A.P. Chowdhri, J. - (1.) THE Income-tax Appellate Tribunal (hereinafter referred to as "the Appellate Tribunal") has referred under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the following question for decision by this court : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in holding that the assessee was entitled to weighted deduction under Section 35B(1)(b) on an expenditure of Rs. 7,47,005 incurred by the assessee, whether in India or outside India,"
(2.) THE aforesaid question arose out of the decision of the Appellate Tribunal dated December 24, 1979, by which the appeal filed by the assessee against the appellate order, annexure "B", dated June 21, 1977, of the Appellate Assistant Commissioner was partly allowed. Messrs. Roadmaster Industries of India (P.) Limited (hereinafter referred to as "the assessee") filed a return for the assessment year 1974-75. The assessee is engaged, inter alia, in the export of bicycles and spare parts thereof to foreign countries. In its return, the assessee claimed weighted deduction under Section 35B(1)(b) of the Act in respect of the following expenditure : The Income-tax Officer, by his order dated September 17, 1975, allowed weighted deduction only to the extent of Rs. 21,308 but disallowed the other claim made on this account on the ground that the same related to railway freight and insurance which had been expressly excluded under Sub-clause (iii) of Section 35B(1)(b) of the Act Before the Appellate Assistant Commissioner, an additional ground was urged on behalf of the assessee for allowing the weighted deduction. It was contended that, in the alternative, the assessee was entitled to weighted deduction under Sub-clause (viii) of Section 35B(1)(b) of the Act. The Appellate Assistant Commissioner rejected the contention on the ground that the requirement of the expenditure having been incurred outside India laid down in Sub-clause (iii) was as much applicable to the expenditure incurred under Sub-clause (viii) and in view of the specific prohibition contained in Sub-clause (iii), weighted deduction on account of freight and insurance could not be allowed. The Appellate Tribunal held that the assessee had exported certain consignments in respect of which weighted deduction was claimed under CIF and C and F contracts and had, in execution of the contract, delivered the consignments at the port and had a bill of lading and in terms of the contract had obtained marine insurance cover besides paying sea freight. It was, therefore, held that "the expenditure on freight and marine insurance, in our opinion, therefore, on the facts and in the circumstances of the case, narrated in detail supra, was on supply of goods outside India to the foreign buyers as it was incurred for the carriage and security of the goods on the high seas". It was further held "the expenditure on railway freight by way of inland carriage from the manufacturing centre of the assessee to the port in India for exporting the goods on which the assessee paid sea freight and marine insurance is expenditure incidental to the supply of goods outside India by the assessee". The Appellate Tribunal was of the view that the express requirement of expenditure outside India laid down in Sub-clause (iii) was confined to the Sub-clause only and the same could not be read while interpreting the provisions of Sub-clause (viii). The Appellate Tribunal, therefore, came to the following conclusion ; ". . . . this expenditure is for the performance of services outside India in connection with the execution of the contracts entered into in India by the assessee in the course of its business. The expenditure of Rs. 6,06,280.67 is, therefore, admissible." The Appellate Tribunal also held the expenses incurred on railway freight to be admissible on the ground that the said expenditure was incidental to the execution of the contract and was Covered under Sub-clause (viii). It is at the instance of the Revenue that the present reference has been made.
(3.) WE have heard Mr. R.P. Sawhney, senior standing counsel for the Revenue, and Mr. B.S. Gupta, senior advocate for the assessee. Section 35B of the Act, as it existed at the relevant time, in so far as relevant for present purposes, reads as under : "35B. (1)(a) Where an assessee, being a domestic company or a person ( other than a company ) who is resident in India, has incurred after the 29th day of February, 1968, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in Clause (b), he shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year : Provided that, in respect of the expenditure incurred after the 28th day of February, 1973, 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--. ... (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 ; . . . . (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 ;" It is not disputed that except Sub-clauses (iii) and (viii) no other Sub-clause of Clause (b) of Section 35B(1) is attracted to the facts of the present case. We may, therefore, first deal with Sub-clause (iii). In our view, a correct reading of Sub-clause (iii), suitably expanded, yields the following ingredients : (a) Subject to (b) below, expenditure incurred shall be on distribution, supply or provision outside India of goods, services or facilities. (b) Such expenditure shall not include expenditure incurred in India in connection with the distribution, supply or provision outside India of such goods, services or facilities. (c) Permissible expenditure shall not include expenditure, wherever incurred, on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit. ;