TMI Blog1978 (6) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... stinctly cataloged in the section but also are incurred not within but out-side India invariably crops up as a matter of keen controversy in almost every appeal coming up before the Tribunal where the assessee is a businessman engaged, wholly or in the part, in exports. The views expressed on its different aspects by different Benches of the Tribunal sitting in various parts of the country, and even at the same station, have not always been uniform and on some points are patently divergent. In such welter of indefiniteness and uncertainty, requests from various quarters were received for constituting a Special Bench to hear and decide a few appeals selected for the variety of the facets of the question centred on section 35B arising therein. It was thus that this Special Bench was constituted to hear the following appeals : No. of the IT Appeal Name of the party Assessment year involved 1. 3255/1976-77 (A.A.) H Co. 1973-74 2. 3330/1976-77 (D.A.) 3. 3247/1976-77 (A.A.) G Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the circumstances then prevalent, no export could be envisaged than without Government help. For, it was stated that prices in the international fields were even less that what were prevailing in the domestic markets. We were asked to bear in mind the historical background to enable a correct appreciation of legislative intent behind the sections. According to the assessee, the provisions of the sections are thus to be understood and interpreted in a manner affording not merely just a compensation and palliative for the loss and trouble concomitant to export business in the otherwise discouraging situation, but also as a bonus and an incentive to enter into the depressed foreign markets. That itself, it was argued, should not only justify but also compel a liberal interpretation of the provisions. 4. Having said so much by way of preface, it was contended on behalf of some of these assessees that therefore in the case of an assessee engaged solely and wholly in export business, everything of his business expenditure should be taken as entitled to beneficial treatment under the section, there being no scope for treating any part of it as not connected with or incidental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended on behalf of some of the assessees than the inaction of the Board, which according to them amounted to a total disregard of the mandate of the Legislature, should not stand in the way of the otherwise legitimate claims of the assessees in respect of whatever had been properly incurred by them by way of expenditure for the promotion of sale outside India, though not coming strictly within the other clause. The argument was that the in-action on the part of the Board should be taken as an unjustified dereliction and the same should not be allowed to prejudice or affect the right of the assessees to claim weighted deduction of whatever expenditure that can be taken as incurred on such activities, a relief which the Legislature intended to give them. 5. Shri R.J. Joshi, learned counsel for the department, prefaced his arguments submitting that section 35B, as its very wording would indicate, is a self-contained provision touching a particular subject and having its operation solely and exclusively in the sphere clearly demarcated by the section itself. According to the learned counsel, there is, therefore, no warrant whatever for making any effort to expand the operational a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious sub-clauses is to the activities for the promotion of sale outside India, the learned counsel submitted that the weighted deduction contemplated by the section could generally be only in respect of expenditure incurred outside India. In that context he commended to us for our consideration the Departmental Circular issued on 6-7-1968 wherein it was elaborated that the expenditure which qualifies for the weighted deduction is that incurred on activities outside India for the development of export market for Indian goods on a long-term basis and that the provision is not intended to cover expenditure incurred on activities inside India for its export business except where these are incidental to the activities outside India, such as preparation and submission of tenders referred to in item (v), furnishing samples or technical information referred to in item (vi) above . According to Shri Joshi, this clarifies the real scope of the section. He, however, fairly conceded that the Bombay High Court in IT Application No. 257 of 1978 (supra), referred to by the other side, has expressed its contra opinion that only in sub-clause (iii) of section 35B(1)(b) is there an exclusion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annexure. 7. As there was some serious debate at the Bar regarding the norms and principles which we should adopt in interpreting the provisions of a section like section 35B, we may first deal with that aspect. We should think that the law is well settled that in a taking statute one has to look merely at what is clearly stated. The classic statement of Rowlatt, J. in Cape Brandy Syndicate v. Inland Revenue Commissioner [1921] 1 KB 64, still holds the field. It reads : In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. It is hence that the Supreme Court in Anandji Haridas Co. (P) Ltd. v. Engineering Mazdoor Sangh [1975] 99 ITR 592has said that as a general principle of interpretation where the words of a statute are plain, precise and unambiguous, the intention of the statute itself, and no external evidence such as parliamentary debates, reports of the committees of the Legislature or even the statement made by the minister on the introduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure referred to in clause (a) is that incurred wholly and exclusively on- (i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business; (ii) obtaining information regarding