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TMI Blog2001 (3) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: The assessee is an individual. The assessment year in question is 198182 for which the previous year was the calendar year 1980. The assessee entered into an agreement of sub-contract with Engineering Products (India) Limited, Delhi (hereinafter called as the "main contractor"), on March 5, 1980, to provide labour force required for carrying on construction work in Iraq by the main contractor. For this purpose, the assessee had maintained a branch office at Baghdad. The branch office at Baghdad incurred a total expenditure of Rs. 81,88,102 during the previous year relevant to the assessment year in question. The said expenditure represented not only wages paid to the labourers who were engaged in the construction work but also the salaries of the supervising staff and other expenses at Baghdad which were Rs. 13,73,791. The assessee claimed deduction under section 35B of the Act on the total expenditure incurred at Baghdad relying on sub-clauses (i), (iv), (vii) and (ix) of section 35B(1)(b) of the Income-tax Act. The Assessing Officer found that the provisions of section 35B of the Act have been substantially amended with effect from April 1, 1981. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Rules, 1962, and held that the same is not acceptable, as admittedly the assessee did not maintain a laboratory or facilities for quality control or inspection of such goods dealt in by the assessee. Therefore, the Assessing Officer negatived the claim of the assessee. The assessee carried the matter in appeal to the Commissioner (Appeals). The Commissioner (Appeals) after considering the contentions, concurred with the view of the Assessing Officer. The assessee therefore carried the matter in second appeal before the Tribunal. The Tribunal considered the rival contentions elaborately and also the decisions cited before it and finally allowed the claim of the assessee to the extent of the expenditure incurred on the branch office, which is as under: "After considering the rival contentions we are of the opinion that the assessee is entitled to weighted deduction on the expenses incurred by it for maintenance of branch and incidental expenses incurred for branch office at Baghdad. Weighted deduction over such expenses are clearly permissible according to us under section 35B(1)(b)(iv). We have seen the original assessment record. In the profit and loss account prepared for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... execution of any contract for the supply outside India of such goods, services or facilities is not available for the assessment year in question. Therefore, the assessee is not entitled to the benefit claimed. It is also stated that the Assessing Officer gave a categorical finding that the branch office existed only with a view to supervise the execution of the contract work undertaken by the assessee and not for any other purpose. Though it was contended by the assessee before the Tribunal that the said contention is only a figment of the imagination and the Assessing Officer did not elicit from the assessee as to what were the functions undertaken by the branch office, the assessee did not even before the Tribunal explain the functions that were undertaken by the branch office. In the absence of any evidence that the branch office was maintained by the assessee for the purpose of promotion of sale outside India of such goods, services or facilities, the assessee is not entitled to the benefit of the relief sought for. Learned counsel also contended that rule 6AA has no application to the present case as the said rule was intended to prescribe the services that would come under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering whether a particular transaction is a works contract or a contract for sale of goods, as the supply of materials are to be fixed by making the necessary recoveries and fabrications and therefore it was held that it is an indivisible contract comprising labour and services executed for a lump sum and therefore it is a works contract and not a mete sale of material. Learned counsel also relied upon a decision of the apex court in the case of CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. [1992] 196 ITR 149. Learned counsel relied upon the observations of the apex court as to the interpretation of statutes where the apex court held that it is settled law that the expressions used in a taxing statute would ordinarily be understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative intention. It is equally settled law that, if the language is plain and unambiguous, one can only look fairly at the language used and interpret it to give effect to the legislative intention. Nevertheless, tax laws have to be interpreted reasonably and in consonance with justice adopting a purposive approach. The contextual meaning has to be ascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides in the course of his business;... (iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities;... (vii) travelling outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outward from and return to, India;" The expenditure referred to in clause (a) which is incurred wholly and exclusively for maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities would fall under sub-clause (iv). From the above provision it is clear that in order to claim the benefit of weighted deduction the assessee has to prove that the expenditure in respect of which it is claiming weighted deduction, was incurred wholly and exclusively on the maintenance outside India of a branch for the promotion of the sale outside India of such goods, services or facilities. According to the assessee, it was providing services outside India and therefore the expenses incurred on the branch office at Baghdad are to be allowed as claimed by the assessee. The said claim was rejected by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n amount of 94.155 dinars except that there was no other finding that any other expenditure was incurred either for advertisement or for any purpose in connection with the promotion of the sale of the services which according to the petitioner was dealing with. Even with reference to the said advertisement there is absolutely no explanation what was the nature of the advertisement that was given except referring that the said expenditure was incurred for advertisement. The nature of the expenses incurred at the branch office which were referred to by the Tribunal in its order at page 21 of the material papers also shows that the expenditure was incurred for staff salaries, amenities to the staff, office expenses, office rent, miscellaneous expenses and it appears that even the depreciation was also made part of it. We are unable to appreciate how even depreciation could be considered as an item of expenditure incurred for the purpose of promotion of sale of the services rendered by the assessee. At the most, the assessee may be entitled for weighted deduction in respect of the expenditure incurred on advertisement and the other item on expenditure is on Export Credit Guarantee Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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