Vildirect: IncomeTax-caselaws-1978-VIL-06-ITAT-

1978-VIL-06-ITAT-

Income Tax Appellate Tribunal BOMBAY (SB)

IT Appeal Nos. 3255 and 3330 (Bom.) of 1976-77

Date: 17.06.1978

J.H. & CO.

SECOND INCOME-TAX OFFICER AND VICE VERSA

BENCH

T. D. Sugla (Vice President), B. B. Palekar (Accountant Member) And P. G. K. Wariyar (Judicial Member)

JUDGMENT

P. G. K. Wariyar (Judicial Member)

The amplitude of the operation arena of section 35B of the Income-tax Act, 1961 (hereinafter referred to as "the Act")-the taxpayers having anything to do in the nature of export business, be it in scale being or small and in engagement full or part, wanting to stretch it to the utmost for bringing within its perimeter for weighted deduction any and every kind of expenditure incurred in connection with or in relation or as incidental to such business irrespective of whether the relationship of its expenditure to the export as such is direct or remote, and the revenue, on its part, with equal avidity putting the restrictive interpretation that within the benefit of the section can be brought only such expenditure incurred by an assessee as could not only be pegged strictly and clearly within four corners of the specific clauses distinctly cataloged in the section but also are incurred not within but out-side India invariably crops up as a matter of keen controversy in almost every appeal coming up before the Tribunal where the assessee is a businessman engaged, wholly or in the part, in exports. The views expressed on its different aspects by different Benches of the Tribunal sitting in various parts of the country, and even at the same station, have not always been uniform and on some points are patently divergent.

In such welter of indefiniteness and uncertainty, requests from various quarters were received for constituting a Special Bench to hear and decide a few appeals selected for the variety of the facets of the question centred on section 35B arising therein. It was thus that this Special Bench was constituted to hear the following appeals :

No. of the IT Appeal	Name of the party	Assessment year involved
1. 3255/1976-77 (A.A.)	H&Co.	1973-74
2. 3330/1976-77 (D.A.)
3. 3247/1976-77 (A.A.)	G&Co.	1973-74
4. 68/1977-78 (D.A.)
5. 2929/1976-77 (D.A.)	S. Mills	1974-75
6. 1351/1977-78 (D.A.)	K. Industries	1974-75

(A.A.)-Assessee's appeal.

(D.A.)-Department's appeal.

2.In the general debate on the legislative history, intent and scope of the provisions of the section and the interpretation to be put thereon, all the assessees through their learned counsels and learned representatives took part. The department was represented by their learned special counsel, Shri R.J. Joshi, G. Ltd. through their learned representative, Shri Salve and H. Mills Ltd. through their learned counsel, Shri B.A. Palkhiwalla also joined the debate as interveners. On the assessee's side, the arguments were as varied and spacious as were the purpose which each one of them wanted the various clauses of the section to serve in their individual cases. On the other hand, we saw on the side of the revenue an attempt to jealously restrict the ambit of the section to shut off and jettison from benefit everything by way of expenditure, even if the same could well be on any of the objects referred to therein if incurred within India.

3. On the side of some of the assessees it was argued that any attempt to dissect or interpret the provisions of section 35B regardless of what they called its liberal legislative intent would result in an utter collapse of the very social, nay, national purpose it is intended to serve. We were cautioned that our interpretation and judgment should only serve such clearly discernible object, and not annihilate it. It was submitted that the very heading of the section "Export Markets Development Allowance", should alert us that the benefits intended thereunder are in the nature of an encouragement and a bonus for promoting and for developing foreign trade. It was asserted that section 35B was brought into the statute book at a time when the country was in desperate need of foreign exchange or its urgent development activities within the country and that it was the realisation that only sale of Indian made goods outside the country could fetch what the country was thus in dire need of, that prompted the Legislature to enact such a provision. We were told that in the circumstances then prevalent, no export could be envisaged than without Government help. For, it was stated that prices in the international fields were even less that what were prevailing in the domestic markets. We were asked to bear in mind the historical background to enable a correct appreciation of legislative intent behind the sections. According to the assessee, the provisions of the sections are thus to be understood and interpreted in a manner affording not merely just a compensation and palliative for the loss and trouble concomitant to export business in the otherwise discouraging situation, but also as a bonus and an incentive to enter into the depressed foreign markets. That itself, it was argued, should not only justify but also compel a liberal interpretation of the provisions.

4. Having said so much by way of preface, it was contended on behalf of some of these assessees that therefore in the case of an assessee engaged solely and wholly in export business, everything of his business expenditure should be taken as entitled to beneficial treatment under the section, there being no scope for treating any part of it as not connected with or incidental to exports. In that context, it was even suggested that the various clauses in the section enumerative by way of guidance and the benefit of the section should, therefore, be made available to whatever is spent by the exporter, even price paid for procuring or the cost incurred for manufacturing the exported goods. In support of this, our attention was invited to sub-clause (ix) of section 35B(1)(b) by which the Legislature has left it to the rule making authority to include within the operative field of the benevolent section also "such other activities for the sale outside India of such goods, services or facilities as may be prescribed". It was submitted that this shows that not only the sub-clauses refer to "activities for" promotion of outside sales but also that they are by no means intended to be exhaustive of such activities. It was also submitted that in case, however, of an assessee engaged both in export as well as domestic business, it would only be fair to give the benefit of the section, not only to such of those items of expenditure incurred exclusively for or in connection with or as incidental to his business but also to whatever of his common expenses as can properly be apportioned on and for his exports. It was suggested that the apportionment could well be in the ratio which the export turnover bore to the total turnover. There was then bitter criticism of the departmental effort to peg within the beneficial penumbra of the section only expenditure of the nature specified as are incurred outside India. It was contended that there is nothing therein, except in the first part of sub-clause (iii) of clause (b) of sub-section (1) restricting the availability of the section to expenditure incurred outside India and that even that brings within the exclusion only such expenditure incurred in India as are wholly and exclusively on distribution, supply or provision outside India of goods, services or facilities which an assessee deals in or provides in the course of his business. Reliance in that connection was placed on the Bombay High Court's decision dated 30-10-1977 in IT Application No. 258 of 1976 in the case of Eldee Wire Ropes Ltd. Referring to sub-clause (ix) of clause (b) of sub-section (1) of section 35B, while conceding that the rule making authority, namely, the CBDT (Board) has not hitherto taken any action thereunder, it was contended on behalf of some of the assessees than the inaction of the Board, which according to them amounted to a total disregard of the mandate of the Legislature, should not stand in the way of the otherwise legitimate claims of the assessees in respect of whatever had been properly incurred by them by way of expenditure for the promotion of sale outside India, though not coming strictly within the other clause. The argument was that the in-action on the part of the Board should be taken as an unjustified dereliction and the same should not be allowed to prejudice or affect the right of the assessees to claim weighted deduction of whatever expenditure that can be taken as incurred on such activities, a relief which the Legislature intended to give them.

