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Issues Involved:
1. Interpretation of Section 35B of the Income-tax Act, 1961. 2. Scope and applicability of weighted deduction under Section 35B. 3. Allowability of specific expenditure items under Section 35B. 4. Apportionment of common expenses for export and domestic business. Issue-wise Detailed Analysis: 1. Interpretation of Section 35B of the Income-tax Act, 1961: The core issue revolves around the interpretation of Section 35B, particularly the scope of weighted deduction for expenses related to export business. The Tribunal noted that the interpretation of Section 35B has been a matter of keen controversy, with taxpayers advocating for a liberal interpretation to include any expenditure related to export business, while the revenue department argued for a restrictive interpretation, limiting the benefit to specific expenditures incurred outside India. The Tribunal emphasized that the section should be interpreted based on its plain language, without resorting to external aids unless the language is ambiguous. 2. Scope and Applicability of Weighted Deduction under Section 35B: The Tribunal highlighted that Section 35B provides weighted deduction only for specific classes of revenue expenditure incurred for the development of export markets after February 29, 1968. The benefit is restricted to domestic companies and resident individuals. The Tribunal rejected the argument that the various clauses in Section 35B(1)(b) should be taken merely as descriptive by way of guidance. Instead, it emphasized that only expenditures falling within the specific sub-clauses of Section 35B(1)(b) are eligible for weighted deduction. The Tribunal also clarified that sub-clause (ix) remains inert and lifeless until activated by the rule-making authority. 3. Allowability of Specific Expenditure Items under Section 35B: The Tribunal examined the specific sub-clauses of Section 35B(1)(b) to determine the allowability of various expenditure items: - Sub-clause (i): Allows weighted deduction for advertisement or publicity outside India. - Sub-clause (ii): Includes expenditure on obtaining information regarding markets outside India. - Sub-clause (iii): Covers distribution, supply, or provision outside India, excluding expenditure incurred in India and expenditure on the carriage and insurance of goods. - Sub-clause (iv): Allows expenditure on maintaining a branch office or agency outside India for promoting sales. - Sub-clause (v): Includes preparation and submission of tenders for supply outside India. - Sub-clause (vi): Covers furnishing samples or technical information to persons outside India. - Sub-clause (vii): Allows expenditure on traveling outside India for promoting sales. - Sub-clause (viii): Includes performance of services outside India related to the execution of contracts for supply outside India. The Tribunal clarified that except for sub-clause (iii), the place where the expenditure is incurred is irrelevant. 4. Apportionment of Common Expenses for Export and Domestic Business: The Tribunal acknowledged that in cases where an assessee is engaged in both export and domestic business, common expenses need to be apportioned. It suggested that the ratio of export turnover to total turnover could be a fair basis for apportionment, provided it is not patently inequitable. The Tribunal emphasized that a fair apportionment is necessary to make the section workable and to avoid an unduly hyper-technical adherence to the letter of the law. Case-specific Analysis: The Tribunal examined the specific claims of the assessee, a registered firm engaged in the export of onions and spices, for the assessment year 1973-74. The Tribunal upheld the Appellate Authority's decision to allow weighted deduction for certain items of expenditure, such as salary of persons exclusively handling export business, expenses on foreign buyers, subscriptions to associations and journals, and commission on foreign business. However, it disallowed claims for items like certificate charges, Agmark fees, customs pass, customs duty, and certain other expenses, as they did not fall within the allowable sub-clauses of Section 35B(1)(b). Conclusion: The Tribunal's judgment provides a detailed interpretation of Section 35B, emphasizing the need to adhere to the specific sub-clauses for determining the allowability of weighted deduction. It also underscores the importance of fair apportionment of common expenses in cases involving both export and domestic business. The judgment serves as a comprehensive guide for understanding the scope and applicability of Section 35B of the Income-tax Act, 1961.
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