ORDER
Egbert Singh, Accountant Member
1. This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals) by which he has confirmed the order passed by the Assessing officer giving effect to the order and directions passed under Section 263 of the Income-tax Act 1961 by the Commissioner of Income-tax.
2. It may be mentioned here that against the order passed by the Commissioner of Income-tax under Section 263, the assessee took up the matter in appeal before the Appellate Tribunal and the Tribunal by its order dated 29-8-1988 in ITA No. 214(Gau)/86 held that the Commissioner of Income-tax had jurisdiction to exercise his powers under Section 263 on the facts of the case.
3. Thereafter, the Assessing Officer pursuant to the directions of the Commissioner of Income-tax under Section 263 completed the assessment under Section 143(3) read with Section 263 which was taken by the assessee in appeal before the present CIT(A) whose order is the subject-matter of the present appeal before us.
4. The assessee-company claimed weighted deduction under Section 35B(1)(b)(ix) of the Act in respect of various items. According to the assessee, it had effected sales outside India for which purpose it incurred various expenses. Among other things, one claim was in respect of cost of maintenance of warehouse expenses outside India. The assessee’s accounting year ended on 30-6-1980, i.e., relevant to the assessment year 1981-82. The claim of the assessee is based as per the provisions of Section 35B(1)(b)(ix) which provides that weighted deduction would be allowed on account of “such other activities for the promotion of sale outside India of such goods, services or facilities as may be prescribed”. Section 35B itself was introduced in the Statute by the Finance Act 1968 with effect from 1 -4-1968. But what would be “such other activities” nothing was provided. At a later stage, Rule 6AA of the Income-tax Rules, 1962 was inserted in the Income-tax Rules wherein “such other activities” were enumerated. The said Rule 6AA, among the other things, included ‘maintenance outside India of a warehouse’. The said Rule was made effective from 1-8-1981.
5. The assessee contended that the effect of the said Rule, effective from 1-8-1981, was that the prescribed activities including maintenance of warehouse outside India became part of Section 35B as on the first day of April, 1981. As stated earlier, the assessment year involved is 1981-82. Therefore, the assessee claimed weighted deduction in respect of expenditure incurred in connection with maintenance of a warehouse outside India under Section 35B(1)(b)(ix) during the previous year relevant to the assessment year 1981 -82, now under consideration. The Assessing Officer pointed out that the claim of the assessee cannot be accepted as, according to him, Rule 6AA came into effect from 1-8-1981 and the assessee’s accounting year ended on 30-6-1980. Therefore, clearly the assessee was not entitled to the benefit provided in Section 35B(1)(b)(ix) of the Act. The Assessing Officer accordingly computed the total income of the assessee under Section 143(3)/263.
6. The assessee took up the matter before the CIT(A) contending that, on the facts and circumstances of the case, the Assessing Officer should have held that the said Rule 6AA cannot supersede the provision of the Act. He should have allowed weighted deduction in respect of expenses incurred on maintenance of a warehouse outside India as provided in Section 35B(1)(b)(ix), read with Rule 6AA. The assessee incurred expenses on maintenance of warehouse outside India to the tune of Rs. 97,59,859. The CIT(A) heard the arguments of the assessee and considered the material placed before him. He noted that in the original assessment the Assessing Officer allowed the weighted deduction claimed by the assessee; but the Commissioner of Income-tax set aside the assessment by invoking the provisions of Section 263 of the Act and that is why the Assessing Officer took up the matter afresh. The CIT(A) considered the arguments of the assessee that the provisions of Section 35B(1)(b)(ix) came into existence with effect from 1-4-1968 in which, among other things, it has been laid down that weighted deduction would be eligible for ‘such other activities’ for the promotion of sale outside India of the goods, services or facilities as may be prescribed. It was argued before the CIT(A) that the word ‘prescribed’ mean that CBDT has been given power to prescribe such goods, services or facilities and other activities meant for the promotion of sale outside India. The grievance of the assessee was that by Sub-clause (ix) the Board has not been given the power to lay down time limit. It was given power to prescribe certain activities for the promotion of sale outside India. It was contended before the CIT(A) that the Board by laying down the date, i.e., 1-8-1981 by the Income-tax (Amendment) Rules, 1981 (Notification dated 1-8-1981) in the Income-tax Rules, 1962 with effect from 1-8-1981, the Govt. has exceeded its power and tried to override substantive section by the rule making power. It was also the case of the assessee that rule making authority cannot prescribe time limit for operation of a substantive provision of the Act unless specifically authorised. Reliance was placed on the various decisions as cited in the impugned order. It was emphatically argued that Sub-clause (a) of Section 35B read with Rule 6AA ought to be construed that it has come into existence with effect from 1-4-1968 only.
