:1: IN IN IN THE THE THE HIGH COURT OF JUDICATURE AT BOMBAY HIGH COURT OF JUDICATURE AT BOMBAY HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO. 112 OF 1990 The Commissioner of Income tax. ..Applicant. Vs. M/s. Zenith Steel Pipes and Industries Ltd., Bombay. ..Respondent. Mr. P.S.Sahadevan for the Applicant. Mr. R.H. Toprani for the Respondent. CORAM : F.I. REBELLO & R.S. MOHITE, JJ. DATED : 14TH JANUARY, 2009. ORAL JUDGMENT : (Per R.S. Mohite, J.) (Per R.S. Mohite, J.) (Per R.S. Mohite, J.) 1. By this reference, the following questions of law have been referred by the Income Tax Appellate Tribunal for the opinion of this court under Section 256 (1) of the Income Tax Act. 1. Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is justified in not allowing the assessee’s claim for weighted deduction u/s.35B of the I.T.Act, on the expenditure headed "advertisement and publicity in newspapers and magazines in India"? This question has been raised in respect of three assessment years viz. 1976-77, 1978-79 and 1979-80. 2. Whether on the facts and circumstances of this case fees paid for certificates or origin :2: and legalisation of export documents and stamp fees were not allowable under weighted deduction u/s. 35B of the Act? This question has been referred in respect of the assessment years 1977-78, 1978-79 and 1979-80. 3. Whether on the facts and circumstances of the case the Income Tax Appellate Tribunal was right in disallowing weighted deduction claimed on the inspection charges claimed by the assessee to have been paid to M/s. General Superintendent Co. of India and Export Inspection Agency? . This question was referred in respect of the assessment years 1976-77, 1977-78 and 1978-79. 4. Whether tribunal was right in holding assessee’s claim for weighted deduction on the expenses incurred on the following heads do not fall under Section 35B (1)(b) and in not allowing weighted deduction under Section 35B(1)(b). i) Special packing on goods exported. :3: ii) Gifts given to foreign parties. iii) Proportionate printing and stationary and rent for tele printer and direct telephone lines. This question was referred in respect of Assessment years 1976-77, 1977-78, 1978-79 and 1979-80. 5. Whether on the facts and in the circumstances of the case, the ITAT was right in holding that out of fees of Rs.45,000/- paid by the assessee to the Registrar of Companies, a deduction of Rs.16,800/- only was allowable? This question was raised in respect of the assessment year 1976-77 only. 6. Whether on the facts and circumstances of the case the tribunal was right in holding that the assessee was not entitled to the revenue deduction for the expenditure of Rs.45,124/- being expenses on market survey report? This question was referred in respect of the assessment year 1976-77 only. :4: 7. Whether on the facts and circumstances of the case the ITAT was right in rejecting the assessee’s claim for the deduction of the sur tax liability? This issue was raised in respect of the assessment year 1976-77 only. 3. After hearing both the sides and perusing the record, we answer the questions referred as under. a) As regards the Question No.1, we note that it is an admitted position that the expenditure was incurred on advertisements and publicity in newspapers and magazines in India, that the company was in the business of sale of steel pipes in India and abroad and out of the gross sales only 43.17% were export sales. Counsel appearing for the assessee submitted that the Indian newspapers and magazines in which the advertisements were given, also had a foreign circulation and that the fact that the payments for the advertisements were made in India was not a relevant factor for deciding as to whether the expenditure was one covered by Section 35B(b)(i) or whether it was a deductible expenditure. Reliance was placed upon a judgment of this court in the case of CIT Vs. Prakash Cotton Mills reported in 118 CIT Vs. Prakash Cotton Mills reported in 118 CIT Vs. Prakash Cotton Mills reported in 118 ITR ITR ITR Page 713. Page 713. Page 713. In that case this court answered a question as to whether an assessee was entitled to a :5: weighted deduction under Section-35B on expenses made on the export markets development though the expenditure was incurred in India. This question was answered by this court in the affirmative and in favour of the f assessee on the footing that question was answered by this court