N.K Agrawal, J.:— This is an application by the Commissioner of Income-tax, under section 256(2) of the Income-tax Act, 1961 (for short “the Act”), seeking a direction to the Income-tax Appellate Tribunal, Delhi Bench-“D”, Delhi (the Tribunal), to refer, for opinion of this court, the following questions of law for the assessment year 1981-82’:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the sum of Rs. 19,021 representing commission paid to foreign agents under section 35B(1)(b)(i) without giving any specific interpretation of various clauses contained in section 35B(1)(b)(ii) of Income-tax Act?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 90,254 made on account of ex gratia payment under section 36(1)(ii) without discussing the provisions of that section?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs. 25,000 made on account of disallowance towards building fund of the Punjab and Haryana Chamber of Commerce was an allowable business expenditure?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs. 23,872 made under section 40(c) by relying the case of Glaxo Laboratories (India) Ltd. v. Second ITO, [1986] 18 ITD 226 (Bom) and in not accepting the contention of the Department in view of the judgment of the Delhi High Court in the case of Instalment Supply Pvt. Ltd., New Delhi.…Applicant v. Commissioner Of Income-Tax…, [1984] 149 ITR 457?
5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs. 1179,703 made under section 80J by ignoring the decision of the Kerala High Court in the case of Chembra Peak Estates Ltd. v. CIT, [1972] 85 ITR 401, which is at par with the facts of the present case?”
Question No. 1:
2. The assessee claimed deduction under section 35B of the Act on expenditures amounting to Rs. 1,54,152. The Assessing Officer allowed deduction in respect of export promotion expenses amounting to Rs. 84,026 only and disallowed deduction in respect of the other items of expenditure. The assessee went in appeal against the disallowance of deduction claimed under other heads of expenditure. The Commissioner of Income-tax (Appeals) allowed deduction under section 35B of the Act in respect of commission amounting to Rs. 69,556. The Department challenged the order of the Commissioner before the Tribunal. On a concession made by counsel for the assessee, the Tribunal withdrew the relief of deduction granted by the Commissioner on expenditures amounting to Rs. 50,535. Deduction claimed by the assessee, in respect of the commission amounting to Rs. 19,021 paid to foreign agency for arranging export, was allowed by the Tribunal. It is this order of the Tribunal allowing deduction of Rs. 19,021 under section 35B which is under reference. On a perusal of the order of the Tribunal, it is not clear as to which of the sub-clauses of clause (b) of sub-section (1) of section 35B were attracted so as to allow deduction of the commission paid to the foreign agents. It was necessary to examine as to which sub-clause was attracted.
3. The Supreme Court in Commissioner Of Income Tax, Delhi v. Stepwell Industries Ltd., [1997] 228 ITR 171, has observed as under (page 174):
“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 the various sub-clauses of clause (b) of section 35B(1). Merely because some activities took place outside India that will not qualify the expenditure for the deductions mentioned in 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 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 subclauses. 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.”
4. In the light of the observation made by the Supreme Court, it would be necessary to examine and verify whether the expenditure incurred on the payment of commission to foreign agents would fall under any of the sub-clauses of clause (b) of section 35B(1) of the Act. The question is, therefore, remitted to the Tribunal for verifying the facts and to ascertain the activities in respect of which the expenditure was incurred by the assessee. It shall be kept in view that certain sub-clauses were omitted by the Finance (No. 2) Act, 1980, with effect from April 1, 1981. If the expenditure has not been incurred on any of the activities specified in the sub-clauses of clause (b) of section 35B(1) of the Act, it would not qualify for deduction.
Questions Nos. 2 and 3:
5. Question No. 2 relates to the ex gratia payment and question No. 3 is regarding a payment towards the building fund of the Chamber of Commerce. These are matters decided by the Tribunal on appreciation of evidence. Therefore, these do not give rise to any question of law. These are based on finding of facts and appreciation of evidence. Both the questions are, therefore, declined.
