Case: Commissioner Of Income Tax, Delhi Vs. Stepwell Industries Ltd

The following question of law came up for consideration before the High Court under section 256(2) of thex Act, 1961" Whether, on the facts and in the circumstances of the case, thex Appellate Tribunal was correct in law in holding that the assessee was entitled to weighted deduction under section 35B of thex Act,, in respect of commission payment of Rs. 1, 46, 678 ?" *The High Court declined to entertain this question. Hence, this appeal to this courtThe assessees goods were sold by the State Trading Corporation of India Limited to various parties outside India. The assessee claimed weighted deduction under section 35B(1)(b)(i) and (iv).

Reasoning:
The claim of the assessee is not admissible on these facts. The weighted deduction is allowed for activities carried out wholly and exclusively on the various purposes set out ins (i), (ii), (v), (vii), (viii) and (ix) of section 35B(1)(b). Section 35B allowed at the material time deduction of a sum equal to one andd times of the amount of such expenditure incurred during the previous year. In order to get this kind of deduction, the onus lies heavily on the assessee to prove that the expenditure falls within any of the purposes set out in the variouss of clause (b) of section 35B(1). Merely because some activities took place outside India that will not qualify the expenditure for the deductions mentioned in section 35B. If the State Trading Corporation incurs expenditure for an advertisement or publicity outside India, the assessee will not be entitled to any deduction unless the assessee can establish that the advertisement or publicity was being done outside India for and on behalf of the assessee and in respect of goods the assessee deals in or provides in the course of his business. Likewise, if the State Trading Corporation maintains a branch office or agency for the promotion of sale outside India, the assessee cannot claim any deduction on account of maintenance of such branch office or agency but if such branch office or agency is maintained by the assessee himself for the promotion of sale outside India of his goods, services or facilities, then the assessee will be entitled to a deduction under section 35BWe are of the view that the High Court should have called for a reference of this question. However, at this stage, there is no point in sending the case back to the High CourtThe question was not referred to the High Court because in the view of the Tribunal the case was concluded by the decision of the Tribunal in J. Hemchand and Co. It is difficult to follow the logic of this decision of the Tribunal. When a claim for weighted deduction is made, it is for the assessee to satisfy thex Officer that the expenditure falls in any of thes of clause (b) of section 35B(1). The onus is on the assessee to prove that he is entitled to the weighted deduction allowed under section 35BIn order to get this deduction, the assessee will have to prove that the expenditure was incurred during the previous year wholly and exclusively for the purposes set out in clause (b) of section 35B(1)(b). There cannot be any blanket allowance of the expenditure nor can there be any blanket disallowance. Every case has to be discussed specifically and the expenditure must be found to be of the nature mentioned in any one of the. If the expenditure does not fall in any of these categories, it cannot be allowed as a deduction. Some of thes provide that if the expenditure is incurred in India, it cannot be allowed but in some of thes this requirement is not there. In such cases, the expenditure may or may not be incurred in IndiaFrom the facts stated by the Tribunal, it appears that a middle man approached the assessee for purchase of its goods for and on behalf of the foreign buyer. The assessee agreed to sell his goods. The middleman obtained the commission. This does not amount to obtaining information regarding " markets outside India of such goods, services or facilities ". This is nothing but payment of sales commission to a middleman for the purpose of effecting sales. The foreign buyer located the assessee through the middleman. We are of the view that these appeals have no merit and have to be dismissedWe are of the view that the appellate order of the Tribunal has to be set aside. We set aside the order of the High Court as also the appellate order of the Tribunal and remand the case back to the Tribunal. The assessee will have an opportunity of proving the nature of the expenditure and establishing that the expenditure falls within any one of thes of section 35B(1)(b). It has to be remembered that the onus is on the assessee to establish the facts to obtain the deduction claimedIt appears that the Tribunal did not examine the claim of the assessee by reference to any of thes of section 35B(1)(b). No expenditure can be allowed under section 