TMI Blog1997 (9) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The assessee availed of the facility of "packing credit loan" on which it paid interest of Rs. 8,17,921 to banks. The claim for deduction of the said amount of interest was rejected by the Income-tax Officer in the order of assessment dated August 10, 1983. On appeal to the Commissioner of Income-tax (Appeals) the said amount was allowed as deduction under sub-clause (viii) of clause (b) of sub-section (1) of section 35B of the Act by order dated December 22, 1983. The Revenue's appeal to the Income-tax Appellate Tribunal was allowed in part ; the Tribunal observed that full facts were not available to satisfy whether the ratio of the judgment of the Special Bench of Bombay Tribunal in AADEE Corporation v. ITO [1983] 15 TTJ 56 (Bom) would be applicable to the facts of the case on hand and remanded the case to the assessing authority to satisfy himself whether the ratio of the decision of the Bombay Bench of the Tribunal would be applicable to the facts of the case and if so to allow the claim of the assessee. Thus, the Tribunal disposed of the appeal on December 13, 1985. It is from that order that the abovesaid question of law has arisen. Mr. S. R. Ashok, learned standing c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Explanation 1.--In this section, 'domestic company' shall have the meaning assigned to it in clause (2) of section 80B. Explanation 2.--For the purposes of sub-clause (iii) and sub-clause (viii) of clause (b), expenditure incurred by an assessee engaged in the business of (i) operation of any ship or other vessel, aircraft or vehicle, or (ii) carriage of, or making arrangements for carriage of, passengers, livestock, mail or goods, on or in relation to such operation or carriage or arrangements for carriage (including in each case expenditure incurred on the provision of any benefit, amenity or facility to the crew, passengers or livestock) shall not be regarded as expenditure incurred by the assessee on the supply outside India of services or facilities." Since the deductibility of the expenditure is sought to be justified under sub-clause (viii) of clause (b) of sub-section (1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y loan or advance granted or any other credit provided by an institution to an exporter for financing the purchase, processing or packing of goods, on the basis of letters of credit opened in his favour by an importer of the goods outside India, or a confirmed and irrevocable order for the export of goods from India or any other evidence of an order for export from India having been placed on the exporter unless lodgement of export orders or letters of credit with the institution has been waived by the Reserve Bank." The proviso appended to the definition clause enjoins that the maximum period for which any loan or advance may be granted, or any other credit facility may be provided, by way of "packing credit" shall not exceed one hundred and eighty days or such extended period as the Reserve Bank may allow in terms of paragraph (5)(i) of the Scheme. There can be no doubt that to encourage export, certain categories of exporters will be entitled to avail of the benefit of the scheme including " packing credit advance" on fulfilment of the conditions enumerated therein. But that is entirely a different matter. Section 35B(1)(b)(viii) provides yet another benefit to the exporter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless the price level was reduced and it was in that connection that the bank was directed to advance funds on export contract. It took the view that the interest was expenditure incurred for enabling the export of the goods, because an exporter would reduce its cost price for competing in the international market, so such loss would be in the nature of expenditure as it arose in the course of performance of the contract for sale of goods outside India and would be an expenditure falling under clause (viii). We are not persuaded to accept the reasoning and the approach of the Bombay Tribunal. We have already pointed out above that to enable the assessee to claim benefit of export markets development allowance under section 35B, the expenditure should be incurred on performance of services outside India in connection with or incidental to the execution of any contract for supply outside India of such goods, services or facilities.. On the facts of the case before the Bombay Bench, we are unable to see that there was any performance of service within the meaning of clause (viii). Even assuming that the loss sustained by such an exporter could be treated as expenditure, in our view i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT v. Navabharat Enterprises (P.) Ltd. (No. 1) [1988] 170 ITR 326 has liberally construed the provisions of section 35B(1)(b)(viii) so it may be held that the expenditure in question falls under the said provision. In that case, the assessee claimed weighted deduction of Rs. 2,05,211 paid to the export credit guarantee insurance corporation for information furnished to the assessee regarding the creditworthiness of the foreign purchaser and also for providing a guarantee for payment of amounts by such foreign purchaser. Though the claim of the assessee was rejected at the first instance by the Income-tax Officer, it was allowed by the Commissioner of Income-tax as well as the Tribunal. On a reference, the High Court held that the payment made to the export credit guarantee corporation would ensure the financial capacity of the foreign buyer to fulfil the commitment of deferred payment and insulate the assessee against the risk of non-recovery from the foreign buyer and as such it falls under sub-clause (viii) of section 35B(1)(b) so the assessee was entitled to weighted deduction under that section. The learned judges observed that it was not necessary that the person or corporat ..... 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