COMMISSIONER OF INCOME-TAX VS BOMBAY BURMAH TRADING CORPORATION, 2001 PTD-SUPREME-COURT-INDIA 818 (2000)

(a) Income‑tax‑‑‑

‑‑‑‑Business expenditure‑‑‑Company‑‑‑Ceiling on expenditure ‑‑‑Remunera tion to employees‑‑‑Remuneration for employment outside India not to be taken into account for purposes of computing ceiling‑‑‑Indian Income Tax Act, 1961, Ss.40(a)(v) & 40(c).

Provisions of section .40(c)(iii)/40(a)(v) of the income Tax Act, 1961, did not apply in the case of employees of the assessee in its overseas branches.

CIT v. Continental Construction Ltd. (1998) 230 ITR 485 (SC) fol.

(b) Income‑tax‑‑

‑‑‑‑Export markets development allowance‑‑‑Weighted deduction‑‑‑Condition precedent‑‑‑Not necessary that exports should be made directly from India‑‑ Expenditure incurred on export of tea from East Africa to U.K.‑‑‑Entitled to weighted deduction‑‑‑Indian Income Tax Act, 1961, S.35B.

On a plain reading of the provisions of subsection (1) of section 35B it is clear that to claim the benefit of this section the following conditions have to be satisfied`. (i) the assessee must be a domestic company which is resident in India; (ii) it must have incurred expenditure after February 29, 1968 but before March 1, 1983; (iii) such expenditure should not be in the nature of capital expenditure or personal expenses of the assessee; (iv) the expenditure might have been incurred either directly or in association with any other person; and (v) the nature of the expenditure must answer the description referred to in any one of the sub‑clauses of clause (b). On these requirements being satisfied the assessee‑company becomes entitled to the weighted deduction under section 35B. It is not necessary that the export should be directly ex‑India (from India):

Held, that though a copy of the return containing details of the expenditure claimed under section 35B had not been placed on record, the orders of the departmental authorities as well as of the Tribunal and of the High Court made it clear that the weighted deduction under section 35B was claimed in respect of the expenditure incurred with regard to the performance of the services outside India. i.e., in East Africa and the United Kingdom in connection with the execution of the contract for the supply of tea in the United Kingdom. The assessee was entitled to weighted deduction under section 35B in respect of the expenditure of Rs.1,19,935 incurred on export of tea from East Africa to the United Kingdom.

Bombay Burmah Trading Corporation Ltd. v. CIT (1991) 188 ITR 122 (Bom.) affirmed.

Bombay Burmah Trading Corporation Ltd. v. CIT (1984) 145 ITR 793 (Bom.) and Continental Construction Ltd. v. CIT (1990) 185 ITR 178 (Delhi) ref.

K.N. Rawal, Additional Solicitor‑General and M.L. Verma, Senior Advocate (Ms. Neera Gupta, Ms. Sushma Suri, Shail Kumar Dwivedi, S. Rajappa, B.K. Prasad, Hemand Sharma, K.N. Shukla, K.C. Kaushik, A.K. Sharma, M.B. Rao, Ms. A. Subhashini, Advocates with them) for Appellant.

Ranjit Kumar, Ankur Chauhan, R. Karanjawala, Ms. Nandini Gore and Mrs. M. Karanjawala, Advocates for Respondent.

JUDGMENT

S.S.M. QUADRI, J.‑‑‑In these five appeals, the parties are common; the Revenue is the appellant and the assessee ‑is the respondent. C.A. Nos. 2600 to 2603 of 1994, which relate to the assessment years 1967‑68 to 1970‑71, arise from the judgment and order of the Division Bench of the High Court of Judicature at Bombay in Income‑tax Reference No.242 .of 1976, dated December 12, 1988 (see (1991) 188 ITR 122). Following that judgment, the Division Bench disposed of Income‑tax Reference No.10 of 1987 which pertains to the assessment year 1974‑75 on July 30, 1998, which is under challenge in Civil Appeal No.3788 of 1999.

Briefly stated, the facts giving rise to these appeals are as follows: The respondent‑assessee is an Indian resident company. It is carrying on the business of exporting tea. In the aforementioned assessment years it claimed weighted deduction under section 35B of the Income‑tax Act (for short "the Act"), in respect of the expenditure of Rs.1,95,935 incurred on export of tea from East Africa to the United Kindgom. The claim was disallowed by the Income‑tax Officer on the ground that section 35B would apply only if the exports were made from India. That view was upheld by the Appellate Assistant Commissioner and the Income‑tax Appellate Tribunal. Among others, the following two questions in Income‑tax Reference No.242 of 1976 (see (1991) 188 ITR 122), and Question No.2 in Income‑tax Reference No. 10 of 1987 were referred to the High Court of Judicature at Bombay by the Income‑tax Appellate Tribunal under section 256(1) of the Act (page 123):

"(1) Whether, on the facts and in the circumstances of the case, the provisions of section 40(c)(iii)l40(a)(v) applied in the case of the employees of the assessee in its overseas branches?

