DR. BECK & CO. (INDIA) LTD. VS COMMISSIONER OF INCOME-TAX
1995 P T D 1199
[206 I T R 311]
[Bombay High Court (India)]
Before Dr. B.P. Saraf and D.R. Dhaunka, JJ
DR. BECK & CO. (INDIA) LTD.
Versus
COMMISSIONER OF INCOME-TAX
Income-tax Reference No. 313 of 1981, decided on /01/.
th
September, 1993. (a) Income tax---
----Export markets development allowance---Weighted deduction-- Agreement with German Company for supply of goods to certain countries-- Expenditure in obtaining permission to sell goods to countries other than those specified in the agreement---Not entitled to weighted deduction---Export inspection charges---Loading and unloading charges---Not entitled to weighted deduction---Indian Income Tax Act, 1961, S.35-B.--[Union Carbide India Ltd. v. CIT (1987) 165 1TR 558 (Cal.) dissented from].
Sub-clause (vi) of clause (b) of section 35-B(1) of the Income Tax Act, 1961, allows weighted deduction in respect of expenditure incurred by the assessee wholly and exclusively on furnishing to a person outside India samples or technical information for the promotion of sale of goods, services or facilities which the assessee deals in or provides in the course of his business. A close reading of sub-clause (vi) clearly goes to show that .it refers to expenditure on furnishing. "to a person outside India" samples or technical information for the promotion of sale of such goods, etc. meaning thereby sales promotion expenditure restricted to furnishing of samples and technical information. Export inspection charges are paid at the time of the export of the goods for inspection thereof by the appropriate authorities which is a condition precedent for export. It does not fall in sub-clause (vi) of section 35-B(1)(b). Expenditure incurred on inspection of goods in India for export, commonly referred to as "export inspection charges", is undoubtedly an expenditure incurred in India in connection with the supply of goods outside India and, as such, falls in the exclusion contained in sub-clause (iii)' of clause (b) of section 35-B(1). So no weighted deduction under section 35-B is allowable on export inspection charges.
Held, (i) that the amount paid to the German Company for the grant of permission to the assessee to sell its goods to countries other than the countries in which it was required to sell under the agreement with the German Company was not entitled to weighted deduction.
Beck (Dr.) & Co. (India) Ltd. v. CIT (1993) 202 ITR 922 (Bom.) fol.
(ii) that with regard to expenses on loading and unloading, the expenditure was incurred in India in connection with despatch of goods out of India and in view of the specific prohibition contained in sub-clause (iii) of clause (b) on allowance of weighted deduction on such expenditure, the assessee was not entitled to weighted deduction in respect thereof.
Union Carbide India Ltd. v. CIT (1987) 165 ITR 558 (Cal.) dissented from.
Arun Sathe for the Assessee.
Dr. V. Balasubramaniam with J.P. Devadhar for the Commissioner.
JUDGMENT
DR. B.P. SARAF, J.---By this reference under section 256(1) of the Income Tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this Court for opinion:
"Whether the assessee's claim for weighted deduction under section 35-B in respect of the following items could be allowed:
(1)Rs. 5,04,521 being the amount paid to Dr. Beck & Co., A.G. Germany, factually for the grant of permission to the assessee to sell its goods to countries other than the countries in which it was required to sell in the agreement with the German Company?
(2)Rs. 76,604 being expenditure on export inspection charges?
(3)Rs. 1,05,703 being the export expenses incurred on loading and unloading charges?"
As regards the claim for weighted deduction in respect of expenditure referred to in item No. 1 of the above question, we find that a similar controversy came to be considered by this Court in the assessee's own case in respect of an earlier assessment year in Dr. Beck & Co. (India) Ltd. v. CIT (1993) 202 ITR 922. The payment in that case was also made to Dr. Beck & Co. in respect of similar services in pursuance of the very same agreement. On consideration of the services for which payment of commission was made by the assessee, it was observed by this Court:
"In the instant case, there was already an agreement with the German Company to supply goods to certain Asian countries without any payment of commission. However, when the assessee thought of exporting goods to the U.S.S.R., it approached the German Company for the necessary permission. The German Company agreed to the supply of such goods to the U.S.S.R. provided it was paid commission on certain percentage basis. Surely this type of arrangement cannot fall within the purview of sub-clause (iii) of clause (b) of subsection (1) of section 35-B of the Act."
Counsel for the assessee does not dispute the fact that the payment in the present case also pertains to the very same agreement which was the subject-matter of controversy before this Court in the above decision in the assessee's own case. He, however, submits that in the above case, this Court did not consider as to how this amount was treated in the hands of the recipient company. He, therefore, wants this Court to consider the fact as to how the Revenue treated the said amount in the bands of the German Company and the effect thereof on the claim of the company for weighted deduction under section 35-B of the Act.
