TMI Blog1986 (12) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... see failed to ship the goods in September, 1969. The shipments were actually made during January, February, March and May, 1970. On the claim of late shipment penalty by the foreign purchaser, a dispute arose between the parties which was referred to the arbitration of the Bengal Chamber of Commerce and Industry. An award was passed in the proceedings on May 31, 1971, under which a sum of Rs. 3,01,239 was awarded in favour of the foreign purchaser. The assessee was directed to pay the said amount to the foreign purchaser. With the approval of the Reserve Bank of India, the assessee paid the said amount of Rs. 3,01,239 to the foreign purchaser in foreign currency. In the assessment year 1972-73, the corresponding accounting year ending on December 31, 1971, the assessee was assessed to income-tax. In the assessment, the assessee claimed export markets development allowance under section 35B of the Income-tax Act, 1961. Weighted deduction of a portion of the said sum of Rs. 3,01,239 was claimed. The Income-tax Officer held that the assessee was not entitled to such weighted deduction on account of export markets development allowance under section 35B and disallowed the claim. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arose in India and that the dispute was settled in India through the arbitration of the Bengal Chamber of Commerce and Industry at Calcutta. The Tribunal held that the fact that the penalty for late shipment was paid in foreign currency with the approval of the Reserve Bank of India could not decide the place where the liability to pay arose. As, under the contract, the assessee was liable to pay late shipment penalty in case of failure to put the goods on board the vessel by September, 1969, the, liability arose directly in connection with the shipment of goods. The Tribunal held that the expenditure on account of late shipment penalty was incurred by the assessee in India in connection with the supply of goods and that such expenditure was also incidental to the carriage of such goods to their destination outside India. The Tribunal set aside the decision of the Appellate Assistant Commissioner and affirmed the order of the Income-tax Officer. On an application by the assessee under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question, as question of law arising out of its order, for the opinion of this court : " Whether, on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means something which comes out of the trader's pocket ...... What a prudent trader sets apart to meet a liability, not actually present but only contingent, cannot bear the character of expense till the liability becomes real ....... `Expenditure' is equal to 'expense' and 'expense' is money laid out by calculation and intention though in many uses of the word, this element may not be present, as when we speak of a joke at another's expense. But the idea of 'spending' in the sense of 'paying out or away' money is the primary meaning and it is with that meaning that we are concerned. 'Expenditure' is thus what is 'paid out or away' and is something which is gone irretrievably." (b) CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC). In this case, the Supreme Court considered and construed the meaning of the expression " for the purpose of the business ". The following observations were relied on (headnote) : " The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide; it may take in not only the day to day running of a business but also the rationalisation of its administration and mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T [1986] 157 ITR 683 (Delhi). Learned advocate for the Revenue contended to the contrary and sought to support the decision of the Tribunal. We may refer to the relevant provisions of section 35B of the Income-tax Act, 1961, as it stood at the relevant time as set out below: "35B. Export markets development allowance .-(1)(a)Where an assessee, being a domestic company or a 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 a sum equal to one and one-third times the amount of such expenditure incurred during the previous year : ...... (b) The expenditure referred to in clause (a) is that incurred wholly and exclusively on-... (iii) distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their ..... X X X X Extracts X X X X X X X X Extracts X X X X
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