Gedore Tools (india) Pvt. Ltd v. Commissioner Of Income Tax

R. C. Lahoti, J.

1. This is a reference under Section 256(1) of the Income Tax Act 1961, arising out of the assessment year 1974-75 and made at the instance of the assessed seeking opinion of High Court on the following two questions of law;

1. Whether on the facts and in the circumstances of the case the Tribunal was correct for the purpose of computation of the deduction 33 1/3 of the total qualifying expenses incurred on exports under Section 35B of the Income Tax Act, 1961, in excluding a sum of Rs. 35.11.495/- representing the following items incurred by the assessed in the accounting year relevant to Assessment Year 1974-75 holding that the same is not an expenditure to qualify for the said relief.



1.Interest on Post Shipment

Export Credit Loan Rs. 1,05,497/-

2.Exchange Rate difference Rs. 5,02,235/-

3.Inland freight on Export

consignments. Rs. 11,58,938/-

4.Ocean freight on Export

consignments Rs. 14,39,555/-

5.Forwarding charges on

export consignment Rs. 3,05,270/-





35,11,495/-

2. Whether on the facts and in the circumstances of the case the Tribunal was correct in holding that the Sur Tax Liability should not be allowed as a deduction as necessary business expenditure under Section 28 or 37 of the Income Tax Act, 1961

2. Insofar as the first question is concerned, the law has been laid down by Supreme Court recently in CIT Vs . Stepwell Industries Ltd. : [1997]228ITR171(SC) and CIT Vs . Hero Cycles Pvt. Ltd. : [1997]228ITR463(SC) . There are other decision by different High Courts taking the view which falls in line with the view of law taken by the Supreme Court in the above said two decisions. By reference to the law so laid down, we proceed to answer the question by taking up to each of the items of expenditure as below:

2.1. Interest on Post Shipment Export Credit Loan:

In Walchand nagar Industries Ltd. Vs . Commissioner of Income tax. : [1994]206ITR328(Bom) such interest has been held to be not an allowable expenditure in view of the same having been incurred on loans obtained in India. It could not be said to be an expenditure incurred wholly and exclusively on performance of services outside India in connection with or incidental to the execution of contract for supply outside India of the goods of the assessee.

2.2 Exchange Rate difference:

On the same reasoning this item of expenditure is also held to be not allowable. The export had already taken place. It was merely on account of fluctuation in exchange rate that the assessed was required to pay the difference.

2.3 Inland freight on Export consignments:

This item is clearly not covered by any of the sub-clauses of clause (b) of sub section (1) of section 358. So is the view taken by the High Court of Delhi in Nath Bros. Exim International Ltd. Vs . Commissioner of Income Tax : [1997]227ITR635(Delhi) .

2.4 Ocean freight on Export consignments.

This expenditure is also not allowable to weighted deduction in view of the Bombay High Court decision in Forbes comebell and Co. Ltd. Vs . Commissioner of Income Tax : [1994]206ITR495(Bom) . the view of the law taken wherein has been fully relied on by us in Indian Aluminium Cables Ltd. Vs. Commissioner of Income tax (ITC 75/83 decided on 5th March 1998).

2.4 Forwarding charges on export consignment:

This is also not allowable item of expenditure as held in V. D. Swami & Co. Pvt. Ltd. Vs. Commissioner of Income Tax, Tamil Nadu-1 : [1984]146ITR425(Mad) and Bharat General and Textile Industries Ltd. Vs. Commissioner of Income Tax : [1985]153ITR747(Cal) with which we find ourselves in respectful agreement.

2.6 In our opinion the Tribunal has not correct in holding these items of expenditure as entitled to weighted deduction.

3. Question No.2. The question stands answered by the law laid down by the Supreme Court of India in Smith Kline & French (India) Ltd. and others Vs. Commissioner of Income Tax 1996 (219) ITR 501 wherein their Lordships have taken the view that sur-tax levied on the profits of a company is not deductible while computing business income of an assessed under the Income Tax Act. So is the view taken by our own High Court in Orissa cement Vs. Commissioner of Income Tax : [1993]200ITR636(Delhi) and Nath Bros. Exim In Ltd. (supra).

4. For the foregoing reasons, both the questions are answered in negative i.e. in favor of the Revenue and against the assessee.