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Interpretation of section 35B of the Income-tax Act, 1961 regarding weighted deduction for expenditure incurred on staff salaries and allowances for the installation of a cement plant in Kuwait. Analysis: The case involved a dispute regarding the entitlement of the assessee to a weighted deduction under section 35B of the Income-tax Act, 1961, for the expenditure of Rs. 3,95,625 incurred on staff salaries and allowances for the installation of a cement plant in Kuwait. The assessee claimed the deduction based on the activities specified in sub-clause (v) of clause (b) of section 35B(1) related to the preparation and submission of tenders for supply outside India. The Income-tax Officer initially rejected the claim, citing a lack of nexus between the salaries paid and the promotion of exports. However, the Appellate Assistant Commissioner allowed the claim, noting that the staff was employed for tender preparation and technical work, falling under the relevant clause. The Tribunal upheld the allowance of the claim, leading to the reference to the High Court. The High Court analyzed the provisions of section 35B(1) and emphasized that the expenditure in connection with specified activities could be incurred in India itself, as long as it was wholly and exclusively related to the preparation and submission of tenders for supply outside India. The Court highlighted that the requirement was to prove that the expenditure was incurred for activities related to goods and services provided outside India by the assessee. In this case, the tenders were prepared for goods and services to be supplied outside India, and the expenditure on staff salaries was directly linked to this purpose. Therefore, the Court concluded that the expenditure fell within the scope of sub-clause (v) of clause (b) of section 35B(1), making the assessee eligible for the weighted deduction. The Court also noted that the question referred by the Tribunal was too broad and reframed it to focus on the specific controversy at hand. After considering the facts and circumstances of the case, the Court ruled in favor of the assessee, affirming their entitlement to the weighted deduction under section 35B of the Income-tax Act, 1961, for the expenditure incurred on staff salaries and allowances in connection with the cement plant project in Kuwait. No costs were awarded in this case. In conclusion, the judgment clarified the interpretation of section 35B of the Income-tax Act, 1961, regarding weighted deductions for specific activities, emphasizing that the expenditure need not be incurred outside India as long as it is related to the provision of goods and services outside the country. The decision favored the assessee, recognizing the direct connection between the expenditure on staff salaries and the preparation of tenders for the cement plant project in Kuwait.
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