35B generally. The assessee must be able to establish the facts to prove that the expenditure falls within the ambit ofs (i) to (ix) of clause (b) of section 35B(1). This has not been done.We are of the view that the appellate order of the Tribunal has to be set asideWe are of the view that the High Court was clearly in error. Questions of law arose out of the order of the Tribunal. We are of the view that the Tribunal was not right in allowing weighted deduction without investigating the facts and examining the law applicable. There is no point in calling for a reference of this case at this stage. The Tribunal must examine the case afresh in the light of the observations made in C.A. No. 2365 of 1994. The onus is on the assessee to prove that he was entitled to the expenditure by reference to the variouss of section 35B(1)(b). The expenditures cannot generally be allowed as claimedIt appears that the Tribunal did not examine the claim of the assessee by reference to any of thes of section 35B(1)(b). No expenditure can be allowed under section 35B generally. The assessee must be able to establish the facts to prove that the expenditure falls within the ambit ofs (i) to (ix) of clause (b) of section 35B(1). This has not been done.We are of the view that the appellate order of the Tribunal has to be set asideCivil Appeal No. 3201 of 1995In this case, the Tribunal was wrong in allowing the deduction claimed without examining the facts. The High Court was also wrong in not calling for a referenceCivil Appeal No. 3975 of 1995The Tribunal was wrong in allowing the claim of the assessee for weighted deduction under section 35B without going into the facts of the case. The claim was not made before thex Officer or the Appellate Assistant Commissioner. No particulars of the expenditures were furnished to them. The particulars should have been placed before thex Officer or the Appellate Assistant Commissioner for examination. The onus of proving the facts and getting the benefit of the deduction lies on the assessee. The assessee not having proved anything either before thex Officer or the Appellate Assistant Commissioner cannot get this deduction. The Tribunal cannot allow the claim on assumption of facts. The Tribunal was also in error in not referring the following question of law sought to be raised to the High Court" (i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in admitting the assessees additional grounds claiming weighted deduction under section 35B on items of which no claim has been made before thex Officer or before the Commissioner ofx (Appeals) ?(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing weighted deduction under section 35B in respect of packing credit interest for which there has been no claim before the lower authorities ?(iii) Whether, on the facts and in the circumstances of the case on a proper interpretation of section 35B of thex Act,, the Appellate Tribunal was right in law in allowing weighted deduction on the whole of the E.C.G.G. charges? " *The High Court was also in error in not calling for a reference in this caseCivil Appeal No. 6715 of 1995The following question of law was sought to be referred to the High CourtWhether, on the facts and circumstances of the case, thex Appellate Tribunal was right in law in allowing weighted deduction under section 35B in respect of Rs. 29, 746 paid as export agency commission to E.C.G.C ? "The Tribunal declined to refer the question. The High Court rejected the application. Our attention was drawn that the question sought to be raised before the High Court under section 256(2) was differently worded. But the High Court could have referred the question. The Tribunal should not have declined to refer the question to the High Court under section 256(1)In view of our earlier decisions, this case is remanded back to the Tribunal for decision in accordance with the directions given earlier. The order of the High Court is set aside. The appellate order of the Tribunal is also set asideC. A. No. 8790 of 1995This case relates to payment of commission to S.T.C. and H.H.E.C. by the. The admissibility of this expenditure under section 35B will depend upon the facts of the case. The assessee will have to prove the facts to bring it within the compass of variouss of clause (b) of section 35B(1). The Tribunal has not examined this case properly at all. The assessee has also not proved his case in any wayC. A. No. 9835 of 1995This case relates to weighted deductions. No question of law was referred to the High Court. The High Court also did not call for a reference. The order of the High Court is clearly erroneous and is set aside. The appellate order is also set aside. The Tribunal will examine the case afresh. There will be an opportunity given to the assessee to prove that the claim for weighted deduction was for activities falling within thes of clause (b) of section 35B(1)