(2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction under section 35B in respect of the expenditure of Rs.1,95,935 incurred on export of tea from East Africa to the United Kindgom?"

The first question was answered in the negative i.e., in favour of the assessee and against the Revenue following the judgment in the case of the earlier assessment years in Bombay Burmah Trading Corporation Ltd. v. CIT (1984) 145 ITR 793 (Bom.) It is conceded by learned counsel for the parties that this question covered against the revenue by the judgment of this Court in CIT v. Continental Construction Ltd. (1998) 230 ITR 485 affirming the judgment in Continental Construction Ltd. v. CIT (1990) 185 ITR 178 (Delhi).

Adverting to the second question, the High Court answered it in the affirmative, i.e., in favour of the assessee and against the Revenue. It will be apt to refer to section 35B of the Act, which is the subject‑matter of debate in all the five appeals.

"35B. Export markets development allowance. ‑‑‑(I) Where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred after the 29th day of, February, 1968, but before the 1st day of March, 1983, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in clause (b) he shall subject to the provisions of this section, be allowed a deduction of a sum equal to one and one‑third times the amount of such expenditure incurred during the previous year;

(b) The expenditure referred to in clause (a) is that incurred wholly and exclusively on‑‑‑

(i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business...

(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."

On a plain reading of the provisions of subsection (1), extracted above, it is, clear that to claim the benefit of this section the following conditions have to be satisfied:

(i) the assessee must be a domestic company which is resident in India;

(ii) it must have incurred expenditure after February 29, 1968, but before March 1, 1983;

(iii) such expenditure should not be in the nature of capital expenditure or personal expenses of the, assessee;

(iv) the expenditure might have been incurred either directly or in association with any other person; and

(v) the nature of the expenditure must answer the description referred to in any one of the sub‑clauses of clause (b).

On these requirements being satisfied the assessee‑company becomes entitled to the weighted deduction under section 35B. It is not necessary that the export should be directly ex‑India (from India).

The Tribunal's reading of the section that the export should be ex- India is not supported by the language of the provision or any authority. The High Court has, therefore, rightly concluded that to avail of the benefit of weighted deduction the provision does not require that the export should be ex‑India. It must be observed in fairness to Mr. M.L. Verma, learned senior counsel appearing for the Revenue, that he does not seriously dispute this proposition. Once this position is accepted, the order under challenge has to be sustained.

However, what Mr. Verma contends is that the respondent claims the expenditure under sub‑clause (viii) for which there is no factual finding by the Tribunal. The High Court, submits Mr. Verma, has gone wrong in recording a fresh finding‑‑‑"the expenditure was incurred with regard to the performance of the services outside India, i.e., from East Africa to United Kingdom, in connection with the execution of contract for supply of tea in the United Kingdom"‑‑‑and on that basis upholding the claim of the respondent under section 358; his further submission is that neither the High Court nor this Court can do so without calling for a supplementary statement from the Tribunal on this aspect of the facts. Mr. Ranjit Kumar, learned counsel appearing for the respondent‑assessee‑company, invited our attention to the orders passed by the Income‑tax Officer, the Commissioner and the Tribunal and contended that there was no dispute with regard to the nature of the expenditure, and therefore, Mr. Verma's contention has to be rejected.

We have perused the orders of the Income‑tax Officer, the Commissioner, the Appellate Assistant Commissioner and the Tribunal as also the order under appeal passed by the High Court. Though a copy of the return containing details of the expenditure claimed by the respondent under the above provision has not been placed on record, the orders of the departmental authorities as well as of the Tribunal and of the High Court leave us in no doubt that the weighted deduction under section 35B was claimed in respect of expenditure incurred with regard to the performance of services outside India, i.e., in East Africa and the United Kindgom, in connection with the execution of 'the contract for the supply of tea in the United Kingdom. Indeed, the said fact is embodied‑in Question No.2 itself.

In view of the position, pointed out above, we find no illegality in the orders under challenge in these appeals. The appeals are accordingly dismissed with costs.

M.B.A./419/FCAppeal dismissed.