Commissioner of Income Tax vs R.N. Oswal Hosiery Factory

The assessee is a registered firm and derives its income from the manufacture of hosiery goods and their sale to U.S.S.R. through its purchase agency, M/s. Rozno Exports. It claimed weighted deduction u/s 35B of the Income Tax Act, 1961 (hereinafter called "the Act"), on payment of commission of Rs. 3,10,749.99 to M/s. Singh and Co., New Delhi, and M/s. Handicraft Handloom Export Corporation, which was disallowed by the Income Tax Officer. The Commissioner of Income Tax (Appeals), on appeal, accepted the claim of the assessee and his order having been confirmed by the Tribunal, the Revenue moved an application u/s 256(1) of the Act for getting the following question referred to this court :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount of Rs. 3,10,749.99 paid as commission to M/s. Singh & Co. New Delhi, and M/s. Handicraft Handloom Export Corporation is entitled to weighted deduction u/s 35B(1)(b) of the Income Tax Act, 1961 ?"

The Tribunal declined the prayer relying on the decision of a Special Bench, whereupon the Revenue moved this petition u/s 256(2) of the Act.

In similar circumstances, in Income Tax Case No. 20 of 1986, decided on May 12, 1986 [CIT v. Bhagat Brothers [1987] 165 ITR 660 (supra) ], we had issued a mandamus to the Tribunal for referring such a question. Now, after hearing Mr. G. C, Sharma, learned counsel for the assessee, we find that the implication of the opinion expressed by the Central Board of Direct Taxes in paragraph 7 of the Instruction No. 1487 dated October 19, 1982, was not correctly projected before us. When closely read, it would be revealed that the Board never opined that the exemption would not be available for the assessment years 1978-79 and 1979-80. Instead, what is stated is that so far as these two years were concerned, no weighted deduction would be available in respect of expenditure incurred on or after April 1, 1978, unless the following conditions were fulfilled :

" (a) The eligible assessee was engaged in-

(i) the business of export of goods and was either a small scale exporter (exporting goods manufactured in his own ''small scale industrial undertaking '') or a holder of an Export House Certificate issued by the Chief Controller of Imports and Exports ; or

(ii) the business of '' provision of technical know-how'' or the rendering of services in connection with the provision of technical know-how, to persons outside India ; and

(b) The expenditure in relation to which weighted deduction has been claimed is incurred by the assessee wholly and exclusively for the purposes of the business referred to in (a) above."

These additional conditions contained in Clauses (a) and (b) of paragraph 7 were introduced by the Finance Act, 1978, with effect from April 1, 1978, and later on omitted with effect from April 1, 1980. In the present case, the assessee is admittedly a holder of an Export House Certificate issued by the Chief Controller of Imports and Exports and, therefore, qualifies for the exemption under Clause (a) referred to above, according to the said instructions of the Central Board of Direct Taxes. As it is not disputed that the instructions issued by the Central Board of Direct Taxes are binding on the Revenue, it would not be open to it to seek a reference of the question noticed above. This petition is, therefore, dismissed but without any order as to costs.