COMMISSIONER OF INCOME TAX vs. NEW BHARAT ENGINEERING WORKS LTD.

ITR/48/1987HC GujaratGJHC24011781198720 August 2001Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
AI SummaryRemanded

What were the facts?

The Income Tax Appellate Tribunal, Ahmedabad Bench "B", referred a question of law to the High Court of Gujarat for assessment years 1976-77, 1979-80, and 1980-81. The assessee, New Bharat Engineering Works Ltd., had paid Rs. 30,209/- as interest to Gujarat Export Corporation Limited for the credit period granted to foreign customers under export contracts. The assessee claimed weighted deduction under Section 35B(1)(b) of the Income-tax Act, 1961, on this interest expenditure. The Revenue contested this claim.

What did the High Court hold?

The High Court held that the assessee was not entitled to weighted deduction under Section 35B of the Income-tax Act, 1961, on the interest paid to Gujarat Export Corporation Limited. The Court reasoned that the interest paid to an institution within India would not be covered by sub-clause (viii) of Section 35B(1)(b). Furthermore, an expenditure incurred by way of interest payment in India in respect of the period of credit granted to foreign customers against an export contract is not an expenditure incurred wholly and exclusively on the performance of services outside India in connection with or incidental to the execution of such contract for the supply of goods outside India. Therefore, such expenditure is not eligible for weighted deduction. The question was answered in the negative, in favour of the revenue and against the assessee. The reference was disposed of accordingly.

What were the issues?

1. Whether, in law and on facts, the assessee is entitled to weighted deduction under section 35B of the Income-tax Act, 1961, on expenditure by way of interest in respect of the period of credit granted to the foreign customers under the export contracts? Assessee's contention: Not recorded in the judgment. Revenue's contention: The interest paid by the assessee to an institution within India, namely Gujarat Export Corporation Limited, is not covered by sub-clause (viii) of Section 35B(1)(b) and therefore is not eligible for weighted deduction. The expenditure incurred by way of interest payment in India in respect of the period of credit granted to foreign customers against the export contract is not an expenditure incurred wholly and exclusively on performance of services outside India in connection with or incidental to the execution of such contract for supply outside India of any goods, facilities or services. The Revenue relied on the decision of the High Court in Testeels Ltd. vs. C.I.T. 205 I.T.R. 230.

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 48 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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