THE CIT.B.C-II. vs. M/S. GARWARE PLASTICS POLYESTER LTD.

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ITR/181/1997HC Bombay03 August 2012Bench: HON'BLE SHRI JUSTICE S.J. VAZIFDAR, HON'BLE SHRI JUSTICE M.S. SANKLECHA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court answered the reference in the negative, in favour of the revenue and against the assessee. The Court noted that the question was covered by its own decision in KEC International Ltd. vs. Commissioner of Income Tax (2010) 322 ITR 465. In that case, the Court held that interest paid on packing credit for export is not in respect of services rendered outside India and therefore not covered by Section 35B(1)(b)(viii) of the Act. The Bombay High Court in KEC International Ltd. concurred with the Madras High Court in Lucas TVS Ltd. v. CIT (1996) 217 ITR 382 and the Andhra Pradesh High Court in CIT v. Coromandel Agro Products Oil Ltd. (1998) 230 ITR 335, which disallowed weighted deduction for interest on packing credit. The Court explicitly stated it did not agree with the Madhya Pradesh High Court's view in Vippy Solvex Product Pvt. Ltd. The operative direction was to answer the question in favour of the revenue.

What were the facts?

This is a reference under Section 256(1) of the Income Tax Act, 1961, concerning assessment year 1980-81. The respondent-assessee, M/s. Garware Plastics & Polyester Ltd., claimed weighted deduction under Section 35(B) for interest paid on packing credit loans obtained for fulfilling export orders. The Income Tax Appellate Tribunal (ITAT) had allowed this claim by following the Madhya Pradesh High Court's decision in CIT vs. Vippy Solvex Product Pvt. Ltd. The applicant-revenue filed this reference. The respondent-assessee was absent during the hearing, and no appearance was filed on its behalf, despite being served.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the claim of the assessee under Section 35(B) of the Income Tax Act on interest paid to a bank for packing credit utilized for export orders? Assessee's Contention: The assessee claimed weighted deduction under Section 35(B) for interest paid on packing credit loans for export orders. The ITAT allowed this claim, following the Madhya Pradesh High Court's decision in CIT vs. Vippy Solvex Product Pvt. Ltd. (159 ITR 487), which was the only High Court decision on this point at the time. Revenue's Contention: The revenue has not recorded any specific contentions in the judgment. However, the reference itself implies disagreement with the Tribunal's order.

Which sections of the Income-tax Act were involved?

Section 35(B),Section 35B(1)(b)(viii),Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO.181 OF 1997 The Commissioner of Income Tax. Bombay City III. ..Applicant. Vs. M/s.Garware Plastics & Polyester Ltd. ..Respondent. Mr.Suresh Kumar for the Applicant. None for the Respondent. CORAM : S.J.VAZIFDAR & M.S. SANKLECHA, JJ.

DATE : 3rd August, 2012 JUDGMENT ( Per M.S. SANKLECHA, J.): This is a reference under Section 256(1) of the Income Tax Act 1961 (“the Act”) and it relates to the assessment year 1980-81 arising out of Income Tax Appeal No.1886/Bom/84. 2) When the matter was called out the respondent-assessee was absent. We find from the record that no appearance has been filed in court on its behalf even though they were served with a copy of the statement of case in the present reference as far as back as in August, 2008 at the directions of this court. We also find that there is an affidavit of service filed on behalf of the applicant-revenue that the notice has been served upon the respondent. We therefore, proceed to hear the present reference. ASN 1 ITR-181.sxw CNR No : HCBM020032841997 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:54:04

3) The Income Tax Appellate Tribunal has referred the following question of law for the opinion of this court. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the claim of the assessee u/s. 35(B) of the Income Tax Act, on interest on packing credit paid to bank for export orders secured by the assessee? 4) The respondent assessee is inter alia engaged in the business of manufacture, sale and export of plastic and polyester articles/films. For the assessment year 1980-81, the respondent- assessee had claimed the benefit of weighted deduction under Section 35(B) of the Act inter alia in respect of interest paid by it on packing credit loan obtained by it from its bankers for fulfilment of its export obligation/order. The Income Tax Appellate Tribunal by its order dated 27/12/1990 allowed the claim of the respondent-assessee for weighted deductions under Section-35(B) of the Act by following the decision of Madhya Pradesh High court in the matter of CIT Vs. Vippy Solvex Product Pvt. Ltd. 159 ITR 487. This was particularly so, as at that point of time this was the only decision of a High Court with regard to weighted deduction under section 35(B) of the Act for interest paid on packing credit. 5) We find that the question raised for our opinion is covered by the decision of this court in the matter of KEC International Ltd. Vs. Commissioner of Income Tax reported in (2010) 322 ITR 465 In ASN 2 ITR-181.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:54:04

the above case, the question framed for the opinion of this court was identical to that in the present reference namely allowability of weighted deduction under Section 35(B) of the Act with regard to interest paid on export packing credit facility. This interest on packing credit is not paid in respect of any services rendered outside India and consequently would not stand covered within the ambit of Section 35B(1) (b)(viii) of the Act. 6) This Court in the matter of KEC International Ltd. (supra) concurred with the decisions rendered by the Madras High Court in the matter of Lucas TVS Ltd. v. CIT (1996) 217 ITR 382 and the Andhara Pradesh High Court in the matter of CIT v. Coromandel Agro Products Oil Ltd. (1998) 230 ITR 335 wherein it was held that interest paid on packing credit loan for export must be disallowed for weighted deduction under Section 35B of the Act. Further this Court has expressly stated that it does not agree with the view of the Madhya Pradesh High Court in Vippy Solvex Product Pvt. Ltd. (supra). 7) In view of the above, we answer the question raised in the present reference in the negative i.e. in favour of the revenue and against the respondent assessee. There will be no order as to costs. ( M.S. SANKLECHA, J. ) ( S. J. VAZIFDAR, J.) ASN 3 ITR-181.sxw Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:54:04 Powered by TCPDF (www.tcpdf.org)

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