Question No. 4:
6. This question relates to reimbursement of medical expenses in cash to the employees and the director.
7. The Supreme Court in CIT v. Mafatlal Gangabhai and Co. (P.) Ltd., [1996] 219 ITR 644, has considered a similar question and has held that cash payments shall be treated as part of salary and will be subject to the limits or ceiling, if any, in that behalf but these cannot be brought within the purview of the words “any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite.”
8. This court in Sukhjit Starch and Chemicals Ltd. v. CIT, [1996] 221 ITR 308, also held, following the decision of the Supreme Court in CIT v. Mafatlal Gangabhai and Co. (P.) Ltd., [1996] 219 ITR 644,-that reimbursement of medical expenses of the director of a company is not a benefit or amenity within the meaning of section 40(c) and section 40A(5) of the Act and cannot be disallowed.
9. Question No. 4, thus is no more res integra and is not a referable question of law and is, therefore, declined.
Question No. 5:
10. The assessee claimed deduction under section, 80J of the Act at Rs. 1,79,703 on the ground that three Glost Kilns were separate industrial undertakings set up by the assessee during the year. It was claimed that those units satisfied the conditions laid down in section 80J. Copies of the profit and loss account and balance-sheets of all the three separate units were filed. The Assessing Officer, however, took the view that the addition of a new Glost Kiln did not constitute a separate industrial undertaking but was merely an addition to the existing unit. The Assessing Officer also held that no separate books of account had been maintained for any of the kilns and separate books of account of the units were prepared by the assessee after estimating the sales and expenses in the case of each unit. The basis of such estimates was not explained by the assessee. The Assessing Officer further noticed that there was no increase in the capital employed by the assessee during the year in question. The Assessing Officer, therefore, declined to allow deduction under section 80J of the Act.
11. The Commissioner of Income-tax, on the assessee's appeal, allowed relief under section 80J and directed the Assessing Officer to verify the amount of capital employed by the assessee in each kiln and to allow deduction accordingly. The Tribunal dismissed the Department's appeal against the order of the Commissioner.
12. Shri R.P Sawhney, learned senior counsel for the Department, has argued that a question of law does arise from the order of the Tribunal inasmuch as the findings recorded by the Assessing Officer in his assessment order did not permit any deduction in respect of the profits of the newly established unit of the assessee because the conditions laid down in section 80J had not been fulfilled. Shri Sawhney has placed reliance on three decisions of the Supreme Court. In Textile Machinery Corporation Ltd. v. CIT, [1977] 107 ITR 195, the question had arisen before the Supreme Court under section 15C of the Indian Income-tax Act, 1922, and the specific issue related to reconstruction of old business. It was held that the new industrial unit of the assessee could not be said to be reconstruction of his old business as there was no transfer of any asset of the old business to the new undertaking. In CIT v. Indian Aluminium Co. Ltd., [1977] 108 ITR 367 (SC), also, a similar matter was examined by the Supreme Court under section 15C of the Indian Income-tax Act, 1922. In that case, the assessee had established one more centre at Muri and also had made extension to the existing centres at Belur and Alupuram. It was held that the benefit of section 15C was rightly allowed to the assessee. In Lohia Machines Ltd. v. Union of India, [1985] 152 ITR 308 (SC), the question before the Supreme Court related to the interpretation of the expression “capital employed”.
13. The controversy raised in the question, in the case in hand, does give rise to a question of law. In the cases referred to above and, decided by the Supreme Court, the controversies were different. On a consideration of the controversy in the case of the assessee here, the following question of law is found to arise from the order of the Tribunal:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing deduction under section 80J of the Income-tax Act, 1961, though the assessee did not maintain separate books of account in relation to the new units and had drawn the balance-sheet on estimate basis and, there was no increase in the capital employed and, thus, the assessee did not satisfy the conditions specified in section 80] of the Act?”
14. The Tribunal is directed to draw up a statement of case and refer the aforesaid question of law to this court for opinion.