WALCHANDNAGAR INDUSTRIES'LTD. VS COMMISSIONER OF INCOME TAX
1996 P T D 40
[206 I T R 328]
[Bombay High Court (India)]
Before Dr. B.P. Saraf and D.R Dhanuka, JJ
WALCHANDNAGAR INDUSTRIES'LTD.
Versus
COMMISSIONER OF INCOME TAX
Income-tax Reference No. 189 of 1992, decided on 07/10/1993.
Income-tax---
----Export markets development allowance---Weighted deduction---Burden of proof---Interest on post-shipment loans---Professional charges for designing for undertaking export contract---No evidence that expenses fell within clause (viii) of S.35-B(1)(b)---Expenses not entitled to weighted deduction-- Indian Income Tax Act, 1961, S.35-B.
In order for an expenditure to fall under clause (viii) of section 35-B(1)(b) of the Income-tax Act, 1961, it must be (i) an expenditure incurred wholly and exclusively on the performance of services outside India; (ii) the services should be in connection with or incidental "to the execution of any contract for the supply outside India of such goods, services or facilities" which the assessee deals in or provides in the course of his business. It is for the assessee who claims deduction under, section 35-B(1) to satisfy the authorities by producing requisite material that the particular expenditure was covered by any of the sub-clauses of clause (b) thereof. In the event of his failure, no weighted deduction can be allowed to him.
Held, (i) that expenditure was incurred by way of interest on loans obtained by the assessee from the banks in India for the purposes of its business. It had nothing to do with performance of any service outside India in connection with the contract of supply of goods by the assessee outside India. The fact that the amount of loan was utilized for giving deferred payment facilities to the foreign buyers will not make it an expenditure incurred on the performance of services outside India. The payment of interest to the banks has no nexus with performance of any service outside India. No material whatsoever was available to show that the expenditure of Rs.20,55,145 was incurred by the assessee on any of the activities speed in sub-clause (viii) of clause (b) of section 35-B(1) of the Act. The Tribunal was right in holding that the assessee was not entitled to weighted deduction under section 35-B(1) of the Act on the interest paid by it to the banks in India and shown in the accounts as "Interest paid on post-shipment loans".
(ii) that so far as the amount of Rs.26,100 being the professional charges paid by the assessee for designing for undertaking the export contract was concerned, the assessee failed to show how such expenditure could fall within sub-clause (viii) of section 35-B(1)(b). The assessee was not entitled to weighted deduction in respect of the amount.
Arun Sathe for the Assessee.
G. S. Jetly with P.S. Jetly instructed by Mrs. S. Bhattacharya for the Commissioner.
JUDGMENT
DR. B.P. SARAF, J.---By this reference under section 256(1) of the Income Tax Act, 1961 ("the Act"), the Income-tax Appellate Tribunal has referred the following two questions at the instance of the assessee:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was not eligible to weighted deduction under section 35-B(1) of the Income-tax Act, 1961, on Rs.20,55,145 in respect of interest paid on post-shipment loans?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was not entitled to weighted deduction in respect of the professional charges paid for designing for undertaking the export contract under section 35-B(1)(b) of the Income-tax Act?"
The assessee is a limited company engaged in the business of manufacture and sale of sugar, alcohol products, plastic goods, industrial machinery, etc. The relevant assessment year is 1975-76. The assessee also exports its products outside India. The export turnover of the assessee during the relevant previous year was to the tune of Rs.5 crores. The assessee claimed export markets development allowance ("weighted deduction") under section 35-B of the Act in relation to expenditure of Rs.1,97,21,549. The Income Tax Officer allowed the claim of the assessee in respect of some of the items only. The claim of the assessee in respect of some of the remaining items was allowed on appeal by the Commissioner of Income-tax (Appeals) and, on further appeal, by the Income-tax Appellate Tribunal ("the Tribunal"). However, the disallowance of the claim of the assessee for weighted deduction in respect of a sum of Rs.20,55,145 being interest paid by the assessee to banks in India on loans which were utilized for giving credit to foreign buyers, described in the accounts of the assessee as "interest paid on post-shipment loans" and a sum of Rs.26,100 being professional charges for designing the export contract was upheld both by the Commissioner of Income-tax (Appeals) and by the Tribunal on the ground that these expenditure did not meet the requirements of section 35-B(1) of the Act. Hence this reference at the instance of the assessee.
The contention of counsel 'for the assessee is that the above expenses are covered by sub-clause (viii) of section 35-B(1)(b) of the Act. Section 35-B(1) provides for allowance of weighted deduction to certain categories of assessees who incur revenue expenditure wholly and exclusively on any of the activities specified in clause (b) thereof. Sub-clause (viii) of clause (b) reads:
"(viii) Performance of services outside India in connection with or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities."
Thus, in order to fall under clause (viii), it must be: (i) an expenditure ' incurred wholly and exclusively on the performance of services outside India; (ii) the services should be in connection with or incidental "to the execution of any contract for the supply outside India of such goods, services or facilities" which the assessee deals in or provides in the course of his business.
In the instant case, the admitted position is that the interest was paid on loans obtained by the assessee from banks in India for the purposes of its business. The contention of the assessee is that the amount borrowed from the banks was used by it for giving credit to foreign buyers. Such activity, according' to him, falls within sub-clause (viii) of section 35-B(1)(b) of the Act. We have carefully considered the submissions of counsel for the assessee. The expenditure was incurred by way of interest on loans obtained by the assessee from the banks in India for the purposes of its business. It is difficult to understand as to how such expenditure can be termed as "expenditure incurred wholly and exclusively on performance of services outside India in connection with, or incidental to, the execution of contract for supply outside India of goods of the assessee". The expenditure was clearly an expenditure on loans obtained in India. It had nothing to do with performance of any services outside India in connection with the contract of supply of goods by the assessee outside India. The fact that the amount of loan was utilized for giving deferred payment facilities to the foreign buyers will not make it an expenditure incurred on performance of service outside India. The payment of interest to the banks has no nexus with performance of any service outside India. Moreover, it is for the assessee who claims deduction under section 35-B(1) of the Act to satisfy the authorities by producing requisite material that the particular expenditure was covered by any of the sub-clauses of clause (b) thereof. In the event of his failure, no weighted deduction can be allowed to him.
In the instant case, we find that no material whatsoever is available to show that the expenditure of Rs.20, 55,145 was incurred by the assessee on any of the activities specified in sub-clause (viii) of clause (b) of section 35-B(1) of the Act. In that view of the matter, we are of the clear opinion that the Tribunal was right in holding that the assessee was not entitled to weighted deduction under section 35-B(1) of the Act on the interest paid by him to the banks in India and shown in the accounts as "Interest paid on post-shipment loans".
So far as the amount of Rs.26,100 being the professional charges paid by the assessee for designing for undertaking the export contract is concerned, counsel for the assessee failed to show how such expenditure can fall in sub clause (viii) of section 35-B(1)(b) of the Act.
Having regard to the above discussion, we are of the clear opinion that the Tribunal was justified in not allowing deduction in respect of the, two items mentioned in the two questions referred to us. We, therefore, answer both the questions in the affirmative and in favour of the Revenue.
Under the facts and circumstances of the case, we make no order as to costs.
M.B.A./973/F,
Reference answered