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TMI Blog1978 (6) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly within four corners of the specific clauses distinctly cataloged in the section but also are incurred not within but out-side India invariably crops up as a matter of keen controversy in almost every appeal coming up before the Tribunal where the assessee is a businessman engaged, wholly or in the part, in exports. The views expressed on its different aspects by different Benches of the Tribunal sitting in various parts of the country, and even at the same station, have not always been uniform and on some points are patently divergent. In such welter of indefiniteness and uncertainty, requests from various quarters were received for constituting a Special Bench to hear and decide a few appeals selected for the variety of the facets of the question centred on section 35B arising therein. It was thus that this Special Bench was constituted to hear the following appeals : No. of the IT Appeal Name of the party Assessment year involved 1. 3255/1976-77 (A.A.) H&Co. 1973-74 2. 3330/1976-77 (D.A.) 3. 3247/1976-77 (A.A.) G&Co. 1973-74 4. 68/1977-78 (D.A.) 5. 2929/1976-77 (D.A.) S. Mills 1974-75 6. 1351/1977-78 (D.A.) K. Industries 1974-75 (A.A.)-Assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative intent behind the sections. According to the assessee, the provisions of the sections are thus to be understood and interpreted in a manner affording not merely just a compensation and palliative for the loss and trouble concomitant to export business in the otherwise discouraging situation, but also as a bonus and an incentive to enter into the depressed foreign markets. That itself, it was argued, should not only justify but also compel a liberal interpretation of the provisions. 4. Having said so much by way of preface, it was contended on behalf of some of these assessees that therefore in the case of an assessee engaged solely and wholly in export business, everything of his business expenditure should be taken as entitled to beneficial treatment under the section, there being no scope for treating any part of it as not connected with or incidental to exports. In that context, it was even suggested that the various clauses in the section enumerative by way of guidance and the benefit of the section should, therefore, be made available to whatever is spent by the exporter, even price paid for procuring or the cost incurred for manufacturing the exported goods. In suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of expenditure for the promotion of sale outside India, though not coming strictly within the other clause. The argument was that the in-action on the part of the Board should be taken as an unjustified dereliction and the same should not be allowed to prejudice or affect the right of the assessees to claim weighted deduction of whatever expenditure that can be taken as incurred on such activities, a relief which the Legislature intended to give them. 5. Shri R.J. Joshi, learned counsel for the department, prefaced his arguments submitting that section 35B, as its very wording would indicate, is a self-contained provision touching a particular subject and having its operation solely and exclusively in the sphere clearly demarcated by the section itself. According to the learned counsel, there is, therefore, no warrant whatever for making any effort to expand the operational area of the section by looking elsewhere, even to what the other side has characterised as the legislative history and intent of the section and the social or national purpose it is intended to serve. He agreed with the other side that the weighted deduction allowed by the section is indeed for expenditure i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Departmental Circular issued on 6-7-1968 wherein it was elaborated that "the expenditure which qualifies for the weighted deduction is that incurred on activities outside India for the development of export market for Indian goods on a long-term basis" and that "the provision is not intended to cover expenditure incurred on activities inside India for its export business except where these are incidental to the activities outside India, such as preparation and submission of tenders referred to in item (v), furnishing samples or technical information referred to in item (vi) above". According to Shri Joshi, this clarifies the real scope of the section. He, however, fairly conceded that the Bombay High Court in IT Application No. 257 of 1978 (supra), referred to by the other side, has expressed its contra opinion that only in sub-clause (iii) of section 35B(1)(b) is there an exclusion of expenditure incurred in India for the purpose of giving benefit of weighted deduction and that with regard to expenditure coming within any of the other sub-clauses there is no such qualifying restriction. The learned counsel submitted that the department has not accepted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to look merely at what is clearly stated. The classic statement of Rowlatt, J. in Cape Brandy Syndicate v. Inland Revenue Commissioner [1921] 1 KB 64, still holds the field. It reads : "In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." It is hence that the Supreme Court in Anandji Haridas & Co. (P) Ltd. v. Engineering Mazdoor Sangh [1975] 99 ITR 592has said that as a general principle of interpretation where the words of a statute are plain, precise and unambiguous, the intention of the statute itself, and no external evidence such as parliamentary debates, reports of the committees of the Legislature or even the statement made by the minister on the introduction of the measure is admissible to construe the words. It is only where a statute is not exhaustive, or where its language is ambiguous, uncertain, clouded, or susceptible of more than one meaning that such external sources are to be sought for aid and one may look into what was the law b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rkets outside India for such goods, services or facilities; (iii) distribution, supply or provision outside India of such goods, services, or facilities, not being 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 in