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TMI Blog1984 (5) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... f contract of the assessee-company and Coffee Board in India. It is in no way connected with any agreement or contract with the foreign buyer. The export duty paid by the assessee-company represents its selling price in India. As such, this item of expenditure cannot be treated as one entitled to the weighted deduction under any of the sub-clauses. " Before the Commissioner (Appeals) it was urged on behalf of the assessee that the said expenditure had been incurred at the point of shipment of coffee and not at the time of signing the contract with the Coffee Board, and as such it was an expenditure incurred in connection with or incidental to supply of goods outside India. Reliance was also sought to be placed on some decisions of the Tribunal at Bombay. The Commissioner (Appeals) held as follows : " 3. After a careful consideration of all the facts of the case I am of the opinion that weighted deduction has to be allowed on the export duty paid. In coming to the conclusion that the appellant is not entitled to weighted deduction, the Income-tax Officer has obviously proceeded on wrong premises. It is not correct to say that the duty is paid at the time or contract between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner (Appeals) was justified in entertaining this ground. 4. The standing counsel for the revenue pointed out that the claim before the ITO was under section 35B(1)(b)(viii). Before the Commissioner (Appeals) the claim was both under sub-clauses (iii) and (viii). He submitted that the expenditure on export duty could not be equated with that incurred in 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. It could not also be allowed under sub-clause (iii) since it was an expenditure incurred in India. He submitted that the decision of the Karnataka High Court in Ullal Narayana Mallya Sons's case with regard to freight and insurance charges would apply with equal force in the case of export duty also. In Ullal Narayana Mallya Sons' case having regard to the amendment of section 35B(1)(b)(iii) in 1970, the claim under sub-clause (iii) was given up. The assessee sought to rely on sub-clause (viii). The Court held that sub-clause (viii) would apply only to an after-sale service in outside countries having regard to the meaning of the words 'ancillar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred on freight would qualify for weighted deduction. Unless an assessee produces goods, he cannot export them. Unless he carries them to the port, the goods cannot be exported. That way, every expenditure incurred by the assessee would have to be given relief under section 35B(1) and the prohibitions contained in section 35B(1)(b)(iii) and (viii) against allowance of weighted deduction on expenditure incurred in India would be rendered otiose. There is no dispute that export duty is an expenditure incurred in India. The first portion of section 35B(1)(b)(iii) reads as follows : " 35B(1)(b) The expenditure referred to in clause (a) is that incurred wholly and exclusively on-- (iii) distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection there with... " [Emphasis supplied] Therefore, the expenditure incurred in India in connection with the supply of goods outside India is clearly not entitled to weighted deduction under section 35B(1)(b)(iii). 7. We now examine the assessee's claim under section 35B(1)(b)(viii). The clause reads as follows : " 35B(1)(b) The expenditure refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 while 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) 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 ; (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 for the promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es outside India can capture markets only if they provide after-sales service for which they may have to set up factory service centres or authorised dealers service stations. Exporters have necessarily to incur expenditure in providing after-sales service in outside countries. It is such expenditure that is covered by sub-clause (viii). 11. The words 'in connection with' or 'incidental to' in sub-clause (viii) have to be given effect to. The word 'incidental' has the same meaning as 'ancillary'. Stroud's Judicial Dictionary (Third Edition, Volume I, at page 135) says : ' A work is 'ancillary or incidental' to a trade or business when it is not necessary thereto or a primary part thereof... ' The decision of the Court of Appeal in Pearce v. London South Western Railway [1900] 2 QB 100 has been relied on. The word 'connect' means to joint or attach. Therefore, the words 'connected with' cannot take the antecedent acts which are necessary or primary part in the execution of the contract of sale or supply of goods outside India. 12. The assessee's contracts were CIF contracts under which it had to ship the goods at Indian ports to foreign destinations. The loading of goods o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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