AI Structured Summary
Not yet generated for this judgment
Judgment
T. Kochu Thommen, J.—Pursuant to the judgment of this court in O. P. Nos. 2442 and 2443 of 1977, the following two questions have been referred to us by the Income Tax Appellate Tribunal, Cochin Bench :
" 1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that expenses incurred by the assessee towards storage and duty are entitled to weighted deduction u/s 35B of the Income Tax Act ?
Whether, on the facts and in the circumstances of the case, there are materials for the Tribunal to hold that expenses towards storage and duty are incurred after the carriage of goods to the destination and is not the above finding of the Tribunal wrong and unsustainable in law and fact ? "
The assessee''s claim for weighted deduction u/s 35B(1)(a) and (b)(iii) for the assessment years 1969-70 and 1971-72 was disallowed by the Income Tax Officer. It was allowed on appeal by the Appellate Assistant Commissioner. The Revenue appealed to the Tribunal against that decision, but without success.
The relevant section, in so far as it is material, reads :
" 35B. (1)(a) Where an assessee........... has incurred after the 29th day of February, 1968, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in Clause (b), he shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year: .........
(b) The expenditure referred to in Clause (a) is that incurred wholly and exclusively on--.........
(iii) distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods, to their destination outside India or on the insurance of such goods while in transit.......... "
This section was interpreted by this court in ITR No. 71 of 1972 in K. E. Kesavan & Co. v. CIT (see Appendix p. 608 infra) in the following words (at p. 610);
"From the above, it follows that a claim for weighted deduction in respect of expenditure incurred can be claimed only if the following conditions are satisfied :
(1) it should not have been incurred in India ;
(2) it should not be expenditure incurred on the carriage of goods to destinations outside India ; and
(3) it should not be expenditure on the insurance of such goods while in transit.
It, therefore, follows that expenditure incurred on the carriage of goods to destinations outside India and those incurred on the insurance of such goods while in transit do not qualify for weighted deduction. According to the assessee, expenses incurred for carriage of goods after their landing at the port of destination to places where they were sold or delivered, also qualify for weighted deduction. We agree with the Tribunal that this claim is unsustainable. Goods are admittedly sold only as the assessee''s goods on consignment basis by the assessee''s foreign agents. When such goods are carried from the port of destination to other places where they are ultimately sold and delivered, it would still be carriage of the assessee''s goods to destinations outside India and, therefore, expenses incurred would not qualify for weighted deduction. The expression '' destination '' in Sub-clause (iii) of Clause (b) of Sub-section (1) of Section 35B cannot mean the port of destination mentioned in the bills of lading. It would include the ultimate places where the goods are taken and sold. In this view, the expenses incurred under the above items would be expenses incurred in respect of distribution of goods outside India which would not qualify for weighted deduction. "
In that case, the destination of the goods did not coincide with the port of discharge. The goods were admittedly carried hinterland where they were sold by the assessee''s agents as goods of the assessee on consignment basis. The claim for deduction of storage expenses at the port of discharge was disallowed for the reason that such expenditure was incurred in the course of the carriage of the goods to their final destination, the storage at the port of discharge being regarded as part of the carriage.
If in the present case also the goods were carried hinterland by or on behalf the assessee to be sold to customers, the storage expenses incurred at New York where the goods were discharged by the vessel would not be an allowable deduction, nor would be the local duty paid at New York after discharge.
The assessee''s claim was disallowed by the Income Tax Officer on a wrong understanding of the law, as is clear from paragraph 5 of his order. This is what he stated :
"In view of the amendment to Section 35(B)(1)(b)(iii), expenditure incurred in connection with the carriage of goods to their destination outside India (wherever occurred) or on the insurance of goods while in transit are not entitled to weighted deduction. Therefore, the claim of deduction u/s 35B is not admissible on.........storage, duty, etc., referred to in 1 and 2 above."
This is not correct. The storage and local duty were liable to be disallowed only if the carriage of the goods at the instance of the assessee did not end at the port where they were discharged by the vessel. There is no finding in the instant case that the carriage of the goods on behalf of the assessee continued even after the termination of the sea voyage. The Officer, on the other hand, apparently assumed, on the facts available to him, that the carriage ended at the port of discharge. According to him, however, expenses incurred at the foreign port after the delivery of the goods were not deductible. On that wrong understanding of the law, he disallowed the claim in respect of storage and local duty. The Appellate Assistant Commissioner presumably considered the relevant facts and came to the conclusion that the section, as he read it, warranted deduction of the amounts claimed by the assessee. Presumably the Officer had before him all the relevant documents such as the contract with the foreign buyer, the bills of lading and connected documents. On the basis of those facts, he allowed the appeals in respect of the two items now in question, namely, storage expenses and local duty.
One would have expected the Revenue to challenge the decision of the Appellate Assistant Commissioner on the ground that, on the facts available to him, the Appellate Assistant Commissioner wrongly held that the deductions were permissible. Such a ground was not taken. All that the Revenue contended in appeal was that the section was wrongly understood by the Appellate Assistant Commissioner in so far as he disagreed with the Income Tax Officer. This is what the Revenue stated in its appeal :
" The Appellate Assistant Commissioner has erred in giving weighted deduction u/s 35B for expenses like dock charges, drayage, storage, duty, etc. He ought to have held that since these expenses go to enhance the value of the goods, they are not entitled for the weighted deduction u/s 35B."
The Revenue had no case that the goods were carried by or on behalf of the assessee hinterland after discharge at New York. The Revenue did not contend before the Tribunal that the section, as understood by this court in ITR No. 71 of 1972 (see Appendix p. 608 infra) did not apply to the facts of this case on the ground that, like in the earlier case, the goods were carried onward to their places of destination by or on behalf of the assessee and, therefore, the expenses incurred in New York by way of storage or local duty were expenses which arose in the course of or in connection with the journey and were, therefore, not deductible. In fact, the Tribunal''s order shows that it was common ground that the goods were carried no further than New York by or on behalf of the assessee. The only argument on behalf of the Revenue appears to have been that the section was wrongly interpreted by the Appellate Assistant Commissioner.
In the circumstances, we must necessarily assume that all the authorities proceeded on the assumption that the carriage of goods ended at New York. When facts are so understood, and in the light of the decision of this court in ITR No. 71 of 1972, we must necessarily come to the conclusion that the section permitted the claim for deduction in respect of storage and local duty. In the circumstances, we answer the questions referred to us in the affirmative, that is, in favour of the assessee and against the Revenue.
We direct the parties to bear their respective costs in these Tax Referred cases.
A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.