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TMI Blog1984 (1) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961. 4. Without prejudice to ground No. 3, the learned Commissioner (Appeals) erred in holding that the assessee was entitled to relief under section 35B to the extent of Rs. 1,50,04,362." 14. At this stage, it would be convenient for us to consider the assessee's appeal also, which raises only the following two grounds relating to the disallowance of a portion of the assessee's claim for weighted deduction under section 35B of the Income-tax Act, 1961 (' the Act ') : " The learned Commissioner (Appeals) erred in holding that ' As regards law charges Rs. 2,49,815, auditor's fees Rs. 4,51,403, repairs Rs. 10,34,056, I would hold that though they are business expenses, yet they have no nexus with export market development expenses nor are they necessary wholly for maintenance of foreign office under section 35B(1)(iv). No weighted deduction can be allowed on these ". The learned Commissioner (Appeals) ought to have held that the expenses were entitled for weighted deduction under section 35B(1)(iv)." 15. Shri S. Krishnan, the learned departmental representative, submitted that rendering of routine banking services by the assessee could not be treated as export of services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 31-5-1978], and contended that this decision of the Tribunal supported the case of the assessee for claiming weighted deduction under section 35B. He pointed out that the assessee-bank was having branches located in Japan, Hongkong, UK, USA, France, Kenya and Singapore, while it had an office at Jakarta in Indonesia. Shri Dastur explained that the Jakarta office of the assessee-bank was doing regular export of services as it gathered information about the requirements of the parties in Indonesia, where there are joint ventures of Indian parties, who may require banking services or facilities outside Indonesia. Shri Dastur referred to the decision of the Bombay Special Bench of the Tribunal in the case of J.H. Co. v. Second ITO [1982] 1 SOT 150 and pointed out that the Special Bench was not concerned with the provisions of section 35B(1)(b)(iv) and, therefore, the observations of the Special Bench in paragraph 22 would not apply to rendering of services of provision of facilities through a branch outside India, since the case considered by the Special Bench was that of an exporter or a manufacturer. Hence, the said decision would not apply to a case, as the present one, where s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guments urged on behalf of the revenue, it would be noticed that they reflect what the ITO had stated in paragraph 9 of his order to hold that the assessee is not entitled to any weighted deduction at all under section 35B. On the contrary, in paragraph 7 of his appellate order, the Commissioner (Appeals) has accepted the assessee's contentions that in view of the services rendered by and through the foreign branches, the assessee earns foreign exchange and hence, qualifies for relief under section 35B. He further held that the expenses for the foreign branches and also the head office attributable to foreign branches would be allowed weighted deduction under section 35B(1)(b)(iv). In the opening sentence of this paragraph, the Commissioner (Appeals) accepts that the assessee's claim for weighted deduction is in respect of expenses incurred by foreign branches being establishment expenses. In other words, the Commissioner (Appeals) holds that by maintaining these branches or office outside India, the assessee-bank has promoted the sale outside India of its banking services within the meaning of section 35B(1)(b)(iv). 18A. In our view, the stand taken by the revenue is clearly unt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he items of expenditure claimed by the assessee filed along with the return of income. 20. The Commissioner (Appeals) allowed weighted deduction on Rs. 2,97,34,048, as the assessee's claim was only for expenditure incurred outside India. He further allowed weighted deduction on entertainment expenditure of Rs. 30,000 allowed by the ITO. In respect of entertainment expenditure not allowed to the tune of Rs. 2,11,658, the Commissioner (Appeals) held that the same would qualify for weighted deduction by following the decision of the Tribunal, in IT Appeal No. 3660 (Bom.) of 1974-75. Regarding the Head Office administrative expenditure pertaining to foreign branches amounting to Rs. 13,44,973, the Commissioner (Appeals) held that the assessee would be entitled to weighted deduction though they were incurred in India by following the principles laid down by the Special Bench in J.H. Co.'s case. As regards the quantum of claim, the Commissioner (Appeals) observed that these expenses have been actually allowed as business expenses outside India. He further held that the expenses incurred by the assessee under the heads salaries, provident fund, rent of premises, taxes paid for