5. Shri R.J. Joshi, learned counsel for the department, prefaced his arguments submitting that section 35B, as its very wording would indicate, is a self-contained provision touching a particular subject and having its operation solely and exclusively in the sphere clearly demarcated by the section itself. According to the learned counsel, there is, therefore, no warrant whatever for making any effort to expand the operational area of the section by looking elsewhere, even to what the other side has characterised as the legislative history and intent of the section and the social or national purpose it is intended to serve. He agreed with the other side that the weighted deduction allowed by the section is indeed for expenditure incurred wholly and exclusively on what are taken as activities for promotion of sale outside India of goods, services or facilities which an assessee deals in or provides in the course of his business. He, however, hastened to add that it by no means meant that for that reason any kind of expenditure that could be in any way be connected to such an activity automatically came within the ambit of the section and attracted the benefits thereunder. Our attention was particularly invited to the wording of sub-section (1)(a) of the section to point out that the cover of the section stood clearly restricted to such expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) as are referred to in clause (b) of the sub-section. The question was posed how then one could say that what are referred to in clause (b) are only descriptive, and not exhaustive. It was argued that if the rule making authority in its wisdom is of the opinion that there are no other activities that are referred to in sub-clauses (i) to (viii) of section 35B(1)(b) to be brought within the beneficial sphere of the section, it must mean that the section is left to take care of only such kinds of expenditure as squarely fall within these sub-clauses. Referring to sub-clause (ix), it was submitted that there was nothing in its provision in the nature of a mandate to the Board compelling it to bring within the fold of the section other activities and, therefore, in a situation where the Board has considered it not necessary to add anything more to the operational sphere of the section, there is involved no dereliction of duty or disregard of responsibilities entrusted to it by the Parliament.

It was submitted that it would hence be impermissible to treat the inert sub-clause (ix) as an enabling provision for an assessee to make a claim even in respect of an expenditure that does not fall within any one of the sub-clauses preceding it. Placing reliance on the title of the section "Export Market Development Allowance" and on the fact that reference in the various sub-clauses is to the activities for the promotion of sale outside India, the learned counsel submitted that the weighted deduction contemplated by the section could generally be only in respect of expenditure incurred outside India. In that context he commended to us for our consideration the Departmental Circular issued on 6-7-1968 wherein it was elaborated that "the expenditure which qualifies for the weighted deduction is that incurred on activities outside India for the development of export market for Indian goods on a long-term basis" and that "the provision is not intended to cover expenditure incurred on activities inside India for its export business except where these are incidental to the activities outside India, such as preparation and submission of tenders referred to in item (v), furnishing samples or technical information referred to in item (vi) above".

According to Shri Joshi, this clarifies the real scope of the section. He, however, fairly conceded that the Bombay High Court in IT Application No. 257 of 1978 (supra), referred to by the other side, has expressed its contra opinion that only in sub-clause (iii) of section 35B(1)(b) is there an exclusion of expenditure incurred in India for the purpose of giving benefit of weighted deduction and that with regard to expenditure coming within any of the other sub-clauses there is no such qualifying restriction. The learned counsel submitted that the department has not accepted that interpretation and is agitating the matter further in the Supreme Court. Shri Joshi then argued that in any event in the said decision the Bombay High Court has not pronounced, as the assessee would have it, that even in sub-clause (iii), the insistence of the expenditure to be outside India is made only in relation to distribution, supply or provision outside India of goods, services or facilities.

According to Shri Joshi, there was in the said case no occasion for the High Court to go into details concerning that sub-clause or to make any dissection thereof for specific consideration. He submitted that on a plain reading of sub-clause (iii), expenditure incurred in India in connection with distribution, supply or provision outside India of goods, services or facilities and also expenditure (wherever incurred) on the carriage of such goods to their destination outside India and on the insurance of such goods while in transit stands out as clearly marked beyond the benefit of the section. It was vehemently contended that there is nothing in the High Court's decision, referred to ante, indicating a contrary interpretation. Shri Joshi also expressed surprise that making use of what is referred to in sub-clause (iii) some of the assessees have even gone to the extent of claiming weighted deduction of what they have paid for purchasing and procuring the goods for export, or incurred for the manufacture of such goods. It was asked how such expenditure representing the cost of the goods to the exporter could by any stretch of imagination be taken as expenditure incurred for distribution, supply or provision outside India of goods, services and facilities.

6. Before taking up the particular facts of this case, we shall first deal with the general contentions thus urged before us commonly for all the appeals on the scope and ambit of section 35B, and the interpretation to be placed on its various provisions. This part of our order will be taken as given commonly for all the appeals heard along with this appeal and will accordingly form part of the orders in the other appeals as an annexure.

7. As there was some serious debate at the Bar regarding the norms and principles which we should adopt in interpreting the provisions of a section like section 35B, we may first deal with that aspect. We should think that the law is well settled that in a taking statute one has to look merely at what is clearly stated. The classic statement of Rowlatt, J. in Cape Brandy Syndicate v. Inland Revenue Commissioner [1921] 1 KB 64, still holds the field. It reads :

"In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

It is hence that the Supreme Court in Anandji Haridas & Co. (P) Ltd. v. Engineering Mazdoor Sangh [1975] 99 ITR 592has said that as a general principle of interpretation where the words of a statute are plain, precise and unambiguous, the intention of the statute itself, and no external evidence such as parliamentary debates, reports of the committees of the Legislature or even the statement made by the minister on the introduction of the measure is admissible to construe the words. It is only where a statute is not exhaustive, or where its language is ambiguous, uncertain, clouded, or susceptible of more than one meaning that such external sources are to be sought for aid and one may look into what was the law before the particular Act was passed, what was the error, mischief or defect which the statute was intended to remedy and what were the circumstances which led to its passing. No doubt, as pointed out by the Supreme Court in CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518and CIT v. Vegetable Products Ltd. [1971] 80 ITR 14, if two views on a particular provision in a taxing statute are possible, the one which is favourably to the assessee and beneficial to the subject must be accepted and adopted. But even so, as is made clear by that Hon'ble Court itself in CIT v. Shahzada Nand & Sons [1971] 80 ITR 392, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. Thus, the underlying principle is that the meaning and intention of a statute must be collected from the plain and unambiguous expression used therein, rather than from any notions which may be entertained by the court as to what is just or expedient. In other words, the expressed intention must guide the court. With these in mind we now proceed to study in some details the provisions of the section.

