Case: The Commissioner Of Income Tax(Cntl), Ludhiana Vs. M/S Hero Cycles Pvt. Ltd. Ludhiana

S. SAGHIR AHMAD J. 1. Civil Appeal No. 7665 of 1996 The following question of law was referred by the Tribunal to the High Court " Whether, on the facts and in the circumstances of the case on a proper interpretation of section 35B of the Income-tax Act, 1961, the Appellate Tribunal was right in law in allowing the assessees claim for weighted deduction in respect of export sales commission E. C. G. C. charges and foreign dealers visiting expenses ? " * 2. The High Court declined to call for a reference under section 256(2) of the Income-tax Act, 1961. It appears that the claim for deduction under section 35B was not originally allowed at all. Thereafter, on the assessees application an order was passed by the Commissioner of Income-tax (Appeals), Jalandhar, in which he directed certain allowances to be given on proportionate basis after verification of the assessees claim under section 35B 3. The Income-tax Officer thereafter entertained the assessees prayer for rectification of the order and allowed the assessees claim in respect of matters like coloured albums, export staff travelling expenses, export sales commission, E. C. G. C., foreign dealers visiting expenses. Rectification under section 154 can only be made when a glaring mistake of fact or law committed by the officer passing the order becomes apparent from the record. Rectification is not possible if the question is debatable. Moreover, the point which was not examined on fact or in law cannot be dealt with as a mistake apparent on the record. The dispute raised a mixed question of fact and law 4. The Tribunal was in error in upholding the assessees claim for weighted deductions 5. There is no point in sending the matter to the High Court to deal with the question raised at this stage.

Decision:
1[ds]It appears that the claim for deduction under section 35B was not originally allowed at all. Thereafter, on the assessees application an order was passed by the Commissioner of Income-tax (Appeals), Jalandhar, in which he directed certain allowances to be given on proportionate basis after verification of the assessees claim under section 35BThe Income-tax Officer thereafter entertained the assessees prayer for rectification of the order and allowed the assessees claim in respect of matters like coloured albums, export staff travelling expenses, export sales commission, E. C. G. C., foreign dealers visiting expenses. Rectification under section 154 can only be made when a glaring mistake of fact or law committed by the officer passing the order becomes apparent from the record. Rectification is not possible if the question is debatable. Moreover, the point which was not examined on fact or in law cannot be dealt with as a mistake apparent on the record. The dispute raised a mixed question of fact and lawThe Tribunal was in error in upholding the assessees claim for weighted deductionsThere is no point in sending the matter to the High Court to deal with the question raised at this stageThe Commissioner of Income-tax (Appeals) as well as the Tribunal allowed this claim of the assessee without examining the facts of this case. The deduction is permissible if the expenditure is laid out wholly and exclusively for the purposes mentioned in clause (b) of section 35B(1). It is for the assessee to prove that the entire expenditure involved was exclusively for the purposes mentioned in clause (b) of section 35B(1). The Tribunal has also to give a finding as to the entitlement of the assessee with reference to the particulars of clause (b) of section 35B(1). The facts have to be found out and the law has to be applied to those facts. It appears that generally a certain percentage of the claim has been allowed under section 35B without adverting to any of the sub-clauses of clause (b) of section 35B(1)We have passed similar orders in a large number of cases but in this case on behalf of the assessee it has been contended that there is a circular issued by the Central Board of Direct Taxes, New Delhi, which should conclude the matter. A copy of the so-called circular dated April 9, 1981/April 13, 1981, has been handed over in court. It does not appear that the document handed over in court is a copy of the circular at all. It is a letter written to one Shri DSouza with a reference to a letter written by his predecessorMoreover, it is well-settled that circulars can bind the Income-tax Officer but will not bind the appellate authority or the Tribunal or the court or even the assessee. There is nothing in the alleged circular which supports the contention of the assessee. It merely says that each case has to be examined and the issue would be basically a finding of fact. The assessee had not made his claim before the Income-tax Officer by relying on this circularSo far as section 40(c) is concerned, the appeal will have to be dismissed. So far as section 35B is concerned, the weighted deduction must be examined by the Tribunal on the basis of the facts proved by the assessee and having reference to the various sub-clauses of clause (b) of section 35B(1). If the assessees case comes specifically within any of these sub-clauses it has to be allowed, otherwise notIf the assessees case come specifically within any of these sub-clauses it has to be allowed, otherwise notWe are unable to accept this contention for two reasons. First, when the Act speaks of section 28 to section 43B, then each one of the sections from section 28 to section 43B will be included. The newly inserted section 35B was not specifically mentioned because it was not necessary to do so, just as it was not necessary to specifically mention section 35B in section 29, which lays down that computation of profits and gains of business or profession shall be computed in accordance with the provisions contained in sections 30 to 43CMoreover, when the Act specifically says that profits and gains of insurance business shall be computed in accordance with the rules contained in the First Schedule then such computation has to be made according to that rule and not any other rule. We are unable to accept the contention of Mrs. Ramachandran that the benefit of section 35B should also be given to any insurance companyWe are of the opinion that the Tribunal cannot allow any weighted deduction without linking the expenditure to one or more of the activities referred to in various sub-clauses of section 35B(1)(b). Therefore, in our opinion, the question must be answered in the negative and in favour of the Revenue. The Tribunal will now decide the case afresh after examining the nature of the expenditure and the purposes for which it was spent having regard to the various sub-clauses of section 35B(1)(b)The contribution may be for the promotion of export generally but this sort of contribution to a general body or Chamber of Commerce cannot qualify for weighted deductionThese will have to be disallowed. The order of the Tribunal to this extent is erroneous. So far as commission payable to STC, HHEC and ECGC is concerned, this will have to be examined by the Tribunal afresh. The onus is on the assessee to prove the facts which will enable him to claim weighted deduction.