Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to weighted deduction under s. 35B on the sum of Rs. 54,170 being the service charges paid to the State Trading Corporation ?

Counsel Appeared

C.V. Rajan, for the Applicant : P.P.S. Janarthana Raja, for the Respondent

JUDGMENT

N.V. Balasubramanian, J. :

The question of law referred to us by the Tribunal for our consideration under s. 256(2) of the IT Act, 1961, relating to the asst. yr. 1976-77 is as under : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to weighted deduction under s. 35B on the sum of Rs. 54,170 being the service charges paid to the State Trading Corporation ?”. The assessee is a company carrying on business in manufacture and sale of cement. The assessee during the course of the assessment proceedings for the asst .yr. 1976-77, claimed weighted deduction under s. 35B in respect of expenses paid to the State Trading Corporation of India in respect of transhipments of a sum of Rs. 54,170. The ITO rejected the claim of the assessee on the ground that the claim of the assessee would fall under cl. (iii) of s. 35B(1)(b) of the Act and the assessee was not entitled to claim the weighted deduction.

The assessee preferred an appeal before the CIT(A). The CIT(A), following an order of the Special Bench of the Tribunal, Bombay, in the case of M/s J.H. & Co. in ITA Nos. 3255 and 3330 (Bom)/76-77, dt. 17th June, 1978, held that the assessee was entitled to weighted deduction in respect of the service charges paid to the State Trading Corporation. The Revenue carried the matter on appeal before the Tribunal. The Tribunal, following its earlier order in the case of Farida Prime Tannery in I.T.A. No. 922/Mad/1978-79, dt. 22nd Feb., 1980 held the assessee was entitled to weighted deduction in respect of the service charges paid to the State Trading Corporation in respect of the transhipments. The Revenue has challenged the order of the Tribunal and the question of law set out earlier has been referred to us. Mr. C.V. Rajan, learned counsel for the Revenue, submitted that the Tribunal has merely followed its earlier order in the case of Farida Prime Tannery (supra) and without a definite finding by the Tribunal that the expenditure incurred by the assessee was for advertisement or publicity of the assessee’s goods by the State Trading Corporation outside India and the branch of the State Trading Corporation was maintained for the promotion of the sale of the assessee’s goods, the assessee is not entitled to weighted deduction under s. 35B of the Act. Mr. P.P.S. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the Tribunal has followed its earlier order in the case of Farida Prime Tannery and it has given a categorical finding with reference to the activities of the State Trading Corporation and the finding arrived at by the Tribunal in that case would also be applicable in the assessee’s case as well and the assessee was entitled to weighted deduction under s. 35B of the Act. We have carefully considered the submissions of the learned counsel on either side. It is well settled by the decision of the apex Court in the case of CIT vs. Stepwell Industries Ltd. & Ors. (1997) 142 CTR (SC) 345 : (1997) 228 ITR 171 (SC) : TC S15.1492 as well as in the case of CIT vs. Hero Cycles (P) Ltd. & Ors. (1997) 142 CTR (SC) 122 : (1997) 228 ITR 463 (SC) : TC S15.1494 that it is the duty of the assessee to satisfy the authorities that the expenditure claimed falls under any one of sub-clauses of s. 35B(1)(b) of the IT Act and the assessee has to prove that the expenditure was incurred wholly and exclusively during the previous year for the purposes set out in cl. (b) of s. 35B(1) of the Act. It is no doubt true that on the facts of the case, the Tribunal has merely followed an earlier order in the case of M/s Farida Prime Tannery and in that case, the Tribunal has pointed out the wide range of activities undertaken by the State Trading Corporation by way of publicity of the goods to its dealers and the various kinds of services rendered for the promotion of export sale. But on the facts of the case, the Tribunal has not recorded any finding that the State Trading Corporation has undertaken any activity outside India either by way of advertisement of assessee’s goods or maintained a branch outside India for the promotion of the sale of the assessee’s goods, etc. In the absence of any finding by the Tribunal, we are of the opinion that the matter should be remitted to the Tribunal to consider the question, “Whether the assessee is entitled to weighted deduction under s. 35B of the Act”? The admissibility of the expenditure under s. 35B of the Act would depend upon the facts of the case. Therefore, the assessee has to prove before the authorities or before the Tribunal that it is eligible to claim weighted deduction under s. 35B(1) of the Act. The Supreme Court in the CIT vs. Stepwell Industries Ltd. & Ors. (supra) in C.A. No. 8790 of 1995 has remitted the matter to the Tribunal as the Tribunal has not examined the case properly. Following the said judgment of the apex Court, we are of the opinion that the matter should go back to the Tribunal to consider the question afresh. The apex Court in CIT vs. Hero Cycles (P) Ltd. & Ors. (supra) in C.A. No. 3120 of 1995 also remitted the matter to the Tribunal to consider whether the expenditure incurred by way of commission to State Trading Corporation was eligible for weighed deduction. The Supreme Court also held that onus is on the assessee to prove the facts which would enable the assessee to claim weighted deduction and the Tribunal was also directed to examine the facts of the case and find out whether the claim of the assessee is allowable having regard to any of the sub-clauses of s. 35B(1)(b) of the Act. We are of the opinion that the same procedure should also be adopted in this case as well as the Tribunal has not recorded any finding whether the State Trading Corporation has rendered any services with reference to the assessee’s case for the promotion of export sales of the assessee’s goods. Needless to add the assessee would be entitled to place materials before the Tribunal to bring its case within any one of the sub-clauses of s. 35B(1)(b) of the Act. In this view of the matter, we answer the question of law referred to us in the negative and in favour of the Revenue, but subject to the above direction given by us that the Tribunal should consider the case afresh in the light of the two decisions of the Supreme Court cited supra. In the circumstances there will be no order as to costs.

[Citation : 244 ITR 185]