Mishra, J. - (1.) TWO questions out of the three referred to us, namely, whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the surtax payable is not an allowable deduction and whether the Tribunal was right in holding that the interest on belated payment of surtax is not an allowable deduction, it is conceded, stood answered in terms of the judgment of this Court in the case of Sundaram Industries Ltd. vs. CIT (1986) 159 ITR 646 (Mad). The third question, "Whether the Tribunal was right in holding that the weighted deduction under s. 35B of the IT Act, 1961, on inspection agency fee, warrants claim relating to export, interest on export packing credit paid to the SBI are not available ? ", needs, however, determination.
(2.) THE assessee is a private limited company and is engaged in the manufacture of auto electrical equipment. It filed a return for the asst. yr. 1976-77 and besides other claims, made a claim for weighted deduction under s. 35B of the IT Act, 1961 (for short, "the Act"), on items including inspection agency and interest on export banking credit paid to the SBI. In respect of the above, the ITO held against the assessee. THE CIT(A) upheld the ITO's order. THE Tribunal has affirmed the CIT's order and stated regarding the third question that the assessee undertakes to produce, at the hearing of the present reference, the requisite number of certified copies of the Tribunal's statement of the case, dt. 26th Sept., 1981, in R. A. Nos. 35 and 37/ (Mad) of 1981 in ITA Nos. 1564 and 1673/ (Mad) of 1979. We are given to understand that the reasons for rejecting the assessee's claims as respects the inspection agency fee and interest on export packing credit paid to the SBI are stated in the said order and the Tribunal has only adopted the reasonings in the said order by the above statement. THE assessee, however, has not complied with the said direction and we do not have before us the reasons assigned by the Tribunal for rejecting the assessee's claims in respect of the said two items. It is not unusual for any Court or the Tribunal to deliver a considered judgment in one case and, in similar cases coming before it, to make a summary order that for the reasons stated in its order in the other case, it has decided the matter against one or the other party to the proceedings. We, however, cannot approve of the same method being adopted in drawing up the statement of the case, as the statement of the case is one which brings to the notice of the Court the relevant facts and the findings on facts and thus, gives to it a fair idea to know, whether the questions referred to it have actually arisen, whether any reframing of the questions is necessary and whether besides the questions referred to it, there is some other question which ought to be answered. THE Tribunal, in the instant case, has gone beyond the limitations upon its jurisdiction and seriously deflected the course of justice by not making available all the relevant facts in the statement of the case. THE assessee, in any case, has acted in a most irresponsible manner and has not complied with the direction of the Tribunal. It has chosen to leave the Court in the dark. We do not know if it has thought that disclosure of all the facts to the Court shall go against its interest. In any case, one who does not come with clean hands and one who suppresses information and facts, deserves the Court's adverse orders. We, however, do not propose to do so in the instant case, since learned counsel for the parties, in spite of the handicaps, have addressed us at length and given to the Court valuable assistance. We expect, however, that in future the Tribunal, while drawing up the statement of the case, shall take more care to provide to the Court full disclosure of facts. Its not doing so may be taken as an injudicious and irresponsible act. This reference has come at the instance of the assessee. The Revenue has maintained that any fee paid to any inspection agency, whether it is an export inspection agency or otherwise or any interest paid on any borrowing, whether it is obtained in the name of export packing credit, is not an expenditure wholly and exclusively falling under any of the items referred to in cl. (b) of sub-s. (1) of s. 35B of the IT Act, 1961 of the Act. Learned counsel for the assessee, on the other hand, has submitted that fees paid to the export inspection agency are for furnishing to a person outside India the technical information for the promotion of the sale of goods manufactured by the assessee and thus referable to item (vi) of sub-s. (1) of s. 35B of the IT Act, 1961 of the Act, and interest on export packing credit paid to the SBI is incidental to the execution of the contract for the supply outside India of goods manufactured by it, falling under item (viii) in cl. (b) of sub-s. (1) of s. 35B of the IT Act, 1961 of the Act. Sec. 35B(1) of the IT Act, 1961 has contemplated a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year not being in the nature of capital expenditure or personal expenses of the assessee referred to in cl. (b) to an assessee being a domestic company or a person other than a company who is resident in India, if the expenditure is incurred after the 29th day of February, 1968, whether