Zenith Steel Pipes Ltd. (No. 2) vs Commissioner of Income Tax

S.P. Bharucha, J.—The question that arises for consideration in this reference at the instance of the assessee reads thus :

"Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction u/s 35B(1)(a) of the Income Tax Act, 1961, of Rs. 43,000 in its assessment for the accounting period relevant to the assessment year 1970-71 ?"

The statement of case states that the admitted facts are "that the assessee was allocated an amount of Rs. 43,000 by the Engineering Export Promotion Council, Calcutta, under its general foreign publicity scheme. Out of the aforesaid amount, the assessee was to contribute 2/3rds, i.e., Rs. 26,668, and the balance 1/3rd amounting to Rs. 14,332 was to be subsidised by the Engineering Export Promotion Council. Admittedly, the said amount was spent by the assessee during the year under consideration in a foreign publicity scheme. The stand of the assessee before the Income Tax Officer for the allowance of weighted deduction in respect of the said amount of Rs. 43,000 was that the said expenditure was incurred by it not only out of its own funds but with the funds provided by the Engineering Export Promotion Council, and u/s 35B, it was entitled to weighted deduction in respect of the entire expenditure of Rs. 43,000. The Income Tax Officer allowed the said deduction only in the sum of Rs. 26,668 and not "in respect of the expenditure incurred on foreign publicity by the Engineering Export Promotion Council." The Appellate Assistant Commissioner''s order set out the facts in the same manner. He upheld the Income Tax Officer''s order. The Income Tax Appellate Tribunal also set out the facts in the same manner. It defined the word "expenditure", declined to reply upon a circular of the Central Board of Direct Taxes pointed out on behalf of the assessee, and upheld the Appellate Assistant Commissioner''s order.

Reliance was placed before us by Mr. Toprani, learned counsel for the assessee, upon the circular of the Central Board of Direct Taxes dated July 6, 1968. It says that the expenditure incurred by a taxpayer through participation in joint export promotion arrangements with others would qualify for weighted deduction.

We find ourselves unable to answer the question that has been posed because we are unsure of the facts. It is not clear (a) whether the expenditure on foreign publicity was incurred by the Engineering Export Promotion Council and the amount of Rs. 43,000 was allocated for payment to the assessee, with the stipulation that Rs. 14,332 (1/3rd) would be treated as a subsidy; or (b) whether the amount of Rs. 43,000 was expended by the assessee having first received the subsidy of Rs. 14,332 from the Engineering Export Promotion Council; or (c) whether the subsidy was received after the expenditure of Rs. 43,000 had been incurred by the assessee. It seems to us, having regard to the relevant statutory provision, that different considerations would prevail in each of these contingencies. Unless, therefore, we could be certain as to the true state of affairs, we cannot answer the question.

Had the papers in regard to the joint publicity scheme of the Engineering Export Promotion Council been included in the reference, we may say, we might have ascertained the position for ourselves.

In the circumstances, we return the reference with the question unanswered.