Commissioner of Income Tax vs F.C. Sondhi and Co.

At the instance of the Revenue, the ITAT, Amritsar Bench, Amritsar (for short ''the Tribunal''), has referred the following question of law arising out of its order dt. 28th Aug., 1981, relating to the asst. yr. 1978-79 for the opinion of this Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing weighted deduction u/s 35B to the assessee on the following expenses :

Foreign telex & telephone expenses : 60% 2. Ad hoc contribution to sports goods export promotion 100% council : 3. Foreign postage : 60% 4. ECGC charges : Nil 5. Samples : 100% 6. Export promotion expenses entertainment and travelling 100% expenses on foreign visitors : 7. Postage on samples : 100% 8. Foreign commission : 100% 9. Establishment expenses : 60% payment on certain employees and 30% on balance 10. Printing and stationery : 40% 11. Vehicle repair and maintenance : l/3rd 12. Directors meeting fee : 50% 13. Foreign travelling expenses : 100% 14. Advertisement and publicity outside India : 100%"

Mr. Sanjay Bansal, learned counsel for the assessee, has pointed out that the Tribunal has granted this relief on the basis of its earlier order in assessee''s own case for the asst. yr. 1976-77 which has since been upheld by this Court in Commissioner of Income Tax Vs. F.C. Sondhi and Co. (India) Pvt. Ltd., .

Although this contention of the learned counsel for the assessee is correct, yet it must be noticed that thereafter the Supreme Court in Commissioner of Income Tax, Delhi Vs. Stepwell Industries Ltd. and etc. etc., and Commissioner of Income Tax (CNTL), Ludhiana Vs. Hero Cycles Pvt. Ltd., Ludhiana, has held that weighted deduction u/s 35B of the IT Act, 1961 (for short ''the Act''), can only be granted if the assessee is able to establish that the expenditure had been incurred wholly and exclusively in respect of the activities mentioned under various clauses of Section 35B(1)(b) of the Act. We find that no such exercise had been undertaken either in the asst. yr. 1976-77 or in the year under consideration. In Stepwell Industries Ltd.''s case (supra), the Supreme Court, at p. 175 has observed as under:

"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 sub-clauses. 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."

Similarly, in Hero Cycles (P) Ltd.''s case (supra) the apex Court, at p. 469 has observed as under :

"In this case a large number of questions were sought to be raised. We shall deal with only the question relating to Section 35B. It appears that the Tribunal was totally unmindful of the various sub-clauses of Section 35B(1)(b). Expenses can only be allowed if they are wholly and exclusively incurred for any of the purposes mentioned in these sub-clauses. The section is quite clear and categorical. There is no way that any other expenditure can be given weighted deduction. u/s 35B, it is the assessee''s duty to prove facts which will bring the case within any of these sub-clauses. Unless that is done the assessee will not be entitled to get this deduction. The Tribunal has allowed the deduction without verifying or examining the sub-clauses under which this could be allowed."

The matter, therefore, needs to be decided afresh in the light of the law laid down by the apex Court in CIT v. Stepwell Industries Ltd. and Ors. (supra) and CIT v. Hero Cycles (P) Ltd. and Ors. (supra).

Accordingly, we set aside the findings of the Tribunal on this issue and restore the matter to the Tribunal for fresh adjudication. It is made clear that while redeciding the matter, the assessee will be afforded sufficient opportunity to establish and justify its claim under various clauses of Section 35B of the Act.

In view of the above observations, the question referred to us is answered in the negative, i.e., against the assessee and in favour of the Revenue and the matter is remitted back to the Tribunal.