Commissioner of Income Tax vs Sahney Kirkwood Pvt. Ltd.

DR. B.P. Saraf, J.—The Income Tax Appellate Tribunal, Bombay Bench "C", Bombay ("the Tribunal"), has referred the following question of law to us for our opinion u/s 256(1) of the Income Tax Act, 1961 (for short "the Act"), at the instance of the Revenue:

"Whether, on the facts and in the circumstance of the case, the Tribunal was right in law in holding that the assessee was eligible for the export markets development allowance in respect of the expenditure incurred by Shri W. P. Kirkwood, director, in U. S. A. for visiting India u/s 35B(1)(b)(vii) of the Income Tax Act, 1961? "

The assessee is a private limited company. The controversy arises our of the Income Tax assessment of the assessee for the assessment year 1977-78 for which the previous year is the year ended on May 31, 1976. The assessee is engaged in the manufacture of commutators, slippings, copper rollings and strips, carbon brushes, micanite, etc. The assessee also exports some of these items. In its assessment for the above assessment year, the assessee claimed weighted deduction u/s 35B of the Act on Rs. 27,706 being the traveling expenses of Mr. W. P. Kirkwood. Mr. Kirkwood, besides, being the director of the assessee-company, was also the director of Kirkwood Ind. Inc., Cleveland, Ohio, U. S. A., of which the assessee-company was a collaborator. Mr. Kirkwood used to visit India occasionally and bring export orders from the U. S. A. and other countries. The expense for his air passage was borne by the assessee-company. The traveling expense incurred on him to visit India during the relevant previous year amounted to Rs. 27,706. The assessee claimed deduction in respect of the above expenditure which was not allowed by the Income Tax Officer as he was of the view that the clause (vii) of section 35B(1)(b) covers only expenses for traveling outside India for the promotion of sale outside India and that the expenses for traveling from a foreign country to India cannot be allowed. On appeal by the assessee, the Commissioner of Income Tax (Appeals) held that the director had exploited the possibility of export promotion when he was abroad and his visit to India was in connection with the export to foreign countries and that the claim was, therefore, allowable under clause (vii) of section 35B. The above order of the Commissioner (Appeals) was upheld by the Tribunal. Hence, this reference at the instance of the Revenue.

We have carefully considered the controversy in this case. Section 35B of the Act provides for grant of export markets development allowance (weighted deduction) in respect of expenditures specified therein incurred by an assessee during the previous year. The various expenditures in respect of which weighted deduction is allowed are specified in clause (b) thereof. Section 35B, so far as is relevant, reads as under:

"35B. (1) (a) Where an assessee, being a domestic company.... has incurred.... any expenditure.... 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 -....

(vii) traveling outside India for the promotion of the sale outside India of such goods, services or facilities, including traveling outward from, and return to, India. "

From a plain reading of this clause, it is clear it deals with expenditure incurred on "traveling outside India" for the purposes mentioned therein, i. e., traveling outward from and return to India and not vice versa. It does not deal with expenses incurred on traveling from abroad to India. In the instant case, the expenditure in question was incurred on traveling of Mr. W. P. Kirkwood from Cleveland to Bombay and back. This expenditure evidently does not fall within sub-clause (vii) of clause (b) of section 35B of the Act. Tribunal was, therefore, not justified in holding that the assessee was entitled to weighted deduction in respect thereof.

In the premises, we answer the question referred to us in the negative and in favour of the Revenue. No order as to costs.