Commissioner of Income Tax, Delhi vs M/s. Indian Handicrafts Emporium

Devinder Gupta, J.—Following questions of law have been referred to this Court for opinion by the Income Tax Appellate Tribunal, Delhi Bench:

"1. On the facts and in the circumstances of the case, the Tribu nal was not right in law in holding that the sales effected in India against foreign currency also received in India should be considered as export sales for the purpose of deduction u/s 35B of the Income Tax Act, 1961?

On the facts and in the circumstances of the case, the Tribu nal was not justified in law in allowing weighted deduction u/s 35B on sales promotion expenses of the nature of liquor, tea, coffee, etc. which are not covered by the provisions of the Act?"

As per the statement of facts, the assessed a registered firm deals in ivory goods, jewellery and other handicrafts. Part of the sales for Rs. 8,00,000/ during the assessment year 197677 were by way of export of goods outside India. There were certain other sales in India against foreign currency received in India amounting to Rs. 21,00,000/. Proceeds were real in Indian currency but the sales were stated to have been made to foreign nationals. Weighted deduction on the entire expenditure totalling Rs. 8,84,920/ was claimed by the assessee, which was incurred on earning this income. The Income Tax Officer completely denied the claim of the assessee. Commissioner of Income Tax (Appeals) held that the assessed was entitled to get deduction on export of goods outside India to the extent of Rs. 8,00,000/. In respect of other sales, it was held that the assessed was not entitled for weighted deduction. Before the Tribunal reference was made to the order of the Tribunal for the earlier assessment year 197576. On that basis the Tribunal held that the sales to the extent of Rs. 21,00,000/ were against foreign currency received in India, Therefore, the same were export sales. In this background, the first question of law has been referred for opinion.

The question referred are now covered by the decision of the Supreme Court in Commissioner of Income Tax Vs. Step well Industries Ltd. and Others (1997) 228 l.T.R. 171, and Commissioner of Income Tax (CNTL), Ludhiana Vs. Hero Cycles Pvt. Ltd., Ludhiana, . Expenses towards Export Markets Development Allowance can be allowed u/s 35B of the Income Tax Act, 1961, if they are wholly and exclusively incurred for any of the services mentioned in various sub clauses of Sections 35B(1)(b). There is no way for any other expenditure that can be given weighted deduction u/s 35B(1) of the Income Tax Act, 1961.The expenditure cannot be allowed u/s 35B generally, unless it is established by the assessed that the expenditure is wholly and exclusively incurred for any of the purposes mentioned in Sub clauses (i) to (ix) of Clause (b) of Subsection (1) of Section 35B. Some of the sub clauses provide that if the expenditure is incurred in India, it cannot be allowed but in some of the sub clauses the requirement is not there. In such cases, the expenditure may or may not be incurred in India. Every case will have to be examined in the light of the provisions of sub clauses .

On the facts found none of the expenditure is proved to have been wholly or exclusively incurred for any of the purposes mentioned in either of the sub clauses and as such both the questions are answered in affirmative, namely, in favor of the Revenue and against the Assessee.