COMMISSIONER OF INCOME-TAX VS BECK & CO. (IND.) LTD.
2001 P T D 2037
[239 I T R 561]
[Bombay High Court (India)]
Before Dr. B. P. Saraf and Smt Ranjana Desai, JJ
COMMISSIONER OF INCOME‑TAX
Versus
DR. BECK & CO. (IND.) LTD
Income‑tax Reference No.464 of 1987, decided on 15/06/1999.
(a) Income‑tax‑‑‑
‑‑‑‑Business expenditure‑‑‑Initial contribution to superannuation fund‑‑ Entitled to deduction‑‑‑Indian Income Tax Act, 1961, S.36(1)(iv).
On the facts and in the circumstances of the case and having regard to the interpretation of section 36(1)(iv) of the Income Tax Act, 1961, and in holding that the assessee was entitled to a deduction of the entire initial contribution to the superannuation fund as a liability in computing the income of the assessee for the assessment years 1977‑78 and 1978‑79.
CIT v. Sirpur‑Paper Mills (1999) 237 ITR 41 (SC) fol.
CWT v. Sharvan Kumar Swarup & Sons (1994) 210 ITR 886 (SC); Dr. Beck & Co.' (India) Ltd. v. CIT (1994) 206 ITR 311 (Born.) and Forbes Forbes Campbell & Co. Ltd. v. CIT (1994) 206 ITR,495 (Bom.) ref.
(b) Income tax----
‑‑‑‑Export markets development allowance‑‑‑Weighted deduction‑‑ Commission paid and expenditure on loading and unloading not entitled to weighted deduction‑‑‑Indian Income Tax Act, 1961, S.35B.
Tribunal was justified in law in holding that the expenses incurred on loading and unloading would not be eligible for weighted deduction under section 35B for the assessment years 1977‑78 and 1978‑79.
Daryani (M.H.) v. CIT (1993) 202 ITR 731 (Born.) and Carona Sahu Co. Ltd. v. CIT (1995) 213 ITR 106 (Born.) fol.
(c) Income-tax----
‑‑‑‑Export markets development allowance‑‑‑Weighted deduction‑‑‑Law applicable‑‑‑Rule 6AA inserted by Income‑tax (Eighth Amendment) Rules, 1981, is not retrospective in operation‑‑‑Not applicable to assessment years 1977‑78 and 1978‑79‑‑‑Expenditure on export inspection charges paid to Government was not entitled to weighted deduction for assessment years 1977‑78 and 1978‑79‑‑‑Indian Income Tax Act, 1961, S.35B.
Weighted deduction under section 35B(1)(a) of the Income Tax Act; 1961, is available to an assessee specified therein only in respect of expenditure incurred wholly and exclusively on the activities specified in any of the sub‑clauses of clause (b). At the material time, i.e., assessment years 1977‑78 and 1978‑79, clause (b) had nine sub‑clauses. Export inspection charges admittedly do not fall under any of the first eight sub‑clauses. The ninth sub‑clause, which is the last sub‑clause, reads as follows: "such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed". No activities were prescribed at first for the purposes of sub‑clause (ix). It was only with effect from August 1, 1981, that certain activities were prescribed for the purposes of sub‑clause (ix) of clause (b) of subsection (1) of section 35B of the Act by insertion of rule 6AA of the Income‑tax Rules, 1962, by the Income‑tax (Eight Amendment) Rules, 1981, as activities for the promotion of sale outside India or the goods, services or facilities, expenditure on which would qualify for weighted deduction under section 35B(1)(a). Rule 6AA is a substantive provision which creates new rights in favour of the assessee. It cannot operate retrospectively. It is not a procedural rule like rule 1BB of the Wealth Tax Rules, 1957. It would, therefore, be applicable only to expenditure incurred by an assessee after August 1, 19$1, when it came into force. It cannot be applied to expenditure incurred prior to that date:
Held accordingly, that it was not necessary for the purposes of the present reference, which pertained to the assessment years 1977‑78 and. 1978‑79 to examine rule 6AA to decide whether expenditure on export inspection charges would qualify for weighted deduction under section 35B.
