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Interpretation of section 35B of the Income-tax Act, 1961 regarding weighted deduction for expenditure incurred by a bank on its foreign branches. Analysis: The judgment involved a dispute regarding the interpretation of section 35B(1)(b) of the Income-tax Act, 1961, concerning the eligibility of a bank for weighted deduction on the expenditure incurred at its foreign branches. The assessee, a bank with branches in Ceylon and Singapore, claimed the benefit of section 35B for the assessment year 1978-79. The Income-tax Officer initially disallowed the weighted deduction on the entire expenditure of Rs. 1,04,62,703, arguing that only the net expenditure after setting off interest received against interest paid should be considered. However, the Tribunal disagreed, holding that the bank was entitled to the benefit on the gross interest payments made to depositors at the foreign branches, as the interest was paid to different parties than those who borrowed from the bank. The court analyzed the statutory provision of section 35B, emphasizing that the term "any expenditure" referred to an outgo without requiring a set-off against income. It noted that the expenditure incurred by the bank for providing services to its customers at the foreign location qualified for weighted deduction under section 35B if it was for the specified purposes. The court rejected the Revenue's argument that interest receipts should be set off against interest payments, highlighting that the section's focus was on the actual expenditure incurred as an outgo. The court emphasized that once it was established that expenditure had been incurred, there was no need to deduct income received by the branch from the funds for which the expenditure was made. In conclusion, the court ruled in favor of the assessee, holding that the bank was entitled to weighted deduction under section 35B for the gross interest payments made at its foreign branches. The judgment clarified that the bank's expenditure on interest payments to depositors was eligible for the deduction without requiring a set-off against interest received, as the statutory provision did not mandate such deductions based on income received.
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