Commissioner of Income Tax vs New Heaven Bearing Pvt. Ltd.

R.C. Mankad, Actg. C.J.

The assessee is a private limited company and the assessment year under reference is 1975-76. In the course of assessment for the assessment

year under reference, the Commissioner of Income Tax, on examination of the record of the assessment proceedings, came to the conclusion that

the Income Tax Officer had not properly considered the provisions of section 35B(1)(b) of the Income Tax Act, 1961, (""the Act"" for short), and,

consequently, granted excessive relief of weighted deduction under the said provision, in respect of staff working in India as well as commission

paid to the parties in India. The Commissioner, therefore, after giving an opportunity of being heard to the assessee, held that the assessment made

by the Income Tax Officer was erroneous and prejudicial to the interests of the Revenue. He, therefore, set aside the assessment made by the

Income Tax Officer and directed him to examine whether the assessee''s claim in respect of expenditure incurred for the staff working in India as

well as commission paid in India fell under any of the sub-clauses (ii), (v), (vi) and (viii) of section 35B(1) of the Act and, after examining the

question of admissibility of such expenditure, allow appropriate relief.

Being aggrieved by the order passed by the Commissioner, the assessee carried the matter in appeal before the Income Tax Appellate Tribunal

(""the Tribunal"" for short). Before the Tribunal, both the parties agreed that, in considering weighted deduction to be allowed in respect of the

aforesaid items of expenditure, the test and principles laid down in the decision of the Special Bench of the Tribunal in J. Hemchand and Co.

should be directed to be applied instead of the test directed to be applied by the Commissioner. The Tribunal, therefore, directed the Income Tax

Officer to examine the assessee''s claim in the light of the principles laid down in the aforesaid decision. It is in the background of the above facts

that the Tribunal has referred to us, for our opinion, the following question :

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in directing the Income Tax Officer

to apply the tests and principles laid down by the Special Bench of the Tribunal in J. Hemchand and Co. (I.T.A. Nos. 3255 and 3330 (Bom/76-

77) while considering the weighted deduction of the expenditure in question relating to staff working in India as well as commission paid to the

parties in India u/s 35B of the Act ?

It is clear from the order of the Tribunal that both the parties had agreed before it that the Income Tax Officer should be directed to examine the

claim of the assessee in respect of the aforesaid expenditure in the light of the decision of the Special Bench of the Tribunal in the case of J.

Hemchand and Co., and to grant appropriate relief to the assessee. Both the parties agreed that the aforesaid direction should be given in place

and instead of the directness given by the Commissioner in the said order. Since the Tribunal gave the direction with the consent of both the

parties, in our opinion, the question which has been referred to us has to be answered in the affirmative and against the Revenue. In the result, we

answer the question which has been referred to us in the affirmative and against the Revenue.

Reference answered accordingly with no order as to costs.