The Tribunal was justified in holding that the expenditure on export inspection, charges paid to Government agencies was not eligible for weighted deduction under section 35B for the assessment years 1977‑78 and 1978‑79:
Held also, (i) that the Tribunal was justified in holding that the amounts representing commission paid to Dr. Beck & Co. A.G., West Germany, were not eligible for weighted deduction under section 35B for the assessment years 1977‑78 and 1978‑79.
Dr.Beck & Co. (India) Ltd. v. CIT (1993) 202 ITR 922 (Born.) fol. P.S. Jetley with R.V. Desai for tie Commissioner.
A.P. Sathe for the Assessee.
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 questions of law to this Court for opinion at the instance of the Revenue as well as at the instance of the assessee:
At the instance of the Revenue:
"(1) Whether, on the acts and in the circumstances of the case and having regard to the interpretation of section 36(1)(iv) of the Income Tax Act, 1961, and rules 87 and 88 of the Income‑tax Rules, 1962, the Tribunal was right in law in holding that the assessee was entitled to a deduction of the entire initial contribution to the superannuation fund as a liability in computing the income of the assessee for the assessment years 1977‑78 and 1978‑79?"
At the instance of the assessee:
"(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amounts representing commission, paid to Dr. Beck & Co. A.G., West Germany, were not eligible for weighted deduction under section 35B for the assessment years 1977‑78 and 1978‑79?
(3)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure on export inspection charges paid to Government agencies was not eligible for weighted deduction under section 35B for the assessment years 1977‑78 and 1978‑79?
(4)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the expenses incurred on loading and unloading would not be eligible for weighted deduction under section 35B for the assessment years 1977‑78 and 1978‑79?"
Learned counsel for the parties are agreed that. question No.l is covered by the decision of the Supreme Court in CIT v. Sirpur Paper Mills (1999) 237 ITR 41 and following the same it should be answered in favour of the assessee. In view of the above, question No.l is answered in the affirmative, i.e., in favour of assessee and against the Revenue.
Learned counsel for the parties are further agreed that the controversy in question No.2 stands concluded in. favour of the Revenue by the decision of this Court in Dr. B,rck & Co. (India) Ltd. v. CIT (1993) 202 ITR 922. In view of the above, question No.2 is answered in the affirmative, i.e., in favour of the Revenue and against the assessee.
Learned counsel for the parties are further agreed that question No.4 is covered by the decisions of this Court in M.H. Daryani v. CIT (1993) 202 ITR 731 and Carona Sahu Co. Ltd. v. CIT (1995) 213 ITR 106 in favour of the Revenue. Following the same we answer question No.4 accordingly in favour of the Revenue.
So far as question No.3 is concerned, there is no dispute that the controversy therein stands concluded in favour of the Revenue by the decision of this Court in the assessee's own case in respect of an earlier assessment year in Dr. Beck & Co. (Ind.) Ltd. v. CIT (1994) 206 ITR 311 and Forbes Forbes Campbell & Co. Ltd. v. CIT (1994) 206 ITR 495. In the assessee's case cited above, it was contended by the assessee that export inspection charges fall in sub‑clause (vi) of clause (b) of section 35B(1) of the Act which 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 its business. This contention was rejected by this Court. It was held (page 314 of 206 ITR):
"On a careful consideration of sub‑clause (vi) of clause (b) of section 35B(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 gds' 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 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 with sub‑clause (vi) of section 35B(1)(b)."
It was further held that export inspection charges did not qualify for weighted deduction even under sub‑clause (iii) of clause (b). It was observed (page 314).
"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 35B(1) of the Act ....
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 35B(1)(b) of the Act as it is an expenditure in connection with 'the supply outside India of such good'."
Learned counsel for the assessee, however, submits that the said decision requires reconsideration in view of the provision of rule 6AA of the Income‑tax Rules, 1962 ("the Rules"), which has prescribed certain activities as activities for promotion for sale outside India of goods and services for the purposes of sub‑clause (ix) of clause (b) of subsection (1) of section 35B. He contended that in view of the above rule, the assessee is entitled to weighted deduction under section 35B of the Act on the expenditure incurred on export inspection charges.
