CIT vs. M/S KANSAL WOOLLEN AND HOSIERY MILLS

ITR/367/1995HC Punjab & HaryanaPHHC01032443199527 October 2006Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE ADARSH KUMAR GOEL2 pages
AI SummaryRemanded

What did the High Court hold?

The High Court observed that the Commissioner of Income-tax (Appeals) and the Tribunal had allowed the claim without examining the facts of the case. The Court referred to its own judgment in ITR No. 52 of 1990 (CIT (Central) Ludhiana v. M/s. OK Hosiery Mills, Ludhiana), which in turn relied on the Supreme Court's decision in CIT v. Hero Cycles Private Limited and others (1997) 228 ITR 463. The principle established is that for a deduction under Section 35B(1)(b) to be permissible, the expenditure must be laid out wholly and exclusively for the specified purposes. It is incumbent upon the assessee to prove this exclusivity, and the Tribunal must provide a finding on the entitlement with reference to the particulars of Section 35B(1)(b). The Court noted a general practice of allowing a certain percentage of the claim without adverting to the sub-clauses. Consequently, the High Court set aside the ITAT's order and remanded the matter back to the Tribunal for a fresh decision after examining the facts afresh, specifically the nexus of the deduction with exports. The reference is disposed of accordingly.

What were the facts?

The Commissioner of Income Tax, Patiala (Revenue) has filed a reference before the High Court of Punjab and Haryana at Chandigarh against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT, in its order dated 14.07.1992, allowed a deduction under Section 35B of the Income Tax Act, 1961, to M/s Kansal Woollen & Hosiery Mills Pvt. Limited (Assessee) for the assessment year 1982-83. The deduction was claimed on expenses related to quality control, advertisement, foreign tour, export promotion, and sample designing, amounting to Rs. 97,170. The ITAT had relied on its previous order for the assessee for an earlier year. The High Court is considering a question of law referred by the ITAT.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in allowing deduction under Section 35B in respect of expenses on account of quality control, advertisement, foreign tour etc., when the same does not qualify for deduction under Section 35B or Rule 6AA of the Income Tax Rules, 1962? Assessee's Contention: The assessee claimed weighted deduction under Section 35B for expenses incurred on quality control, advertisement, foreign tour, export promotion, and sample designing. The claim was allowed by the appellate authorities, including the Tribunal. Revenue's Contention: The Revenue contends that the expenses claimed do not qualify for deduction under Section 35B or Rule 6AA. The High Court notes that the ITAT allowed the claim without examining the facts of the case, and that the deduction is permissible only if the expenditure is laid out wholly and exclusively for the purposes mentioned in clause (b) of Section 35B(1). The Revenue implicitly argues that the Tribunal erred by not verifying the exclusive nexus of the expenditure with export promotion activities.

Which sections of the Income-tax Act were involved?

Section 35B

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITR No.367 of 1995 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No.367 of 1995 Date of decision:27.10.2006 The Commissioner of Income tax, Patiala ....Petitioner versus M/s Kansal Woollen & Hosiery Mills Pvt. Limited, Ludhiana ....Respondent CORAM: HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE RAJESH BINDAL Present: Mr. SK Garg Narwana, Advocate, for the revenue.

JUDGMENT: Following question of law has been referred for the opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh bench, Chandigarh (for short, 'the Tribunal) arising out of its order dated 14.7.1992 passed in ITA No.1024/Chandi/1986, for the assessment year 1982-83:- “Whether on the facts and in the circumstances of the case, the ITAT was right in law in allowing deduction under section 35B in respect of expenses on account of quality control, advertisement, foreign tour etc., when the same does not qualify for deduction under section 35B or rule 6AA of the Income Tax Rules, 1962? The assessee claimed weighted deduction under section 35B of the Income Tax Act, 1961 (for short, 'the Act') amounting to Rs.97170/- on expenses on quality con

The order continues below.

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