7. The CIT(A) considering the facts and arguments was of the opinion that Sub-clause (ix) was very clear. He observed that rule making authorities were given power to prescribe such other activities for the promotion of sale outside India and by implication it has been given power to fix date also of the operation of such other activities for the promotion of sale outside India. At this stage the CIT(A) again referred to the decision of the Tribunal in the case of the assessee in which the issue regarding jurisdiction of the Commissioner of Income-tax under Section 263 was dealt with. The CIT(A) dismissed the assessee’s appeal with the following observations:
In view of the above, I am of the opinion that IAC (AR) is justified in not allowing weighted deduction under Section 35B Sub-clause (1) Clause (b) Sub-clause (a) read with Rule 6AA of the IT rules, 1962 on an amount of Rs. 87,59,859 and, therefore, the appeal of the appellant is dismissed.
Hence, the present appeal before us.
8. The assessee has taken the following grounds before the Tribune.
1. That on the facts and in the circumstances of the case, the Learned CIT(A) erred in holding that weighted deduction Under Section 35(1)(b)(ix) of the IT Act, 1961 read with Rule 6AA of the IT Rules 1962 was available with effect from 1-8-1981 only and accordingly sustaining the disallowance of appellant’s claim for weighted deduction in respect of expenditure of Rs. 97,59,859 incurred for maintenance outside India of warehouse for the promotion of sale outside India of tea during the previous year ended on 30-6-1980.
2. That on the facts and in the circumstances of the case the Learned CIT(A)erred in holding that simultaneously with power given under the provisions of Section 35(1)(b)(a)of the Act to prescribe other activities for the promotion of sale outside India of goods, services or facilities the rule making authority was by implication also given the power to prescribe time limit for operation of the provisions of the said section.
3. That on the facts and in the circumstances of the case, the Learned CIT(A)should have held that in the absence of specific authority given under the Act in this regard the rule making authority exceeded its power by prescribing time limit for availability of weighted deduction under Section 35(1)(b)(ix) of the Act
4. That on the facts and in the circumstances of the case, the Learned CIT(A) should have held that the Rule cannot supersede the provisions of the Act and in that view he should have allowed the appellant’s claim for weighted deduction in respect of expenditure of Rs. 97,59,859 incurred for maintenance outside India of warehouse for the promotion of sale of tea outside India during the previous year ended on 30-6-1980.
