TMI Blog2000 (7) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Appellate Tribunal erred in law in holding that interest on foreign bills, bank charges on foreign bills and difference in foreign exchange did not constitute expenditure on the performance of services outside India in connection with or incidental to the execution of the contract for supply of such goods outside India within the meaning of clauses (iii) and (viii) of section 35B(1(b) of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount paid to Shri Deepak Kumar during his stay at USA was salary or remuneration disallowable under section 40(b) of the Act and as such weighted deduction under section 35B(1)(b) of the Act could not be allowed in respect of it ?" R. A. No. 932/Delhi of 1985 (by the assessee) : "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal erred in law in holding that interest on foreign bills, bank charges on foreign bills and differences in foreign exchange did not constitute expenditure on the performance of service outside India in connection with or incidental to the execution of the contract for supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 86,683 (c) Excess payment made due to fluctuations in the foreign exchange rate of currency 20,170 21,456 (d) Incentive granted to the dealers in USA for increase in turnover $ 18,134 Nil (e) Reimbursement on expenditure incurred in USA by the resident partner Shri Deepak Jain $ 2,937 Nil According to the assessee, the first three payments were covered under sub-clause (viii) of clause (b) of section 35B(1) of the Act and the fourth item was covered by sub-clauses (iii) and (viii) of the said sub-section. With regard to the last item, the stand of the assessee was that it had opened a branch in USA in the year 1977 which was looked after by its partner, Deepak Kumar Jain, who was designated as the resident partner. The Reserve Bank of India, on request by the assessee, had permitted reimbursement of expenses with the ceiling of US $ 600 per month in 1977 and US $ 2000 per month in 1978-79 to 1981 though under the Reserve Bank of India rules a resident partner was entitled to all allowance of US $ 120 per day for his stay abroad on the business of the firm. The plea of the assessee was that the payment made to Deepak Kumar Jain was an expense incurred for maintenance outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w to pro-mote export sales. In so far as the claim of the assessee regarding weighted deduction in respect of the amount paid to the partner was concerned, while rejecting the claim, the Tribunal observed that the amount in question cannot be treated as the firm's business expenditure because it has been paid to the partner to enable him to meet his personal expenses, even though the partner had gone to the United States in connection with the business or the firm as the business of the firm is in fact the business of the partner himself and no individual can claim his personal expenses incurred by him on his foreign visits as his business expenses merely because he has gone to the foreign countries in connection with his personal business. The Tribunal thus held that the expenditure incurred was clearly of personal nature and would, therefore, be hit by the provisions of clause (b) of section 40 and/or of section 37(1) of the Act. Aggrieved, both the assessee and the Revenue sought reference on the issues decided against them. Hence, the present references. We have beard Mr. C. S. Aggarwal, learned counsel for the assessee, and Mr. Sanjiv Khanna, learned counsel for the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 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 where such expenditure is incurred before the 1st day of April, 1978 ; (iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities ; ... (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 of the sale outside India of such goods, services or facilities as may be prescribed ...." From a plain reading of the afore-extracted provisions of law it is evident that the expenditure which qualifies for weighted deduction under sub-clause (iii) will have to be an expenditure incurred outside India in connection with distribution, supply and/or provision outside India of such goods, services or facilities. Similarly, in order to qualify for weighted deduction under sub-clause (viii), the expenditure must be incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in the performance of services outside India in connection with or incidental to the execution of such contracts for supply of goods outside India. As a matter of fact it was fairly conceded by Mr. Aggarwal, learned counsel for the assessee, that in the light of the decisions in Brooke Bond India Limited v. CIT [1992] 193 ITR 390 (Cal) and in Gedore Tools (India) Pvt. Ltd. v. CIT [1998] 233 ITR 712 (Delhi), weighted deduction on bank charges cannot be allowed. (c) Excess payment made due to fluctuation in foreign exchange rates: In view of the decision of this court in Gedore Tools (India) Pvt. Ltd.'s case [1998] 233 ITR 712, this expenditure is not eligible for weighted deduction. In that case, following the decision of the Bombay High Court in Walchandnagar Industries Ltd. v. CIT [1994] 206 ITR 328, it was held that the payment on account of exchange rate differences was not eligible for weighted deduction as the export had already taken place and it was merely on account of fluctuation in exchange rates that the assessee was required to pay the differences. We are in respectful agreement with the said decision. (d) Incentive granted to dealers in USA : (Revenue's refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with learned counsel for the assessee. The primary meaning of the expression "expenditure" is spending or payment of money ; the act of expending, disbursing or laying out of money; payment (see Black's Law Dictionary ). In common parlance, the term "expenditure" connotes something that comes out of the pocket and spent, though it may have a wider meaning in the context of its use in a particular section in the Act. In fact certain types of expenditure have been separately dealt with in different sections in the statute. In so far as section 35B of the Act is concerned, keeping in view the object of the provision, the word "expenditure" has to be construed in the ordinary sense of the word. The section not only postulates actual spending by the assessee, it also requires the assessee to establish that the expenditure for which deduction under the section is being claimed had been incurred outside India for the specified purpose. Mere selling of goods to foreign buyers is not sufficient for claiming the benefit of weighted deduction. "Incentive" or "discount" to foreign buyer to achieve a particular target of sales, is nothing but a rebate allowed on the price of goods sold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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