transit; (iv) maintenance outside India of a branch office or agency for the promotion of the sale outside India of such goods, services or facilities; (v) preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities, and activities incidental thereto; (vi) furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services or facilities; (vii) travailing outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outward from and return to, India; (viii) performance of services outside India in connection with or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities; (ix) such other activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the extra allowance is also restricted to domestic companies and persons (other than a company) who are residents in India. This allowance is available in respect of such specified expenditure incurred by the taxpayer directly or in association with any other person. Therefore, if an assessee enters into any joint export promotion arrangements with others, he should be entitled to a weighted deduction in respect of his share of the pooled expenses that can be brought within the section. There is also nothing in the section to suggest that its benefit would be available only to the assessees who have in fact exported goods during the relevant year or have earned profits out of exports. The admissibility of the allowance under the section, as appears to us, is irrespective of the question whether the assessee has exported any goods during the relevant year or whether he has earned any profit out of exports. 10. The section speaks itself in precise terms that the benefit of the weighted deduction referred to in clause (a) of its sub-section (1) is confined squarely to only such expenditure (not being in the nature of the capital expenditure or personal expenses of the assessee) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng us to activate that sub-clause in the manner pressed before us, the assessee are requiring us in effect to legislate, rewrite and expand the section, a function which is far beyond us. 11. Having seen that clause (b) of section 35B(1) affords the dictionary and the catalogue to be specifically referred to for finding out which kinds of expenditure are to be taken for allowance of weighted deduction, it is imperative that the said clause be taken as the pulsating part of the whole section, defining the exact sphere in which alone the section is to beneficially operate. It follows that unless an expenditure falls within, or is of any one of the items enumerated in items (i) to (viii) of clause (b), there can be no question of allowing weighted deduction in respect of the same. 12. Before taking up the various sub-clauses of clause the words "(b), we may at this stage also refer to some of the salient features that strike us as common to all of them. Taking guidance from the expression "such other activities" used in sub-clause (ix) it may well be noted that expenditure referred to in other sub-clauses too are on "activities" specified therein. The openin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(b) irrespective of the question whether they are incurred outside or inside India. 14. Sub-clause (i) deals with advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business. The only test to be applied here is the place of the advertisement and publicity and not the place where the expenditure in respect thereof is incurred. For example, if for an advertisement or publicity outside the country, materials are printed in India or a foreign agency is engaged and payments for the same are made in India, there is no reason why such expenditure should be considered as not falling within this sub-clause or be not entitled to weighted deduction. Under sub-clause (ii) expenditure incurred wholly and exclusively on obtaining information regarding markets outside India for such goods, services or facilities is also admissible for weighted deduction. Here too there is nothing in the sub-clause or in the other parts of the section indicating that the benefit would be available to such expenditure only if incurred outside India. Also it is not even necessary that the information should be gathe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o section 35B(1) which lays down that the expenditure referred to therein should not be regarded for the purpose of this sub-clause as expenditure incurred by the assessee on the supply outside India of services or facilities. 15. Coming now to sub-clause (iii), which, on account of the considerable difference of opinion that has emerged in the debate, we have reserved to be taken up last. It may at once be noticed that the sub-clause originally read as follows : "Distribution, supply or provision outside India of such goods, services and facilities." It was by the Finance Act, 1973, that the sub-clause was amended with retrospective effect from 1-4-1968, by adding to it the following words, namely, "not being expenditure incurred in India in connection therewith or expenditure (wherever insured) on the carriage of such goods to their destination outside India or on the insurance of such goods while in-transit". The controversy raised centres round the interpretation to be put on the newly added words. On the assessee's side the contention urged in short is that the exclusion effected by the words "not being" in the above impinges only on " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the fallacy of the departmental stand that what is added to the sub-clause by the Finance Act, 1973, is a composite clause in the nature of a proviso. Last but not least is the contention finally urged that in any event, so far as we are concerned, the matter should be taken as concluded by reason of the Bombay High Court decision in the case of Eldee Wire Ropes Ltd. (supra). 