9. Besides, reiterating the arguments advanced before the CIT(A), the learned counsel for the assessee vehemently argued that the authorities below went wrong in not allowing the claim of the assessee for weighted deduction. It is stressed that Section 35B itself was brought into statute with effect from 1-4-1968. In the said section it is, among other things, provided for weighted deduction in respect of activities mentioned therein including the expenses incurred on account of such other activities for the promotion of sale outside India of such goods or facilities as may be prescribed. It is urged that the assessee, right from 1-4-1968 is entitled to the weighted deduction in respect of such ‘other activities’ as well, in addition to other items contemplated by the provisions of Section 35B(1)(b)(ix). It is urged that the assessee rightly made this claim before the Assessing Officer who had actually allowed such relief in the original assessment order, though it was cancelled by the Commissioner of Income-tax under Section 263. It is seen that the action of the CIT(A) to pass an order under Section 263 of the Act was sustained by the Tribunal. It is therefore, submitted that on merits and on the facts and circumstances of the case the matter was restored to the Assessing Officer who unfortunately took a view that expenditure on maintenance of warehouse outside India was not to be considered for weighted deduction, as he was of the opinion that Rule 6AA was effective from 1-8-1981 only and hence not applicable to the assessee. It was contended that the authorities below approached the problem from wrong directions. It is repeatedly argued before us that the assessee was very much entitled for the weighted deduction and there was no fault or lapse on the part of the assessee so as to disentitle it from the said benefit sanctioned by the law. It is pointed out that it was the rule making authority which delayed in prescribing the ‘activities’ for the purpose of Clause (a). It is further urged that in the facts and circumstances of the case, the assessee cannot be expected to suffer. It is stressed that the assessee has done everything expected of it and, at the same time, has fulfilled all the conditions for obtaining the weighted deduction. The deduction has been wrongly denied.
10. It is also contended by the counsel for the assessee that by fixing the date for the above Rule to come into effect from 1-8-1981 the Rule making authority has exceeded its jurisdiction. It is submitted that the Rule making authority was given only the power to prescribe such other activities for the purpose of said Sub-clause (a) and cannot by any stretch of imagination be deemed to have the power to prescribe the time limit from which date the operation of the said rule would come into being. It is, therefore, submitted that in the absence of such specific authority given to the Rule making authority under the Act, it exceeded its power by prescribing time limit to the detriment of the assessee.
11. It is also urged at length that even otherwise the CIT(A) should have held that Rule should not and could not supersede the provisions of the Act and that the CIT(A) should have allowed the claim for weighted deduction. In the course of argument, the learned counsel for the assessee referred to various decisions and authorities in order to stress the point. Reference was made to the decision of the Hon’ble Madras High Court in Second ITO v. M.C.T. Trust [1916] 102 ITR 138 and of the Karnataka High Court in South India Paper Mills Ltd. v Director of Inspection and Audit (Customs & Central Excise) [1984] 146 ITR 194. Reference was also made to the decision of the Supreme Court reported in AIR 1972 page 2427. Reliance was also placed on the decision in CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC). It was vehemently urged that the CIT(A) in the present case went wrong in rejecting the assessee’s claim relying on the decision of the Tribunal on the issue regarding applicability or otherwise of the action of the CIT under Section 263. In that order the Tribunal did not decide as to from which date the said rule would come into effect and, therefore, it was totally unjustified for the CIT(A) not to grant the assessee the relief to which it was entitled. In brief, it is urged that if the facts of the case are properly appreciated in their proper perspective, read with the relevant provisions of law, it would be seen that the benefit envisaged in Section 35B(1)(d)(ix) of the Act had been wrongly denied to the assessee. It is urged that the relief should be allowed now.
12. On behalf of the Revenue, the learned departmental representative, supported the order of the CIT(A). According to him, the Tribunal had decided the various points from which it is clear that there is no case for the assessee to claim such relief as the accounting year followed by it ended on 30th June 1980, i.e., much before the date on which Rule 6AA came into effect. Briefly speaking, it was urged that the CIT(A) has correctly appreciated the point involved in the present case and he has rightly rejected the claim of the assessee. He submitted that the order of the CIT(A) may be confirmed.
