9911796707
TMI Blog1992 (1) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... s spent out of India) 16,14,703 ------------------ 38,93,585 ? " ------------------ The assessee is a public limited company and the assessment year under reference is 1977-78, the year of account being the financial year ending on March 31, 1977. In the course of assessment for the said assessment year, the assessee claimed export markets development allowance or, in other words, weighted deduction under section 35B of the Income-tax Act, 1961 ("the Act"), in respect of the items of expenditure mentioned in the question and other items of expenditure with which we are not concerned in this reference. The Income-tax Officer, the Commissioner (Appeals) and the Tribunal disallowed the assessee's claim for weighted deduction in respect of the aforesaid expenditure. The Tribunal has, therefore, at the instance of the assessee, referred to us for our opinion, the question set out above. Relevant portion of section 35B(1) reads as follows: "35B. Export markets development allowance.-(1)(a) Where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred after the 29th day of February, 1968, whether directly or in association ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had incurred expenditure of Rs. 25,825 for giving advertisement in Times of India on account of the visit of the President of Laos to India.. Under sub-clause (i) of clause (b) of section 35B(1), the expenditure incurred for advertisement or publicity outside India qualifies for weighted deduction. Since the aforesaid expenditure was incurred for advertisement in India, it would not qualify for weighted deduction. Therefore, the Tribunal and the authorities below were right in not allowing the assessee's claim for weighted deduction in respect of the said expenditure. 1/2 salary of Mr. T. S.K.Chari -The assessee had paid salary of Rs. 50,000 to its employee, Mr. T. S. K. Chari, who was in charge of the export-department. The assessee claimed weighted deduction in respect of the entire salary. The Income-tax Officer allowed the assessee's claim for weighted deduction only to the extent of 20 per cent. of the salary paid to Mr. T. S. K. Chari. In the appeal, however, the Commissioner, following the decision of the Tribunal in respect of the earlier year, directed the Income-tax Officer to allow weighted deduction in respect of half of the salary paid to Mr. T. S. K. Chari. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. The expenditure incurred in India in connection with supply of goods outside India does not qualify for weighted deduction under the said sub-clause (iii). The Tribunal was, therefore, right in rejecting the assessee's claim for weighted deduction in respect of the said expenditure. Interest on export credits.-The assessee had incurred expenditure of Rs. 10,98,881 in paying interest to its bank on the advances and loans given for purchase of raw materials. This facility of advance or loan given by the bank is described as 'banking credit facility'. The assessee claimed weighted deduction in respect of the said expenditure. The Income-tax Officer, the Commissioner and the Tribunal have rejected the assessee's claim. The Tribunal rejected the claim of the assessee, relying on a decision of its Special Bench in the case of J. Hemchand and Co. v. Second ITO [1982] 1 SOT 150 (Bom). It is contended on behalf of the assessee that the aforesaid expenditure in respect of which the assessee had claimed weighted deduction would fall under sub-clause (viii) of clause (b) of section 35B(1) and, therefore, the assessee is entitled to weighted deduction in respect of the said expenditure. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed has to be in connection with or incidental to the execution of any contract for the supply outside India of goods, services or facilities. But, so far as sub-clause (viii) is concerned, as pointed out above, it deals with expenditure which is incurred in performance of services outside India. However, performance of services outside India has to be in connection with or incidental to the execution of any contract for the supply outside India of such goods, services or facilities. As pointed out above, provision for weighted deduction is made to give incentive to export. If no services are performed outside India in connection with or incidental to the execution of any contract for the supply outside India of goods, services or facilities, the expenditure incurred for performance of services would not be covered by sub-clause (viii). In the instant case, the assessee is given facility of credit or loan for buying raw materials for the manufacture of goods which were exported. Firstly, no services are performed in taking credit or loan facility from the bank in order to purchase raw materials for manufacture of goods. Secondly, even if any services were performed, such services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roneous and prejudicial