markets outside India for such goods, 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 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) travailing outside India for the promotion of the sale outside Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of the section as the starting point, it appears to us clear that it provides weighted deduction only for certain class of revenue expenditure incurred for development of export markets after 29-2-1968 in the place of the normal deduction of such expenditure otherwise allowable and that the benefit of the extra allowance is also restricted to domestic companies and persons (other than a company) who are residents in India. This allowance is available in respect of such specified expenditure incurred by the taxpayer directly or in association with any other person. Therefore, if an assessee enters into any joint export promotion arrangements with others, he should be entitled to a weighted deduction in respect of his share of the pooled expenses that can be brought within the section. There is also nothing in the section to suggest that its benefit would be available only to the assessees who have in fact exported goods during the relevant year or have earned profits out of exports. The admissibility of the allowance under the section, as appears to us, is irrespective of the question whether the assessee has exported any goods during the relevant year or whether he has earned an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as in this case, any further activities on the authority of sub-clause (ix), it is only to be taken that in its wisdom it has thought it fit and necessary that the ambit of the beneficial provisions of the section in the form of weighted deduction be extended no further. In any event, by asking us to activate that sub-clause in the manner pressed before us, the assessee are requiring us in effect to legislate, rewrite and expand the section, a function which is far beyond us. 11. Having seen that clause (b) of section 35B(1) affords the dictionary and the catalogue to be specifically referred to for finding out which kinds of expenditure are to be taken for allowance of weighted deduction, it is imperative that the said clause be taken as the pulsating part of the whole section, defining the exact sphere in which alone the section is to beneficially operate. It follows that unless an expenditure falls within, or is of any one of the items enumerated in items (i) to (viii) of clause (b), there can be no question of allowing weighted deduction in respect of the same. 12. Before taking up the various sub-clauses of clause the words (b), we may at this stage also refer to some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -sections, which purposes are indicated as pertaining to various activities outside India. It must follow that no assessee would be entitled to weighted deduction of expenses referred to in sub-clauses (i), (ii) and (iv) to (vii) of section 35B(1)(b) irrespective of the question whether they are incurred outside or inside India. 14. Sub-clause (i) deals with advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business. The only test to be applied here is the place of the advertisement and publicity and not the place where the expenditure in respect thereof is incurred. For example, if for an advertisement or publicity outside the country, materials are printed in India or a foreign agency is engaged and payments for the same are made in India, there is no reason why such expenditure should be considered as not falling within this sub-clause or be not entitled to weighted deduction. Under sub-clause (ii) expenditure incurred wholly and exclusively on obtaining information regarding markets outside India for such goods, services or facilities is also admissible for weighted de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are brought in. Here again it is clear that such incidental activities must have a nexus with the execution of the contract. And also such expenditure wherever incurred, would be qualified. The only restriction is what is imposed by Explanation 2 to section 35B(1) which lays down that the expenditure referred to therein should not be regarded for the purpose of this sub-clause as expenditure incurred by the assessee on the supply outside India of services or facilities. 15. Coming now to sub-clause (iii), which, on account of the considerable difference of opinion that has emerged in the debate, we have reserved to be taken up last. It may at once be noticed that the sub-clause originally read as follows : Distribution, supply or provision outside India of such goods, services and facilities. It was by the Finance Act, 1973, that the sub-clause was amended with retrospective effect from 1-4-1968, by adding to it the following words, namely, not being expenditure incurred in India in connection therewith or expenditure (wherever insured) on the carriage of such goods to their destination outside India or on the insurance of such goods while in-transit . The controve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by an assessee on the supply outside India of services or facilities, would have stood out by reason of the amendment brought about in sub-clause (iii) itself. This, according to the assessee, clearly brings out the fallacy of the departmental stand that what is added to the sub-clause by the Finance Act, 1973, is a composite clause in the nature of a proviso. Last but not least is the contention finally urged that in any event, so far as we are concerned, the matter should be taken as concluded by reason of the Bombay High Court decision in the case of Eldee Wire Ropes Ltd. (supra). 