directly or in association with any other person and in case the expenditure is incurred after the 28th day of February, 1973, by a domestic company, being a company in which the public are substantially interested, a deduction of a sum equal to one and one-half times. Sec. 35B was inserted in the IT Act, 1961, by s. 5 of the Finance Act, 1968, w. e. f. 1st April, 1968. It was a new provision altogether. The expenditure referred to in cl. (a) of sub-s. (1) of s. 35B of the IT Act, 1961, thus, was limited by cl. (b) thereof to items as under : "The expenditure referred to in cl. (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; (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) travelling 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; and (ix) such other activities for the promotion of the sale outside India of such goods, services or facilities, as may be prescribed." Certain amendments were made in the course of time, to the above. Some Explanations were added thereto including the amendment to bring out the intention underlined therein. Nothing, however, was done to prescribe such other activities for the promotion of sale outside India of such goods, services or facilities for weighted deductions until rules were framed and enforced w. e. f. 1st Aug., 1981. Rule 6AA inserted by the IT (Eighth Amendment) Rules, 1981, provided as follows : "For the purposes of sub-cl. (ix) of cl. (b) of sub-s. (1) of s. 35B of the IT Act, 1961, other activities for the promotion of the sale outside India of the goods, services or facilities which the assessee deals in or provides in the course of his business shall be as follows, namely : (a) conducting of pre-investment surveys or the preparation of feasibility studies or project reports : Provided that the pre-investment surveys are conducted or the feasibility studies are made or the project reports are prepared on the request in writing made by the Central Govt. or a foreign party to whom such goods, services or facilities are likely to be sold or provided by the assessee; (b) maintenance outside India of a warehouse for the promotion of the sale outside India of such goods; (c) maintenance of a laboratory or other facilities for quality control or inspection of such goods : Provided that in a case where only part of the sales is made outside India, the amount of expenditure incurred on the maintenance of such laboratory or other facilities which shall qualify for deduction under cl. (a) of sub-s. (1) of s. 35B of the IT Act, 1961 shall not exceed the amount which bears the same proportion as the value of the turnover in respect of such exports bears to the turnover of the business in respect of which the laboratory or other facilities are maintained; (d) purchase of foreign trade periodicals or journals related to the business of the assessee; (e) litigation outside India for the purposes of the protection of the business interests of the assessee or of trading activities relating to the goods, services or facilities which the assessee deals in or provides in the course of his business." The assessee has claimed deduction of interest paid to the SBI on the money borrowed by it from an account called export packing credit account. Learned counsel has stated that the credit facility, which the assessee availed of was only for the promotion of export of goods manufactured in India and it was for the performance of service and it was incidental to the execution of the contract for the supply of goods outside India. He has placed reliance on a judgment of the Madhya Pradesh High Court in the case of CIT vs. Vippy Solvex Product Pvt. Ltd. in support of his contention and drawn our attention to the observation in the said judgment, which is as follows : "This section provides a deduction of a sum equal to one-third of the amount of such expenditure incurred during the previous year, and sub-cl. (viii) of sub-s. (1) (b) of this section provides that such expenditure, if it is incurred for the purposes indicated in the sub-clause, the assessee will be entitled to the advantage of this section. Sub-cl. (viii) talks of 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. This, therefore, contemplates that expenditure incurred in connection with the services rendered outside India or expenditure incurred in connection with or incidental to the execution of any contract for the supply outside India of such goods will be covered under this section. The findings of fact arrived at by the Tribunal on the basis of the certificate issued by the bank clearly show that all these credits in this account were given for purchase of raw material and this credit is only given when the contract for supply of goods to the foreign parties is shown and, therefore, these findings of fact clearly indicate that this expenditure was incurred in connection with the execution of any contract for supply outside India. It is significant that even incidental expenditure will be covered under this clause as the language shows if the expenditure is in connection with or incidental to the execution of the contract. In this view of the matter, therefore, on the findings of fact arrived at by the learned Tribunal, it appears that the view taken by the Tribunal is correct." Learned