8. The section, as it stood for the assessment year with which we are here involved, reads as under :

"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 previous year :

Provided that in respect of the expenditure incurred after the 28th day of February, 1973, by a domestic 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' has been substituted.

(b) The expenditure referred to in clause (a) is that incurred wholly and exclusively on-

(i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business;

(ii) obtaining information regarding markets outside India for such goods, services or facilities;

(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 destination outside India or on the insurance of such goods in transit;

(iv) maintenance outside India of a branch office or agency for the promotion of the sale outside India of such goods, services or facilities;

(v) preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities, and activities incidental thereto;

(vi) furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services or facilities;

(vii) travailing outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outward from and return to, India;

(viii) 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;

(ix) such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed.

Explanation 1 : For this section, "domestic company" shall have the meaning assigned to it in clause (2) of section 80B.

Explanation 2 : For the purpose 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.

(2) Where a deduction under this section is claimed and allowed for any expenditure referred to in sub-section (1) deduction shall not be allowed in respect of such expenditure under any other provisions of this Act for the same or any other assessment year."

It was by the Finance Act, 1968, that with effect from 1-4-1968 this section was inserted. The section then was without either the proviso to sub-section (1)(a) or Explanation 2 to that sub-section. The same were inserted by the Finance Act, 1973, the former with effect from 1-4-1973 and the latter with retrospective effect from 1-4-1968. Sub-clause (iii) of clause (b) of the sub-section in its regional form was "distribution, supply or provision outside India of such goods, services or facilities". It was by the Finance Act, 1970, that with retrospective effect from 1-4-1968 the sub-clause was amended into the present form with the words "not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods wheel in transit" added to what stood originally.

9. Taking the language of the section as the starting point, it appears to us clear that it provides weighted deduction only for certain class of revenue expenditure incurred for development of export markets after 29-2-1968 in the place of the normal deduction of such expenditure otherwise allowable and that the benefit of the extra allowance is also restricted to domestic companies and persons (other than a company) who are residents in India. This allowance is available in respect of such specified expenditure incurred by the taxpayer directly or in association with any other person. Therefore, if an assessee enters into any joint export promotion arrangements with others, he should be entitled to a weighted deduction in respect of his share of the pooled expenses that can be brought within the section. There is also nothing in the section to suggest that its benefit would be available only to the assessees who have in fact exported goods during the relevant year or have earned profits out of exports. The admissibility of the allowance under the section, as appears to us, is irrespective of the question whether the assessee has exported any goods during the relevant year or whether he has earned any profit out of exports.

10. The section speaks itself in precise terms that the benefit of the weighted deduction referred to in clause (a) of its sub-section (1) is confined squarely to only such expenditure (not being in the nature of the capital expenditure or personal expenses of the assessee) as are referred to in clause (b) of that sub-section.In the face of this unambiguous condition specified, the contention urged on the side of the assessee that what are given in clause (b) need only be taken as descriptive by way of guidance is clearly up sustainable. The positive prescription contained in clause (a), in our opinion, should on the other hand emphatically shut out from the beneficent penumbra of the section any expenditure, whatever its purpose and effect, which does not squarely fall in any of sub-clauses of clause (b). It is not for us, in administering the law, to rewrite the section or to introduce into it any new kind of expenditure, however analogous it be to the kinds of expenditure specifically referred to in its clause (b). For the same reason, we are convinced that it is also not open to us to breath life into sub-clause (ix) of section 35B(1)(b) which has hitherto not been activated by the rule making authority, and bring within the ambit of the section, under its cover, other activities not covered by the other sub-clauses. No doubt the Legislature has delegated its authority to the Central Board of Direct Taxes to prescribe "other activities for the promotion of sale outside India of such goods, services of facilities" as additions to those enumerated in sub-clauses (i) to (viii). But that in no way is to be understood as indicating that the law-makers gave a direction to the Board to mandatorily prescribe for the sphere of the section all and every other kind of activities for the promotion of sale outside India as are not covered by sub-clauses (i) to (viii). If that were the intention, there was no need at all for sub-section (1) of the section to be specifically restrictive to expenditure referred to in clause (b) and again for the cataloging of such expenditure as done in the various sub-clauses of that clause. It is purposeless to contend that in not activating sub-clause (ix) of section 35B(1)(b), the Board has committed dereliction of a duty imposed on it by the Legislature. Where the rule making authority has not prescribed, as in this case, any further activities on the authority of sub-clause (ix), it is only to be taken that in its wisdom it has thought it fit and necessary that the ambit of the beneficial provisions of the section in the form of weighted deduction be extended no further. In any event, by asking us to activate that sub-clause in the manner pressed before us, the assessee are requiring us in effect to legislate, rewrite and expand the section, a function which is far beyond us.

11. Having seen that clause (b) of section 35B(1) affords the dictionary and the catalogue to be specifically referred to for finding out which kinds of expenditure are to be taken for allowance of weighted deduction, it is imperative that the said clause be taken as the pulsating part of the whole section, defining the exact sphere in which alone the section is to beneficially operate. It follows that unless an expenditure falls within, or is of any one of the items enumerated in items (i) to (viii) of clause (b), there can be no question of allowing weighted deduction in respect of the same.

12. Before taking up the various sub-clauses of clause the words "(b), we may at this stage also refer to some of the salient features that strike us as common to all of them. Taking guidance from the expression "such other activities" used in sub-clause (ix) it may well be noted that expenditure referred to in other sub-clauses too are on "activities" specified therein. The opening words of the clause also make clear that what is intended thereunder is expenditure incurred wholly and exclusively on the activities specified in the various sub-clauses. What the expression "wholly and exclusively" means and how it is to be understood is a matter which we shall take up later on. One may not also escape noticing further that all such activities are to be in respect of the goods, services or facilities which the assessee deals in or provides in the course of the business. In other words, if the expenditure is incurred on an activity which is not in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business but on something else exported, the benefit of the section will not be available in respect thereof. All this, in our opinion, follow from the very wording thereof.

13. Another point on which too we are actually clear is that except in sub-clause (iii), there is not in any of the other sub-clauses anything suggestive of exclusion of expenditure incurred in India. That being so we have no doubt in our mind that the departmental interpretation that "the provisions in section 35B are not intended to cover expenditure incurred on activities inside India for its export baseness except where they are incidental to the activities outside India, such as preparation, submission of tenders referred to in item (v), furnishing sample or technical information referred to in item (vi)" is not sustainable. In fact the Bombay High Court in its order in Eldee Wire Ropes Ltd. (supra) had rejected such a stand taken by the department, observing thus:

"It would appear that where the Legislature desired to exclude the expenditure incurred in India for the purposes of giving benefit of weighted deduction to the assessee, it expressly did so by specifically mentioning such exclusion, in the sub-section for example, in sub-section (iii)(sic). It must follow that where this was not done, the expenditure can be incurred by the assessee either outside India or in India, but it must pertain to the purposes mentioned in the various sub-sections, which purposes are indicated as pertaining to various activities outside India."

