- (1.) ON an application filed under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our opinion : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that weighted deduction under section 35B of the Income-tax Act, 1961, is admissible on technical director's salary amounting to Rs. 67,948 ?"
(2.) THE assessee-company derives income from manufacturing and sale of ready made garments for the relevant assessment year 1976-77. During the course of assessment, the Assessing Officer has noticed that the assessee has claimed weighted deduction under Section 35B of the Income-tax Act, 1961, in respect of several items which includes salary paid to the technical director in the tune of Rs. 67,948. THE Assessing Officer has rejected the claim of the assessee holding that it does not come under any of the sub-clauses of Sub-section (1)(b) of Section 35B of the Income-tax Act, 1961. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has confirmed the view taken by the Assessing Officer. In appeal before the Tribunal, the Tribunal has considered the Sub-clause (viii) of Section 35B(1)(b) and allowed the claim of the assessee holding that the business of the assessee of the export therefore, the salary paid to the technical director is entitled for weighted deduction under Sub-clause (viii) of Sub-section (1)(b) of Section 35B of the Income-tax Act, 1961, as the salary has been paid in India. As the salary has been paid to the technical director in India for the services rendered by the director in India, whether deduction can be allowed on that amount under Section 35B of the Act of 1961. Mr. Mathur, learned counsel for the Revenue, submits that under Sub-clause (viii) unless the service is rendered outside India, there is no question of allowing the weighted deduction on salary paid to the technical director who rendered services in India. He placed reliance on the decision of the apex court rendered in the case of CIT v. Hero Cycles (P) Ltd, [1997] 228 ITR 463 and also on the decision of the Calcutta High Court in the case of Brooke Bond India Ltd. v. CIT [1992] 193 ITR 390. Mr. Pandey, learned counsel for the assessee, submits that when the services of the technical director were for the export service though in India, the assessee is entitled for the weighted deduction on salary paid to the technical director. He further submits that the business of the assessee is 100 per cent, of export and the case of the assessee comes under Sub-clause (viii) of Sub-section (1)(b) of Section 35B of the Income-tax Act, 1961. He placed reliance on the decision of the apex court in the case of CIT v. Stepwell Industries Ltd. [1997] 228 ITR 171 and in the case of V. D. Swami and Co. (P) Ltd. v. CIT [1984] 146 ITR 425 (Mad) and British Airways v. CIT [1992] 193 ITR 439 (Cal).
(3.) SUB-clause (viii) of SUB-section (1)(b) of Section 35B provides that the 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 eligible for deduction under Section 35B of the Income-tax Act, 1961. Before we go into the facts of this case, we would like to refer to the observations of their Lordships in the aforesaid case, i.e., CIT v. Hero Cycles (P) Ltd. [1997] 228 ITR 463 (SC), which reads as under (page 469) : "In this case a larger number of questions were sought to be raised. We shall deal with only the question relating to Section 35B. It appears that the Tribunal was totally unmindful of the various sub-clauses of Section 35B(1)(b). Expenses can only be allowed if they are wholly and exclusively incurred for any of the purposes mentioned in these sub-clauses. The section is quite clear and categorical. There is no way that any other expenditure can be given weighted deduction. Under Section 35B, it is the assessee's duty to prove facts which will bring the case within any of these sub-clauses. Unless that is done the assessee will not be entitled to get this deduction. The Tribunal has allowed the deduction without verifying or examining the sub-clauses under which this could be allowed." A similar view has been taken by the Calcutta High Court in the case of Brooke Bond India Ltd. v. CIT [1992] 193 ITR 390. The Calcutta High Court Bench has quoted the observations made by the Madras High Court in the case of V. D. Swami and Co. (P.) Ltd. v. CIT [1984] 146 ITR 425 and observed that the view taken by the Madras High Court is in consonance with the view that only specified items of expenditure have been given the benefit of weighted deduction under Section 35B. The relevant observations of the Madras High Court are reproduced as under (page 403) : "To maintain that weighted deduction is available even where expenditure is incurred inside India, would go against the teeth of this specific exclusionary provision. A look at the other sub-clauses of Section 35B(1)(b), such for instance as Sub-clauses (i), (iv), (vi), (vii), (viii) and (ix), also shows the insistence of Parliament that the weighted deduction cannot be exigible unless the expenditure under the different heads are incurred 'outside India', a phrase which occurs again and again in the various sub-clauses. To accept learned counsel's argument that the Indian situs of the export expenditure is no disqualification for eligibility for weighted deduction would be to bring in under one broad indiscriminate sweep, all expenses in an exporter's business. If that were the position, Parliament need not have troubled to enact so many clauses in Section 35B. The section would have been simpler and been enacted differently. We have, therefore, no hesitation in rejecting the construction of Section 35B advocated by Mr. Subramaniam for the assessee." ;