16.In the face of these contentions, the first that we ought to examine is, whether in the decision of the Hon'ble Bombay High Count which is very much riled on by the assessee, there is such a finding and pronouncement with regard to sub-clause (iii) as setlling, at least so far as we sitting in Bombay are concerned, the controversy on this particular aspect. On a careful study of everything that is said therein, we are of the opinion that it by no means lays down such an interpretation of the sub-clause as asserted by the assessees. For a correct understanding of what is said there, it is necessary to have in mind the facts of the particular case dealt with there in and the precise point in controversy with reference to which the same was pronounced. In that case the assessee claimed to have incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the assessee was entitled to claim weighted deduction of ₹ 43,852 under section 35B of the Income-tax Act, 1961" It was when on service of the rule the assessee put in its appearance that the Hon'ble High Courts, while considering whether the rule should be made absolute for further enquiry on the question, passed the order on which the assessees are now placing so much reliance. 17. The first thing patently pointed out in that order is that the only point of law that was canvassed before the Tribunal in that case was that the claim of the assessee was not admissible under section 35B since the expenses were incurred in India. It is, therefore, clear that what alone their Lordships considered and said in that order related only to the specific point of law that gave rise to the question, on which the rule was issued as a referable question of law. What their Lordships said on that may now be fully reproduced: "Mr. Joshi drew our attention to the original order of the Income-tax Officer where the expenses in respect of which weighted deduction is claimed have been fully indicated. It would appear that so far as the claim of export duty is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not warrant any interference, by implication or otherwise, that in the view of their Lordships the other part of the sub-clause did not contain any such exclusion. It is to be noted that in that part, there is the qualifying expression "wherever incurred" attached to "expenditure" taken in thereunder in contrast to the expression "incurred in India" attached to "expenditure" referred to in the first part.In the face of the universality of the attached qualification in the latter part, there was need to refer only to the first part by way of contrast. Even otherwise, the sentences in the order of their Lordships reproduced above, clearly indicate that there never was any attempt to dissect sub-clause (iii) in the manner spoken to by the assessee, much less to indicate that there is only in the first part a restrictive exclusion on the basis of the place at which the expenditure is incurred, and none of that nature in the latter part. "A case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it", so said Lord Halsbury in Quinn v. Leatha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection with distribution, supply or provision outside India of goods, services and facilities to thus limit it exclusively to such expenditure incurred outside the country, and (ii) incorporating within the beneficent sphere of the sub-clause two entirely new heads of expenditure (wherever incurred) on the carriage of goods to their destination outside India and expenditure on the insurance of goods while in transit. The two objects thus specified by the assessee are so divergent and diametrically opposite in their effect that it is impossible to believe that they would have been clubbed together in the manner seen and done and that too by means of an addition made with the opening words "not only", leaving the impression that what followed was in the nature of a proviso and an exception. The question could well be asked why if expenditure (wherever incurred) on the carriage of goods to their destination outside India and on the insurance of such goods while in transit was intended to be added to the allowable class of expenditure, they were not brought in under a separate additional sub-clause or why they were not brought in with the aid of sub-clause (ix). As the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to bring in expenditure (wherever incurred) on the carriage of goods to their destination outside India and the cost of insurance of such goods in transit as allowable heads of expenditure, there was no need at all for any such amendment as brought about by the Finance Act, 1970. For, it will be difficult to argue that transport charges for the carriage of goods to their destination outside India and the cost of insurance of such goods in transit will not enter into expenditure incurred on the distribution and supply of the goods, allowed by sub-clause (iii) even in its original form. If the argument is that when by the amendment expenditure incurred in India in connection with distribution, supply or provision out-side India of goods, services or facilities was specifically carved out for exclusion from the generality of the expenses referred to in the sub-clause, it became necessary to refer particularly to expenditure (wherever incurred) on the carriage of such goods to their destination outside India and to the expenditure on the insurance of such goods while in transit, to save those two heads of expenditure from that exclusion, the clear answer is that to make out such an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (wherever incurred) on the carriage of such goods to their destination outside India, and (iii) expenditure (wherever incurred) on the insurance of such goods while in transit. 21. As already seen, under the section it is expenditure wholly and exclusively incurred on the various heads catalogued in clause (b) of its sub-section (1) which alone merits weighted allowance. Any strict adherence to the letter of this condition, without any regard to the spirit of the section, is, however, likely to create untoward and unintended results. Even in the case of an assessee engaged exclusively in expert of goods, it may be difficult to take any item of his expenditure as wholly and exclusively incurred on any of the items enumerated in section 35B(1)(b). In the case of such an assessee, however, the persons employed by him may have attended to activities coming under one or other of those items and may have as part of the very export business also attended to other activies not coming strictly within any one of them. For example, as part of their duty they would have had to attend to also matters in India connected with the distribution, supply or provision outside India of the goods. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the section. (iv) Sub-clause (ix) so long as it reminds not activated by the rule making authority must be considered as inert and lifeless. (v) The activities referred to above must be in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business. (vi) Except for the purpose of sub-clause (iii), the place where the expenditure is incurred is irrelevant. In other words, any expenditure satisfying the conditions laid down in sub-clauses (i) to (viii) will get the benefit of weighted allowance irrespective of whether the same is incurred in or outside India. (vii) Under sub-clause (iii), thought expenditure incurred wholly and exclusively on distribution, supply or provision outside India of such goods, services or facilities would generally qualify for weighted deduction, the rule is, however, subject to the notable exceptions that expenditure incurred in India in connection with such distribution supply or provision as also expenditure, wherever incurred on the carriage of such goods to their destination outside India and on the insurance of such goods while in transit, will not all the same get such benefit. And as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or facilities which are peculiar and in addition to the normal expenditure incurred by a dealer, if he is not exporting them. That being so it would be futile to contend that production and procurement of goods would also form an integral part of their distribution and supply. We therefore, find if impossible to accede to the assessee's contention that expenses incurred by way of cost of the goods exported should also be taken as attracting the benefit of sub-clause (iii). 24. Now, coming to the facts of this case, the assessee is a registered firm engaged in the business of export of onion and spices. The assessment year involved is 1973-74 for which the accounting period is the calendar year 1972. Before the ITO the assessee claimed weighted deduction in respect of the following items of expenditure: 1. Purchases & Sales Rs. 2. Freight Rs. 3. Insurance Rs. 4. Bardana Rs. 5. Mukadami Rs. 6. Customs Pass Rs. 7. Customs duties Rs. 8. Licence Fees Rs. 9. Agmark Fees Rs. 10. Bank Charges Rs. Rs. The ITO taking the view that section 35B permitted weighted allowance only for expenditure anchored outside India and finding that all the expenses listed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AAC is quite fair and is in accord with what we have opined as the correct principles to be followed in such cases. The AAC's decision is hence confimred. For the same reason we confirm also the AAC's finding that only 50 per cent of the expenditure incurred on stationery is allowable. With the view of the AAC that for similar reasons a half of the rent paid by the assessee for its business premises is allowable, also, we are in agreement. It is from there that the assessee is doing every work connected with its export business. Evidently, in the absence of any branch office or agency outside India, all the activities of the assessee that would fall within sub-clauses (i), (ii), (v) and (vi) must necessarily start from this place. It is with these in mind that the AAC considered that a part of the expenditure incurred by way of rent for the premises should be apportioned as on such allowable activities. This again is quite in accord with the principles which we have laid down as proper. Here too we find no material to hold that the ratio adopted by the AAC is not fair. This decision of the AAC also we hence upheld. 26. In our view, the expenditure incurred by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be taken as falling within sub-clause (ii). On this too we, hence, confirm the decision of the AAC. 30. The certificate charges of ₹ 16 taken by the AAC as entitled to weighted deduction, in our opinion, does not fit in with any of the allowable items specified in the section. It is said to be the charges paid to the Bombay Chamber of Commerce and Trade Council for certifying the place of origin and the price of the goods exported. Maybe that without such a certificate, export of goods is not permitted. But then for allowing weighted deduction of an expenditure, it necessarily must be on falling within any one of sub-clauses (i) to (viii) of section 35B(1)(b). We find it difficult to fit this expenditure in any one of those clauses. If it is to be taken as a part of the expenditure incurred on the supply of goods, then being on anchored in India, it must for that reason fall out of sub-clause (iii). We, hence, set aside the order of the AAC on this. To this extent regarding ₹ 16 alone, the department succeeds in its appeal. 31. Coming now to the assessee's appeal, we have already upheld the AAC's decision that only part of the expenditure incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re incurred by the assessee is in that sense not on any activity directly connected with the exports but for the early realisation of the price of the goods exported or for the services rendered by the bank in connection therewith. A faint attempt was made before us to suggest that what the bank charged by way of commission was for the services it rendered outside India in collecting the price of the goods from the foreign buyer and, therefore, the expenditure must be taken as coming within sub-clause (viii). Even assuming that the commission paid was for such services, the argument overlooks the fundamental fact that the services referred to in that sub-clause are in connection with, or incidental to the execution of any contract for the supply of goods, services or facilities outside India. On this too we, hence, confirm the decision of the AAC. 37. The AAC's finding that what is claimed by the assessee as for travelling is expenditure incurred on journeys undertaken within the country is not challenged. Under sub-clause (vii) only expenditure incurred on tarvelling outside India can be taken into account. We are unable to fix this in any of the other sub-clauses. That being ..... X X X X Extracts X X X X X X X X Extracts X X X X
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