COMMISSIONER OF INCOME TAX, PATIALA vs. PB. ST. SMALL INDUS. CORP. LTD. CHD.

ITR/72/1989HC Punjab & HaryanaPHHC01022617198925 August 2008Author: MR. JUSTICE HEMANT GUPTA,MR. JUSTICE RAJESH BINDAL7 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s Punjab State Small Industries Corporation Ltd. (now Punjab Small Industries & Export Corporation Limited), a company, is in appeal against the order of the Income Tax Appellate Tribunal for Assessment Year 1981-82. The assessee initially filed a return with unaudited accounts declaring a loss of Rs. 5,51,904, and later filed a revised return with audited accounts declaring a loss of Rs. 1,52,534. The dispute concerns two main issues: weighted deduction under Section 35B for expenditure incurred abroad and the change in accounting method for interest income from seed money. The Assessing Officer and CIT(Appeals) had ruled against the assessee on both counts, but the Tribunal had ruled in favour of the assessee.

What did the High Court hold?

The High Court held in favour of the assessee on both questions. On the first issue, regarding Section 35B, the Court found that the Tribunal was correct in allowing the weighted deduction for the entire expenditure incurred on travelling outside India for export promotion, including stay and incidental expenses. The Court reasoned that Section 35B(1)(b)(vii) is widely worded and covers expenditure on travelling outside India, which inherently includes arrangements for stay. The purpose of export promotion was not disputed. On the second issue, concerning the change in accounting method, the Court upheld the Tribunal's decision. It reasoned that while the assessee generally followed the mercantile system, adopting a cash basis for interest income from seed money was permissible, especially when the recovery was not being made and the change was consistently followed thereafter until the amendment of Section 145. The Court cited several High Court judgments supporting the permissibility of hybrid accounting systems and consistent adoption of accounting methods. The judgment relied upon by the Revenue was distinguished as it pertained to a change for a particular transaction rather than a source of income.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law, in allowing weighted deduction u/s 35B on the expenditure of Rs.64,335/- incurred on the stay and other incidental expenses on the employees of the assessee, outside India? - Assessee's contention: The entire amount spent on stay and other incidental expenses abroad, in addition to airfare, should be eligible for weighted deduction under Section 35B as part of travelling expenses for export promotion. - Revenue's contention: Only expenditure on trade fairs should be allowed, and the Tribunal erred in allowing expenses for stay and other incidental expenses as part of Section 35B deduction. 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law, in allowing change in the method of accounting from accrual basis to receipt basis for a part source of income i.e. interest income from seed money and consequently deleting the addition of Rs. 2,82,387/-? - Assessee's contention: The change in accounting method for interest income from seed money to receipt basis was bonafide, especially since recovery was not being made and tax was being paid on accrual basis. A hybrid system was permissible before the amendment to Section 145. - Revenue's contention: The assessee cannot adopt different methods of accounting for different sources of income. The change effected only during the assessment year in question was not bonafide and was an effort to avoid tax. Reliance was placed on Reform Flour Mills P. Ltd. v. Commissioner of Income-Tax.

Which sections of the Income-tax Act were involved?

Section 35B,Section 145

AI-generated summary — verify with the full judgment below

I.T.R. No. 72 of 1989 [ 1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income Tax Reference No. 72 of 1989 Date of decision: August 25,2008 The Commissioner of Income Tax, Patiala. .. Applicant. v. M/s Punjab State Small Industries Corporation Ltd., Chandigarh now The Punjab Small Industries & Export Corporation Limited, Chandigarh. .. Respondent. CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MR. JUSTICE RAJESH BINDAL Present: Ms. Urvashi Dhugga, Advocate for the applicant. Mr. Akshay Bhan, Advocate for the respondent.

.. Rajesh Bindal J.

1.

The following questions of law have been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, `the Tribunal') arising out of order dated 30.11.1987 in I.T.A. No. 437 of 1986, for the assessment year 1981-82:

“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law, in allowing weighted deduction u/s 35B on the expenditure of Rs.64,335/- incurred on the sta

The order continues below.

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