Cit vs Rajasthan Charam Kala Kendra

ORDER R.K. Agrawal, J.

The Income Tax Appellate Tribunal, Delhi has referred the following question of law under section 256(1) of the Income Tax Act, 1961, hereinafter referred to as the Act, for opinion to this Court.

"Whether on the facts the Tribunal has been right in law in holding that rule 6AA of the Income Tax Rules, 1962 was operative for the assessment year 1981-82 and thereby reversing the CIT (A) order withdrawing weighted deduction in respect of Rs. 46,354 and Rs. 53,553 granted in the assessment under section 35B(1)(b)(ix) of the Income Tax Act, 1961?"

2. Briefly stated the facts giving rise to the present reference are as follows:-

The respondent, a registered firm, carried on business of manufacture and export of shoe uppers. The assessment year under reference is 1981-82 for which the accounting period was the financial year ending 31-3-198 1.

3. The respondent agitated the assessment framed on 24-3-1983 on various counts. However, though some relief was given, the CIT(A) withdrew weighted deduction in respect of two items of Rs. 46,354 and Rs. 53,553 stated to be incurred in respect of export inspection charges and quality control and inspection of goods respectively, on the ground that these were not covered under any of the sub-clauses of section 35B after brushing aside the respondent's agitation. The CIT(A) for his order took support from rule 6AA, which was inserted by Income Tax (8th Amendment) Rules, 1981 with effect from 1-8-1981.

4. In further appeal filed by the respondent, the Tribunal reversed the order of the CIT(A) in respect of weighted deduction under section 35B of the Act by holding that sub-clause (ix) of clause (b) of sub-section (1) of section 35B of the Act was in existence all along and as soon as the activities referred to in sub-clause (ix) was prescribed the same was to be read as part of sub-clause (ix) and as the said sub-clause was operative on 1-4-1981 the respondent would be eligible for benefit under sub-clause (ix). The finding of the CIT(A), therefore, that rule 6AA would not be operative for assessment year 1981-82 is not correct.

5. We have heard Shri Shambhu Chopra, the learned Standing counsel for the revenue. Nobody has put in appearance on behalf of the respondent.

6. Learned counsel for the revenue submitted that under sub-clause (ix) of clause (b) of sub-section (1) of section 35B of the Act, weighted deduction was admissible on such other activities for the promotion of sale outside India of such goods, services or facilities as may be prescribed. It was prescribed by rule 6AA inserted by the Income Tax (8th Amendment) Rules, 1981 in the Income Tax Rules, 1962 with effect from 1-8-1981 and was, therefore, not available for the assessment year 1981-82 as the previous year relevant to the assessment year 1981-82 ended on 31-3-1981. According to him, the law as is in force on the first day of the assessment year is applicable and, therefore, the Tribunal has committed error in holding that as soon the activities referred to in sub-clause (ix) was prescribed the same was to be read as part of sub-clause (ix) is incorrect. He relied upon the following two decisions :

1. CIT v. Moran Tea Co. (India) Ltd. (1992) 194 ITR 429 (Cal).

2. CIT v. Bishnauth Tea Co. Ltd. (1992) 197 ITR 150 (Cal).

7. Having heard the learned counsel for the revenue, we find that it is not in dispute that rule 6AA, which prescribes the activities, was inserted by the Income Tax (8th Amendment) Rules, 1981 and came into force with effect from 1-8-1981. The assessment year in question is 1981-82, the previous year of which ended in the present case on 31-3-1981. It is well settled that the law as is in force on the first day of the assessment year is to be applied as held by the Apex court in the case of CIT v. Isthmian Steamship Lines (1951) 20 ITR 572 and Reliance Jute & Industries Ltd. v. CIT (1979) 120 ITR 921 (SC).

8. In the case of Moran Tea Co. (India) Ltd. (supra) the Calcutta High Court has held that as rule 6AA was inserted with effect from 1-8-1981, which was operative during the previous year relevant to the assessment year 1982-83, therefore, the assessee would be entitled to weighted deduction on expenditure incurred by it during the entire period of the relevant previous year and not merely to a pro rata deduction on expenditure incurred from 1-8-1981 to 31-12-1981.

9. In the case of Bishnauth Tea Co. Ltd. (supra) the Calcutta High Court has held as follows:

'Section 35B(1)(b)(ix) provides that weighted deduction will be allowed also on such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed. By rule 6AA of the Income Tax Rules, 1962, which was introduced only with effect from 1-8-1981, the other activities as mentioned in sub-clause (ix) of section 35B(1)(b) of the Act have been prescribed. This cannot have any retrospective operation in respect of the assessment year 1980-81, although the assessment for the assessment year in question was completed after rule 6AA came into force." (p. 155)

10. We find that the Gauhati High Court in the case of CIT v. Assam Frontier Tea Ltd. (1997) 224 ITR 398 has held that rule 6AA is a substantive law and there is no indication from the rule-making authority that it will have retrospective effect. The Gauhati High Court has agreed with the view taken by the Calcutta High Court in the case of Bishnauth Tea Co. Ltd. (supra).

11. We are in respectfully agreement with the view taken by the Calcutta High Court in the case of Bishnauth Tea Co. Ltd. (supra) and Gauhati High Court in the case of Assam Frontier Tea Ltd. (supra) and, therefore, of the opinion that rule 6AA did not have any retrospective operation so as to enable the respondent to claim weighted deduction in respect of the items falling under sub-clause (ix) of clause (b) of sub-section (1) of section 35B of the Act for the assessment year 1981-82 which have prescribed only on 1-8-1981, by insertion of rule 6AA.

12. In view of the foregoing discussion we answer the question referred to us in the negative, i.e., in favour of the revenue and against the assessee. However, there shall be no order as to costs.