13. We have heard both the sides and have gone through the orders of the authorities below and other connected papers placed before us for our consideration. As stated earlier, the assessee claimed weighted deduction under Section 35B which was introduced in the Statute with effect from 1-4-1968 by the Finance Act 1968. Among other things, Section 35B prescribed certain weighted deduction to be allowed to the assessee if such assessee has incurred any expenditure as mentioned in the section and Sub-clauses. From a plain reading of the relevant section it can be seen that it is the expenditure and the date that have to be taken into consideration. As stated earlier, the accounting year of the assessee ended on 30-6-1980 of course Section 35B(1)(b)(ix) indicates that such deduction on account of Export Market Development Allowance would be allowable on such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed. But such list prescribing such other activities was brought by Rule 6AA which was given effect from 1-8-1981.It is the assessee’s case that in income-tax matters the law as on 1-4-1981 would be applicable and in that view of the matter since the above Rule came into effect from 1-8-1981 the same would be applicable to any accounting year relevant to the assessment year 1981-82 which is the year before us. It is, therefore, urged that the authorities below wrongly rejected the claim of the assessee. It is repeatedly submitted before us that the rule making authority has wrongly exceeded its jurisdiction by bringing into effect the above rule from 1-8-1981. Such power was not delegated by the legislature and hence such limitation of period would have to be ignored and in that view of the matter the assessee has rightly claimed the benefit of weighted deduction in the present context.
14. Admittedly, the point involved in the present case is a complex one. As stated earlier, the weighted deduction under Section 35B was made available with effect from 1-4-1968; but in respect of ‘such other activities’ as spelled out by Sub-clause (ix) of Section 35B(1)(b) will have to be prescribed under the Rule. The Board took time in prescribing “such other activities” which were brought out through Rule 6AA and made effective from 1-8-1981 being the date of Notification in the Official Gazette. The grievance of the assessee is that by fixing the date by the rule making authority, in this context, the said authority has exceeded its jurisdiction. The CIT(A) according to the assessee’ went wrong in holding that rule making authority has been given power to prescribe such other activities and by implication it has been given power to fix the date of the operation of the said rule. In this connection, it would be helpful to refer to certain decisions which will throw some light on the present issue. One has to see or give a harmonious interpretation of rule to show that the purpose of the main provision is not to be whittled down. It is true that the principle that fiscal statutes should be strictly construed does not rule out the application of the principles of reasonable construction to give effect to the purpose or intention of any particular provision as apparent from the scheme of the Act, with the assistance of such external aids as are permissible under the law. For the above proposition reliance can be made on the decision of the Supreme Court in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585.
15. The assessee’s counsel referred to another decision of the Supreme Court in the case of Taj Mahal Hotel (supra) in which, on the facts of that case, among other things, it was held that the intention of the legislature was to give the word ‘plant’ a wide meaning. It was also observed in the said decision that the Indian Income-tax Rules 1922 were meant only for the purpose of carrying out the provisions of the Act and they cannot take away what is conferred by the Act or whittle down its effect. It is thus the case of the assessee that even before the Board prescribed such activities the assessee was very much entitled to such weighted deduction in respect of expenditure incurred in maintenance of warehouse outside India. It is submitted that because of such vested right the assessee cannot be deprived of the same when such rule was brought into effect It is seen that in the present case the Rule 6AA did not enlarge or restrict the applicability of the said Section 35B as far as weighted deduction in respect of such other activities is concerned.
