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M/S. W.C. & C.P. LTD. versus C.I.T.

High Court of Judicature at Allahabad

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M/S. W.C. & C.P. Ltd. v. C.I.T. - INCOME TAX REFERENCE No. 203 of 1988 [2005] RD-AH 251 (25 January 2005)

 

This is an UNCERTIFIED copy for information/reference. For authentic copy please refer to certified copy only. In case of any mistake, please bring it to the notice of Joint Registrar(Copying).

HIGH COURT OF JUDICATURE OF ALLAHABAD

Court No.37

I.T.R. No. 203 of 1988

M/s Wazir Chand & Co.(P) Ltd. Moradabad.

Vs.

Commissioner of Income Tax, Lucknow.

Hon'ble R.K.Agrawal, J.

Hon'ble Prakash Krishna, J.

The Income Tax Appellate Tribunal, Delhi  has referred the following questions of law under Section 256(1) of the Income Tax Act, 1961, hereinafter referred to as the Act, for opinion to this Court.

"RA No. 118/Del/1988 (filed by the assessee)

1) Whether on the facts and in the circumstances of the case the Appellate Tribunal erred in law in holding that weighted deduction was not admissible with reference to the salaries of the Directors and the Managing Director since they had no part to play in terms of Rule 6AA(c) and also that they were relatable to Section 35B(1)(b)(iii) which was not operative for the assessment year in question, having been omitted by Finance (No.2) Act, 1980 and whether the said expenditure was allowable under Section 325(1)(b)(i)?

2) Whether on the facts and in the circumstances of the case the Appellate Tribunal erred in law in holding that weighted deduction was also not admissible with reference to stationery, printing and postage expenses on the ground that they were relatable to section 35B(1)(b)(iii) which was not operative for the assessment year in question, having been omitted by Finance (No.2) Act, 1980 and whether the said expenditure was allowable under section 35B(1)(b)(i)?

RA No. 338/del/1988 (filed by the department)

3) Whether on the facts and in the circumstances of the case the Appellate Tribunal erred in law in holding that weighted deduction was allowable to the assessee u/s. 35B(1)(b)(ix) read with Rule 6AA to the extent of 5/6th on the salary to staff (quality controller and checker)?"

The reference relates to the Assessment year 1982-83.

Briefly stated the facts giving rise to the present reference are as follows:

The applicant is a Private Limited Company which derives its income from the export of brassware. It claimed weighted deduction under Section 35B of the Act, inter alia, on the following items to the extent mentioned therein:

1                   2                                                3                                 4