It must follow that no assessee would be entitled to weighted deduction of expenses referred to in sub-clauses (i), (ii) and (iv) to (vii) of section 35B(1)(b) irrespective of the question whether they are incurred outside or inside India.

14. Sub-clause (i) deals with advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business. The only test to be applied here is the place of the advertisement and publicity and not the place where the expenditure in respect thereof is incurred. For example, if for an advertisement or publicity outside the country, materials are printed in India or a foreign agency is engaged and payments for the same are made in India, there is no reason why such expenditure should be considered as not falling within this sub-clause or be not entitled to weighted deduction.

Under sub-clause (ii) expenditure incurred wholly and exclusively on obtaining information regarding markets outside India for such goods, services or facilities is also admissible for weighted deduction. Here too there is nothing in the sub-clause or in the other parts of the section indicating that the benefit would be available to such expenditure only if incurred outside India. Also it is not even necessary that the information should be gathered from abroad. Even if the source of the information is within the country and the payment therefor is made in India there is nothing in the wording of the sub-clause by which such expenditure is taken out of the section.

Sub-section (iv) takes in expenditure incurred wholly and exclusively on the maintenance out side India of a branch, office or agency for the promotion of sale outside India. Here too, it is not the place at which the expenditure is met, but the particular purpose served by it that is the determinative test. Under sub-clause (v) expenditure incurred wholly and exclusively on preparation and submission of tenders for the supply or provisions outside India and activities incidental thereto is entitled to weighted deduction. In this too there is no exclusion of such expenditure incurred in India. It is also to be noted that under this sub-clause even expenditure on incidental activities is brought within its ambit. What are to be taken as incidental activities is to be judged in each case on its own particular facts. Even so, it is to be made clear that any such incidental activity too should stand the test of all the conditions which the Principal activities themselves are mandated to satisfy.

Sub-clause (vi) similarly takes care of expenditure, irrespective of the place where it is incurred or furnishing to a person outside India, incurred on samples or technical information for the promotion of sale. Under sub-clause (vii) expenditure incurred wholly and exclusively on travelling outside India for the promotion of the sale outside India, including travelling outward from and return to India, qualifies for weighted deduction. As in the other cases refereed to ante, here too there is nothing barring a claim in respect of such expenditure incurred in India.

Sub-clause (viii) brings within the ambit of the section expenditure wholly and exclusively incurred on "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". In this too, as in sub-clause (v) incidental activities are brought in. Here again it is clear that such incidental activities must have a nexus with the execution of the contract. And also such expenditure wherever incurred, would be qualified. The only restriction is what is imposed by Explanation 2 to section 35B(1) which lays down that the expenditure referred to therein should not be regarded for the purpose of this sub-clause as expenditure incurred by the assessee on the supply outside India of services or facilities.

15. Coming now to sub-clause (iii), which, on account of the considerable difference of opinion that has emerged in the debate, we have reserved to be taken up last. It may at once be noticed that the sub-clause originally read as follows :

"Distribution, supply or provision outside India of such goods, services and facilities."

It was by the Finance Act, 1973, that the sub-clause was amended with retrospective effect from 1-4-1968, by adding to it the following words, namely, "not being expenditure incurred in India in connection therewith or expenditure (wherever insured) on the carriage of such goods to their destination outside India or on the insurance of such goods while in-transit". The controversy raised centres round the interpretation to be put on the newly added words.

On the assessee's side the contention urged in short is that the exclusion effected by the words "not being" in the above impinges only on "expenditure incurred in India in connection with distribution, supply or provision outside India of such goods, services and facilities" and not on the other kinds of expenditure that too are brought in by the amendment, viz., expenditure (wherever incurred) on the carriage of such goods to their destination outside India and expenditure on the insurance of such goods while in transit. The contention, in other words, is that the sub-clause after the amendment brings within the benefit of weighted deduction, expenditure on three heads:

i. distribution, supply or provision outside India of goods, services or facilities which the assessee deals in or provides in the course of his business;

ii. carriage of such goods to their destination outside India; and

iii. insurance of such goods while in transit and that only in the case of expenditure coming within (i) above is there the exclusion of expenditure incurred in India in connection therewith.

It is argued that if the words added by the Finance Act, 1973, were intended to be a composite clause by way of a proviso to detract from the generality of the sub-clause as it till then existed, it would mean that it was implicit in the original clause that it included also expenditure incurred on the carriage of such goods to their destination outside India and on insurance of such goods while in transit. According to the assessee, by no stretch of imagination, could expenditure on (ii) and (iii) above be taken as includible in or incurred on distribution, supply or provision of goods. It was submitted that, therefore, the words "not being" introduced in the sub-clause by the Finance Act, 1973, are not referable to (ii) and (iii) for spelling out their exclusion. In that context some reliance was placed on Explanation 2 to sub-section (1), being inserted by the Finance Act, 1973. It was argued that if by the amendment of sub-clause (iii) expenditure incurred on the carriage of goods to their destination outside India was intended to be kept out of the benefit of the section this Explanation was unnecessary, as even without it what was enjoined thereby to be not regarded as expenditure incurred by an assessee on the supply outside India of services or facilities, would have stood out by reason of the amendment brought about in sub-clause (iii) itself. This, according to the assessee, clearly brings out the fallacy of the departmental stand that what is added to the sub-clause by the Finance Act, 1973, is a composite clause in the nature of a proviso. Last but not least is the contention finally urged that in any event, so far as we are concerned, the matter should be taken as concluded by reason of the Bombay High Court decision in the case of Eldee Wire Ropes Ltd. (supra).

