Bombay H.C : Whether, in the facts and circumstances, the AO was right in holding that the bank was entitled to weighted deduction under s. 35B of the Act and that for the asst. yr. 1975-76?

High Court Of Bombay

Bank Of Baroda vs. H.C. Shrivastava

Section 35B(1)(b)(iv)

Asst. Year 1975-76

S.H. Kapadia & V.C. Daga, JJ.

Writ Petn. No. 2359 of 1990

30th July, 2001

Counsel Appeared

F.V. Irani & J.N. Shah, for the Petitioner : R.V. Desai, J.P. Deodhar & P.S. Jetly, for the Respondent

JUDGMENT

V.C. DAGA, J. :

Having heard the parties at length, this petition was allowed for the reasons to be recorded subsequently. We, accordingly, give our reasons for allowing the petition. This petition is directed against the revisional order, dt. 21st Feb., 1986, passed under s. 264 of the IT Act, 1961 (‘the Act’), holding that the assessee, the petitioner-bank was not entitled to get deduction under s. 35B of the Act in the asst. yr. 1975-76, in respect of the expenses incurred outside India, and also on its International Division in India. The facts

2. The facts leading to the present petition may be stated briefly : The petitioner is one of the leading nationalised banks of the country, engaged in the business of banking and carries on banking operations from its branches situated all over India as well as abroad. At the material time it had 32 foreign branches situate outside India, spread over in several countries of the world. The foreign branches at the relevant time carried on various banking activities such as accepting deposits, advancing money and other banking services, etc.

3. The petitioner-bank had filed return of income for the asst. yr. 1975-76 on 20th Feb., 1975 declaring therein income in the sum of Rs. 6,48,75,800. In the return filed the petitioner had not made any claim for weighted deduction under s. 35B in respect of the expenses incurred on maintaining foreign branches as also on its International Division. The assessment for the asst. yr. 1975-76 was completed under s. 143(3) of the Act, on 11th Sept., 1978 and the income was assessed at Rs. 6,49,08,910. The petitioner-bank neither in the return nor during the course of assessment made any claim for weighted deductions under s. 35B in respect of expenses incurred for maintaining its foreign branches as well as its International Division for the relevant asst. yr. 1975-76.

4. The petitioner-bank was, subsequently, advised that it would be entitled to a deduction under s. 35B in respect of expenditure outside India for the maintenance of its branches as well as in its International Division in India. It, therefore, preferred a revision application before the respondent No. 1 and requested him to direct the AO to grant necessary deductions under s. 35B.

5. Although, the petitioner’s revision application was filed as early as on 21st Aug., 1979, it came to be disposed of sometime on 21st Feb., 1986, i.e., approximately after 6-1/2 years. The 1st respondent rejected the said application under s. 264 of the Act with regard to the expenditure incurred on the maintenance of foreign branches on the ground that s. 35B(1)(b)(iv) required that the expenditure has to be incurred wholly and exclusively on the maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities. In other words, respondent No. 1 was of the view that the foreign branches of the petitionerbank were not promoting banking services or facilities but were engaged in normal banking business not amounting to promotions of banking services or facilities. Thus, it was of the view that the petitioner-bank was not entitled to get benefit of s. 35B(1)(b)(iv).

6. The respondent No. 1 also held that it was unable to agree with the views expressed by the Tribunal in the petitioner’s own case, details of which are referred to in the paragraphs appearing hereinafter. He further held that the petitioner-bank’s claim for deductions in respect of expenditure incurred on its International Division was not allowable as the same did not fall within any of the sub-clauses of s. 35B.

7. Aggrieved by the aforesaid order, the petitioner-bank preferred an appeal to the Tribunal at Bombay, on 11th April, 1986. The said appeal was dismissed by the Tribunal as not maintainable under the provisions of s. 253 of the Act. Consequently, the original order passed by the respondent No. 1 on 21st Feb., 1986, has been impugned in this petition. Subsequent developments

8. The developments, subsequent to the asst. yr. 1975-76, have significant role to play. The factual developments lie in a narrow compass and they are as under : (a) During the pendency of the assessment for the year 1975-76 before the 1st respondent, the claim set up by the petitioner-bank for deduction of expenditure incurred on maintenance of its branch offices outside India came to be adjudicated upon by the Tribunal for the asst. yrs. 1976-77 and 1977-78. The Tribunal by order dt. 23rd Aug., 1983 held that the petitioner would be entitled to relief under s. 35B in respect of expenses incurred on bank facilities and other services rendered by the petitioner outside India. In coming to this conclusion the Tribunal relied upon a decision of the Madras Bench of the Tribunal in the case of Indian Overseas Bank as well as order of the apex Court; whereby the special leave petition was dismissed in the case of India Hotels Ltd. Co. Consequently, the Tribunal had reiterated its views expressed in the orders dt. 21st May, 1983, 2nd Jan., 1985, 19th June, 1986, August, 1988, 15th Dec., 1989. Copies of which were produced on records.

