Commissioner of Income Tax vs Rawat Jewellers

The Tribunal has referred the following question of law arising out of its order dated 2-9-1983 in respect of the assessment year 1979-80 u/s 256(1) of the income tax Act, 1961 (''the Act'') :

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee is a small scale exporter and entitled to weighted deduction u/s 35B of income tax Act, 1961?

The brief facts of the case are that the assessee is engaged in the business of precious and semi-precious stones including import/export thereof and claimed deduction u/s 35B of the Act. The ITO found that as per provisions of section 35B(1A), no deduction can be allowed in respect of expenditure incurred after 31-3-1978, unless the assessee is engaged in the export of goods and is small scale exporter. The Explanation to sub-section (1A) defines small scale exporter as a person which export goods manufactured or produced in any small scale industrial undertaking owned by him. The small scale industrial undertaking was considered having the meaning assigned to it in clause (2) of the Explanation below sub-section (2) of section 32A. The assessee-firm was not having its own plant or machinery and the goods were manufactured outside through labourers. The claim was rejected. In appeal before the Commissioner (Appeals), it was contended that the business of the firm of such a nature does not require any machinery or in any case could not be valued for expending of Rs. 10,000. The Commissioner (Appeals) came to the conclusion that the appellant is a small scale exporter within the meaning of section 35B(1A) and appeal was accordingly allowed. In the second appeal before the Tribunal, the appeal preferred by the revenue was dismissed.

This matter was considered by this Court in Commissioner of Income Tax Vs. Dhandia Gems Corporation, and in view of the interpretation taken in that case, we are of the view that the Tribunal was not justified in holding that the assessee is a small scale exporter and is entitled to get deduction u/s 35B. The reference is accordingly answered in favour of revenue and against the assessee. No order as to costs.