Commissioner of Income Tax vs Bombay Dyeing and Manufacturing Co. Ltd.

T.D. Sugla, J.—In this departmental reference relating to the assessee''s assessment for the assessment year 1969-70, 1970-71 and 1971-72, the Tribunal has referred to this court the following two questions of law for opinion :

"1. Whether, on the fact and in the circumstances of the case, the cash allowances paid by the assessee in the accounting periods relevant to the assessment years 1969-70, 1970-71 and 1971-72 to its employees in the nature of house rent allowance, entertainment allowance, telephone charges, etc., were perquisites for the purpose of section 40(c)(iii)/40(a)(v) of the Income Tax Act, 1961 ?

Whether, on the fact and in the circumstances of the case, the assessee was entitled to weighted deduction in respect of its expenditure on insurance and the interest paid in London by it on bank overdrafts under the provisions of section 35B(1)(b)(iv) of the Income Tax Act, 1961, for the assessment years 1969-70/1970-71/1971-72 ?"

Counsel are agreed that, in view of our court''s judgement in the case of Commissioner of Income Tax, Bombay City-II Vs. Indokem Private Ltd., , the first question is to be answered in the negative and in favour of the assessee. The question is so answered.

As regards the second question, the relevant facts in brief are that the assessee-company, as in the pas, had been carrying on the business of manufacture and sale of cloth during the years under reference. For the purpose of exporting cloth out of India, the assessee had also a branch at Bodnia in London. Admittedly, the assessee incurred certain expenditure such as insurance on the stock of goods in London and interest on bank overdraft also at London and claimed weighted deduction u/s 35B of the Income Tax Act, 1961. The Income Tax Officer disallowed the claim without any discussion in the orders. The Appellate Assistant Commissioner accepted the claim observing that the claim fell within the provisions of section 35B(1)(b)(iv) being expenditure relating to the maintenance outside India of a branch office or agency for promotion of sale outside India of Such goods. The departmental appeal was rejected by the Tribunal more or less on the same ground.

The admitted position is that the expenditure in question has been incurred on maintaining a branch shop at Bodnia, London. That branch was opened for the purpose of facilitating the export of cloth by the assessee outside India. The nature of the expenditure has already been referred to by us above. It is insurance on the stock of cloth in the shop and interest on bank overdraft, both abroad. Section 35B(1)(b)(iv) clearly provides for allowance of weighted deduction u/s 35B in respect of expenditure on maintenance outside India of a branch, shop or agency for the promotion of the sale outside India of such goods, services or facilities. In our view, the Tribunal was wholly right in agreeing with the Appellate Assistant Commissioner that the nature of the expenditure was such that it clearly fell within this clause.

Accordingly, agreeing with the Tribunal, we answer the second question in the affirmative and in favour of the assessee.

No order as to costs.