COMMISSIONER OF INCOME TAX vs. SUBODHCHANDRA & CO

ITR/293/1987HC GujaratGJHC24012023198720 August 2001Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
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What were the facts?

This case concerns an Income Tax Reference before the High Court of Gujarat at Ahmedabad for the assessment year 1980-81. The reference was made at the instance of the Commissioner of Income Tax (Revenue) against the assessee, Subodhchandra & Co. The High Court was asked to decide two questions of law referred by the Income Tax Appellate Tribunal. The Revenue was represented by counsel, while no one appeared for the assessee despite being served notice. The dispute pertains to the allowability of certain expenses claimed by the assessee as export market development allowance.

What did the High Court hold?

The High Court answered both questions in the negative, in favour of the Revenue and against the assessee. Regarding the first question, the Court held that Section 35B(1)(b)(iii) of the Income Tax Act, 1961, explicitly excludes expenditure incurred on clearing, forwarding, and shipping of goods to destinations outside India from the ambit of export market development allowance. Therefore, such expenditure could not be considered for the benefit under Section 35B(1)(a). The Court cited its own decision in Isabgul Export Corporation vs. Commissioner of Income Tax (200 ITR 797) in support. For the second question, the Court found substantial merit in the Revenue's contention. Relying on the Apex Court's decision in CIT vs. Stepwell Industries Ltd. (228 ITR 171), the Court stated that for a deduction under Section 35B, the assessee must prove the expenditure was incurred wholly and exclusively for the purposes enumerated in Section 35B(1)(b). A blanket allowance is not permissible, and each expenditure must be specifically examined to fit into one of the sub-clauses. The Court noted that in Stepwell Industries, the Apex Court had negatived the claim for export market development allowance in respect of commission paid for exports. Consequently, the Tribunal's reasoning, which followed a Special Bench decision in J. Hemchand & Co. (1 SOT 150) that export commission falls under sub-clauses (i) and (ii) of Section 35B(1)(b), was not accepted. The reference was disposed of with no order as to costs.

What were the issues?

The High Court was asked to decide the following questions of law: 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing the assessee's claim for clearing, forwarding, and shipping expenses to the extent of Rs. 31,995/-? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the assessee's claim for export commission amounting to Rs. 95,975/-? Contentions: Assessee: Not recorded as no one appeared for the respondent. Revenue: For question 1: The Revenue contended that Section 35B(1)(b)(iii) clearly excludes expenditure on clearing, forwarding, and shipping of goods to destinations outside India from the export market development allowance. For question 2: The Revenue argued that the Tribunal erred in allowing the claim for export commission as it does not fall under any of the specific items enumerated in Section 35B(1)(b). The Revenue relied on the Supreme Court decision in CIT vs. Stepwell Industries Ltd. (228 ITR 171).

Which sections of the Income-tax Act were involved?

Section 35B

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 293 of 1987

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO

The order continues below.

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