Prakash Narain, Accountant Member -
(1.) THE common contention in these appeals relate to the assessee's claim under Section 35B of the Income tax Act, 1961 ("the Act"). THE assessee is an exporter. It, among others, claimed the relief under Section 35B on the following expenses incurred by it in connection with the export of its goods :
As PER COMMISSIONER (APPEALS) ORDER
THE ITO disallowed the claim of the above items on the ground that they were not covered by any of the sub-clauses of Clause (b) of Section 35B(1).
(2.) The assessee came in appeal to the Commissioner (Appeals). It was submitted before him that in view of the decision of the Bombay High Court in the case of CIT v. Eldee Wire Ropes Ltd.  114 ITR 485, the assessee was entitled to the relief under Section 35B in respect of the above items. It was also submitted before the Commissioner (Appeals) that similar claim of the assessee had been accepted in the assessment year 1978-79. The Commissioner (Appeals) dealt with the matter in paragraphs 4 to 6 of his order in the following words :
4. I have considered the matter and I find that in respect of item Nos. 1,2, 3 and 4, these are all covered by Section 35B(1)(6)(iii) as these are related to distribution, supply or provision outside India of such goods in which the appellant is dealing and under the amended law any such expenditure after 1-4-1978, is not to be allowed for relief under Section 35B. Shri Agarwal has contended that these items are covered under Sub-clause (viii) as the contracts entered into were c.i.f. and c. & f. In my opinion the claim is not justified as the expenditure of packing, insurance and transport is not an expenditure incurred outside India and the items are squarely covered under Sub-clause (iii). The appellant's claim in this regard is, therefore, rejected.
5. However, I find that the appellant is entitled to relief under Section 35B on bank commission of Rs. 3,400 and miscellaneous expenditure of Rs. 1,215 being expenditure on samples. These would be covered under Sub-clause (v) and Sub-clause (vi). The other expenditure of Rs. 943 is a capital expenditure and is not allowed.
6. In the result, the appellant would get relief under Section 35B of Rs. 4,615.
Against the above findings of the Commissioner (Appeals), both the assessee and the department are now in appeal before us. The assessee is aggrieved with the rejection of its claim in respect of the first four items, while the department is aggrieved with the allowance of the claim in regard to the last two items. We will first deal with the assessee's appeal. The learned counsel for the assessee submitted before us that in the first place its claim could not be rejected under Sub-clause (iii) of Clause (b) of Section 35B(1) as was contended on behalf of the department. He pointed out that after the addition of the words "where such expenditure is incurred before the 1st day of April, 1978" at the end of the above clause, the prohibition obviously related only to such expenditure, which was incurred before 1-4-1978 and there was no such prohibition even under Sub-clause (iii) in respect of expenditure incurred after 1-4-1978. He pointed out that the assessee's accounting year was, 1-4-1978 to 31-3-1979 and, therefore from the prohibition contained in Sub-clause (iii) had no application to it. His alternative plea was that the assessee's claim was also governed by Sub-clause (viii) of Clause (b) of Section 35B(1). According to this clause, the expenditure incurred wholly and exclusively on performance of services outside India in connection with or incidental to, the execution of any contract for the supply outside India of the goods, services or facilities in which the assessee dealt with, was entitled to the required relief. The learned counsel argued that this clause was applicable to pre-existing contracts as was the case with the assessee. He submitted that the prohibition contained in Sub-clause (iii) applied only to consignment sales, where there was no specific contract. His next submission was that the assessee's contracts were either c.i.f. or c. & f. and, therefore, they were otherwise also entitled to the required relief even under Sub-clause (iii) as was held by the Chandigarh Bench of the Tribunal in the case of Roadmaster Industries of India (P.) Ltd. v. ITO, IT Appeal No. 463 of 1977-78. Referring to the decision of the Full Bench of the Tribunal in the case of ITO v. Happy Sound Industries  8 Taxman 89 (Delhi), he submitted that the arguments as made by him above were not advanced in that case and, therefore, the findings given in the case of Happy Sound Industries (supra) were of no avail to the department. His further submission was that the case of Happy Sound Industries (supra) related to the assessment year 1975-76, while the amendment, as pointed out above, was carried out in Sub-clause (iii) by the Finance Act, 1978, with effect from 1-4-1978 and, therefore, also that decision had no application to the present case. To support his submissions, he relied upon the decisions of the Bombay High Court in Eldee Wire Ropes Ltd. (supra) and the Madras High Court in CIT v. Kasturi Palayacat Co.  120 ITR 827. In particular, he invited our attention to the last para at page 836 of the report, according to which the packing charges incurred did not fail within Sub-clause (iii). His submission was that in any case, cost of packing charges were clearly entitled to the relief under Section 35B.
(3.) THE learned departmental representative, on the other hand, submitted that the nature of the contracts as to whether they were c.i.f. or c. & f. was not either pointed out or enquired into by the lower authorities and, therefore, the decision of the Chandigarh Bench in the case of Roadmaster Industries of India (P.) Ltd. (supra) could not be relied upon. He further submitted that in any case, that decision had not been followed by the Full Bench of the Tribunal in the case of Happy Sound Industries (supra). His further submission was that the addition of the clause "where such expenditure is incurred before the 1st day of April, 1978" at the end of Sub-clause (iii) made that clause applicable only to the expenditure incurred before 1-4-1978 and had no application to any expenditure incurred after that date. According to him, therefore, Sub-clause (iii) was non-existent so far as the expenditure incurred after 1-4-1978 was concerned, as was the case here. He also argued that the expenditure of the nature incurred by the assessee was not covered by Sub-clause (viii) as was held by the Full Bench of the Tribunal in the case of Happy Sound Industries (supra).;