counsel for the Revenue, however, has drawn our attention to a judgment of the Calcutta High Court in the case of Brooke Bond India Ltd. vs. CIT (1992) 193 ITR 390 (Cal) and contended that item (viii) is attracted to expenditure on performance of services outside India and the rest of this provision indicates that not any or every service outside India would qualify for weighted deduction but only such expenditure as has been incurred for "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". He has submitted on the strength of this judgment that in order to be eligible to weighted deduction on the export markets development allowance, it is required to be established by the assessee that the expenditure for which such deduction was being claimed had been incurred wholly and exclusively for the specified purposes. The Calcutta High Court has distinguished the judgment of the Madhya Pradesh High Court in the case of Vippy Solvex Product Pvt. Ltd. (supra) in these words : "The Madhya Pradesh High Court was of the view that the findings of the Tribunal clearly indicated that the expenditure was incurred in connection with the execution of a contract for the supply of goods outside India. Therefore, the assessee was entitled to weighted deduction of Rs. 3,65,875 paid to the bank under s. 35B of the IT Act, 1961(1) (b) (viii) of the Act. No argument was advanced before the Madhya Pradesh High Court about the question whether it was necessary to establish that the expenditure must be on performance of services outside India. The only basis on which the case was disposed of was that the expenditure was in connection with, or incidental to, the execution of the contract. Sub-cl. (viii) of s. 35B(1)(b) of the IT Act, 1961 does not allow all expenditure incurred wholly and exclusively in connection with, or incidental to, the execution of any contract for supply of goods, services and facilities outside India. The allowance is restricted to expenditure which has been incurred wholly and exclusively on 'performance of services outside India' when it is found that such services were 'in connection with, or incidential to, the execution of any contract for the supply outside India of such goods, services or facilities'." The Calcutta High Court has rejected the argument advanced on behalf of the assessee. What was needed to be seen was, whether the expenditure was incidental to the execution of any contract for the supply outside India of such goods, services or facilities and any expenditure incurred for this purpose would have to be allowed. The Calcutta High Court has stated the law categorically that the allowance under this item of cl. (b) of s. 35B(1) of the IT Act, 1961 is restricted to expenditure which has been incurred wholly and exclusively on performance of service or services outside India, when it is found that such services were in connection with, or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities. He has further drawn our attention to a judgment of the Gujarat High Court in the case of Isabgul Export Corpn. vs. CIT (1994) 205 ITR 227 (Guj), which has considered whether the expenditure incurred on payment of interest to the bank would fall under any of the items of s. 35B(1) of the IT Act, 1961 of the Act and held as follows : "So far as expenditure of Rs. 88,855 incurred for payment of interest and bank charges is concerned, it does not fall under any of the sub-clauses of cl. (b) of s. 35B(1) of the IT Act, 1961. The assessee would be entitled to weighted deduction under s. 35B(1)(b) of the IT Act, 1961 only if the expenditure is of the nature referred to in cl. (b) of s. 35B(1). The Tribunal was, therefore, right in holding that the said expenditure also did not qualify for weighted deduction under s. 35B of the IT Act, 1961."
(3.) THE Gujarat High Court has again taken the same view in the case of Testeels Ltd. vs. CIT (1994) 205 ITR 230 (Guj) as follows : "It is clear that, in order to fall under sub-cl. (viii), the expenditure has to be incurred for performance of services outside India and such performance of services outside India has to be in connection with, or incidental to, the execution of any contract for the supply outside India of goods, services or facilities. Weighted deduction under s. 35B(1)(a) is an incentive for export. THErefore, expenditure in respect of which weighted deduction is allowed has to be in connection with or incidental to the execution of any contract for the supply outside India of goods, services or facilities. But, so far as sub-cl. (viii) is concerned, as pointed out above, it deals with expenditure which is incurred in performance of services outside India. However, performance of services outside India has to be in connection with or incidental to the execution of any contract for the supply outside India of such goods, services or facilities. As pointed out above, provision for weighted deduction is made to give incentive to export. If no services are performed outside India in connection with or incidental to the execution of any contract for the supply outside India of goods, services or facilities, the expenditure incurred for performance of services would not be covered by sub-cl. (viii). In the instant case, the assessee is