office was wholly and exclusively run for export business and that expenses attributable to that office should qualify for weighted deduction under section 35B; accordingly, it revised and restricted its claims to the Bombay office expenses.
- At the hearing before this court, learned counsel for the assessee (Mr. Mehta) acknowledged that the authorities below had applied the Special Bench decision in Hemchand and Co., and was not able to point to material warranting interference with the impugned decision.
Revenue / Assessing Officer's Position
- The Income-tax Officer disallowed the claimed expenses on the ground that they did not qualify for export markets development allowance under section 35B.
- The authorities below (Commissioner (Appeals) and the Tribunal) applied the ratio of the Special Bench in Hemchand and Co. v. ITO in reaching their conclusions and confirming disallowance (or partial allowance in specified percentages) as recorded in the orders.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Hemchand and Co. v. ITO (IT 50 T 150) | Applied as the governing ratio for determining what items qualify for weighted deduction under section 35B. | The Tribunal applied this Special Bench decision to uphold disallowance (or partial allowance) of the claimed items; this court agreed that the authorities below rightly followed that ratio and confirmed their conclusions. |
Court's Reasoning and Analysis
The court reviewed the procedural history: the assessing officer's disallowance, the Commissioner's partial allowance (granting specified percentages for certain heads) and disallowance for other items, and the Tribunal's confirmation of the Commissioner's conclusions by applying the Special Bench ratio in Hemchand and Co. v. ITO.
The court found no justification to interfere with the findings of fact and law arrived at by the authorities below. The assessee failed to point out distinguishing features that would permit departure from the Tribunal's view, and learned counsel did not demonstrate material warranting interference. Consequently, the court held that the Tribunal was justified in law in concluding that the items disallowed did not qualify for weighted deduction under section 35B(1) of the Act.
The court expressly lists the items (with amounts as recorded in the opinion) in respect of which the assessee was held not entitled to weighted deduction:
Assessment year 1976-77 / Assessment year 1977-78
1. Packing and forwarding expenses — 1,26,000 / 2,39,728
2. Insurance — 6,166 / 22,763
3. Audit fees — 2,500 / 2,500
4. Postage, telegram and telephone — 11,102 / 20,473
5. Travelling, etc. — 26,596 / 30,566
6. Printing and stationery — 3,692 / 8,648
7. Advertisement — 23,311 / 29,065
8. Salaries, wages and bonus — 14,811 / 12,229
9. Miscellaneous charges — 27,237 / 45,645
The court therefore concluded that the Tribunal's legal conclusion — that the assessee was not entitled to weighted deduction under section 35B(1) in respect of those items — was correct and justified.
Holding and Implications
HOLDING: The court held that the Tribunal was justified in law and that the assessee is not entitled to weighted deduction under section 35B(1) of the Income-tax Act, 1961, in respect of the listed items for the assessment years 1976-77 and 1977-78. The reference question was answered in the affirmative and against the assessee.
Implications:
- The disallowances (and the partial allowances made by the Commissioner where applicable) as confirmed by the Tribunal remain in effect; the assessee's revised claims restricted to the Bombay office did not lead to entitlement for the listed items.
- The court did not lay down a new precedent but upheld the application of the Special Bench decision in Hemchand and Co. v. ITO by the authorities below.
- No order as to costs was made.
J.N Bhatt, J.:— The assessee is a private limited company carrying on business in the manufacture and sale of art silk cloth. It also deals with purchase and sale of yarn as well as doing job work.
2. In the course of assessment proceedings for the assessment years 1976-77 and 1977-78, the assessee had, inter alia, claimed export markets development allowance or weighed deduction in respect of the following items for both the assessment years under section 35B of the Income-tax Act, 1961 (“the Act” for short):
1976-77 1977-78 Rs. Rs. 1. Packing and forwarding expenses 1,26,319 2,39,723 2. Insurance 6,166 22,763 3. Audit fees 2,500 2,500 4. Postage, telegram and telephone 22,205 40,566 5. Travelling, etc. 83,953 30,566 6. Printing and stationery. 7,384 17,288 7. Advertisement 23,311 29,065 8. Salaries, wages and bonus 59,246 48,918 9. Miscellaneous expenses 54,475 60,686
3. The Income-tax Officer disallowed the aforesaid items of expenditure claimed by the assessee, holding that the same did not qualify for export markets development allowance or, in other words, weighted deduction as provided in section 35B of the Act. Being aggrieved by the said assessment orders, the assessee preferred two appeals before the Commissioner of Income-tax (Appeals) (“the Commissioner” for short) at Baroda. At the time of hearing of the appeals, a statement signed by the assessee was filed before the Commissioner wherein it was stated that the Bombay office of the assessee was wholly and exclusively run for export business. It was also contended that the expenses incurred by the Bombay office should be allowed as weighted deduction under section 35B of the Act. Accordingly, the assessee had also re-submitted a claim for weighted deduction restricted to the expenses incurred by the Bombay office only. Thus, the assessee had revised its claim for weighted deduction in the appeals before the Commissioner.
