TMI Blog1999 (8) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961, in respect of the following expenditures : --------------------------------------------------------------------------------------- Site expenses Amount Percentage --------------------------------------------------------------------------------------- (a) Malaysia 1,12,16,647 100 (b) BRTW (Libya) 39,60,903 100 (c) Erection sub-contracts expenses on civil, mechanical and electrical job (OPD) ? 32,36,32,647 100" --------------------------------------------------------------------------------------- The assessee, Bharat Heavy Electricals Limited, is a Government owned corporation. The assessment year involved is 1979-80. During the previous year, ended on March 31, 1979, relevant to the said assessment year, the assessee charged to its profit and loss account Rs. 7,65,21,000 by way of additional liability accrued on account of variation in the exchange rates of the new rupee-rouble parity agreed to under the protocol agreement signed between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure -------------------------------------------------------------------------------------- (1) Site expenses at: (i) Malaysia 1,12,16,647 100 (ii) BRTW (Libya) 39,60,903 100 (iii) Erection sub-contracts expenses on civil, mechanical and electrical job (OPD)." 32,36,32,647 100 -------------------------------------------------------------------------------------- The claim of the assessee was turned down by the Assessing Officer on the ground that these expenses had no direct relation with the basic object of development of export market. In appeal, by the assessee, the Commissioner held that the expenses incurred on the maintenance of site offices in Malaysia and Libya were admissible for allowance of weighted deduction. The Revenue's appeal to the Tribunal was unsuccessful. As noticed above, on the application thereafter of the Revenue, the questions, reproduced above, were referred. We have heard Mr. Sanjiv Khanna, learned senior standing counsel for the Income-tax Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the increase in the existing liabilities outstanding against the assessee in respect of the supply of material made by the USSR on deferred credit facility basis was not disputed. As noticed above, even the stand of the Assessing Officer was that even if the money was originally related to raw material inputs from the USSR but it changed its character when it was blocked under the deferred payment account, giving also an enduring advantage to the assessee. We find that the said findings, which are pure findings of fact, are not sought to be challenged as perverse in the proposed question. Therefore, in the present case, admittedly the initial liability arose on account of purchase of new material, a trading debt, and after it had arisen, nothing happened to divest it of the character of a trading debt. In this view of the matter, applying the principles of law adumbrated in Sutlej Cotton Mills' case [1979] 116 ITR 1 (SC), we are of the opinion that the Tribunal came to the correct conclusion that the additional liability incurred by the assessee on the change of the rupee-rouble parity ratio was allowable as a trading liability. This brings us to the second question relating to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of services has to be outside India, only that expenditure will qualify for weighted deduction which has been incurred for 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. The execution of any contract for the supply outside India of such goods, services or facilities has to be in relation to performances of services outside India. Relying on some observations in the assessment order to the effect that the expenditure on which weighted deduction had been claimed by the assessee included production and manufacturing expenses, the only objection of Mr. Khanna, learned counsel for the Revenue, to the allowability of weighted deduction on the expenses in question is that these include manufacturing expenses incurred and the same being in the nature of premarketing expenses are not eligible for weighted deduction under the said sub-clause. In support, reliance is placed on a decision of the Madras High Court in Hamosons v. CIT [1999] 239 ITR 752. Learned counsel has also pressed into service the afore-extracted Explanation 2 to section 35B, which was inserted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection with or are incidental to the execution of the contract for the supply outside India of the goods, to be entitled to weighted deduction on these expenses. The question has necessarily to be answered in the light of the facts found by the Tribunal. The finding arrived at by the Tribunal on the basis of the agreement entered into by the assessee-company is that the assessee had entered into a contract for a turn key project outside India which comprised of design, manufacture, completion, testing, commissioning, operation and maintenance of the work so executed abroad. Thus, the Tribunal held that these expenses fall within the ambit of sub-clause (viii) of section 35B(1)(b), particularly when there was no factual dispute about their nature and quantum. It is explained by Mr. Bhatnagar, learned counsel for the assessee, that the Tribunal has used the word "manufacture" in order to explain the nature of the contract and not that the assessee had claimed weighted deduction on the pre-marketing expenses incurred by it on the manufacture of equipment in India. Therefore, the findings of fact recorded by the Tribunal clearly indicate that the expenses in question incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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