9911796707
TMI Blog1999 (10) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961. Section 35B bears the heading, export markets development allowance. By sub-section (1)(a), deduction is allowed to the assessee on a sum equal to one and one-third times the amount of expenditure incurred on the items specified in section 35B(1)(b) of the Act. Section 35B(1)(b) of the Act as it stood prior to the amendment by the Finance (No. 2) Act, 1980, contained nine clauses. Clause (i) of section 35B(1)(b) referred to expenditure on advertisement or publicity outside India ; clause (ii) to expenditure on obtaining information regarding markets outside India ; clause (iii) to expenditure on distribution, supply or provision outside India excluding certain items of expenditure mentioned in that provision ; claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stribution of goods, services or facilities outside India, as being distinct from the promotion of the sale outside India of such goods, services or facilities. The scheme also indicates the legislative intent of making a distinction between maintenance outside India of a branch, office or agency for the promotion, and other activities for the promotion of sale of goods, services or facilities outside India. "Other activities" are specifically referred to in clause (ix). Section 35B(1)(b)(iv) which refers to "maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities" is meant to cover the expenditure incurred by the assessee on the maintenance of the branch, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son outside India, samples or technical information for the promotion of the sale of such goods, services or facilities ; and expenditure incurred by the assessee on the 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. Amounts which were being claimed as deduction under clauses (ii), (iii), (v), (vi) and (viii) can no longer be claimed after the amendment. The expenditure incurred by the assessee here by way of payment of interest to the customers, who had made deposits with its branch at Bangkok was being allowed in earlier years under section 35B(1)(b)(iii) of the Act, as it covered the expenditure on the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia of the goods, services and facilities by the assessee. The interest paid to the depositors by the bank to its customers at its branch outside India can by no means be regarded as constituting part of the expenditure on the maintenance of the branch. A branch which merely carries on business in the normal course cannot also be regarded as a branch established for the promotion of the sale outside India of goods, services or facilities. Even if it is assumed that some of the activities of the branch outside India dealt with the promotion of its services and facilities, as distinct from the provision of such facilities to all those willing to avail of it, the assessee could at best claim the cost of maintaining the branch. Maintenance her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to demonstrate the quality of the service by actually providing it. But, the provision of the service in that context would only be incidental to the primary object of promotion. Carrying on the normal business of a bank by providing banking facilities to customers cannot be regarded as promotional activity by the bank, for the purposes of section 35B(1)(b)(iv) of the Act. Even if a liberal view is taken of the term "promotion", all that the assessee can claim is the cost of maintaining the branch on the ground that such branch is maintained for the promotion of the services and facilities provided by it. In this context, it is necessary to refer to the observation of the Supreme Court in the case of Aravinda Paramila Works v. CIT [1999] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the expenditure must have been actually incurred on such promotional activity. The incurring of such expenditure on promotional activity by the branch outside would demonstrate that the branch has been maintained for the purpose of promoting the sale of the goods, services or facilities. The assessee in this case is clearly not entitled to any weighted deduction on the interest paid to its customers at its foreign branch, as the expenditure so incurred is not expenditure on the maintenance of the branch which had been maintained for the purpose of promoting its goods, services and facilities outside India. We, therefore, answer the question referred to us, viz. : "Whether, on the facts and in the circumstances of the case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
