Commissioner of Income Tax vs Twinklers

R.C. Lahoti, J.—These three references u/s 256(1) of the Income Tax Act, 1961, made at the instance of the Revenue raise the following common question of law arising out of the assessment years 1972-73, 1973-74, 1974-75 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing weighted deduction in respect of expenses on packing and forwarding and import license fee u/s 35B(1)(b) of the Income Tax Act, 1961 ?"

From the statement of facts it is disclosed that the assessed had incurred expenses on packing and forwarding. The assessed had also incurred expenses on import license fee. The assessed claimed entitlement for weighted deduction in respect of the said expenses which was disallowed by the Assessing Officer. The assessed preferred appeals to the Appellate Assistant Commissioner with whom the plea of the assessed prevailed and the assessed was held entitled to weighted deduction on both the counts. The Revenue preferred an appeal to the Income Tax Appellate Tribunal which has been dismissed.

So far as the packing and forwarding expenses are concerned, the Tribunal has found that these expenses were incidental to the business activities of the assessed outside India and, Therefore, qualified for weighted deduction u/s 35B(1)(b)(viii) of the Income Tax Act, 1961 (the provision as it stood at the relevant time). As to the import license fee the finding recorded by the Appellate Assistant Commissioner and upheld by the Income Tax Appellate Tribunal is :

"This import license fee has been paid by the assessed in respect of import entitlements granted by the Government to the assessed in lieu of exports as an incentive for further promotion of export. Therefore, in our opinion, this is also an activity incidental to the promotion of exports and is eligible for weighted deduction u/s 35B(1)(b)(vii)/(viii) of the Act. The Income Tax Officer is directed to recompute the weighted deduction admissible to the assessed accordingly."

In Commissioner of Income Tax, Delhi Vs. Stepwell Industries Ltd. and etc. etc., , interpreting Section 35B of the Act, their Lordships have held that the expenses should have been incurred outside India and the onus of proving such entitlement is on the assessee. A bare reading of Sub-clause (viii) of Section (1)(b) of Section 35B shows that the expenditure should have been incurred wholly and exclusively on performance of services outside India and should have been in connection with or incidental to the execution of any contract for the supply outside India of such goods, services or facilities. Packing and forwarding expenses were obviously incurred within the country before exporting the goods. So also the expenses on import license fee cannot be said to have been incurred outside India. None of the expenses is relatable to the performance of services outside India. The Tribunal was not, Therefore, in our opinion, justified, in taking the view which it did. We are also fortified in our opinion by a Division Bench decision of the Punjab and Haryana High Court in Vijay Kumar Aggarwal Vs. Commissioner of Income Tax, .

For the foregoing reasons, the question is answered in the negative, i.e., in favor of the Revenue and against the assessee. Reference is answered accordingly.