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TMI Blog1981 (10) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractor, that is the assessee, to supply labours for the erection site under the terms and conditions as set out in the aforesaid contract, it was agreed among other things that the assessee was to supply necessary personnel and labour mainly in order that IHH might carry out erection of ING tanks on Das Island. The assessee agreed that the labour to be supplied by it would engage themselves in work other than erection work of ING tanks whenever the site Manager of IHH asked them to do so. Details of the contract are mentioned in the formal copy of the contract which is filed before the Tribunal. The payment for the work done by these persons on this contract was to be made by IHH to the assessee, who was expected to make the necessary payments to persons for the work done by them. The ITO was of the opinion that the assessee was not entitled to the weighted deduction under section 35B in respect of the salary and wages paid by the assessee to the workers engaged on this job. The ITO also disallowed the assessee's claim for weighted deduction in respect of the travelling expenses payable to the workers. 3. The assessee, therefore, took up the matter before the Commissioner (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As against this, learned counsel for the assessee has proceeded to point out that for the assessment years 1972-73 and 1973-74 the Bombay Bench 'E' of the Tribunal by their order dated 31-3-1977 in IT Appeal Nos. 3364 and 997 (Bom.) of 1976-77 in the assessee's own case held that the assessee was eligible for relief under section 35B under similar circumstances. This decision of the Tribunal was accepted by the department, and no reference application was filed under section 256(1) of the Act by the revenue authorities. Further the decision was followed by the Commissioner (Appeals) in his orders dated 4-1-1979 for the assessment years 1971-72, 1974-75 and 1975-76. Even this decision of the Commissioner (Appeals) was accepted by the revenue authorities, and not even an appeal was filed before the Tribunal. The learned counsel for the assessee has proceeded to rely on the Madras High Court decision in the case of CIT v. S. Devaraj [1969] 73 ITR 1 and on the Bombay High Court decision in the case of H.A. Shah Co. v. CIT [1956] 30 ITR 618, according to which under identical facts and circumstances, the Tribunal was under an obligation to follow their earlier decision and not to expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ages 'B'---a skill worker (carpenter) for a day for a sum of Rs. 25, provided that 'B' will have his own food and tea for the whole day. 'B' agrees to it, and works for a day with 'A' or with 'C' who asks him to work. However, 'A' on his own sweet will, supplies food and tea to 'B' costing Rs. 10. The sum of Rs. 25 is the purchase price of the skill of 'B', while Rs. 10 is the expenditure of 'A' on 'B' for the day. Thus, it is clear that the skill is having its value (cost price) and this cost price is not expenditure of 'A' on 'B' rather Rs. 10 only is the expenditure. So, the expenditure of 'A' is only Rs. 10 for the performance of services outside India in connection with or incidental to the execution of any contract for the supply outside India of such services. As I have stated above, the provision of section 35B are applicable only to an assessee who incurs expenditure in respect of goods, services or facilities. So, I have to see that what is it that the assessee has exported. It must be either services or facilities. It cannot be goods or it cannot be facilities either. It could only be services in the case of the assessee, since the contract makes it clear that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher payment. Thus, by supplying labour the assessee has hired, he is making a profit (sic). So, the labour is on par with goods. Now, the cost of acquiring goods is not eligible for weighted deduction under section 35B, which has been made clear in the Special Bench decision in the case of J. Hemchand Co., relied upon by the learned departmental representative. Para 23 of that decision reads as follows: "Before concluding this part of the order rendered commonly for all the appeals heard together, we may also refer to the arguments advanced on the side of some of the assessees that in the case of manufacturer producing goods for export, as the case of a trader procuring goods for the same purpose, everything spent by the former on the production of the exported goods and by the latter on the purchase and procurement of such goods should be taken as expenditure entitled to benefits under sub-clause (iii). The trend of the argument is that without the production or the procurement of such goods, their distribution or supply is impossible and, hence, the expenditure incurred on the former will form part of the expenditure incurred on the latter. The contention is clearly unten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 35B(1)(b) is not applicable to the facts and circumstances of the case, in view of the decision of the Special Bench of the Tribunal in the case of J. Hemchand Co., and that of the Tribunal in S. Bestow Cement Co. Ltd. 7. However, the contention of Shri Trivedi is that when the facts of the year under consideration are identical with those of the years 1971-72 to 1975-76, then, in view of the decision of the Hon'ble Madras High Court in the case of L.G. Ramamurthi, the decision in the year 1972-73 is to be followed, the decision of the Tribunal has been accepted by the revenue. I do not see any force in the contention of Shri Trivedi, because the contention of Shri Srinivasan, learned departmental representative, is well founded, when he says, (i) that the decision of the Special Bench of the Tribunal in the case of J. Hemchand Co. was given after the decision of the Tribunal in the assessment year 1972-73, (ii) that the case in the year under consideration is distinguishable as the contention raised by him is that sub-clause (viii) of section 35B(1)(b), as discussed above, is not applicable to the facts and circumstances of the case, in view of the fact that weight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed. 9. In view of my above discussion and the reasons thereto, I hold that on the facts and circumstances of the case and in law, the Commissioner (Appeals) erred in directing the ITO to allow weighted deduction under section 35B, on payment of salary of Rs. 26,27,169 and travelling expenses of Rs. 1,20,675 and Rs. 6,25,487 in the assessment years 1976-77 and 1977-78, respectively which were paid by the assessee on behalf of its principals. Hence, I set aside the impugned orders of the Commissioner (Appeals) and thereby restore that of the ITO for both the years under consideration, as he rightly disallowed the claim for weighted deduction on the aforesaid items of expenditure. 10. In the result, the appeals are allowed. THIRD MEMBER ORDER Per Shri T.D. Sugla, President --- On a difference of opinion between the learned members who heard the appeals originally, the following point of difference was stated: "Whether, in the facts and circumstances of the case, the CIT (A) was justified in granting relief under section 35B to the assessee in respect of payment of salary of Rs. 26,27,169 and Rs. 1,20,675 ; and travelling expenses of Rs. 2,85,480, and 6,25,487, which were pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vedi has invited my attention to a circular dated 4-9-1975 issued by the CBDT which, according to him, supported the view taken by the learned Accountant Member. It is stated that circulars issued by the Board in favour of the assessee are binding on the departmental authorities and as such it does not lie in the mouth of the departmental representative to contend that the weighted deduction should not be allowed on salary and travelling expenses of the labour supplied by the assessee abroad. On the other hand, Shri T.S. Srinivasan, the learned departmental representative, has strongly relied on the Special Bench decision in the case of J. Hemchand Co. and the order of the learned judicial member. It is submitted that the Board's circular is not applicable in the facts and circumstances of the case and the Bombay and Madras High Courts decisions are also not applicable in view of there being a Special Bench decision of the Tribunal taking a contrary view. 4. I have heard the parties and carefully gone through the orders of the learned member as well as the Board's circular dated 4-9-1975. No doubt section 35B applies to expenses which are not only in respect of goods but also i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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