given facility of credit or loan for buying raw materials for the manufacture of goods which were exported. Firstly, no services are performed in taking credit or loan facility from the bank in order to purchase raw materials for manufacture of goods. Secondly, even if any services were performed, such services are not performed outside India. We fail to see what services are rendered when the assessee takes advantage of credit or loan facility from the bank and pays interest to it. It is the business of the assessee to manufacture goods and sell or export the goods which are manufactured. THE activity of export of goods outside India by itself would not be services contemplated by sub-cl. (viii). What is contemplated by sub-cl. (viii) is 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. What the assessee has done is to enter into a contract with a foreign buyer for supply of goods outside India. That is part of the business of the assessee and supply of goods to the foreign buyer by exporting them outside India would not amount to rendering of any services. Services performance of which is contemplated by sub-cl. (viii) have to be rendered outside India. Purchase of raw materials from the credit or loan facility given by the bank to the assessee was part of the business of the assessee and it was from these raw materials that it manufactured goods which it exported in execution of the contract. In our opinion, the assessee has not rendered or performed any services outside India as contemplated by sub-cl. (viii) and, therefore, interest paid by it to the bank on the credit or loan facility given to it would not be covered by sub-cl. (viii) and it would not, therefore, be eligible for weighted deduction." THE judgment of the Madhya Pradesh High Court is distinguished by the Gujarat High Court in these words : "With respect, we are unable to agree with the view taken by the Division Bench of the Madhya Pradesh High Court. It is not correct to say that sub-cl. (viii) contemplates that expenditure incurred in connection with the services rendered outside India or expenditure incurred in connection with or incidental to the execution of any contract for supply outside India of such goods will be covered under this section. In our opinion, the correct position is that sub-cl. (viii) contemplates that expenditure incurred in connection with performance of services rendered outside India in connection with or incidential to the execution of any contract for supply outside India of goods, services or facilities would be covered by sub-cl. (viii). If the view taken by the Division Bench of the Madhya Pradesh High Court that expenditure incurred in connection with or incidential to the execution of any contract for supply outside India of goods, services or facilities would be covered by sub-cl. (viii) is correct, then the remaining sub-clauses would be rendered nugatory." We do not propose to add to the above any other decision, as we have found that there are good reasons to reject the assessee's claim for deduction under s. 35B(1)(b)(viii) on interest in respect of packing credit paid to the SBI for the obvious reason, that any contemplation of sale of goods, services or facilities will have connection with the manufacturing or processing of goods. Manufacturing or processing will require raw materials as inputs. Any expenditure on manufacturing of goods or processing of goods, however, cannot be in 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, which has to be different and separate from the processing and manufacturing of goods. Raw materials for the processing or manufacturing of the goods cannot be directly linked with export including packing materials because packing is part of the manufacturing process. Any borrowing, thus, for the purchase of raw materials including the packing materials is an expenditure incurred in the course of or before the manufacturing or processing of goods. It will not fall under item (viii) of cl. (b) of sub-s. (1) of s. 35B of the IT Act, 1961 of the Act. Furnishing to a person outside India samples of goods, services or facilities, for the promotion of sale can be by delivery of samples to a person outside India or by delivering to a person in India for its delivery in turn to the purchaser outside India or only technical information to him. Furnishing of technical information to a person outside India can be achieved by supply of the relevant literature of specification and scientific data."To inform" is to deliver about everything concerning a fact, that is, the thing, the status of the thing, the association of the thing with another thing, etc."Information" is imparting of knowledge about a thing or a substance or a fact to any other person. Since in item (vi) above, "information" is qualified by the word "technical" and the performance is specified by a qualifying expression "for the promotion of the sale", it is clear that the assessee can claim deduction for furnishing to the buyer information in respect of the technical nature or character of the goods, services or facilities. Such information can be furnished to the buyer by permitting him to have inspection of the goods. The buyer can be represented by an agent or can depend upon any agency in