1. Salary to Staff (Quality controller & checker). Rs.     95,020/-   Rs.     79,183.33(5/6)

2. Director's salary Rs.   1,96,800/-   Rs.  1,64,000.00(5/6)

3. Salary of Managing Director Rs.      33,600/-   Rs.     28,000.00(5/6)

4. Export Development A/c. (Publicity outside India) Rs.  79,071.62 Rs.   79,071.72(100%)

5. Stationary & Printing Rs.  35,632.13 Rs.  35,632.13(100%)

6. Postage Rs.   13,346/- Rs.  10,009.50(75%)

7. Staff Welfare Rs.     3,607/- Rs.   3,088.33(5/6)

8. Subscription A/c. (Publicity outside India through Semi Govt. Offices). Rs.     5,690/- Rs.   5,690/-(100%)

9. Discount to Foreign Buyers (Publicity outside India) Rs. 1,59,812/- Rs.  79,906.00(75%)

10. Commission to Agent Rs.   60,841/- Rs.  60,841.00(100%)

Rs.5,45,421.91

The Income-tax Officer has disallowed the applicant's claim. However, the Commissioner of Income-tax (Appeals) allowed the applicant's claim of weighted deduction to the extent mentioned in column 4 of the above table. Feeling aggrieved the Revenue preferred separate appeal before the Tribunal. The Tribunal has noticed that so far as items 1,2 and 3 are concerned, the Commissioner of Income-tax (Appeals) has allowed the claim under Section 35B(1)(b)(ix) read with Rule 6-AA(c) of the Income-tax Rules holding that the term "other facilities" covered the claim. However, he has restricted the allowance to 5/6th of the claim on the ground that on 5/6th of the salary can be regarded as relating to quality control. The Tribunal has held that through the provisions of Section 35B(1)(b)(ix) were dormant till they were activated with effect from 1st August, 1981 by means of Rule 6AA inserted by the Income-tax ( Eighth Amendment) Rules, 1981. However, since the accounting period of the assessee relevant to the Assessment Year 1982-83 was from 1st April, 1981 to 31st March,1982 the aforesaid Rule was very much there during the assessment year in question and therefore, the applicant could take advantage of the same. The Tribunal was of the view that the Department could only say that the salary for the period from 1st April, 1981 to 31st July, 1981 could not be considered. It also held that since the applicant had maintained certain staff for checking the quality of the export items consisting of quality controller and checkers, the applicant could be said to have maintained "other facilities" for quality control or inspection of the goods. However, it has held that the Director and the Managing Director could not be fitted in that class and that though weighted deduction was allowable under Section 35B on the salary to staff (quality controller and checker), no weighted deduction was admissible with reference to the salaries of the Managing Director and the Directors, since they had no part to play in terms of Rule 6AA(c). The Tribunal has further held that this salary could be said to be relatable to sub-clause (iii) of Section 35B(1)(b) which was not operative for the assessment year in question, having been omitted by Finance (No.2) Act, 1980. So far as item No.4 dealing with export development account (publicity outside India) is concerned, this expenditure was held to be clearly relatable to sub-clause (i) of Section 35(1)(b) which was operative for the assessment year in question and, therefore, weighted deduction at 100% of the claim was upheld. So far as items 5 and 6 pertaining to stationery, printing and postage are concerned, the Tribunal was of the view that they related to sub-clause (iii) of Section 35B(1)(b) and that the claim of weighted deduction in respect thereof could not be allowed for the same reason for which the salaries of the Managing Director and Directors were held to be not allowable. So far as item 7 regarding staff welfare expenses is concerned, they were treated as part with item no.1 pertaining to salary to staff (quality controller and checker) and, therefore, the allowance of weighted deduction with reference to 5/6th of the total amount as made by the Commissioner of Income-tax (Appeals) was upheld. So far as items 8,9 and 10 are concerned they were held to be allowable.

We have heard Sri Gaurav Mahajan holding brief of Sri A.N.Mahajan, learned counsel for the applicant and Sri Shambhoo Chopra, learned standing counsel for the Revenue.

In respect of the claim of weighted deduction with respect of the salaries of the Directors and Managing Director we find that the same could not be said to be governed under sub-clause (1) of Section 35B(1)(b) of the Act since it cannot be said to be related to advertisement and publicity outside India. The salary has been paid to the Directors and Managing Directors for running the business and not for advertisement or publicity outside India and, therefore, the Tribunal has rightly disallowed the claim of the weighted deduction in respect of the salary of Directors and Managing Directors. Further it cannot be justified under Rule 6AA(c) of the Rules because the applicant had maintained certain staff for the purpose, it cannot be said that the salary has been paid to the Directors and Managing Directors for maintaining laboratory and ''other facilities' for quality control or inspection of such goods. In this view of the matter the Tribunal was justified in not allowing the weighted deduction in respect of the salary paid to the Directors and Managing Directors. So far as weighted deduction on the expenses of stationery, printing and postage are concerned it is permissible in respect of the items as it fall under sub-clause (iii) of Section 35B(1)(b) of the Act as held by the Apex Court in the cases of  Commissioner of Income Tax vs. Stepwell Industries Ltd. and others (1997) 228 ITR 171 and Commissioner of Income Tax vs. Hero Cycles Pvt.Ltd. and others (1997) 228 ITR 463 that the expenses incurred on stationery, postage and printing do not fall under any of the clauses of Section 35B (1)(b) of the Act and, therefore are not admissible for weighted deduction. So far as claim of weighted deduction under sub-clause (i) is concerned it is wholly misconceived as in law the expenses which have been incurred on advertisement and publicity outside India are only entitled for weighted deduction. The Tribunal has, therefore, disallowed the weighted deduction on the expenses of  printing, postage and stationery incurred in India. Regarding claim of weighted deduction under Section 35B(1)(b)(ix) read with Rule 6-AA(c) of the Income-tax Rules on the salary of the staff for checking the quality of the exported items consisting of quality controller and checkers, we find that under Section 35B(1)(b)(ix) read with Rule 6-AA(c) of the Income-tax Rules weighted deduction is admissible on the salary of the staff in respect of maintaining laboratory or ''other facilities' for quality control or inspection of such goods, therefore, the Tribunal was justified in holding that 5/6th of the salary paid to the staff for looking after the laboratory and quality control department was admissible.

In view of the foregoing discussions, we answer the first and second questions referred to us in the negative i.e. in favour of the revenue and against the assessee and the third question referred to us is also answered in the negative, i.e. in favour of the assessee and against the Revenue.  However, there shall be no order as to costs.

25.1.2005

MZ.


Copyright

Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites

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