B.R. Arora, J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, at the instance of the assessee, has referred the following question of law for the opinion of the High Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in not allowing the claim as was allowed by it in the cases of other assessees such as Rajasthan Udyog and Associated Stones orders of the same Bench in respect of the following items : JUDGEMENT_583_ITR218_1996Html1.htm THE assessee, Rathi Gum Industries, Jodhpur, for the assessment year 1979-80 claimed weighted deduction under Section 35B of the Income-tax Act, 1961, on various items of expenses aggregating to Rs. 4,13,959.35. THE Inspecting Assistant Commissioner, i.e., the assessing authority, allowed the claim of the assessee to the tune of Rs. 380 only on some of the items. Dissatisfied with the order passed by the assessing authority, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Jodhpur, who has held that the 13 items mentioned in the order will qualify for weighted deduction under Section 35B and directed the assessing authority to pass an order accordingly. THE Revenue, aggrieved of the order passed by the Commissioner of Income-tax (Appeals), Jodhpur, preferred an appeal before the Tribunal. THE assessee also filed cross-objections. Both the appeal and the cross-objections were decided by the Tribunal by its order dated February 24, 1984, and the Tribunal, while deciding which of the expenses qualify for weighted deduction under Section 35B, did not find it proper to interfere with the order passed by the Commissioner of Income-tax (Appeals), Jodhpur, but accepted it to the extent that the weighted deduction is not admissible even in view of the decision of the Tribunal in the case of J. Ramchandra and Co. (J. Hemchand and Co. (?)) in respect of insurance expenses of Rs. 13,833 and modified the order of the Commissioner of Income-tax (Appeals) to this extent and directed the assessing authority to recalculate the weighted deduction after including the expenses of insurance charges. THE other question, which arose in this appeal, was remanded to the Commissioner of Income-tax (Appeals) by the Tribunal. THE assessee moved an application before the Tribunal for referring five questions of law arising in the order passed by the Tribunal. THE Tribunal refused to refer the other four questions and referred only the above question for the opinion of this court.
(2.) THERE was a divergence of the opinion of various High Courts on the question : which expenses qualify for any deduction under Section 35B of the Act ? The Central Board of Direct Taxes, therefore, issued the following guidance to the authorities subordinate to it. Instruction No. 1441, issued by the Central Board of Direct Taxes reads as under : "Instruction No. 1441-XVII/1/1993, dated 28th December, 1981 :-- Deduction under Section 35B.--Tribunal's decision in the case of /. Hemchand and Co. (I. T. A. Nos. 3255 and 3330/(Bom) of 1976-77 dated 7th June, 1978)--Clarification regarding - 'Attention is drawn to the Board's Instruction No. 1302, dated 29th January, 1980. It was clarified therein that the sole question to be determined in considering the admissibility of weighted deduction is whether the expenditure in question is one covered by any of the Sub-clauses of Clause (b). The Board also accepted that in case there is composite expenditure a part of which may relate to any of the purposes mentioned in Sub-clauses, the claim can be allowed in respect of and to the extent the expenditure can be said to be incurred wholly and exclusively with reference to any of the items specified in Clause (b) of Section 35B(1). In particular, the instruction (paragraph 4) referred to expenses claimed on export division and emphasised that after critical examination of the nature of such expenditure, the extent to which such expenditure could be said to fall wholly and exclusively within the meaning of one or more Sub-clauses of Clause (b) of Sub-section (1) can be determined. 2. Attention may also be drawn to the decision of the Bombay High Court in the case of CIT v. Eldee Wire Ropes Ltd. [1978] 114 ITR 485 (Bom) ; TC 15R 471 which had been accepted by the Board. The High Court had held that except for items covered under Clause (iii), there is no warrant for excluding expenditure incurred in India as is covered in any Sub-clause of Clause (b). The court further held that the assessee will have to satisfy the Income-tax Officer that the purpose for expenditure, whether incurred outside India or in India, is one which is satisfied by reference to the language of the section. The court further observed that where the Legislature desired to exclude the expenditure incurred in India for the purposes of giving the benefit of weighted deduction, it expressly did so by specifically mentioning such exclusion in Sub-clause (iii). Then came the decision of the Special Bench of the Tribunal