Development of export market - exemption u/s 35B - Income Tax - 605/CBDT

INSTRUCTION NO. 605/CBDT Dated : August 31, 1973 Section(s) Referred: 35B Statute: Income - Tax Act, 1961 The Finance Act, 1968 introduced a new section 35B in the Income-tax Act under which domestic companies and resident non-corporate tax payers, incurring expenditure under specified heads for development of export markets are entitled to a weighted deduction in an amount equal to one and one-thirds times the amount of the qualifying expenditure. One of the heads of expenditure as specified in section 35B(1)(b)(iii), as originally enacted, was that incurred on distribution, supply or provision outside India of the goods, services or facilities dealt in or provided by the assessee in the course of his business. This provision was amended by the Finance Act, 1970, retrospectively, from 1st April, 1968 so as to make it clear that expenditure on distribution, supply or provision outside India of goods, services or facilities will not include expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit. 2. The Comptroller Auditor General, in paragraph 19(iii)(a) of his report for the year 1971-72, has, however, reported that in the assessment of a company for the assessment year 1969-70 (made on 29th January, 1971), a large amount of expenditure incurred on shipping freight was incorrectly taken into account for the purposes of the weighted deduction. This shows that the Income-tax Officer had not taken note of the retrospective amendment made in section 35B of the Income-tax Act by the Finance Act, 1970. 3. It will also be relevant to note that a new Explanation 2 has been inserted in section 35B(1) of the Income-tax Act by the finance Act, 1973, retrospectively, from 1st April, 1968. This Explanation clarifies that for the purposes of clause (iii) (viii) of section 35B(1)(b), expenditure incurred by a taxpayer engaged in the business of operating any ship or other vessel, aircraft of vehicle, for the carriage of, or making arrangements for the carriage of, passengers, livestock, mail or goods, on or in relation to such operations, carriage or arrangements for carriage will not be regarded as expenditure qualifying for the weighted deduction. 4. Income-tax Officers may please be directed to carefully take note of the two retrospective amendments made in section 35B of the Income-tax Act by the Finance Act, 1970 and the Finance Act, 1973. They should review all cases in the light of the retrospective amendments referred to above, and take immediate remedial action in cases where expenditure incurred by the assessee is found to have been wrongly taken into account for the purpose of the deduction under section 35B. A compliance report indicating the number of cases checked, number of cases in which mistakes were noted, remedial action taken and the tax effect in such cases, may please be sent to the Board by the 15th September, 1973. 5. The consequential effect of these rectification, if any, should be given in the Sur-tax assessments also, if applicable.