S.P. Bharucha, C.J. - (1.) THIS reference under section 256(1) of the Income-tax Act, 1961, raises, at the instance of the assessee, the following question : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was not entitled to weighted deduction under section 35B of the Income-tax Act in respect of expenditure incurred on the export of goods manufactured by Messrs. H. M. T. Ltd., on the ground that the assessee was not a dealer in the goods manufactured by Messrs. H. M. T. Ltd. ?
(2.) THE assessment year with which we are concerned is the assessment year 1979-80. The assessee is a subsidiary of Messrs. H. M. T. Ltd. and is engaged in the export of products of H. M. T. Ltd. and other allied engineering industries in India. For the assessment year in question, it claimed weighted deduction under section 35B in a sum of Rs. 2,24,84,860 and the Income-tax Officer allowed the claim subject to certain adjustments with which we are nor here concerned. The order of the Income-tax Officer was found by the Commissioner of Income-tax to be erroneous and prejudicial to the interests of the Revenue within the meaning of section 263. The Commissioner of Income-tax relied upon the judgment of the Madras High Court in CIT v. Kasturi Palayacat Co. [1979] 120 ITR 827 and observed that when that court said that an assessee exporting goods of another was not entitled to the benefit of section 35B, what was meant was that the goods exported should have belonged to the assessee at the time of export; if not, such an assessee could not be said to have dealt in the goods for being entitled to the weighted deduction under section 35B. The assessee had acted as an agent for the sale of goods belonging to H. M. T. Ltd. and had not exported the same on its own account. Section 35B did not envisage weighted deduction to an assessee offering assistance to an exporter. Accordingly, the Commissioner of Income-tax set aside the Income-tax Officer's assessment order and directed him to revise the weighted deduction under section 35B in conformity with his (Commissioner of Income-tax) observations. The assessee preferred an appeal before the Income-tax Appellate Tribunal. The Tribunal said that it had no hesitation in coming to the conclusion that the assessee was not a dealer in the goods manufactured by H. M. T. Ltd. Section 35B clearly referred to goods, services or facilities which the assessee dealt in or provided in the course of business. Therefore, unless the assessee was a dealer in those goods, it could not claim deduction under section 35B. The expression, "goods, services, etc.", meant that the goods should be dealt with by the assessee as a dealer and that the services should be provided by the assessee in that behalf. Arising out of the order of the Tribunal is the question which we have quoted above.
(3.) SECTION 35B, in so far as it is relevant, reads thus : "35B(1)(a) Where an assessee, being a domestic company or a person (other than a company) who is a resident of India, has incurred after February 29, 1968, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in clause (b), he shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year : Provided that in respect of the expenditure incurred after the 28th day of February, 1973, but before the 1st day of April, 1978, by a domestic company, being a company in which the public are substantially interested, the provisions of this clause shall have effect as if for the words "one and one-third times", the words 'one and one-half times' had been substituted. (b) The expenditure referred to in clause (a) 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 while in transit where such expenditure is incurred before the 1st day of April, 1978; (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; (ix) such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed." This section provides that where an assessee has incurred any expenditure referred to in clause (b) thereof he shall be allowed a deduction of a certain fraction of the amount of such expenditure incurred during the previous year. The expenditure referred to in clause (a) is that incurred wholly or exclusively "in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business." In so far as goods are concerned, the expenditure must be incurred on goods in which the assessee deals in the course of his business. In so far as services or facilities are concerned, the services or facilities must be those which the assessee provides in the course of his business.;