V GURUVIAH NAIDU Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) 1.MISHRA J.This reference, at the instance of the assessee, has posed three questions"(1) Whether the Appellate Tribunal was right in law in holding that the assessee was not entitled to weighted deduction under section 35B(1)(b)(iii) of the Income-tax Act, 1961, in respect of the expenditure incurred by it on transport of goods and marine insurance ?(2) Whether the Appellate Tribunal was right in law in its interpretation of section 35B(1)(b)(iii) as intending a wider net of exclusion for the latter two heads than for the former ?(3) Whether the Appellate Tribunal was right in law in holding that the phrase ' wherever incurred ' occurring in section 35B(1)(b)(iii) applied to expenditure incurred on the carriage of goods outside India as also on the insurance of goods while in transit ?" * The assessee is a registered firm. It exported leather goods. It claimed export markets development allowance for the assessment year 1974-75 and repeated the claim for the following assessment years including the assessment year 1976-77.

(2.) THE Income-tax Officer declined to allow the same for the assessment year 1974-75. THE assessee appealed. THE Appellate Assistant Commissioner allowed the same. THE Revenue preferred an appeal before the Tribunal. THE Tribunal set aside the order of the Appellate Assistant Commissioner and confirmed the disallowance by the Income-tax Officer. THE assessee's claim for the subsequent assessment years was, accordingly, disallowed by the Income-tax Officer. THE Appellate Assistant Commissioner, however, once again permitted the allowance. THE Tribunal has held in the Revenue's appeal that the assessee is not entitled to the weighted deduction in respect of the expenses incurred on the transport of goods and marine insuranceSection 35B(1)(a) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") says"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 yearProvided 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." * This provision, thus, provides for allowance of a deduction of a sum as specified therein with respect to any expenditure, not being in the nature of capital expenditure or personal expenses of the assessee referred to in clause (b). Clause (b) contains various items and says, the expenditure referred to in clause (a) is that incurred wholly and exclusively on the items specified therein. Item (iii) specifies the expenditure in these words"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. "This item is divisible as, --"(1) distribution, supply or provision outside India of such goods, services of facilities, not being expenditure incurred in India in connection therewith, and(2) expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit." * We have dealt with more than once and noted that various items of clause (b) of section 35B(1) of the Act required "expenditure" to qualify for the deduction to be incurred wholly and exclusively on advertisement or publicity outside India, obtaining information regarding markets outside India, etc., but not necessarily the expenditure itself being incurred outside India and not incurred in India. "Expenditure", in so far as item (iii) aforequoted is concerned in which there is a noticeable departure by the qualifying expression "not being expenditure incurred in India in connection therewith", is dealt with in a judgment of this court in V. D. Swami and Co. Pvt. Ltd. v. CIT wherein it is observed (at page 428)"As earlier mentioned, sub-clause (iii) of section 35B(1)(b) expressly excludes 'expenditure not being expenditure incurred in India in connection therewith '.

(3.) THE Legislature, however, carefully divided the qualifying expressions and while retrospectively inserting "not being expenditure incurred in India in connection therewith" to qualify "expenditure on distribution, supply or provision outside India", it separated" * expenditure on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit"by clearly pronouncing" expenditure wherever incurred "We have some help to interpretation which we are giving to the above in the Explanation appended to the section which was retrospec tively inserted by section 5 of the Finance Act, 1973.