We have considered the above submission. We do not find that any such submission was ever made by the assessee even before the Tribunal nor do we find any reference thereto or the relevant facts in that connection in the statement of the case. Learned counsel for the assessee wants this Court either to take judicial notice of those facts or to remand the case to the Tribunal for reconsideration of the matter by bringing them, on record. We do not find any force in the above submission. We, therefore, reject the same and, following the decision of this Court in the assessee's own case referred to above, hold that the Tribunal was justified in rejecting the claim of the assessee for weighted deduction under section 35-B in respect of amounts paid to Dr. Beck & Co., Germany for grant of permission to the assessee for sale of the goods to countries other than countries in which it was required to sell its products.
The next grievance of the assessee is in regard to disallowance of its claim for weighted deduction under section 35-B of the Act in respect of the expenditure incurred by it on export inspection charges. According to the assessee, such expenditure falls in sub-clause (vi) of clause (b) of section 35 B(1) of the Act. In support this contention reliance is placed on a decision of the Calcutta High Court in Union Carbide India Ltd. v. CIT (1987) 165 ITR 558. We have considered the above submission. Sub-clause (vi) of clause (b) of section 35-B(1) allows weighted deduction in respect of expenditure incurred by the assessee wholly and exclusively on furnishing to a person outside India samples or technical information for the promotion of sale of goods, services or facilities which the assessee deals in or provides in the course of his business. The question which falls for our determination is whether expenditure incurred by the assessee on inspection of the goods and certification thereof at the time of despatch of such goods outside India, termed as "export inspection charges", amounts to expenditure in furnishing to a person outside India technical information for promotion of sale of his goods, services or facilities.
On a careful consideration of sub-clause (vi) of clause (b) of section 35-B(1) of the Act, we find it difficult to hold that the export inspection charges paid by the assessee can be termed as expenses incurred wholly and exclusively "on furnishing to a person outside India technical information for the promotion of the sale of such goods" within the meaning of sub-clause (vi). A close reading of sub-clause (vi) clearly goes to show that it refers to expenditure on furnishing "to a person outside India" samples or technical C information for the promotion of sale of such goods, etc., meaning thereby sales promotion expenditure restricted to furnishing of samples and technical information. Export inspection charges are paid at the time of the export of the goods for inspection thereof by the appropriate authorities, which is a condition precedent for export. In fact and in reality it is an expenditure incurred wholly and exclusively on the despatch of the goods out of India. It, therefore, does not fall within sub-clause (vi) of section 35-B(1)(b). It can at the most be termed as an expenditure incurred in India in connection with supply outside India of the goods dealt in by the assessee. No weighted deduction is allowable in respect of such expenditure by virtue of the specific exclusion contained in sub-clause (iii) of clause (b). Sub-clause (iii), which refers to expenditure incurred on "distribution, supply. or provision outside India of such goods, services or facilities", specifically excludes expenditure incurred in India in connection therewith when it says:
"distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith...:"
Expenditure incurred on inspection of goods in India for export, commonly referred to as "export inspection charges", is undoubtedly an expenditure incurred in India in connection with the supply of goods outside India and, as such, falls in the exclusion contained in sub-clause (iii) of clause (b) of section 35-B(1) of the Act. Counsel for the assessee relied on the decision of the Calcutta High Court in Union Carbide India Ltd. v, CIT (1987) 165 ITR 558, wherein export agency inspection fees paid by the assessee for the purpose 'of obtaining a certificate was held to be an expenditure incurred, for furnishing to a person outside India technical information for the purpose of promotion of sale of such goods within the meaning of sub-clause (vi) of section 35B(1)(b) of the Act on the ground that such .a certificate was a necessary requirement for the export of the goods.
We have carefully considered the above decision. However, in view of the foregoing discussion we find it difficult to accept the same. In our opinion; "any expenditure incurred in India" for the purpose of export squarely falls in the exclusion contained in sub-clause (iii) of section 35-B (1)(b) of the Act as it is an expenditure in connection with "the supply outside India of such goods". We find it extremely difficult to hold it to be an expenditure on furnishing to person technical information for the promotion of the sale of such goods. Neither the inspection by the authorities have any nexus with technical information for promotion of sales nor does the certificate contain any such information. In that view of the matter, we are of the clear opinion that, the Tribunal was justified in disallowing weighted deduction in respect of expenditure on export inspection charges.
So far as the disallowance of the claim of the assessee for weighted deduction on expenses incurred on loading and unloading is concerned. We find that such expenditure is expenditure in India in connection with the despatch of goods out of India and in view of the specific prohibition contained in sub-clause (iii) of clause (b) on allowance of weighted deduction on such expenditure, the assessee is not entitled to weighted deduction in respect thereof.
In view of the foregoing discussion, we answer the question referred to us in the negative, i.e. in favour of the Revenue and against the assessee.
No order as to costs.
M.BA./803/T.F. Reference answered.