16.In the face of these contentions, the first that we ought to examine is, whether in the decision of the Hon'ble Bombay High Count which is very much riled on by the assessee, there is such a finding and pronouncement with regard to sub-clause (iii) as setlling, at least so far as we sitting in Bombay are concerned, the controversy on this particular aspect. On a careful study of everything that is said therein, we are of the opinion that it by no means lays down such an interpretation of the sub-clause as asserted by the assessees. For a correct understanding of what is said there, it is necessary to have in mind the facts of the particular case dealt with there in and the precise point in controversy with reference to which the same was pronounced. In that case the assessee claimed to have incurred a total expenditure of Rs. 1,31,560 (including sums of Rs. 1,437 on export duty, Rs. 951 as certificate charges and Rs. 7,502 on cartage and coolies) in connection with its export business. There was no dispute about the fact that every item constitute business expenditure otherwise allowable under the general provision of section 37. The assessee, however, claimed under section 35B weighted allowance of an additional one-third. The revenue authorities rejected the claim taking the stand that the extra allowance under the section was allowable only to expenditure incurred outside India and since everything in the case was incurred inside India, no weighted allowance for the same was permissible. The matter came up before this Tribunal at the instance of the assessee in IT Appeal No. 1921 (Bom.) of 1974-75 and it was argued then that the various items of expenditure, together totalling Rs. 1,31,560, came squarely under one or the other of the sub-clauses of section 35B(1)(b). It was under sub-clause (iii) that the claim for the amounts of export duty, certificate charges and cartage and coolies charges was brought in. The Tribunal upheld the contention of the assessee that there was nothing in sub-clauses (i), (ii) and (iv) to (vii) which disentitled the assessee to relief by way of weighted deduction in respect of expenditure falling within them, but incurred in India. With regard to expenditure on cartage and coolies, the Tribunal held that the same fell within sub-clause (iii) which was taken as authorizing weighted deduction in respect of expenditure, wherever incurred, on the carriage of goods to their destination outside India. It was also the view of the Bench that what were incurred on export duty and by way of certificate charges also stood covered by that sub-clause. Accordingly in that case the assessee's claim was wholly upheld and the additional weighted allowance of one-third, coming to Rs. 43,852, was directed to be given. An application thereon filed by the revenue under section 256(1) was also rejected by the Tribunal. The revenue then filed an application to the High Court under section 256(2), raising two questions. In that matter that Court while admitting the application issued a rule on one question only, viz., "Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to claim weighted deduction of Rs. 43,852 under section 35B of the Income-tax Act, 1961"

It was when on service of the rule the assessee put in its appearance that the Hon'ble High Courts, while considering whether the rule should be made absolute for further enquiry on the question, passed the order on which the assessees are now placing so much reliance.

17. The first thing patently pointed out in that order is that the only point of law that was canvassed before the Tribunal in that case was that the claim of the assessee was not admissible under section 35B since the expenses were incurred in India. It is, therefore, clear that what alone their Lordships considered and said in that order related only to the specific point of law that gave rise to the question, on which the rule was issued as a referable question of law. What their Lordships said on that may now be fully reproduced:

"Mr. Joshi drew our attention to the original order of the Income-tax Officer where the expenses in respect of which weighted deduction is claimed have been fully indicated. It would appear that so far as the claim of export duty is concerned, there may be some substance in the contention of the revenue. If, at all, such claim could be made only under the first part of sub-section (iii) of section 35B and expenses incurred in India are excluded (sic). It is found, however that the amount of export duty in respect of which weighted deduction is claimed by the assessee (and allowed) comes to only Rs. 1,437.

As far as other heads of expenditure are concerned, it is urged that under items other than (iii) there is no warrant for excluding expenditure incurred in India. It would appear that where the Legislature desired to exclude the expenditure incurred in India for the purposes of giving benefit of weighted deduction to the assessee, it expressly did so by specifically mentioning such exclusion in the sub-section, for example in sub-section (iii). It must follow that where this was not done, the expenditure can be incurred by the assessee either outside India or in India, but it must pertain to the purposes mentioned in the various sub-sections, which purposes are indicated as pertaining to various activities outside India. If then assessee under this sub-section claims the benefit of weighted deduction, he will have to satisfy the revenue authorities that the purpose is one which is satisfied by reference to the language of the section, and in such a case where the assessee is able to discharge this burden, he would be entitled to a weighted deduction irrespective of whether the expenditure is incurred within or without India. It is true that in respect of export duty it may follow that benefit has been allowed to the assessee without proper application of mind. But as a very small amount is involved it appears to us to be necessary to make the rule absolute and invite a reference."

It may be seen from the above that in this, far from there being any express finding that the assessee was entitled to the full weighted deduction allowed to it by the Tribunal, there is only a decision that the facts and the circumstances of the case were not such as warranting a reference of the question. In fact, so far as the Tribunal's view concerning the expenditure on export duty at least, doubt was expressed by the Court. True it is that in the above, their Lordships referred to the first part of sub-clause (iii) as expressly excluding expenses incurred in India. But that, in our opinion, does not warrant any interference, by implication or otherwise, that in the view of their Lordships the other part of the sub-clause did not contain any such exclusion. It is to be noted that in that part, there is the qualifying expression "wherever incurred" attached to "expenditure" taken in thereunder in contrast to the expression "incurred in India" attached to "expenditure" referred to in the first part.In the face of the universality of the attached qualification in the latter part, there was need to refer only to the first part by way of contrast. Even otherwise, the sentences in the order of their Lordships reproduced above, clearly indicate that there never was any attempt to dissect sub-clause (iii) in the manner spoken to by the assessee, much less to indicate that there is only in the first part a restrictive exclusion on the basis of the place at which the expenditure is incurred, and none of that nature in the latter part.

"A case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it", so said Lord Halsbury in Quinn v. Leathan [1901] AC 495 at p. 506 and his words are classic authority for this particular distinguishing rule. We, therefore, find it difficult to accept the assessee's contention that there is in the High Court's order a compelling decision that the second part of sub-clause (iii) is an addition to the allowable heads of expenditure, wherever incurred and not in the nature of a proviso and an exclusion. There is no doubt the fact that particular case the Tribunal had allowed weighted deduction for cartage and coolies, taking that sub-clause (iii) authorised allowance (sic) of such expenditure the carriage of goods to their destination, wherever incurred. But there is a fact to be particularly noted that the Hon'ble High Court has not said anything whatever about the correctness of the part of the Tribunal's decision. In fact the discussion in the order would rather indicate that all the items of expenditure there, other than on export duty, were considered together as coming within the other sub-clauses of section 35B(1)(b). There being thus nothing in the order of the Hon'ble High Court as precedent or by way of guidance on this particular aspect, we find no scope from the compulsion to make a detailed study of the sub-clause to find out how it is to be correctly interpreted and properly applied.

18. As already mentioned, it was by section 8 of the Fiance Act, 1970, that with retrospective effect from 1-4-1968, the controversial clause, "not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit" was added to sub-clause (iii) which till then read: "distribution supply or provision outside India of such goods". The words "not being" with which the newly added clause or clauses open, in our opinion, are themselves indicative that whatever is mentioned in the new introduction was only for detracting from, and limiting to that extent, the operation of the preceding part of the sub-clause as stood originally. The assessee's contention becomes acceptable only if we can imagine that by the amendment of the sub-clause the Legislature sought to achieve in one stroke the twin objects of (i) excluding from the ambit of that sub-clause expenditure incurred in India in connection with distribution, supply or provision outside India of goods, services and facilities to thus limit it exclusively to such expenditure incurred outside the country, and (ii) incorporating within the beneficent sphere of the sub-clause two entirely new heads of expenditure (wherever incurred) on the carriage of goods to their destination outside India and expenditure on the insurance of goods while in transit.

