Scope of provision of Sec.35B. - Income Tax - 1302/CBDT

INSTRUCTION NO. 1302/CBDT Dated: January 29, 1980 Attention is invited to Board's Circular No.6-P(LXXVI-66) of 1968 dated 6th July, 1968(Explanatory Notes on Finance Act, 1968) clarifying that the expenditure to qualify for the weighted deduction under section 35B of the Income-tax Act, 1961 is that incurred on activities carried on outside India for the development of export markets for Indian goods on a longterm basis. It further clarifies that the expenditure incurred on activities inside India for export business, except where such expenditure is incidental to the activities outside India, will not qualify for such deduction. 2. The Board have re-examined the scope of the provisions of section 35B. The marginal heading 'Export markets development allowance' may merely indicate the Board legislative intention but does not control the meaning of the express provisions of the section. Therefore, the sole question to be determined in considering the admissibility of the weighted deduction under section 35B is whether the expenditure in question is one covered by any of the sub-clauses of clause (b) of sub-section (1) thereof. 3. The admissibility of the deduction under this section is not dependent on the question whether the assessee has actually exported any goods during the relevant year or whether he has earned any profit out of such exports but on whether the expenditure falls clearly, exclusively and wholly within one or more of the items enumerated under the several sub-clauses of clause (b). If, however, the expenditure is incurred on an activity which is not in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business, but on some thing else exported, the benefits of this section will not be available to him. 4. A question has been raised whether in cases where the expenditure in respect of which a claim is made under this section is a composite one in the sense that only a part thereof is relatable to clause (b) of sub-section (1) of section 35B, weighted deduction can be allowed and if so, to what extent. It is clarified that in cases where such expenditure can be bifurcated, the claim of weighted deduction can be entertained in respect of and to the extent the expenditure can be said to be incurred wholly and exclusively with reference to any of the items specified in clause (b) of sub-section (1) of section 35B. It may also be noted that there may be cases, where certain expenses may be claimed as falling wholly and exclusively within the items of clause(b), such as expenses on Export Division, although these may, in fact, be not so. In all such cases, the nature of the expenditure would need to be critically examined with a view to determining the extent to which the expenditure could be said to fall wholly and exclusively within the meaning of one or more sub-clauses of clause (b) of sub-section (1) of section 35B. 5. Further, where an expenditure falls clearly under any one of the specific sub-clauses of clause(b) of the said sub-section only, there is no difficulty in deciding the question of the admissibility of the weighted deduction or otherwise thereof. But where the nature of the expenditure is such that it can be said to fall both within the meaning of sub-clause (iii) and also of any of other sub-clause of clause (b), the Board are of the view that the same may be taken to fall within the ambit of the latter sub-clause and not within the former which is more restrictive. However, the facts and circumstances of each case will have to be taken into account because what may prima-facie appear to be an expenditure falling within the meaning of two sub-clauses may be actually relatable to a particular sub-clause, in which case it should be considered under that sub-clause. 6. A question has also been raised whether the commission paid to a foreign and /or an Indian agent is entitled to the weighted deduction. Such a payment would be entitled to the weighted deduction if the commission paid be in connection with the work and services specified in sub-clause (i) to (viii) except to the extent referred to in sub-clause (iii) of clause (b) and is not in the nature of remission of a claim or a trade discount. Instances have come to the notice of the Board where the remission of a claim or trade discount, etc., is claimed in the guise of commission for the services of the type referred to in clause (b). The Board desire that the claim for the commission should be closely scrutinised and the remission of a claim or a trade discount should not be allowed the benefit of a weighted deduction. 7. Board's Circular dated 6.7.78 referred to in para 1 above may be treated as modified to the above extent. 8. While allowing a weighted deduction under section 35B, the provisions of sub-section (1A) inserted by the Finance Act, 1978 and omitted by the Finance Act, 1979 will, no doubt, be kept in view. In this connection, action is drawn to Board's Circulars No.240(F.No.131(2)/78-TPL) dated 17th March, 1978 and No. 258 (F.No. 131(15)/79-TPL) dated 14th June, 1979.