16. In the case of ITO v. M.C. Ponnoave [1970] 75 ITR 174 the Hon’ble Supreme Court had occasion to deal with Section 4 of the Finance Act, 1963 which was substituted by a new definition of “Tax Recovery Officer”. The provision, as amended, empowered the State Government to authorise by notification certain land revenue officers to exercise the powers of a Tax Recovery Officer. The Kerala Government issued a notification dated 14-8-1963 which was published on 20-8-63 and authorised such revenue officers to exercise the powers of a Tax Recovery Officer. The concluding portion of the notification ran : “This notification shall be deemed to have come into force on the first day of April, 1962”. It was held, on the fact of that case, that the State Govt. could not invest the revenue officers with the powers of Tax Recovery Officers with effect from the prior to the date of the notification and the action taken by the revenue officer was not sustainable. It was noted that the legal fiction that the new definition shall be deemed always to have been substituted could not be extended beyond its legitimate field and could not be construed as conferring power for a retrospective authorisation by the State in the absence of any express provision. It was observed that the exercise of the power by the State Govt. was more an executive than a legislative act
17. Thus, to accept the contention of the assessee would tantamount to give retrospective effect to the Rule 6AA made by the executive authority. In the ‘aforesaid case it was observed that Parliament can delegate its legislative power within the recognised limits. Where any rule or regulation is made by any person or authority to whom such powers have been delegated by the legislature it may or may not be possible to make the same so as to give retrospective operation as it would depend on the language employed in the statutory provision which may in express term or by necessary implication empower the authority to make rule with retrospective effect
18. From the reading of the provisions of section and the contents of the rule it cannot be said that the Rule 6AA would have to be given retrospective effect in the absence of any express provision. Of course, the legislature can enact any law with retrospective effect but rules to be framed by an executive authority cannot give retrospective effect particularly when the parties concerned have acquired certain vested rights, etc. in the subject-matter. It is seen that the provisions of the above Section 35B and the requirements of the Rule 6AA are quite clear and unambiguous.
19. In the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 the Hon’ble Supreme Court, on the facts of the case, held that there is no scope for importing into the statute words which are not there, as such importation would not be to construe, but to amend, the statute. It was further observed therein that even if there be a cause omissus the defect can be remedied only by legislation and not by judicial interpretation.
20. In the case of CWT v. Kripashankar Dayashanker Worah [1971] 81 ITR 763 (SC), the Hon’ble Supreme Court observed that a taxing provision must receive a strict construction and if there is any ambiguity, the benefit of that ambiguity must go to the assessee. It was further observed by the Court that that is not the same thing as saying that a taxing provision should not receive a reasonable construction and if the intention of the legislature is clear and beyond doubt then the fact that the provision could have been more artistically drafted cannot be a ground to treat any part of a provision as otiose.
21. As pointed out earlier, the CIT(A) in the present case, rejected the assessee’s appeal on the basis of the decision of the Tribunal dealing with the order of CIT under Section 263. However, in the present appeal before us, we have to look into various aspects of the matter in respect of merits of the case and the implications of the relevant section and the rule framed thereunder. It is true that Income-tax Act as it stands amended on the first day of April of the Financial Year must apply to the assessment of that year and that an amendment which comes into force after the 1st day of April of the said Financial Year would not apply even if the assessment is made after the amendment comes into force. The issue before us is regarding the operation of Rule 6AA which in any way cannot be considered as an amendment of any section or rule. In the case of CIT v. Ajax Products Ltd. [1965] 55 ITR 741 (SC) on the facts of that case, it was held by the Hon’ble Supreme Court that if the words of a statute are precise and unambiguous they must be accepted as declaring the express intention of the legislature and a proviso must be considered harmoniously with the main enactment.
22. At the time of hearing, the assessee’s counsel placed reliance on the decision of the Karnataka High Court in Southlndia Paper Mills Ltd.’s case (supra) wherein the object of Chapter XX II-B of the Income-tax Act, 1961 was dealt with. The object of the said provision was to grant tax credit certificate to certain assessees and by virtue of the said provision the Central Government formed a scheme under which certain time limit was prescribed for the purpose of percentage and application for getting the benefit. It was noted that application presented after expiry of the period prescribed would not be entertained. It was observed that Section 280ZE(2)(i), except enabling the Central Government to frame a scheme of incentive does not empower the Government to prescribe the period of limit for claiming the benefit. It was held, on the facts of that case, delayed verification of particulars by the prescribed officers cannot deprive the right of an applicant to claim the benefit of a Tax Credit Certificate. It was further observed that Parliament has prescribed the period of limitation wherever it intended limitation to operate and that considering the scope and object with which such incentives were provided the right to claim benefit on fulfilment of certain conditions cannot be termed as procedural but is a substantive right. Among other things, it was held that substantive right conferred under the Act cannot be curtailed or nullified by prescribing a time limit.
