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TMI Blog1986 (9) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee entered into a sub-contract with the main contractor on 5-3-1980. The assessee is hereinafter called sub-contractor. Under the terms of the contract referred to above the sub-contractor is to provide labour force required for carrying on construction works at Iraq by the main contractor and for supplying the labour force for the said purpose. Admittedly the assessee had maintained a branch office at Bagdad. The branch office at Bagdad belonging to assessee sub-contractor incurred a total expenditure of Rs. 81,88,102 during the accounting year in question. The said total expenditure represents not only wages paid to labourers which were engaged in the construction but also office salaries and other expenses. The assessee seeks to bring its claim under sub-clauses (i), (iv), (vii) and (ix) of section 35B(1)(b). So also the assessee wants to bring his claim under clause (c) of rule 6AA of the Income-tax Rules 1962 ('the Rules'). Further he wanted to rely upon the following two decisions : V.D. Swami Co. (P.) Ltd. v. CIT [1984] 146 ITR 425 (Mad.) and CIT v. C. R. Narayana Rao [1984] 146 ITR 310 (Mad.). Out of the total expenditure, the expenditure debitable to the trading acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by the assessee not for the sale outside India of the goods or services dealt in by the assessee but to enable it to complete the sub-contractor's work undertaken by the assessee from the main contractor. Then lastly dealing with the assessee's case under clause (c) of rule 6AA the ITO held that this clause speaks of the expenditure incurred on the maintenance of a laboratory or facilities for quality control or inspection of such goods dealt in by the assessee. It may be that the assessee engaged services of a few engineers to inspect the construction to see that it was in conformity with the standards laid down by the main contractor. But it is not the same as maintaining a laboratory for quality control of the goods dealt in by the assessee. Therefore, it would have been possible for the assessee to bring in his case under sub-clause (viii) of section 35B(1)(b) but unfortunately it was omitted with effect from 1-4-1981 and so it cannot be invoked by him. The three cases cited on behalf of the assessee also were held to be of no help to the assessee by the ITO. Regarding the first case it is held that the question related to the allowance or weighted deduction in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to USA and gave public performances. The ITO disallowed the assessee's claim for weighted deduction on expenses incurred abroad by her on her trip on the ground that there was no physical transfer of goods and that her services being intangible could not be physically transferred. The ITO disallowed the weighted deduction. The learned Commissioner (Appeals) had set aside the disallowance and granted her weighted deduction. When the matter was carried in second appeal by the revenue before the Tribunal of Bombay Bench held that the dictionary meaning of export is to carry and send goods beyond national boundaries. The assessee had certainly sold her professional services which were bought by the customers abroad. In the very nature of things a professional goods abroad and exchanges her services for a price to foreign customers. Had the assessee tape-recorded her talents and sold them abroad it would have been a case of export of tangible goods in the form of tapes and it would not have been a case of export of services. Instead, what the assessee exported was her live music performances. The Commissioner (Appeals) was held to be quite correct in holding that the assessee was en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a good building on rent, had employed supervisory, clerical staff, etc., had incurred expenditure on electricity, water, etc. and also bore the salaries of all the staff. From out of profit and loss account maintained by the branch office at Bagdad for the year ending 31-12-1980 the following amounts in Dinars were spent towards office expenses: Staff salaries 30471,049 Staff amenities 9053,165 Office expenses 2242,240 Export credit guarantee Corporation Charges 2622,115 Office rent 400,000 Advertisements 94,155 Miscellaneous expenses 330,235 Depreciation 7429,623 Shri M.J. Swamy submitted that in case if we agree with his argument that the assessee is entitled to weighted deduction for maintenance out of India of a branch, office, agency for the promotion of sale outside India of such goods, services or facilities then the assessee would at least be entitled to weighted deduction on the exchange value of the total of the above sum given in dinars. He also stressed his claim by seeking to bring it under rule 6AA(c). Excluding the unnecessary portions th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s much before 1980. At that time the violent changes introduced from 1-4-1981 were never present. It is no doubt true that the Supreme Court declined to call a reference on whether the assessee who entered into a contract for the erection of a cotton textile plant and machinery in UAR was entitled to weighted deduction under section 35B and whether the expenses incurred by it on imparting training to foreign personnel and sending its own employees abroad for the erection of plant and machinery supplied by it qualify as expenses for promotion or development of export market. Obviously this expenditure was covered by sub-clause (viii) as this is an expenditure connecting with or incidental to the execution of any contract. Unfortunately sub-clause (viii) was deleted from 1-4-1981 and it is no longer available to the assessee. The learned departmental representative then invited our attention to a Third Member decision of the Bombay Bench 'C' in the case of Second ITO v. Ramji Dayawalla Sons [1983] 2 SOT 183. In that case there was a cleavage of opinion between the learned Accountant Member and learned Judicial Member. The learned Judicial Member followed a still earlier decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be entitled to succeed as its case does not come within four corners of Board's circular dated 4-9-1975. He held : ". . . This to my mind, clearly shows that in the case of a contractor of pure and simple labour supply, the amount paid to the labour, both as salary and travelling expenses, is in the nature of cost of raw material and will not qualify for weighted deduction." Thus, he agreed with the learned Judicial Member's order. Therefore, this case almost became the sheet-anchor of the learned departmental representative's argument for persuading us to hold that the assessee is not entitled to weighted deduction on the travelling expenses of the labour force from India to Bagdad and the wages paid to them at Bagdad are not entitled to weighted deduction. Ultimately it is argued by the learned departmental representative that unless a distorted meaning is given to explaining clause of section 35B(1)(b) the benefits of weighted deduction cannot be extended to the assessee. 8. Mr. Swamy in reply tried to argue in Ramji Dayawalla Sons' case is distinguishable from the facts of the present case in view of what is contained in paragraph 4 of the Judicial Member's order. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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