in the earlier judgment reported in CIT Vs. CIT Vs. CIT Vs. Eldee Eldee Eldee Wire Ropes Ltd. reported in 114 ITR Page-485 Wire Ropes Ltd. reported in 114 ITR Page-485 Wire Ropes Ltd. reported in 114 ITR Page-485 In CIT Vs. Eldeee Wire Ropes Ltd. (supra) this court had taken a view that under Section 35B of the Income Tax Act 1961, where the legislature desired to exclude the expenditure incurred in India for the purpose of giving the benefit of deduction to the assessee by way of export development allowance, it had expressly done so by specifically mentioning such exclusion as in sub clause(iii) of Section 35B(1)(b). This court further held that where this was not done, the expenditure could be incurred by the assessee either outside India or in India, but to qualify for a deduction, it must pertain to the purposes mentioned in the various sub sections of Section 35B which purposes pertain to various activities outside India. In our view, however, in the facts of the present case, the weighted deduction cannot be allowed for an entirely different reason. According to the assessee, the said deduction is claimable as the expenditure is one which covered by Section 35B(b)(i). The relevant portion of Section 35B)b)(i) reads as under. :6: 35B(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( where such expenditure is incurred before the 1st day of April,1978).....(bracketed portion inserted by Finance Act,1978 w.e.f. 1.4.1978 and omitted by the Finance Act, 1980 w.e.f. 1.4.1981. . The requirement therefore, is that the expenditure on advertisement must be incurred wholly and exclusively for publicity outside India. In the present case, however, in view of the admitted fact that as a major percentage of the goods advertised where in fact sold within India, it cannot be said that the expenditure was incurred wholly and exclusively for the sale of exported goods. In this view of the matter the issue as referred must be answered in the affirmative and in favour of the revenue. b) As regards the question No.2, Counsel for the parties agree that this question has been answered by this court in the case of Dr. Beck & Co. (India) Ltd. Dr. Beck & Co. (India) Ltd. Dr. Beck & Co. (India) Ltd. Vs. Vs. Vs. CIT reported in 206 ITR Page -311 and in the case CIT reported in 206 ITR Page -311 and in the case CIT reported in 206 ITR Page -311 and in the case :7: of of of CIT Vs. Dr. Beck and Co. reported in 239 ITR Page CIT Vs. Dr. Beck and Co. reported in 239 ITR Page CIT Vs. Dr. Beck and Co. reported in 239 ITR Page 561. 561. 561. On perusal of these judgments, it is seen that both the judgments pertain to export inspection charges and hold that no weighted deduction is allowable under Section 35B in respect of these charges. In our view the expenditure on fees paid for certificates of origin, legalisation of export documents and stamp fees on such documents would also not amount to expenditure on performance of services outside India or expenditure on activities for the promotion of sale outside India and such expenditure cannot be granted weighted deduction under Section 35B. Following the cited judgments and on the aforesaid reasons, we answer the question in the affirmative and against the assessee. c) As regards the Question No.3, Counsel appearing for both the sides agree that the question has already been answered in favour of the revenue by the Judgment of this court in the case Forbes Forbes Compbell and Co. Forbes Forbes Compbell and Co. Forbes Forbes Compbell and Co. Ltd. Ltd. Ltd. Vs. Commissioner of Income Tax reported in [1994] Vs. Commissioner of Income Tax reported in [1994] Vs. Commissioner of Income Tax reported in [1994] 206 206 206 ITR ITR ITR 0495. 0495. 0495. In the said case this court has held that export inspection charges, brokerage, insurance, bank charges and clearing charges are not entitled to weighted deduction in view of specific exclusion made in sub clause(III) of Section 34B(1)(B) of the Income Tax Act,1961. Following the said ruling, this question is answered in the affirmative and in favour of the revenue. :8: d) As regards the Question No.4, Counsel agree that in so far as the question relates to "parking expenses of the goods exported" the same stands answered in the affirmative and in favour of the revenue by the judgment of this court in the case Sam Fashion Wear Pvt. ltd. Vs. Commissioner of Income Tax reported in [1994] 209 ITR 214. In our