High Court Of Madras
Lucas Tvs Ltd. vs. CIT
Sections 35B, 40(c), 40A(5)
Asst. Year 1982-83, 1983-84
N.V. Balasubramanian & P. Thangavel, JJ.
TC Nos. 1299 & 1300 of 1987
26th March, 1998
P.P.S. Janarthana Raja, for the Applicant : C.V. Rajan, for the Respondent
N.V. BALASUBRAMANIAN, J. :
Three common questions of law have been referred to us at the instance of the assessee relating to its two asst. yrs. 1982-83 and 1983-84 for our consideration:
“1. Whether, on the facts and circumstance of the case, the Tribunal was right in following the earlier order and holding that remuneration paid to Sri J. Wood and K.J. Wells is to be taxed under the provisions of s. 40A(5)(b)/40(c) beyond the exempted amount under s. 10(6)(vii) of the IT Act ?
2. Whether the Tribunal was right in holding following earlier years (sic-order) that exclusion of cl. (A) of s. 40A(5) is to be confined to the actually exempted amount and not the entire remuneration paid to foreign technicians ?
3. Whether on the facts and circumstances of the case the Tribunal was right in holding that the assessee is not entitled to weighted deduction under s. 35B on certification charges, warranty claims, etc.?” 2. The assessee is a company engaged in the manufacture of automobile electrical equipments. The first two questions relate to the interpretation of s. 40A(5)(b) of 40(c) of the IT Act in relation to the determination of the amount of disallowance to be disallowed under the abovesaid provisions. The claim of the assessee was that the entire remuneration paid to its foreign directors and employees should altogether go out of reckoning to determine the ceiling under s. 40A(5) or 40(c) of the Act on the ground that it was an exempted income. The Tribunal, however, has taken a view that the exclusion under the above provision would be confined to the amount actually exempted and not the entire remuneration paid to the foreign technician. The assessee has challenged the above finding of the Tribunal and hence, the first two questions of law relate to the extent of exemption available under s. 40A(5) and 40(c) of the Act. This Court in the case of CIT vs. Lucas TVS Ltd. (1998) 144 CTR (Mad) 449 : (1997) 226 ITR 281 (Mad) : TC S18.2012 has taken a view that it cannot be said that the entire salary or the remuneration or perquisite paid to a foreign technician-director would go out of the reckoning for the purpose of determining the ceiling under s. 40A(5) of the Act. This Court in the above decision has taken the view that it would be restricted to the extent of the amount to which the exemption was granted by the Government of India. It is not disputed that the earlier decision of this Court in Lucas TVS Ltd. case (cited supra) would apply to the facts of this case, and following the said decision our answer to the first two questions of law is in the affirmative and against the assessee. The third question relates to the claim of deduction under s. 35B of the Act. The orders of assessment with which we are concerned relate to the asst. yrs. 1982-83 and 1983-84. The claim of the assessee under s. 35B of the Act was that it incurred certain expenditure for certification of the goods for export and also certain expenditure in respect of warranty claims. The ITO and the first appellate authority rejected the claim of the assessee which was accepted by the Tribunal. We are of the opinion that the expenditure claimed by the assessee is not covered by the amended provisions of s. 35B of the Act. Sec. 35B of the Act has been amended by the Finance (No. 2) Act, 1980, w.e.f. 1st April, 1981, and under the amended law to the extent to the expenses incurred fall under sub-cls. (i), (iv), (vii) and (ix) of s. 35B(1)(b) of the Act would not qualify for weighted deduction. We are of the view certification expenses as well as expenses incurred by way of warranty claim do not fall within any of the amended clause of 35B of the Act, and, therefore, the claim of the assessee must necessarily fail, as the expenditure incurred or expenses incurred do not fall within the ambit of s. 35B of the Act. Accordingly, our answer to this question also is in the affirmative and against the assessee. However, in the circumstances, there will be no order as to costs.
[Citation : 239 ITR 534]