to the interests of the Revenue, and, hence, directed the Income-tax Officer to withdraw the allowance. So far as we are concerned, the only question which is relevant is whether the assessee was entitled to weighted deduction in respect of the interest paid to the bank on export packing credit account. In the appeal before it, the Tribunal found that the assessee had maintained with the Bank of Maharashtra an export packing credit account and advances from this account were given only for the purchase of raw materials for manufacturing goods to be exported outside India. The assessee had paid interest of Rs. 3,65,875 in this account to the Bank of Maharashtra. On these facts, the Tribunal held that the expenditure which the assessee had incurred in paying interest was incurred in the performance of services outside India or they were incidental to, or they were incurred in the execution of, the contract for supply outside India of such goods, services and facilities and the assessee was entitled to weighted deduction of these expenses under section 35B(1)(b)(viii). On a reference, the Division Bench of the Madhya Pradesh High Court held as follows (at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii). If the view taken by the Division Bench of the, Madhya Pradesh High Court that expenditure incurred in connection with or incidental to the execution of any contract for supply outside India of goods, services or facilities would be covered by sub-clause (viii) is correct, then the remaining sub-clauses would be rendered nugatory. In Navabharat Enterprises (P.) Ltd. (No.1)'s case [1988] 170 ITR 326, facts before the Division Bench of the Andhra Pradesh High Court were as follows: The assessee claimed weighted deduction in respect of Rs. 2,05,211 paid to the Export Credit Guarantee Corporation for information furnished to the assessee regarding credit-worthiness of the foreign purchasers and also for providing a guarantee for payment of amounts by such foreign purchasers. The Income-tax Officer rejected the claim but the appellate authorities allowed it. On reference, the Division Bench of the Andhra Pradesh High Court held that section 35B of the Act, bearing the caption 'Export markets development allowance" is designed to provide more deduction than the deduction normally allowed under section 37 with view to giving an impetus to exports. Sub-clause (ii) of section 35B(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndhra Pradesh High Court, it would not help the assessee in the instant case. It appears from the judgment of the Division Bench of the Andhra Pradesh High Court that the Export Credit Guarantee Corporation had in fact rendered services outside India to find out the credit-worthiness of the foreign purchasers and for providing a guarantee for payment of amounts by such foreign purchasers. So far as services rendered by the Export Credit Guarantee Corporation for collecting information regarding the credit-worthiness of the foreign purchasers are concerned, they would fall under sub-clause (viii) of section 35B(1)(b). In the instant case, no services, whatsoever, have been performed outside India. In the light of the above discussion, we are of the opinion that the assessee is not entitled to weighted deduction under section 35B in respect of the expenditure of Rs. 10,98,881 incurred by it for paying interest on the credit advances or loans given by the bank, as aforesaid. Similar view was taken by us in CIT v. Jay Industries [1992] 196 ITR 313 (Guj) (Income-tax Reference No. 337 of 1984, dated January 8, 1992). Membership fees (for institutions out of India).-The assessee incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting towers. This expenditure was also incurred in connection with the supply of goods outside India, which would be covered by sub-clause (iii). It is not disputed that this expenditure was incurred in India. Therefore, weighted deduction in respect of the said expenditure cannot be allowed, as clearly provided in sub-clause (iii). Fabrication.-It appears that the assessee had incurred expenditure for fabrication of towers in Nepal and Laos. The assessee had exported goods to customers of Nepal and Laos and, therefore, it had to incur expenditure, as aforesaid, for fabrication of towers. This expenditure admittedly is incurred outside India. It appears that the assessee had undertaken the work of fabrication of towers under contracts with the foreign buyers. The Income-tax Officer, however, disallowed the assessee's claim on the ground that such expenditure was not covered by any of the sub-clauses of section 35B(1)(b). The view taken by the Income-tax Officer was confirmed by the Commissioner and the Tribunal. The work of fabrication which the assessee had carried out was directly connected with and incidental to its contract with foreign buyers to supply goods. In other words ..... X X X X Extracts X X X X X X X X Extracts X X X X
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