16.In the face of these contentions, the first that we ought to examine is, whether in the decision of the Hon'ble Bombay High Count which is very much riled on by the assessee, there is such a finding and pronouncement with regard to sub-clause (iii) as setlling, at least so far as we sitting in Bombay are concerned, the controversy on this particular aspect. On a careful study of everything that is said therein, we are of the opinion that it by no means lays down such an interpretation of the sub-clause as asserted by the assessees. For a correct understanding of what is said there, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising two questions. In that matter that Court while admitting the application issued a rule on one question only, viz., Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to claim weighted deduction of ₹ 43,852 under section 35B of the Income-tax Act, 1961 It was when on service of the rule the assessee put in its appearance that the Hon'ble High Courts, while considering whether the rule should be made absolute for further enquiry on the question, passed the order on which the assessees are now placing so much reliance. 17. The first thing patently pointed out in that order is that the only point of law that was canvassed before the Tribunal in that case was that the claim of the assessee was not admissible under section 35B since the expenses were incurred in India. It is, therefore, clear that what alone their Lordships considered and said in that order related only to the specific point of law that gave rise to the question, on which the rule was issued as a referable question of law. What their Lordships said on that may now be fully reproduced: Mr. Joshi drew our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st, doubt was expressed by the Court. True it is that in the above, their Lordships referred to the first part of sub-clause (iii) as expressly excluding expenses incurred in India. But that, in our opinion, does not warrant any interference, by implication or otherwise, that in the view of their Lordships the other part of the sub-clause did not contain any such exclusion. It is to be noted that in that part, there is the qualifying expression wherever incurred attached to expenditure taken in thereunder in contrast to the expression incurred in India attached to expenditure referred to in the first part.In the face of the universality of the attached qualification in the latter part, there was need to refer only to the first part by way of contrast. Even otherwise, the sentences in the order of their Lordships reproduced above, clearly indicate that there never was any attempt to dissect sub-clause (iii) in the manner spoken to by the assessee, much less to indicate that there is only in the first part a restrictive exclusion on the basis of the place at which the expenditure is incurred, and none of that nature in the latter part. A case is only an authority for what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to achieve in one stroke the twin objects of (i) excluding from the ambit of that sub-clause expenditure incurred in India in connection with distribution, supply or provision outside India of goods, services and facilities to thus limit it exclusively to such expenditure incurred outside the country, and (ii) incorporating within the beneficent sphere of the sub-clause two entirely new heads of expenditure (wherever incurred) on the carriage of goods to their destination outside India and expenditure on the insurance of goods while in transit. The two objects thus specified by the assessee are so divergent and diametrically opposite in their effect that it is impossible to believe that they would have been clubbed together in the manner seen and done and that too by means of an addition made with the opening words not only , leaving the impression that what followed was in the nature of a proviso and an exception. The question could well be asked why if expenditure (wherever incurred) on the carriage of goods to their destination outside India and on the insurance of such goods while in transit was intended to be added to the allowable class of expenditure, they were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in the interpretation suggested on the side of the assessee. Also to bring in expenditure (wherever incurred) on the carriage of goods to their destination outside India and the cost of insurance of such goods in transit as allowable heads of expenditure, there was no need at all for any such amendment as brought about by the Finance Act, 1970. For, it will be difficult to argue that transport charges for the carriage of goods to their destination outside India and the cost of insurance of such goods in transit will not enter into expenditure incurred on the distribution and supply of the goods, allowed by sub-clause (iii) even in its original form. If the argument is that when by the amendment expenditure incurred in India in connection with distribution, supply or provision out-side India of goods, services or facilities was specifically carved out for exclusion from the generality of the expenses referred to in the sub-clause, it became necessary to refer particularly to expenditure (wherever incurred) on the carriage of such goods to their destination outside India and to the expenditure on the insurance of such goods while in transit, to save those two heads of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of his business, (ii) expenditure (wherever incurred) on the carriage of such goods to their destination outside India, and (iii) expenditure (wherever incurred) on the insurance of such goods while in transit. 