premis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the expenses of Jakarta office were furnished to find out whether any item of inadmissibles were included by the Commissioner (Appeals) while accepting the assessee's claim. He contended that what was crucial in such cases was whether the expenses incurred abroad on the branches were for ' promotion of the sale of services' or only for provision for services' in the ordinary course of the banking business. In this connection, the learned departmental representative drew our attention to paragraph 8 of the order of the Tribunal, Madras Bench ' D ', in the case of Indian Overseas Bank, referred to above. He pointed out that the Tribunal had rejected the presumption on the part of the assessee that all the expenditure to keep the branch going should be considered as expenditure on the maintenance of the branch and held that there was a distinction between the terms ' wholly and exclusively ' used in section 35B and the said term used in section 37 of the Act. He pointed out that the Tribunal had held that in the latter case, i.e., section 37, the term has a wider import because even the expenditure incidental to the carrying on of the business would come under the terms, whereas u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not justified because by providing the services, the bank was promoting the sale of its services. The learned counsel contended that in the nature of services rendered by banks, this sort of distinction sought to be drawn by the revenue was without any meaning because only by giving efficient services, the bank can promote the sale of the services in foreign countries particularly in these days of keen competition among the banks of the world. The learned counsel argued that there is no scope for any dichotomy of the expenses, as contended by the revenue, on a proportionate basis and that the Commissioner (Appeals) was right in accepting the assessee's contentions in respect of the entire expenditure. He further argued that the grievance of the assessee-bank is that the Commissioner (Appeals) ought to have allowed weighted deduction in respect of the three items of expenditure amounting to Rs. 17,35,274, viz., law charges, auditor's fees and repairs, which he had excluded for purposes of allowance of weighted deduction. Shri Dastur submitted that the law charges in question were incurred mainly for documents and opinions as required by the laws of the concerned country where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent would qualify for weighted deduction under section 35B(1)(b)(i), that expenses on travelling would qualify for weighted deduction under section 35B(1)(b)(vii), that miscellaneous charges included computer hire and maintenance charges, which were necessary for promoting the business of the assessee-bank in the foreign countries and that similarly, the entertainment expenses incurred in the foreign countries would also qualify for weighted deduction, since section 37(2A) read with section 37(1) was no bar to section 35B. He argued that section 37 does not come into the picture at all, since the expenditure in question falls under section 35B. In this connection, Shri Dastur relied on the paragraph 26 of the order of the Special Bench of the Tribunal, in J.H. Co.'s case. He also relied on the decision of the Delhi High Court in Handicrafts Handloom Export Corpn. of India's case and further pointed out that the decision of the Tribunal in the case of Indian Overseas Bank would not apply to the facts of the present case, since the assessee was not claiming weighted deduction either on depreciation or loss on sale of investments or the Central office expenses, as they did not ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese heads would also relate to the day-to-day carrying on of the banking business by the foreign branches in providing services to the customers in those countries. We are supported in our view by the decision of the Madras Bench of the Tribunal, in the case of Indian Overseas Bank and also by the decision of the Delhi High Court in the case of Handicrafts Handloom Export Corpn. of India, which is also a public sector undertaking, it being a wholly owned subsidiary of the State Trading Corporation of India. In fact, in the passage quoted by us while setting out the arguments of the learned counsel for the assessee in paragraph 16 above, it is mentioned that there should be a fair apportionment of the expenses under various heads to ascertain under which of the sub-clauses of section 35B(1)(b) they would fall to qualify for weighted deduction. In the present case, no such apportionment of the expenditure had been attempted either by the assessee or by the Commissioner (Appeals) when the matter was disposed by him. It cannot be contended that the entire establishment expenses incurred by the assessee-bank is only for the promotion of the sale of the banking services of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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