The two objects thus specified by the assessee are so divergent and diametrically opposite in their effect that it is impossible to believe that they would have been clubbed together in the manner seen and done and that too by means of an addition made with the opening words "not only", leaving the impression that what followed was in the nature of a proviso and an exception. The question could well be asked why if expenditure (wherever incurred) on the carriage of goods to their destination outside India and on the insurance of such goods while in transit was intended to be added to the allowable class of expenditure, they were not brought in under a separate additional sub-clause or why they were not brought in with the aid of sub-clause (ix). As the assessees have hazarded a speculation on the intention of the Legislature in bringing about this amendment, we may well took into the Notes on clauses in the Finance Bill, 1970, to this particular amendment. This is what is stated there:

"Clause 8 seeks to amend section 25B of the Income-tax Act (relating to the grant of Export Markets Development Allowances) retrospectively from the 1st April, 1968, i.e., the date from which that section was introduced in the Income-tax Act. The amendment makes it clear that expenditure on the distribution, supply or provision outside India of the goods, services or facilities dealt in or provided by the taxpayer in the course of his business (which is one of the heads of expenditure specified in that section as qualifying for the grant of Export Markets Development Allowance) will not include any expenditure incurred in India in connection therewith or expenditure on the carriage of the goods to their destination outside India or on the insurance of the goods while in transit."

Clearly the assessee can derive little comfort from this. On the other hand, the intention made clear thereby is that the words "not only" are used to work out an exclusion of all the three kinds of expenditure referred to in the words following.

19. If section 35B(1)(b)(iii) is split up and reconstructed in the manner suggested by the assessee, this is what will be springing out of such dissection for us to read:

(i) the expenditure referred to in clause (a) is that incurred wholly and exclusively on distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith;

(ii) the expenditure referred to in clause (a) is that incurred wholly and exclusively on expenditure (wherever incurred) on the carriage of such goods to their destination outside India;

(iii) the expenditure referred to in clause (a) is that incurred wholly and exclusively "on the insurance of such goods while in transit."

The redundant presence of the word "expenditure" in (ii) above to make it "expenditure wholly on expenditure" and of the word "on" in (iii) above making it read "incurred wholly on" the insurance also clearly brings out the fallacy involved in the interpretation suggested on the side of the assessee. Also to bring in expenditure (wherever incurred) on the carriage of goods to their destination outside India and the cost of insurance of such goods in transit as allowable heads of expenditure, there was no need at all for any such amendment as brought about by the Finance Act, 1970. For, it will be difficult to argue that transport charges for the carriage of goods to their destination outside India and the cost of insurance of such goods in transit will not enter into expenditure incurred on the distribution and supply of the goods, allowed by sub-clause (iii) even in its original form. If the argument is that when by the amendment expenditure incurred in India in connection with distribution, supply or provision out-side India of goods, services or facilities was specifically carved out for exclusion from the generality of the expenses referred to in the sub-clause, it became necessary to refer particularly to expenditure (wherever incurred) on the carriage of such goods to their destination outside India and to the expenditure on the insurance of such goods while in transit, to save those two heads of expenditure from that exclusion, the clear answer is that to make out such an exception the various heads of expenditure would not then have been clubbed together in the manner seen and done and that too with the common opening words "not only" to govern them all. Apparently the phrase "wherever incurred" applies to expenditure incurred both on the carriage of goods outside India as also on the insurance of the goods while in transit. This contrasting phrase placed in adjacent proximity to the excluding expression "incurred in India" used with reference to expenditure in connection with distribution supply or provision outside India of goods, services or facilities can only be understood as intending thereby even a wider net of exclusion for the latter two heads then laid for the former.

20. We are also not able to find any substance in the other argument advanced on the side of the assessees that Explanation 2 to sub-section (1) of the section brings out an intention on the part of the Legislature to bring within the field of the section the two heads of expenditure, viz., on the carriage of goods and on their insurance, wherever incurred. The first thing to be noted is that this Explanation was inserted, though with retrospective effect from 1-4-1968 only by the Finance Act, 1973, and not in 1970 along with the amendment of sub-clause (iii). There is also no difficulty in seeing the exact purpose served by the Explanation. But for it, an assessee engaged in the business of operation of any ship or other vessel, aircraft or vehicle, or carriage of, or making arrangements of or persons, livestock, mail or goods could have claimed that such services rendered by him being necessarily out of India, the expenditure incurred on or in relation to them, all came within the first part of sub-clause (iii). Evidently the Legislature wanted to avoid that.

The Explanation has nothing to do at all with the kinds of expenditure referred to in the latter part of the sub-clause and, therefore, one fails to see how it can lend any help in the interpretation of that part. In the face of the foregoing we have no doubt in our mind that the benefit of sub-clause (iii) cannot be made available at all to (i) expenditure anchored in India in connection with the distribution, supply or provision outside India of goods, services or facilities which the assessee deals in or provides in the course of his business, (ii) expenditure (wherever incurred) on the carriage of such goods to their destination outside India, and (iii) expenditure (wherever incurred) on the insurance of such goods while in transit.

21. As already seen, under the section it is expenditure wholly and exclusively incurred on the various heads catalogued in clause (b) of its sub-section (1) which alone merits weighted allowance. Any strict adherence to the letter of this condition, without any regard to the spirit of the section, is, however, likely to create untoward and unintended results. Even in the case of an assessee engaged exclusively in expert of goods, it may be difficult to take any item of his expenditure as wholly and exclusively incurred on any of the items enumerated in section 35B(1)(b). In the case of such an assessee, however, the persons employed by him may have attended to activities coming under one or other of those items and may have as part of the very export business also attended to other activies not coming strictly within any one of them. For example, as part of their duty they would have had to attend to also matters in India connected with the distribution, supply or provision outside India of the goods. The salary paid to those employees are also for this part of their work which falls outside sub-clause (iii). The disallowance for that reason the entire salary paid to the employees as not expenditure "wholly and exclusively" incurred on one or more of the prescribed activities would, in our opinion, amount to a wanton sacrifice of the spirit of the section at the alter of an unduly hypertechnical adherence to the letter of the law.In such a case a fair apportionment of the expenses on the heads that come under the various sub-clauses is clearly warranted, as otherwise in no case may it be possible for a taxpayer to claim the benefit of the section.

