Commissioner of Income Tax vs Nishat Garments and Leathers

R. Jayasimha Babu, J.—The only question referred to us for our consideration at the instance of the Revenue is as to whether the Appellate

Tribunal was correct in law on the facts and in the circumstances of the case in holding that the bank interest paid on packing credit within India is

eligible for weighted deduction u/s 35B of the Income Tax Act, 1961 (in short ""the Act"").

The assessment year is 1979-80. The assessee is a manufacturer of garments and leathers and they claimed weighted deduction in respect of

bank commission and bank interest charges paid by it on the packing credit obtained by it in India. The said claim though initially rejected was

accepted by the Commissioner of Income Tax (Appeals) and upheld by the Tribunal.

The question similar to the present one was considered by a Division Bench of this court in Lucas TVS Ltd. Vs. Commissioner of Income Tax, ,

wherein it was held that any interest paid on borrowing, for the purchase of raw materials including the packing materials, is an expenditure

incurred in the course of or before the manufacturing or processing of goods and it will not fall under item (viii) of Clause (b) of Sub-section (1) of

Section 35B of the Act.

It is clear that the expenditure claimed by the assessee was not an expenditure incurred outside India or an expenditure which was incurred in

the performance of service rendered outside India or in connection with or incidental to the execution of any contract for the supply of the goods

outside India.

We are in agreement with the view expressed by the Division Bench of this court in Lucas TVS Ltd. Vs. Commissioner of Income Tax, . We,

accordingly, answer the question referred to us in thy negative, in favour of the Revenue and against the assessee. The Revenue shall be entitled to

a cost in a sum of Rs. 750 (rupees seven hundred and fifty only).