- (1.) 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 the Finance (No. 2) Act, 1980, and whether the said expenditure was allowable under Section 35B(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 the 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 under Section 35B(1)(b)(ix) read with Rule 6AA to the extent of 5/6ths on the salary to staff (quality controller and checker) ?
(2.) 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 4Rs. Rs1. Salary to staff 95,020 79,183.33(quality controller (5/6)and checker)2. Director's salary 1,96,800 1,64,000.00(5/6)3. Salary of managing 33,600 28,000.00director (5/6)4. Export development 79,071.62 79,071.72A/c. (publicity out - (100%)side India)5. Stationery and 35,632.13 35,632.13printing (100%)6. Postage 13,346 10,009.50(75%)7. Staff welfare 3,607 3,088.33(5/6)8. Subscription A/c. 5,690 5,690(publicity outside (100%)India throughsemi -Govt. offices)9. Discount to foreign 1,59,812 79,906.00buyers (publicity (75%)outside India)10. Commission to agent 60,841 60,841.00(100%)____________5,45,421.91
(3.) 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 6AA(c) of the Income -tax Rules holding that the term 'other facilities' covered the claim. However, he has restricted the allowance to 5/6ths of the claim on the ground that 5/6ths 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 August 1, 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 April 1, 1981, to March 31, 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 April 1, 1981, to July 31, 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 the 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 35B(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 Nos. 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 No. 7 regarding staff welfare expenses is concerned, they were treated at par with item No. 1 pertaining to salary to staff (quality controller and checker) and, therefore, the allowance of weighted deduction with reference to 5/6ths of the total amount as made by the Commissioner of Income -tax (Appeals) was upheld. So far as items Nos. 8, 9 and 10 are concerned they were held to be allowable.;