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TMI Blog1987 (7) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... e knowledge in setting up and running a textile mill in Malaysia. A full agreement spelling out mutual obligations was entered into on 3-8-1977 and the responsibility fell on the assessee to supply various services in Malaysia. That apart, the assessee was also to supply certain machinery in return for which the assessee was to get allotment of equity shares in the company. For the purpose of acquiring the machinery in India and exporting them to Malaysia the assessee had to borrow funds from the Bank for which it had to incur interest and guarantee commission. The assessee also incurred administrative expenses in the office maintained at Pollachi. The assessee claimed all these expenditure as being eligible for weighted deduction u/s 35 b. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required by the agreement between the parties the claim falls outside item (iii) and the prohibition with reference to expenditure incurred in India cannot apply. The Revenue had relied upon the decision of the Madras High Court in the case of V. D. Swami Co. (P.) Ltd. v. CIT [1984] 146 ITR 425. But as pointed out by the Delhi High Court in the case of CIT v. Raunaq International Ltd. [1986] 158 ITR 701, the decision of the Madras High Court related only to item (iii) and the prohibition cannot apply to a claim under any other items such as in this case. 4. We are now left with the claim for interest and guarantee commission and the cost of textile accessories. May be, such expenditure in computing the total income. But clearly they wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd manufacturing expenses ordinarily debitable to the trading or manufacturing account and not to the profit and loss account." This Explanation was introduced by Section 8 of the Finance (No. 2) Bill, 1980. The Notes on Clauses stated as follows : "Sub-clause (b) seeks to substitute a new Explanation for Explanation 2 below sub-clause (b) of sub-section (1) of Section 35B. The new Explanation seeks to make it clear that expenditure which is in the nature of purchasing and manufacturing expenses ordinarily debitable to the trading or manufacturing account and not to the profit and loss account will not qualify for the weighted deduction under sub-section (1) of section 35B." The Memorandum explaining the provision stated, "108. It h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that purchasing expenditure would be eligible for the deduction and as we have seen before the Special Bench of the Tribunal had rejected that claim. There were also cases involving the interpretation of the word "expenditure" where the Courts have held that it could be given broadest meaning to include purchasing expenditure but that was in the context of prevention of tax evasion by the provisions of section 40A (3). See U.P. Hardware Store v. CIT [1976] 104 ITR 664 (A11.), CIT v. Grewal Group of Industries [1977] 110 ITR 278 (Punj. Har.) and CIT v. Kishan Chand Maheshwari 121 ITR 232 Dass [1980] (Pun. Har.), etc. It is in this context that Parliament thought it fit to make it explicit by an Explanation what was implicit in Section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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