M.R. Sikka, Judicial Member -
(1.) 1 to 5. [These paras are not reproduced here as they involve minor issues.]
6. The assessee carries on business in the manufacture and sale of paper and hessian bags and plastic containers. It does not export these goods. The case of the assessee is that it supplies bags and containers to certain exporters who export their own goods in the same. On these facts, the assessee claimed weighted deduction under Section 35B of the Income-tax Act, 1961 ('the Act') in respect of the following expenditure :
7. The ITO observed that the expenses in question were incurred by the assessee in connection with its normal business in India and that there was no evidence to prove that these expenses related to the export business, if any. He, therefore, disallowed the claim of the assessee.
8. On appeal, the Commissioner (Appeals) found that the total turnover of the assessee amounted to Rs. 2,86 crores and Rs. 3.34 crores and that the sales of packing material to the exporters amounted to Rs. 6.64 lakhs and Rs. 58,161 for the assessment years 1975-76 and 1976-77 respectively. He observed that the supply of packing material to the other exporters who utilised them for packing their own products for export, could not be considered to be the export business of the assessee and that the staff of the assessee in respect of whose salaries weighted deduction had been claimed, did not exclusively attend to its so-called export business. He, however, allowed the claim of the assessee for weighted " deduction in respect of one-third of the expenses incurred by it on the ground that actual export was not necessary for getting the benefit of weighted deduction. In this connection he referred to the decision of the Supreme Court in the case of CIT v. Indian Hotels Ltd. [SLP No. 4177 of 1979].
9. Dissatisfied with the order of the Commissioner (Appeals) both the parties are in appeal before the Tribunal.
10. Before us, the learned representative of the department urged that the assessee did not actually export the bags and containers manufactured by it, that it had not entered into any arrangement with the exporters to whom it supplied the bags and containers for exporting the same for the purpose of their publicity and that it was also not known whether the exporters really despatched their goods in the bags and containers supplied by the assessee to them, or whether they re-sold the same in the markets in India. He further pointed out that, after holding that the supply of packing materials to the exporters did not tantamount to 'exports', the Commissioner (Appeals) was not justified in granting weighted deduction to the assessee in respect of the expenditure in question; more so when there was no material on record to suggest that the members of the staff, in respect of whose salaries weighted deduction was claimed, really looked after any export business of the assessee. He further submitted that the case of Indian Hotels (supra), referred to by the Commissioner (Appeals) in his order was distinguishable and did not cover the present case. According to him, therefore, the assessee was not entitled to weighted deduction under Section 35B.
11. On the other hand, the learned representative of the assessee contended that, in order to get weighted deduction under Section 35B, it was not necessary to actually export the goods. In this context, he referred to para 9 of the order of the Special Bench of the Tribunal in the case of J. Hemchand & Co. v. Second ITO [IT Appeal Nos. 3255 and 3030 (Bom.) of 1976-77]. He further submitted that the assessee was entitled to weighted deduction in respect of the expenditure in question, under Sub-clauses (i), (ii) and (vi) of Section 35B(1)(b).
12. After going through the record and hearing the arguments of the parties, we are inclined to agree with the learned representative of the department. It is not the case where the assessee itself exports the bags and containers manufactured by it. The case of the assessee, at best, is that it supplies the packing materials to the exporters who use the same for packing their own goods. This contention of the assessee does not automatically entitle it to claim weighted deduction under Section 35B. In the first instance, there is no material on record to prove that the exporters have really packed and exported their goods in the bags and containers supplied by the assessee to them. The possibility that these exporters have re-sold in India the packing material supplied by the assessee to them cannot be ruled out. Thus, it cannot be held that the assessee has incurred the expenditure in question for advertisement or publicity outside India in respect of the goods, services or facilities in which the assessee deals or for obtaining information regarding the markets outside India for such goods, services or facilities, or for furnishing to a person outside India samples of technical information for the promotion of the sale of such goods, etc. That being so, the assessee is not entitled to weighted deduction under Sub-clauses (i), (ii) and (vi) of Section 35B(1)(b), as claimed by it. Further, there is no material on record to prove that the assessee had entered into any agreement or arrangement with the exporters for exporting their goods in the bags and containers manufactured by it or for pooling the export expenses so as to be entitled to claim weighted deduction under Section 35B as envisaged in para 9 of the decision of the Special Bench of the Tribunal in the case of J. Hemchand (supra). So far as the case of Indian Hotels (supra) is concerned, the same is distinguishable. In that case, an expenditure of Rs. 2,11,135 was incurred by the directors and employees of the Hotel concerned on foreign tours for meeting travel agents and airlines, etc. It was held by the Tribunal and the High Court that the actual export of goods was not a condition precedent for granting allowance under Section 35B and that the advertisement and publicity made outside India of the goods and services, in which the company dealt, was enough. In the present case, as already stated, there is no evidence to prove that any advertisement or publicity was made outside India, of the bags and the containers manufactured by the assessee. That being so, the aforesaid authority does not advance the case of the assessee in any way. In these circumstances, it cannot be held that the expenditure in question was incurred by the assessee in connection with any export business. The assessee is, therefore, not entitled to claim weighted deduction in respect thereof. We, accordingly, cancel the orders of the Commissioner (Appeals) and restore those of the ITO on this point.
13. In the result, the appeals preferred by the assessee are dismissed, while the appeals filed by the department are partly allowed.;