Commissioner of Income Tax Vs. Bombay Burmah
Trading Corporation  INSC 63 (15 February 2000)
Appeal (civil) 3788 of 1999
J U DG M E N T SYED SHAH MOHAMMED QUADRI,J.
these five appeals the parties are common; the Revenue is the appellant and the
assessee is the respondent.
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.
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.
common substantial question of law, which arises in these appeals, is question
No.2 noted below. 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.
aforementioned assessment years it claimed weighted deduction under Section
35-B 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 Kingdom.
The claim was disallowed by the Income-tax Officer on the ground that Section
35-B 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 1976 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 : (1) Whether on the facts and in the circumstances
of the case, the provisions of Section 40(c)(iii)/40(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 35-B in respect of the expenditure of
Rs.1,95,935/- incurred on export of tea from East Africa to the United Kingdom?
The first question was answered in the negative i..e.
of the assessee and against the Revenue following the judgment in the case of
the respondent-assessee for the earlier assessment years in Bombay Burmah
Trading Corporation Ltd. vs. Commissioner of Income Tax, Bombay City-IV [(1984)
145 ITR 793]. It is conceded by the learned counsel for the parties that this
question is covered against the Revenue by the judgment of this Court in
Commissioner of Income Tax vs. Continental Construction Ltd. [(1998) 230 ITR
485] affirming the judgment in Continental Construction Ltd. vs. Commissioner
of Income Tax [(1990) 185 ITR 178]. 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 35-B of the Act, which is the
subject-matter of debate in all the five appeals.
Export Markets developments allowance -- (1)(a). 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
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.
plain reading of the provision of sub-section (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;
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 35-B. It is not necessary that the export should be directly
ex-India (from India). The Tribunals reading of the
section that the export should be ex-India is not supported by the language of
the provision or any authority.
High Court has, therefore, rightly concluded that to avail 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 service 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 35-B; his
further submission is neither the High Court nor this Court can do so without
calling for a supplementary statement from the Tribunal on this aspect of the
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.Vermas 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 35-B was claimed in respect of
the expenditure incurred with regard to the performance of the services outside
India i.e. in East Africa and United Kingdom 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.