TMI Blog1997 (8) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... 35B in respect of packing credit interest ?" In the other two references No. 9 of 1987 (CIT v. Raj Bahadur Knitting Works) and No. 95 of 1986 (CIT v. Avon Cycles (P.) Ltd.) an identical question of law has been referred in each. In both these references, the relevant assessment year is 1980-81. The facts herein are being discussed as are found in I. T. Reference No. 72 of 1986, relating to the assessment year 1979-80. The assessee's main business was the export of hosiery goods to the U.S.S.R. Local sales were also made. Besides, the assessee earned spinning charges also. A return of income for the assessment year 1979-80 (accounting year ending on March 31, 1979), was filed declaring a total income at Rs. 6,06,901. The assessee claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on record, it would not be appropriate to allow weighted deduction on the packing credit interest. Shri Gupta has further argued that the taking of a loan by the assessee from the bank to meet manufacturing expenses of the items which had been exported by the assessee would not enable the assessee to claim weighted deduction on the amount of interest paid on such loan. Shri S. S. Mahajan, learned counsel for the assessee, has on the other hand, contended that packing credit interest was an eligible expenditure for the purposes of weighted deduction under sub-clause (viii) of clause (b) of section 35B(1) of the Act because it was an expenditure in connection with the execution of a contract for the supply outside India of the goods by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the assessee to prove that fundamental fact. It was not sufficient that the assessee sold goods to foreign buyers or it was assisted by a bank or a commission agent in connection with the manufacture or sale of those goods. The burden was on the assessee to prove that the commission paid was wholly and exclusively for the specified activities conducted outside the country. The object of the special concession allowed under section 35B was to facilitate the export trade. In the case of the assessee in hand, it has not been explained by the assessee before the Revenue authorities as to what was the nature of service rendered by the bank for which packing credit interest was paid. If the bank had rendered or performed any service outsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the buyer beyond due dates or delayed remittances by the buyer's banker. There was no finding that the bank had performed any service outside India. It was held that the assessee could not claim weighted deduction in respect of that expenditure. The next decision relied upon by Shri Gupta is from the Gujarat High Court in Testeels Ltd. v. CIT [1994] 205 ITR 230. There also the assessee had incurred expenditure in paying interest to the bank on the advances and loans given for purchase of raw materials. It was noticed that no services were performed in taking credit or the loan facility from the bank in order to purchase raw materials for the manufacture of goods. It was also found that if any services were performed, those were not per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... weighted deduction under sub-clause (viii) of clause (b) of section 35B(i) of the Act. The High Court observed that the expenditure was incurred in connection with the execution of a contract for the supply of goods outside India. There is, however, no discussion as to whether the bank had performed any service outside India as was required as a pre-condition in sub-clause (viii) of clause (b) of section 35B(1). In this light, the decision relied upon by Sh. Mahajan could not bring out a correct interpretation of sub-clause (viii). Sub-clause (viii) of clause (b) of section 35B(1) reads as under : "Sub-clause (viii) : performance of services outside India in connection with, or incidental to, the execution of any contract for the supply o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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