9. The respondent No. 1 had filed reference application before the Tribunal under s. 256(1), and had raised a question as to : whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-bank was eligible for weighted deduction under s. 35B ? However, the Tribunal rejected the said application for reference for the asst. yrs. 1976-77 to 1981-82 and the said rejection has been affirmed by this Court under s. 256(2). In the result, it is clear that orders of the Tribunal referred to hereinabove have become final and conclusive. The same appears to have been accepted even by the Revenue. Rival submissions

10. The petitioner-bank contended that at the relevant time it had 32 branches outside India, rendering banking services and it had incurred expenditure aggregating to Rs. 2,51,23,848 for maintenance of these branches outside India. The bank was thus entitled to relief under s. 35B(1) (b)(iv) for the expenditure incurred for maintaining the branches outside India. In addition to this, the bank has also alleged that it was entitled to relief under s. 35B in respect of the expenditure incurred on International Divisions/overseas branches in India who were exercising supervision, control and undertaking the work of their business activities outside India. The learned counsel for the petitioner relied upon decision of the Tribunal, Bombay Bench with regard to the asst. yr. 1976-77 in the case of the very assessee-bank and prayed that the AO was found to follow the various decisions rendered by the Tribunal in this regard.

11. Per contra, the learned counsel for the Revenue contended that the AO relied upon the reports called for from officers exercising jurisdiction at Bombay, wherein it was confirmed by all the officers exercising jurisdiction that claim under s. 35B had not been accepted by them in any of the cases of other banks. Apart from this, the learned counsel for the respondent has further tried to canvas on the text of s. 35B(1)(iv), and contended that the words used in sub-cl. (iv) of the said section ‘for the promotion of’ are restricted only to the cases where branch office or agency outside India is ‘for promotion of the sale outside India of the goods, services, or facilities’ dealt in or provided by the assessee in the course of its business. In his submission, the foreign branches of the assessee-bank were being engaged in normal banking business. It could not be said that they were maintained for promoting banking services outside India. He, therefore, contended that the AO was perfectly justified in rejecting the deductions claimed by the bank under s. 35B. Statutory provisions

12. Before examining the above contentions, it is necessary to have a look at the scheme of the Act : “35B. Export markets development 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 cl. (b) he shall, subject to the provisions of this section, be allowed a deduction of sum equal to one and one-third times the amount of such expenditure incurred during the previous year: Provided that in respect of the expenditure incurred after the 28th day of February, 1973, but before the 1st day of April, 1978, by a domestic company, being a company in which the public are substantially interested, the provisions of this clause shall have effect as if for the words ‘one and onethird times’, the words ‘one and one-half times’ had been substituted. (b) The expenditure referred to in cl. (a) is that incurred wholly and exclusively on— (i) to (iii)**** (iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities;” The issue

13. In the light of the above vital contentions, the following question arises for our consideration : “1. Whether, in the facts and circumstances, the AO was right in holding that the bank was entitled to weighted deduction under s. 35B of the Act and that for the asst. yr. 1975-76?” Findings Having considered the rival submissions, s. 35B(1)(b)(iv) requires that the expenditure referred to in cl. (a) is that incurred wholly and exclusively on maintenance outside India of a branch, office or agency for promotion of the sale outside India of such goods, services or facilities. Turning to the facts of the case at hand, it would be clear that the petitioner renders services and facilities to the overseas and also in India. The petitioner-bank has numerous branches in India as also abroad, which render banking services and facilities. Services are also rendered to Indian customers in overseas countries. If the Indian Overseas Bank, which was similarly circumstanced could be allowed the benefits under s. 35B, the petitioner-bank can also be held entitled to the same benefits being a similarly circumstanced assessee. In the circumstances, who hold that the petitioner-bank was entitled to claim relief under s. 35B. At this juncture, we cannot resist from observing that the judgment delivered by the Tribunal was very much binding on the AO. The AO was bound to follow the judgments in its true letter and spirit. It was necessary for the judicial unity and discipline that all the authorities below the Tribunal must accept as binding the judgment of the Tribunal. The AO being inferior officer vis-avis the Tribunal, was bound by the judgment of the Tribunal and the AO should not have tried to distinguish the same on untenable grounds. In this behalf, it will be out of place to mention that in the hierarchical system of Courts which exists in our country, it is necessary for each lower tier including the High Court to accept loyally the decisions of the higher tiers. It is inevitable in hierarchical system of Courts that there are decisions of the supreme appellate Tribunals which do not attract the unanimous approval of all members of the judiciary. But the judicial system only works if someone is allowed to have the last word, and that last word once spoken is loyally accepted’. The better wisdom of the Court below must yield to the higher wisdom of the Court above as held by the Supreme Court in the matter of CCE vs. Dunlop India Ltd. AIR 1985 SC 330.

17. In the aforesaid backdrop, for the reasons stated hereinabove, the impugned order of the AO dt. 21st Feb., 1998 is quashed and set aside. In the result, the writ petition is allowed. Rule is made absolute with no order as to costs.

[Citation : 256 ITR 385]

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