23. The case of the assessee before us is that right from 1st April 1968 it has got a vested right to claim the weighted deduction under Section 35B(1)(b)(ix) of the Act. It is submitted that by introduction of Rule 6AA such other activities were only enlisted and therefore, simply on the ground that there was a delayed prescription drawn up by Rule 6AA, as contended by the revenue, would not deprive the right of the present assessee to claim weighted deduction in respect of warehouse maintained outside India. The assessee has also placed further reliance at the time of hearing on the decision of the Madras High Court in the case of M.C.T. Trust’s case (supra) in which, on the facts, of the case, it was held that Section 11 of the Act does not prescribe any time limit for the investment of the accumulations of a charitable trust in Government securities. Therefore, the concerned rule which prescribed a time limit of four months for making such investment was held to be invalid. In this decision the Hon’ble Madras High Court also referred to a decision of the Hon’ble Supreme Court in Hukam Chand v. Union of India AIR 1972 SC 2427. The assessee before us therefore urged that the claim may be allowed now. It is submitted that, of course, the decision of the Karnataka High Court and Madras High Court was taken in the writ proceedings.
24. Admittedly, Rule 6AA did not amend any particular provision of the Act. In fact, the rule has been brought into existence as a result of statutory provisions of Section 35B(1)(b)(ix) of the Act, as indicated earlier. Therefore, this Rule would have to be considered as substantive and in such a situation the right cannot be whittled down. It has been held by the Hon’ble Supreme Court in the case of CIT v. S. Teja Singh [1959] 35 ITR 408 that it is a rule of interpretation well settled that in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which alone the fiction can operate, and that a construction which defeats the very objects sought to be achieved by the legislature must, if possible, be avoided. The intention of the legislature, in the present case, was to grant weighted deduction to the assessee in respect of various activities including one prescribed under Sub-clause (a). By introduction of this Rule 6AA such other activities have simply been listed. In our opinion it has to be considered as part of substantive provision and we find no conflict between the provision of above Sub-clause (a) and the Rule 6AA. There is no scope for any other interpretation. In the case of Gursahai Saigal v. CIT [1963] 48 ITR 1 the Hon’ble Supreme Court, on the facts of the case held the provisions in a taxing statute dealing with machinery for assessment have to be construed by the ordinary rules of construction, that is to say, in accordance with the clear intention of the legislature which is to make a charge levied effective.
25. In the cases of South India Paper Mills Ltd. (supra) and M.C.T. Trust (supra), as relied on by the assessee at the time of hearing, it has been held by the respective High Courts that the rule framed for the purpose of implementing a provision of the Act was invalid inasmuch as a time limit was fixed. But in the pesent case before us, the time limit fixed by Rule 6AA that is to say that the rule would be effective from 1-8-1981 has not been declared invalid by a competent authority. It is well settled that rules are for the purpose of the provisions of the statute and rules are for furtherance of the object and intention of the legislature as expressed in the relevant provisions. Section 35B permits assessee to claim for certain weighted deductions and in that context Rule 6AA can only be read in such context so as to avoid the mischief and to advance the remedy as intended by the section and in that view of the matter we have to hold that the benefit for weighted deduction would be admissible to cases where the assessments are still pending as on 1-8-1981. The above Rule 6AA did not amend any provision of section. It simply particularised certain specific activities for which weighted deduction can be considered under Sub-clause (ix). In the present case the assessment was apparently pending as on 1-8-1981. The Assessing Officer would have to take into consideration the above rule and to implement the same if other conditions are otherwise satisfied.
26. In view of what we have discussed above, we direct the Assessing Officer to allow the assessee’s claim for weighted deduction under Section 35B(1)(b)(ix) of the Income-tax on the expenditure incurred by it for maintenance of warehouse outside India after verification and examination of various items admissible in accordance with law, and after giving the assessee an opportunity of being heard.
27. In the result, the appeal is allowed in the terms indicated above.