4. As both these appeals involved common grounds and contentions, it would be expedient and convenient to consider the revised claims in respect of the aforesaid items made by the assessee and decided by the Commissioner after hearing the parties, in the following tabulated form with a view to avoid repetition of narration of identical principles and similar facts:
Assessment year 1976-77 Assessment year 1977-78 Revised weighted deduction claimed Allowed by Commissione Revised weighted deduction claimed Allowed by Commissioner Sl. No. Items Rs. Rs. Rs. Rs. 1. Packing and forwarding expenses 1,26,000 Nil 2,39,728 Nil 2. Insurance 6,166 Nil 22,763 Nil 3. Audit fees 2,500 Nil 2,500 Nil 4. Postage, telegram and telephone 22,205 11,102 40,946 20,473 5. Travelling, etc. 83,953 57,357 30,566 Nil 6. Printing and stationery 7,384 3,692, 17,298 8,648 7. Advertisement 23,311 Nil 29,065 Nil 8. Salaries, wages and bonus 59,246 44,435 48,918 36,689 9. Miscellaneous expenses 54,475 27,237, 60,686 15,044
5. As can be seen from the aforesaid Table, the appeals of the assessee were partly allowed. The assessment orders under appeal were modified by allowing 50 per cent, of the amount of expenditure under the head of items No. 4—Postage, telegram and telephone, No. 6—Printing and stationery, No. 9—Miscellaneous expenses for both the relevant assessment years. The Commissioner also allowed 75 per cent, of the amount of expenditure under the head “Item No. 5—Travelling expenses, etc.”, for the assessment year 1976-77 and 75 per cent, of the amount of expenditure under the head “Item No. 8—Salaries, wages and bonus” for both the assessment years, by way of weighted deduction under section 35B of the Act.
6. The assessee, being dissatisfied by the decision of the Commissioner in both the appeals, carried the matters further in second appeal before the Income-tax Appellate Tribunal (“the Tribunal” for short) by filing two appeals. As both these appeals involved common contentions, they were disposed of by a composite order by the Tribunal. The Tribunal confirmed the decision of the Commissioner in both the appeals, holding that the authority below had rightly followed the ratio of the decision of the Special Bench of the Tribunal in the case of Hemchand and Co. v. ITO, (IT 50 T 150).
7. That is how the appeals before the Tribunal came to be dismissed, on August 26, 1982, by a common order.
8. By this reference under section 256(1) of the Act, the Tribunal has referred to us for our opinion the following question:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee is not entitled to weighted deduction under section 35B of the Income-tax Act, 1961, in respect of the items set out in paragraph 2 (of the statement of case)?”
9. The appeals filed by the assessee were partly allowed by the Commissioner and he granted relief in respect of expenditure on item No. 4—Postage, telegram and telephone, No. 5—Travelling, etc, No. 6— Printing and stationery, No. 8—Salaries, wages and bonus, and No. 9— Miscellaneous expenses, partly. The Commissioner rejected the claim of the assessee in respect of the remaining items of expenditure. The conclusions of the Commissioner were confirmed by the Tribunal. There is no justification to interfere with the findings arrived at by the Commissioner and confirmed by the Tribunal. In our opinion, the Tribunal, therefore, rightly, upheld the decisions of the Commissioner (Appeals). The items of expenditure which were disallowed do not qualify for weighted deduction under section 35B(1) of the Act. In our opinion, therefore, the assessee is not entitled to claim weighted deduction which were rightly disallowed under section 35B(1) of the Act.
10. No distinguishing features are successfully pointed out on behalf of the assessee to depart from the view taken by the Tribunal. Learned counsel, Mr. Mehta, for the assessee has, fairly and rightly, submitted that the authorities below have applied the decision of the Special Bench of the Tribunal in the case of Hemchand and Co., and he has not been able to show any material which would warrant interference with the impugned decision.
11. We fully agree with the view taken by the Tribunal and confirm its conclusions. We, therefore, hold that the assessee is not entitled to claim weighted deduction in respect of the aforesaid items of expenditure disallowed by the authorities below. On facts and in the circumstances of the case, we are of the opinion that the Tribunal was justified in law in holding that the assessee is not entitled to weighted deduction under section 35B(1) of the Act in respect of the following items:
Sl. No. Item Assessment year 1976-77 Assessment year 1977-78 1. Packing and forwarding expenses 1,26,000 2,39,728 2. Insurance 6,166 22,763 3. Audit fees 2,500 2,500 4. Postage, telegram and telephone 11,102 20,473 5. Travelling, etc. 26,596 30,566 6. Printing and stationery 3,692 8,648 7. Advertisement 23,311 29,065 8. Salaries, wages and bonus 14,811 12,229 9. Miscellaneous charges 27,237 45,645
12. In the result, the question referred to us for our opinion and as modified by us, in respect of the above items in the foregoing paragraphs is answered in the affirmative and against the assessee.
13. Reference answered accordingly with no order as to costs.
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