TMI Blog1989 (2) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting year ended on 29th June, 1974). The first question relates to weighted deduction claimed by the assessee. Since there are as many as six items in respect of which deductions have been claimed, this question will have to be examined itemwise. Section 35B is as under : "35B. (1)(a) Where an assessee, being a domestic company or person (other than a company) who is resident in India, has incurred after the 29th day of February, 1968, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in clause (b), he shall, subject to the provisions of this section, be allowed a deduction of sum equal to one and one-third times the amount of such expenditure incurred during the previous year : Provided that in respect of the expenditure incurred after the 28th day of February, 1973, by a domestic company, being a company in which the public are substantially interested, the provisions of this clause shall have effect as if for the words 'one and one-third times', the words 'one and one-half times' had been substituted. (b) The expenditure referred to in clause (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year. " The assessee is allowed deduction of a sum equal to one and one-third times the amount of the expenditure incurred during the previous year if certain conditions laid down in section 35B are fulfilled. Business expenditure is normally allowable under section 37 of the Income-tax Act. No question of weighted deduction arises when deductions are allowed under section 37. In order to claim weighted deduction, the assessee must bring all the facts on record which justify the claim. It is well settled that it is for the assessee to prove his case in order to claim any deduction. All expenditure in connection with the export sales is not to be allowed as weighted deduction under section 35B. Weighted deduction can be allowed only in respect of the expenditure which has been specifically mentioned in the sub-clauses (i) to (ix) of clause (b) of section 35B(1). The expenditure that is to be allowed under sub-clause (viii) of section 35B(1)(b) must be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, services or facilities." Moreover, the phrase "the execution of any contract for the supply outside India of such goods, services or facilities" must be in relation to performance of services outside India. The phrases "in connection with" or "incidental to" merely link up performance of services outside India to the execution of any contract for supply outside India of such goods, services or facilities. Therefore, in our view, unless it can be established that the expenditure was incurred on performance of services outside India, no weighted deduction can be allowed. The case before the Madhya Pradesh High Court was really decided on the basis of the findings of fact arrived at by the Tribunal. There the assessee had manufactured and exported de-oiled cakes. It claimed deduction on account of (1) interest paid to bank on export packing credit account, (2) commission and brokerage for export, (3) postage, telephone and telegram expenses, and (4) bank commission on export packing credit account. The Tribunal found that the assessee had paid commission and brokerage to various parties at different places, namely, Poland, Germany, London, etc., in connection with the expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But, in the latest return filed on 7th February, 1979, the assessee claimed such deduction under section 35B at a sum of Rs. 1,30,88,432. The assessee has also given a statement showing the expenditure in respect of which deduction under section 35B had been claimed. On going through the statement (revised statement No. 6) I have come across several expenditures which do not come within the purview of the said section. Amongst others, the assessee has claimed expenditure to the extent of Rs. 1,04,76,274 as well as Rs. 92,87,092 in respect of freight and insurance as well as packing and handling, respectively. In my view, these expenditures do not call for deduction under section 35B as they do not subscribe to the export development of the assessee-company. The assessee has also claimed a sum of Rs. 5,98,274 being expenditure towards salaries of persons employed in India solely for export work. But the assessee's claim in this respect can be accepted to the extent of 50% as it can never be said for certain that the services of the concerned personnel were not availed of for domestic operations. " On appeal, the Appellate Assistant Commissioner held as follows: " So far as packi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the facts. In our view, this argument cannot be accepted. The assessee had definitely made out a case that the loan was taken for the purpose of meeting the expenses prior to the shipment of the goods. This fact has not been disputed at any stage. The assessee cannot turn round now at this stage and say that the expenditure was incurred for some other purpose. It will amount to hearing of the case de novo. It was faintly suggested by Dr. Pal that the Tribunal had not properly appreciated the fact but no question of law challenging the findings of fact by the Tribunal has been raised. On the contrary, the question that was framed by the assessee has been referred by the Tribunal and it begins with the phrase "whether, on the facts and in the circumstances of the case". This