21. As already seen, under the section it is expenditure wholly and exclusively incurred on the various heads catalogued in clause (b) of its sub-section (1) which alone merits weighted allowance. Any strict adherence to the letter of this condition, without any regard to the spirit of the section, is, however, likely to create untoward and unintended results. Even in the case of an assessee engaged exclusively in expert of goods, it may be difficult to take any item of his expenditure as wholly and exclusively incurred on any of the items enumerated in section 35B(1)(b). In the case of such an assessee, however, the persons employed by him may have attended to activities coming under one or other of those items and may have as part of the very export business also attended to other activies not coming strictly within any one of them. For example, as part of their duty they would have had to attend to also matters in India connected with the distribution, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to (viii) of clause (b) of sub-section (1) of the section. (iv) Sub-clause (ix) so long as it reminds not activated by the rule making authority must be considered as inert and lifeless. (v) The activities referred to above must be in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business. (vi) Except for the purpose of sub-clause (iii), the place where the expenditure is incurred is irrelevant. In other words, any expenditure satisfying the conditions laid down in sub-clauses (i) to (viii) will get the benefit of weighted allowance irrespective of whether the same is incurred in or outside India. (vii) Under sub-clause (iii), thought expenditure incurred wholly and exclusively on distribution, supply or provision outside India of such goods, services or facilities would generally qualify for weighted deduction, the rule is, however, subject to the notable exceptions that expenditure incurred in India in connection with such distribution supply or provision as also expenditure, wherever incurred on the carriage of such goods to their destination outside India and on the insurance of such goods while in transit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to or in connection with the export of goods, services or facilities which are peculiar and in addition to the normal expenditure incurred by a dealer, if he is not exporting them. That being so it would be futile to contend that production and procurement of goods would also form an integral part of their distribution and supply. We therefore, find if impossible to accede to the assessee's contention that expenses incurred by way of cost of the goods exported should also be taken as attracting the benefit of sub-clause (iii). 24. Now, coming to the facts of this case, the assessee is a registered firm engaged in the business of export of onion and spices. The assessment year involved is 1973-74 for which the accounting period is the calendar year 1972. Before the ITO the assessee claimed weighted deduction in respect of the following items of expenditure: 1. Purchases Sales Rs. 2. Freight Rs. 3. Insurance Rs. 4. Bardana Rs. 5. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. Certificate Charges Rs. 17. Customs Pass Rs. 18. Customs Duty Rs. 19. Travelling including in connection with export sales Rs. 20. Brokerage Rs. Total Rs. Of these the AAC allowed in toto the assessee's claim in respect of items 2, 6, 14 to 16 above and also allowed 75 per cent of item 1 and half of items 3 and 5. All the rest he too found to be not falling under any of the sub-clauses of section 35B(1)(b). The assessee in the appeal reiterates its claim in respect of the disallowed items and also urges for the total allowances of the expenditure under the three heads which the AAC allowed only in part. The department in its cross-appeal challenges the correctness of even what the AAC has allowed in the above. 25. As rightly noticed by the AAC thought a major part of the work done by the assessee's employees may be classified as activities coming under one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee are to organisations and journals which are concerned with foreign trade and are engaged in obtaining and disseminating information and data about market conditions aboard. This expenditure must hence be taken, as rightly done by the AAC, as squarely falling within sub-clause (ii) of section 35B(1)(b). 28. The commission payment in this case was to parties who brought about the export sales. It was those parties who furnished information to the assessee about the foreign buyers and publicized the assessee's goods to those buyers. It was they who brought together the buyer and the seller for concluding the sales. It was through them the goods were supplied outside India. That being so this expenditure is allowable under sub-clauses (i) and (ii) of clause (b) of sub-section (1) of section 35B. 29. The sum of ₹ 3,370 is a payment made by the assessee to the Export Credit Guarantee Corporation for the services in furnishing to the assessee not only information about the creditworthiness of the foreign buyer and the upper limit to which goods could be supplied to that buyer but also a guarantee for payment of such amount. The activity for obtaining information regardi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn by the AAC is not correct (sic). Hence, we do not find any reason to interfere with the AAC's decision on this. 33. The expenditure incurred on Agmark and licence fee stands in pari materia with the certificate charges. For the same reasons given in disallowing the latter, we disallow the claim made in respect of the former. We find it difficult as to accept the assessee's contention that Agmark being a certificate of guarantee as to the quality of the goods is itself an advertisement. This contention needs only to be stated to be rejected. 34. We need only point out to the decision of the High Court reproduced earlier in rejecting the assessee's claim relating to expenditure incurred on custom pass and costume duty. Neither comes under any one of the sub-clauses of section 35B(1)(b). 35. The claim raised by the assessee in respect of carriage handling and forwarding charges, mukadami, bardana, and packing materials can, if at all, be connected only with activities relating to distribution and supply of goods. It is not suggested that these had anything to do with any samples furnished to outside parties. Even if these are thus incurred in connection with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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