The section is designed to be workable, and the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that unattainable. If this be the safe rule, and we have no doubt that it is, then whatever is properly apportionably thus may well be taken as incurred wholly and exclusively on the allowable object. For similar reasons in the case of taxpayer engaged in both export and domestic business, as a first step there is to be worked out an apportionment of the common expenses on the two separate spheres. For this purpose, the ratio that the export turnover bears to the total turnover may be taken as a fair basis, in the absence of any better standard and if there is in the adoption of such a formula nothing patently inequitable on the particular facts of the case (sic). We have of course to make it clear that in these matters no hard and fast rule is possible to be laid down and a just solution will have to be found on the particular facts of the case. After the first step so taken, then again comes the need to further apportion the expenditure so attributed to the export business, on the specific heads which are allowable under the section.

22. To sum up, we consider the general but indelible features implicit in the provisions of section 35B:

(i) The benefit of the section is available only to an assessee who is either a domestic company or a person (other than a company) who is resident in India.

(ii) The benefit available is only in respect of expenditure incurred after 29-2-1968.

(iii) Such expenditure must have been incurred wholly and exclusively on activities referred to in sub-clauses (i) to (viii) of clause (b) of sub-section (1) of the section.

(iv) Sub-clause (ix) so long as it reminds not activated by the rule making authority must be considered as inert and lifeless.

(v) The activities referred to above must be in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business.

(vi) Except for the purpose of sub-clause (iii), the place where the expenditure is incurred is irrelevant. In other words, any expenditure satisfying the conditions laid down in sub-clauses (i) to (viii) will get the benefit of weighted allowance irrespective of whether the same is incurred in or outside India.

(vii) Under sub-clause (iii), thought expenditure incurred wholly and exclusively on distribution, supply or provision outside India of such goods, services or facilities would generally qualify for weighted deduction, the rule is, however, subject to the notable exceptions that expenditure incurred in India in connection with such distribution supply or provision as also expenditure, wherever incurred on the carriage of such goods to their destination outside India and on the insurance of such goods while in transit, will not all the same get such benefit.

And as a prudent measure to make the section meaningful and its legislative intent workable, we would add that whatever of the common expenses incurred by an assessee that could properly and fairly be apportioned on any of the activities referred to above may also to be taken for the purposes of the section as wholly and exclusively on such activity. As already mentioned, no hard and fast rule is possible to be outlined as to how such apportionment should be effected. Nor is it possible to postulate in a general discussion what all kinds of expenditure can properly be brought under the various sub-clauses of section 35B(1)(b). Whether a particular claim raised by an assessee falls under any one or more of the activities specified in those sub-clauses can at best be judged only with reference to the facts of the particular case and the nature of the claim.

23. Before concluding this part of the order rendered commonly for all the appeals heard together, we may also refer to the arguments advanced on the side of some of the assessees that in the case of a manufacturer producing goods for export, as the case of a trader procuring goods for the same purpose, everything spent by the former on the production of the exported goods and by the latter on the purchase and procurement of such goods should be taken as expenditure entitled to benefits under sub-clause (iii). The trend of the argument is that without the production or the procurement of such goods, their distribution or supply is impossible and, hence, the expenditure incurred on the former will form part of the expenditure incurred on the latter. The contention is clearly untenable. The section, as a mere reading of it clearly indicates, covers expenditure incurred on specified activities in respect of goods, services or facilities which the assessee deals in or provides in the course of this business. Clearly, therefore, the activities referred to therein are those undertaken at a stage after the goods are brought into existence whether by manufacturer or by purchase and procurement, as commodities for export. Activities of distribution and supply of goods are to commence only after the goods themselves are made ready. In other words, section 35B, to our mind, provides for weighted deduction in respect of expenditure on some specified activities in relation to or in connection with the export of goods, services or facilities which are peculiar and in addition to the normal expenditure incurred by a dealer, if he is not exporting them. That being so it would be futile to contend that production and procurement of goods would also form an integral part of their distribution and supply. We therefore, find if impossible to accede to the assessee's contention that expenses incurred by way of cost of the goods exported should also be taken as attracting the benefit of sub-clause (iii).

24. Now, coming to the facts of this case, the assessee is a registered firm engaged in the business of export of onion and spices. The assessment year involved is 1973-74 for which the accounting period is the calendar year 1972. Before the ITO the assessee claimed weighted deduction in respect of the following items of expenditure:

1.	Purchases & Sales	Rs.
2.	Freight	Rs.
3.	Insurance	Rs.
4.	Bardana	Rs.
5.	Mukadami	Rs.
6.	Customs Pass	Rs.
7.	Customs duties	Rs.
8.	Licence Fees	Rs.
9.	Agmark Fees	Rs.
10.	Bank Charges	Rs.
		Rs.

The ITO taking the view that section 35B permitted weighted allowance only for expenditure anchored outside India and finding that all the expenses listed above were incurred in India, rejected the claim. The assessee took up the matter in appeal. Before the Appellate Authority the assessee gave up his claim for some of the above items, but also urged that there were some other items of expenditure too on which it was entitled to the benefits of weighted deduction. The AAC permitted the new claims to be urged. The following is the complete list of the expenses which the AAC, accordingly, took up for consideration:-

1.	Salary of person exclusively handling export business	Rs.
2.	Expenses on buyers who come from foreign countries	Rs.
3.	Stationery	Rs.
4.	Stage and Telegrams	Rs.
5.	Rent	Rs.
6.	Subscriptions to various associations and journal	Rs.
7.	Carriage handling and forwarding charges	Rs.
8.	Bank Commission	Rs.
9.	Mukadami	Rs.
10.	Agmark	Rs.
11.	Licence Fee	Rs.
12.	Bardana	Rs.
13.	Packing materials	Rs.
14.	Commission on foreign business	Rs.
15.	Insurance (Export Credit Guarantee Corporation)	Rs.
16.	Certificate Charges	Rs.
17.	Customs Pass	Rs.
18.	Customs Duty	Rs.
19.	Travelling including in connection with export sales	Rs.
20.	Brokerage	Rs.
	Total	Rs.

Of these the AAC allowed in toto the assessee's claim in respect of items 2, 6, 14 to 16 above and also allowed 75 per cent of item 1 and half of items 3 and 5. All the rest he too found to be not falling under any of the sub-clauses of section 35B(1)(b). The assessee in the appeal reiterates its claim in respect of the disallowed items and also urges for the total allowances of the expenditure under the three heads which the AAC allowed only in part. The department in its cross-appeal challenges the correctness of even what the AAC has allowed in the above.

25. As rightly noticed by the AAC thought a major part of the work done by the assessee's employees may be classified as activities coming under one or the other of the sub-clauses of section 35B(1)(b), it cannot also be overlooked that as part of their duty they could not have avoided attending also to such work as fall within the excluded category in sub-clause (iii). That being so, on the principles outlined by us, a part of the salary paid to them in India should be apportioned and attributed as expenditure incurred on such excluded activities. On the facts and circumstances of the case,we also feel that the apportionment adopted by the AAC is quite fair and is in accord with what we have opined as the correct principles to be followed in such cases. The AAC's decision is hence confimred. For the same reason we confirm also the AAC's finding that only 50 per cent of the expenditure incurred on stationery is allowable.

