Commissioner of Income Tax vs Asiatic Sea Foods

Fathima Beevi, J.—The question of law referred in this case by the Income Tax Appellate Tribunal, Cochin Bench, is :

" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that out of Rs. 2,76,182 claimed as storage expenses, the assessee was entitled to weighted deduction u/s 35B of the Income Tax Act, 1961, in respect of Rs. 1,95,818 and was disentitled to such weighted deduction only in respect of the balance of Rs. 80,364?"

The assessee is a registered firm engaged in the business of exporting marine products. During the accounting year relevant to the assessment year 1970-71, the assessee had incurred an expenditure of Rs. 2,76,182 towards storage, handling, etc., outside India. The claim of the assessee for export markets development allowance u/s 35B of the Income Tax Act on this expenditure was disallowed by the Income Tax Officer, but allowed by the Appellate Assistant Commissioner. The expenditure was bifurcated as involving Rs. 80,364 towards carriage of goods and the rest towards storage. The Income Tax Appellate Tribunal found the expenditure of Rs. 80,364 as one not falling within Sub-clause (iii) of Section 35B(1)(b) of the Act and restored the disallowance to that extent. In respect of the balance Rs. 1,95,818, the Tribunal held the view that the expenditure has been incurred after the goods have been brought to their destination for sale and so the assessee is entitled to a deduction u/s 35B of the Act. This finding of the Tribunal is attacked by the Revenue on two grounds.

It is submitted that the Tribunal has not localised the expenditure with reference to any particular sub-clause u/s 35B(1). It is also submitted that the storage of the goods outside India is incidental to the carriage of the goods to the destination and the expenditure is not, therefore, eligible for the weighted deduction. Reference was made to the decision in Commissioner of Income Tax Vs. Cochin Co. P. Ltd., and an unreported decision of this court in Resavan''s case (ITR No. 71 of 1972).

The contentions advanced on behalf of the Revenue are not tenable. On facts, the Tribunal found that the storage charge is for the agent''s cold storage wherefrom the sale is effected. It was pointed out that the consignee takes delivery of the goods, keeps it in his cold storage, watches the market and when there is a favourable market, he sells the goods on the assessee''s behalf and, therefore, it is clear that the storage charged is for the agent''s cold storage. The storage expenses thus incurred by the assessee has been distinguished from storage expenses in transit in the course of the carnage of goods. So long as these facts cannot be disputed, the claim would squarely fall under Sub-clause (iii) of Section 35B(1)(b), the content of which had been clearly stated by the Tribunal even though the Sub-clause had not been quoted. The expenditure incurred wholly and exclusively for distribution and supply outside India of the goods would qualify for weighted deduction so long as such expenditure does not form part of that incurred on the carriage of goods to destinations outside India. When the goods are stored in the foreign agent''s cold storage, the expenditure incurred as storage and handling charges would be expenses on distribution and supply of goods outside India qualifying for weighted deduction. It has also to be noticed that in Kesavan''s case (ITR No. 71 of 1972), the accepted position was that when goods were carried from the port of destination to other places where they are ultimately sold and delivered, such carriage would still be carriage of the assessee''s goods to destinations outside India not qualifying for weighted deduction and that the expenditure incurred for storage and by way of handling charges outside India would qualify for weighted deduction since they are expenses incurred in respect of distribution of goods outside India. This decision has been referred to by the Tribunal which followed the principles stated therein. There is, therefore, no merit in the contention that the expenditure has not been localised by the Tribunal or that the expenditure falls within the excluded category.

Therefore, the question referred to us is answered in the affirmative, viz., against the Revenue and in favour of the assessee. There shall be no order as to costs.

A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.