view, however, in so far as question relates to allowing weighted deduction of gifts given to foreign parties, the question will have to be decided in the negative and against the revenue. In our view, the expenditure of such gifts given to foreigners would be covered under Section 35B(b)(a)(ix) which pertains to "such "such "such other activities for the promotion of the sale out other activities for the promotion of the sale out other activities for the promotion of the sale out side side side India India India as may be prescribed". as may be prescribed". as may be prescribed". This view as taken by us is supported by the view taken by the Karnataka High Court in the case of CIT Vs. H.M.T.( International) CIT Vs. H.M.T.( International) CIT Vs. H.M.T.( International) Ltd. Ltd. Ltd. reported in [1993] 203 ITR 573 in reported in [1993] 203 ITR 573 in reported in [1993] 203 ITR 573 in which the Karnataka High Court held that expenditure incurred towards the complimentaries and give aways to foreign delegates was an expenditure which had a direct nexus with the export activities of the assessee and therefore, an assessee was entitled to a weighted deduction U/s. 35B in respect of such expenditure. In so far as question relates to not allowing proportionate printing and stationary and rent for tele printer and direct telephone lines, in our view, such expenditure is merely normal business expenditure. In our view, as no :9: evidence is led on this behalf, it is impossible to divide such a business expenditure in proportion to the export related activities and then say that a proportion thereof is incurred wholly and exclusively for activities for the promotion of sale of goods or performance of services outside India. The question in so far as this aspect is concerned is therefore answered in the affirmative and in favour of the revenue. e) As regards Question No.5, counsel for the parties are in agreement that the question has already been answered in the affirmative and in favour of the revenue by the judgment of the Apex Court in the case of Brooke Brooke Brooke Bond Bond Bond India Ltd. Vs. CIT reported in 225 ITR 798 India Ltd. Vs. CIT reported in 225 ITR 798 India Ltd. Vs. CIT reported in 225 ITR 798 S.C. S.C. S.C. and in the case of Pubjab State Industrial and in the case of Pubjab State Industrial and in the case of Pubjab State Industrial Development Development Development Corporation Ltd. reported in 225 I.T.R. Corporation Ltd. reported in 225 I.T.R. Corporation Ltd. reported in 225 I.T.R. 792 792 792 S.C. S.C. S.C. In the said judgments it is laid down that fees paid to the Registrar of Companies amounts to a capital expenditure. Following those decisions, we answer this question in the affirmative and in favour of the revenue. f) As regards Question No.6, counsel for the parties agree that this question has been answered in the affirmative and in favour of the revenue by a judgment of this court in the case of CIT Vs. CIT Vs. CIT Vs. J.K.Chemicals J.K.Chemicals J.K.Chemicals reported in 207 ITR 985 . reported in 207 ITR 985 . reported in 207 ITR 985 . In that case, it was held by this court that if an expenditure had :10: been incurred on obtaining market survey for setting up of a new unit of manufacturing, the said expenditure amounted to capital expenditure. From the judgment of the tribunal, it is noticed that in the present case, the assessee was manufacturing steel items and therefore conducted a market survey. In our view, therefore, by the very purpose and nature of the report the same pertains to a different line of business and must be held to non deductible capital expenditure. The question is therefore, answered in the affirmative and in favour of the revenue. g) The counsel for the parties agree that 7th question stands answered in the affirmative and in favour of the revenue by judgment of this court in the case of Smith Kline and French (India) Ltd. Vs. Smith Kline and French (India) Ltd. Vs. Smith Kline and French (India) Ltd. Vs. Commissioner Commissioner Commissioner of Income tax reported in [1996] 219 ITR of Income tax reported in [1996] 219 ITR of Income tax reported in [1996] 219 ITR 581. 581. 581. Following the above decision of the Apex Court, we answer this question in the affirmative and in favour of the revenue. i) In view of answers as given hereinabove, the reference is disposed off with no order as to costs. (R.S.MOHITE, J.) ( F.I.REBELLO, J.)