With the view of the AAC that for similar reasons a half of the rent paid by the assessee for its business premises is allowable, also, we are in agreement. It is from there that the assessee is doing every work connected with its export business. Evidently, in the absence of any branch office or agency outside India, all the activities of the assessee that would fall within sub-clauses (i), (ii), (v) and (vi) must necessarily start from this place. It is with these in mind that the AAC considered that a part of the expenditure incurred by way of rent for the premises should be apportioned as on such allowable activities. This again is quite in accord with the principles which we have laid down as proper. Here too we find no material to hold that the ratio adopted by the AAC is not fair. This decision of the AAC also we hence upheld.

26. In our view, the expenditure incurred by the assessee on receiving and treating its foreign buyers could well be brought under sub-clauses (i) and (ii), if not also under sub-clause (vi) of section 35B(1)(b). By bringing the foreign buyer to its business place, the assessee could show him the goods and satisfy him about its quality; and also obtain from him first hand informations regarding markets outside India for the goods. In the process an assessee could even furnish to the foreign party technical information for the promotion of sales.In this view we consider that the AAC's decision allowing weighted deduction to this expenditure is quite correct.

27. There is no dispute about the fact that the subscriptions paid by the assessee are to organisations and journals which are concerned with foreign trade and are engaged in obtaining and disseminating information and data about market conditions aboard. This expenditure must hence be taken, as rightly done by the AAC, as squarely falling within sub-clause (ii) of section 35B(1)(b).

28. The commission payment in this case was to parties who brought about the export sales. It was those parties who furnished information to the assessee about the foreign buyers and publicized the assessee's goods to those buyers. It was they who brought together the buyer and the seller for concluding the sales. It was through them the goods were supplied outside India. That being so this expenditure is allowable under sub-clauses (i) and (ii) of clause (b) of sub-section (1) of section 35B.

29. The sum of Rs. 3,370 is a payment made by the assessee to the Export Credit Guarantee Corporation for the services in furnishing to the assessee not only information about the creditworthiness of the foreign buyer and the upper limit to which goods could be supplied to that buyer but also a guarantee for payment of such amount. The activity for obtaining information regarding outside India, referred to in sub-clause (ii) must be understood in a broad sense to take in activities for obtaining relevant information also about the foreign buyers and their creditworthiness. For, any information merely about the demand and supply position prevailing in foreign markets would not be complete for business purpose without also a knowledge about the financial reliability of the buyers in such markets. That being so, the charges paid to the Export Credit Guarantee Corporation should be taken as falling within sub-clause (ii). On this too we, hence, confirm the decision of the AAC.

30. The certificate charges of Rs. 16 taken by the AAC as entitled to weighted deduction, in our opinion, does not fit in with any of the allowable items specified in the section. It is said to be the charges paid to the Bombay Chamber of Commerce and Trade Council for certifying the place of origin and the price of the goods exported. Maybe that without such a certificate, export of goods is not permitted. But then for allowing weighted deduction of an expenditure, it necessarily must be on falling within any one of sub-clauses (i) to (viii) of section 35B(1)(b).

We find it difficult to fit this expenditure in any one of those clauses. If it is to be taken as a part of the expenditure incurred on the supply of goods, then being on anchored in India, it must for that reason fall out of sub-clause (iii). We, hence, set aside the order of the AAC on this.

To this extent regarding Rs. 16 alone, the department succeeds in its appeal.

31. Coming now to the assessee's appeal, we have already upheld the AAC's decision that only part of the expenditure incurred by the assessee on salary, stationery and rent will qualify for weighted deduction. Its claim for allowance in respect of the whole of such expenditure is, accordingly, rejected.

32. The assessee admitted before the AAC that the expenditure of Rs......... listed under the head "Postage and Telegrams" was in respect of communications held within India. It is not contended before us that the admission is erroneous. From the admission the AAC has concluded that the expenditure was not concerned with any correspondence with foreign parties or with any work directly connected with exports. By nothing produced before us has the assessee made even an attempt to show that the conclusion drawn by the AAC is not correct (sic). Hence, we do not find any reason to interfere with the AAC's decision on this.

33. The expenditure incurred on Agmark and licence fee stands in pari materia with the certificate charges. For the same reasons given in disallowing the latter, we disallow the claim made in respect of the former. We find it difficult as to accept the assessee's contention that Agmark being a certificate of guarantee as to the quality of the goods is itself an advertisement. This contention needs only to be stated to be rejected.

34. We need only point out to the decision of the High Court reproduced earlier in rejecting the assessee's claim relating to expenditure incurred on custom pass and costume duty. Neither comes under any one of the sub-clauses of section 35B(1)(b).

35. The claim raised by the assessee in respect of carriage handling and forwarding charges, mukadami, bardana, and packing materials can, if at all, be connected only with activities relating to distribution and supply of goods. It is not suggested that these had anything to do with any samples furnished to outside parties. Even if these are thus incurred in connection with the distribution and supply of goods outside India, sub-clause (iii) specially excludes from its operation arena expenditure in India. It must follow that the claim in respect of these is, as rightly decided by the AAC, clearly unsustainable.

36. Bank commission paid by the assessee and for which weighted deduction claimed is what is charged by its bank for the discounting facilities afforded. We do not find any way to bring such expenditure in any one of the sub-clauses in section 35B(1)(b). The expenditure incurred by the assessee is in that sense not on any activity directly connected with the exports but for the early realisation of the price of the goods exported or for the services rendered by the bank in connection therewith. A faint attempt was made before us to suggest that what the bank charged by way of commission was for the services it rendered outside India in collecting the price of the goods from the foreign buyer and, therefore, the expenditure must be taken as coming within sub-clause (viii). Even assuming that the commission paid was for such services, the argument overlooks the fundamental fact that the services referred to in that sub-clause are in connection with, or incidental to the execution of any contract for the supply of goods, services or facilities outside India. On this too we, hence, confirm the decision of the AAC.

37. The AAC's finding that what is claimed by the assessee as for travelling is expenditure incurred on journeys undertaken within the country is not challenged. Under sub-clause (vii) only expenditure incurred on tarvelling outside India can be taken into account. We are unable to fix this in any of the other sub-clauses. That being so, we are convinced that the AAC rightly disallowed this.

38. It is not shown to us that the brokerage of Rs. 574 paid by the assessee was not for procuring the goods for export but for the export sales themselves. Hence, on this too we find nothing warranting interference.

39.In the result, the department's appeal is allowed in part and the assessee's appeal is dismissed.

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