India, provided such agency has some authority from the buyer or by law or sanction from the licensing authorities in the country. A Bench of the Calcutta High Court in the case of Union Carbide India Ltd. vs. CIT has considered the question whether the expenses on account of export agency inspection fee are covered by s. 35B of the IT Act, 1961 of the Act and are entitled to weighted deduction. The material facts before the Court were as follows : "Union Carbide (India) Ltd., the assessee, was assessed to income-tax in the asst. yr. 1978-79, the accounting year ending on 25th Dec., 1977. In its assessment, the assessee claimed weighted deduction under s. 35B of the IT Act, 1961 of the IT Act, 1961, in respect of export inspection agency fees paid on account of export of frozen shrimps. The ITO disallowed the same. Being aggrieved, the assessee preferred an appeal to the CIT(A). It was contended before the CIT(A) that fees in respect of the export agency inspection were paid for the purpose of obtaining a certificate from the agency as to the quality of the goods. It was contended that the certificate amounted to technical information on the quality of the products sought to be exported and the production of such certificate was an essential condition for the saleability of the goods in a foreign country. It was contended that the assessee was entitled to weighted deduction on account of export markets development allowance in respect of the said expenditure. The CIT(A) accepted the contentions of the assessee and allowed weighted deduction as claimed holding that the expenditure was wholly and exclusively incurred for certification of the quality of the goods which was an essential condition of export. Being aggrieved, the Revenue went up on further appeal before the Tribunal. The Tribunal accepted the case of the assessee, that unless the said certificates were obtained from the export agency inspection authorities, it would not be possible for the assessee to export its goods. The assessee also produced before the Tribunal a Gazette of India notification dt. 6th March, 1965, which prohibited export of fish and its products, unless accompanied by such certificate. The Tribunal also accepted the contentions of the assessee that the certificate furnished technical information for promotion of sales of the assessee's goods outside India and that the expenditure to obtain such certificate was incurred directly for the export of goods overseas. The contentions of the Revenue to the contrary were rejected." After referring to the conclusion of the Tribunal that obtaining certificate from export agency was a necessary requirement for the export of the goods and referring to cl. (vi) of s. 35B(1)(b) of the Act, the Calcutta High Court has said : "..... we are not inclined to interfere with the decision of the Tribunal and we answer the question in the affirmative and in favour of the assessee." The question has fallen for the decision by the Andhra Pradesh High Court in the case of CIT vs. Navabharat Enterprises (P) Ltd. . The question before the Andhra Pradesh High Court was, whether the money expended on obtaining the Agmark, qualified for deduction under s. 35B(1)(b)(vi) of the Act. After referring to the judgment of the Calcutta High Court in Union Carbide India Ltd.'s case (supra), and taking notice of the legislative intendment, the Court has observed : "We did not find any averment either in the order of the AAC or the Tribunal or the statement of the case that the Agmark is wholly and exclusively necessary for the purpose of submitting technical information to the foreign buyers for the promotion of the sale of goods (tobacco) of the company. It is also not the case that the certification by the Indian Standards Institution as an Agmark is a condition precedent to export of tobacco or a term of the contract. The decision in Union Carbide vs. CIT is of little assistance to the company. Therein, the facts were that obtaining a certificate from the export agency is necessary. Therefore, inspection has got to be made by the certifying officer regarding the quality of the goods. It was contended that it was technical information on the quality of the products for export. Therefore, weighted deduction has to be granted. But, in this case, as stated earlier, it is not the case of the company nor any material has been placed nor a finding was recorded either by the AAC or the Tribunal in that regard. Equally, with regard to the alleged export licence fees and inspection charges, no material has been placed on record and nothing of it has been brought to our notice from record. Equally, with regard to items Nos. (5) and (6), viz., subscription to export promotion councils and trade associations and translation charges, no material has been placed that they are of any technical information required to be furnished by the company to foreign buyers for promotion of the sale of the goods of the company. Therefore, none of the items would be eligible for weighted deduction as sub-cls. (ii), (vi) and (vii) of sub-s. (1) (b) of s. 35B of the IT Act, 1961 are not attracted. Considered from this perspective, the tribunals below erred in law in allowing the above weighted deduction from the chargeable income." ;