at Bombay in the case of J. Hemchand and Co. which laid down the following propositions of law in paragraphs 22 and 23 of its order dated 17th June, 1978. These are as under : (a) Except for the purpose of Sub-clause (iii), the place where the expenditure is incurred is irrelevant and any expenditure satisfying the conditions laid down in Sub-clauses (i), (ii) and (iv) to (viii) will get the benefit of weighted deduction irrespective of whether the same is incurred in or outside India. (b) Under Sub-clause (iii), though expenditure incurred wholly and exclusively on distribution, supply or provision outside India of such goods, services or facilities would generally qualify for weighted deduction, the rule is, however, subject to the notable exception that the expenditure incurred in India in connection with such distribution, supply or provision as also expenditure, wherever incurred, on the carriage of such goods to their destination outside India and on the insurance of such goods while in transit, will not, all the same, get- such benefit. (c) Wherever common expenses are incurred by an assessee that could properly and fairly be apportioned to any of the activities referred to in the Sub-clauses, such proportionate expense can be taken for the purpose of this section as wholly and exclusively spent on such activity. It may be clarified that the Board agrees with the above interpretation of the provisions of Section 35B. The Tribunal has also correctly stated in the said order that whether a particular claim made by an assessee falls under any one or more of the activities specified in those Sub-clauses, can at best be judged only with reference to the facts of the particular case and the nature of the claim. The Tribunal, thereafter, examined the various items of expenses treating them as admissible for weighted deduction wholly or proportionately, may be controversial and not acceptable to the Department. In particular, its decision to allow 75 per cent. of salary of persons handling export business could still be a matter of dispute, because though accepting that the assessee's employees as part of their duty could not have avoided attending also to such work as falls within the excluded category in Sub-clause (iii), it decided to apportion only 25 per cent. of the expenditure on salaries, etc., attributable to excluded activities. But for upholding 75 per cent. thereof as admissible for weighted deduction it did not at all discuss the nexus of such expenses with the purposes or activities specified in the other Sub-clauses. In other words, the claim with regard to 75 per cent. of the salaries could not be proved to be falling under any one or more of the activities specified in other Sub-clauses. The Board have also noticed subsequent decisions of different Benches of the Tribunal which, while dealing with the claim of admissibility with regard to the salaries paid to export department personnel, are merely following the Full Bench decision and are apportioning 75 per cent. of the expense as admissible for weighted deduction. In some of the cases, the Tribunal did mention that part of such expenses were attributable to preparation and submission of tenders for the supply outside India of goods, services, etc. Even in such a case, though on the facts part of the activity may have nexus with Sub-clause (v), the question may still remain whether apportionment at 75 per cent. is reasonable or excessive. Such issue would be basically a finding of fact and can be further contested, depending on the stake of revenue involved, by seeking reference to the High Court by raising, appropriate questions of law on the ground of perversity. Therefore, each case should be considered in the light of whatever is stated above and framing of the question of law should be done carefully.' It may also be clarified that the Full Bench decision with regard to the admissibility of weighted deduction in respect of insurance amount paid to the Export Credit Guarantee Corporation is not correct. In fact, on this issue, a special leave petition had been filed in the Supreme Court in the case of CIT v. Orient Co. (P.) Ltd. (F. No. 270/155/80-ITJ)." 3. The case of the assessee was decided by the Tribunal on the basis of the judgment of the Special Bench of the Tribunal, Bombay, in the case of J. Ramchandra and Co. (J. Hemchand and Co. (?)). The Central Board of Direct Taxes, looking to the conflicting views taken by the various High Courts, issued the abovenoted instructions clarifying the earlier circulars. In this view of the matter, we are of the opinion that the case of the assessee requires reconsideration by the Tribunal in the light of Instruction No. 1441 issued by the Central Board of Direct Taxes. The reference is, therefore, returned unanswered to the Tribunal with the direction that the Tribunal should decide the matter afresh as per the aforesaid Instruction No. 1441. ;