phrase has been interpreted in a number of cases by the Supreme Court to mean that the decision of the Tribunal was being challenged on the basis of the facts found by the Tribunal. If a question is framed in this way, the findings of fact cannot be challenged. Moreover, there does not appear to be any indication in the paper book to suggest that the Tribunal had failed to consider any fact which the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyers' failure to pay the bills presented by the assessee's bankers in time. Because of the buyers' failure, the assessee's bankers claimed larger interest. This claim will have to be allowed, because it was in connection with the service rendered outside India and was also incidental to export sales. It was argued that recovery of money was an integral part of the sale of goods and the bank, in the course of recovery of the amount, had incurred expenses for which the assessee was made liable to pay. This must be treated as expenditure incurred outside India in connection with or incidental to the export sales. We are unable to uphold this argument. The bank merely discounted the bills raised by the assessee for the goods sold to the foreign purchaser. Because there was delay in payment of the bills, the bank charged interest and/or commission from the assessee. There is no finding that the bank had performed any service outside India nor can it be said that the banking services were rendered outside India in connection with, or incidental to, the execution of any contract. The export contract was executed by the assessee by despatching its goods to the foreign purchasers. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tside India in connection with, or incidental to, execution of such contract for supply of goods outside India. The argument of the learned representative was thus far-fetched and must be repelled. The Income-tax Officer's action is upheld. The Tribunal held that another argument was that the decision of the Special Bench does not cover all the items claimed in the present case. Main stress was laid on the two items mentioned at Sl. Nos. (ii) and (iii), i.e., overdue interest on export bills and bank charges including the cost of remittances. According to the representative of the assessee, this interest and bank charges were incurred by the assessee because the foreign buyers delayed the payment of the bills to the banks and since the assessee got immediately money from the bank on presentation of the bills, the extra amount expended was in fact for performance of services outside India, which was definitely incidental to the execution of the contract for supply of goods outside and, therefore, allowable under clause (viii) of section 35B(1)(b). According to him, the main intention of the Legislature was to encourage persons who secure foreign exchange and the service performe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which an extra amount is charged by the bank which had made advance payment to the assessee, such payment will not be for the performance of service outside India. The next item is exchange loss on export. Exchange loss takes place because of fluctuations in the exchange rate. If such fluctuation takes place, the assessee may gain or lose depending on the nature of the fluctuation. This cannot be equated with the expenditure for performance of service outside India. If any expenditure was actually incurred for performance of service outside India and the rupee value of that expenditure went up because of exchange fluctuation, then perhaps the assessee could have claimed that the assessee was entitled to a deduction in these circumstances. But that is not what has happened in this case. The next item relates to freight and insurance, Here there is a specific finding that the expenditure on freight and insurance was incurred in India. The goods were shipped and, before shipment, the goods had to be properly insured and the freight had to be paid. But sub-clause (viii) allows only the expenditure for performance of service outside India to be deducted. The last item relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, on appeal, upheld the order of the Appellate Assistant Commissioner. Here also, the difficulty of the assessee is that packing was done before the goods were shipped. It may be that the foreign buyers would like tea to be sold in attractive packages. But the expenditure that was incurred for packing cannot be regarded as an expenditure incurred on performance of service outside India. There is no dispute that the packing was done in India. Packing cost would be a part of the cost incurred by the assessee for making the goods marketable. The Madras High Court in the case of V. D. Swami and Co. Pvt. Ltd. v. CIT [1984] 146 ITR 425 (Mad) observed (at p. 428) : "To maintain that weighted deduction is available even where expenditure is incurred inside India would go against the teeth of this specific exclusionary provision. A look at the other sub-clauses of section 35B(1)(b), such for instance as sub-clauses (i), (iv), (vi), (vii), (viii) and (ix), also shows the insistence of Parliament that the weighted deduction cannot be exigible unless the expenditure under the different heads are incurred 'outside India', a phrase which occurs again and again in the various sub-clauses. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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