Mr. Jetley, learned counsel for the Revenue, on the other hand, submits that the above rule having been inserted by the Income‑tax (Eighth Amendment) Rules, 1981, with effect from August 1, 1981, has no application to the present reference which pertains to the assessment years 1977‑78 and 1978‑79. He further submits that in that view of the matter, it is not necessary for this Court to examine rule 6AA of the Rules and to decide whether the assessee is entitled to deduction on export inspection charges.
In reply, Mr. Sathe, learned counsel for the assessee, submits that though the said rule has been incorporated with effect from August 1, 1981, it should be applied retrospectively to the assessment years in question. In support of his contention, he relies on the ratio of the' decision of the Supreme Court in CWT v. Sharvan Kumar Swarup & Sons (1994) 210 ITR ,886.
We have given our careful consideration to the rival submissions of learned counsel for the parties in regard to the applicability of rule 6AA which came into force on August 1, 1981, for deciding whether the expenditure incurred in the previous years relevant to the assessment years 1977‑78 and 1978‑79 qualifies for weighted deduction under section 35B(1)(a) of the Act. We have also perused the decision of the Supreme Court in CWT v. Sharvan Kumar Swarup & Sons (1994) 210 ITR 886. The ratio of the above decision, in our opinion, has no application to the present case. The controversy in that case was whether rule 1BB of the Wealth .Tax Rules, 1957, which came into force on April 1, 1979, prescribing the method for ‑ valuing a house wholly and mainly used for residential purposes would apply to proceedings pending on April 1, 1979, when the rule came into force. The Supreme Court held that the said rule being procedural was applicable to all proceedings pending on the date when it came into force. The ratio of that decision obviously has no application to the applicability of rule 6AA to expenditure incurred prior to August 1, 1981, when it came into force because it is not procedural. Obviously, it forms part of the substantive law.
It is well‑settled that weighted deduction under section 35B(l)(a) is available to an assessee specified therein only in respect of expenditure incurred wholly and exclusively on the activities specified in any of the sub clauses of clause (b). At the material time, clause (b) had trine sub‑clauses. Export inspection charges admittedly do not fall under any of the first eight sub‑clauses. The ninth sub‑clause, which is the last sub‑clause, reads as follows:
" ....such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed."
No activities were prescribed for the purposes of that sub‑clause at the material time. Hence, that sub‑clause can be of no avail to the assessee in support of its claim for weighted deduction in respect of the assessment years 1977‑78 and 1978‑79.. It was only with effect from August 1, 1981, that certain activities were prescribed for the purposes of sub‑clause (ix) of clause (b) of subsection (1) of section 35B of the Act by insertion of rule 6AA by the Income‑tax (Eighth Amendment) Rules, 1981, as activities for the promotion of sale outside India of the goods, services or facilities expenditure on which would qualify for weighted deduction under section 35B(1)(a). The case of the assessee is that export inspection charges would fall under that rule.
We do not find any merit in the above contention of the assessee. Rule 6AA prescribes certain other activities expenditure on which would qualify for weighted deduction under section 35B(1)(a) of the Act. It is a substantive provision which creates new rights in favour of the assessee. It cannot operate retrospectively. It is not a procedural rule like rule 1BB of the cannot Operate Wealth Tax Rules, It would, therefore, be applicable only to expenditure incurred by an assessee after August 1, 1981, when it came into force. It coot be applied to expenditure incurred prior to that date.
In view of the above legal position, it is not necessary for us for the purposes of present reference, which pertains to the assessment years 1977‑78 and 1978‑79 to examine the said rule to decide whether the expenditure on export inspection charges would qualify for weighted deduction under section 35B of the Act. In the premises, question No.3 is answered in the affirmative, i.e., in favour of the Revenue and against the assessee.
This reference is disposed of accordingly with no order as to costs.
M.B.A./250/FCOrder accordingly