1. The instant reference at the instance of the assessee of the two ques-tions, (a) whether, on the facts and circumstances of the case, the Tribunal was right in holding that the relief under section 35B(1)(b)(iii) is not available on the items claimed amounting to Rs. 1,23,449; and (b) whether, on the facts and circumstances of the case, the Tribunal was right in holding that the claim is not even alternatively allowable under section -35B(1)(b)(v), is an unnecessary exercise, and it appears, it is an act of an overzealous assessee and a soft and yielding Tribunal?

2. In the long statement of the case, the Tribunal has pointed out that the assessee-company derived income from export of engineering goods and import handling commission. The assessee claimed weighted deduc-tion under section 35B (export markets development allowance) on the expenditure of Rs. 4,76,543. The Income-tax Officer disallowed such deduc-tion in respect of the expenditure of Rs. 2,37,313. Before the Commissioner of Income-tax (Appeals), the assessee claimed weighted deduction in respect of various items, i.e, (1) legal expenses incurred in connection with export of flate to Pakistan;

(2) Stationery used relating to exports;

(3) telex and telephone charges relating to exports;

(4) cable expenses incurred other than tenders;

(5) salary, allowances, bonus, etc., relating to five employees

3. and urged that these expenses qualified for allowance under section 35B(1)(b)(iii) of the Income-tax Act, 1961, or alternatively under section 35B(1)(b)(v) or under any other sub-clause of the said section which was considered appropriate. The Commissioner of Income-tax (Appeals) declined to consider any alternative claim and upheld the Income-tax Officer's assessment. The assessee also claimed weighted deduction in respect of salary and other allowances paid to employees stated to have been engaged in obtaining information, preparation and submission of offers against tenders for export, etc. The Commissioner of Income-tax (Appeals) held in favour of the assessee in this behalf and granted weighted deduction in respect of a sum of Rs. 1,46,405. The Tribunal has, however, held as follows:

“The principle of apportionment takes cognizance of the fact that part of the services is referable to the activities stipulated in section 35B(1)(b)(v) and a fair and reasonable allocation of such expenses has necessarily to be made when there is composite payment of salary including for services other than export activity. The Revenue's plea that expendi-ture incurred in India is not eligible is not correct since such prohibition obtains only in sub-clause (iii). The activities specified in the other clauses such as sub-clauses (i), (ii), etc., do not require that the expenditure should be incurred only outside India. We, therefore, find no reason to interfere with the Commissioner of Income-tax (Appeals)' finding.

4. Regarding the assessee's cross-objection, we find that the first item of Rs. 4,840 (vide paragraph 3 above) is on account of legal expenses incurred in connection with exports and do not fall under any of the sub-clauses of section 35B. Regarding the sums of Rs. 11,000, Rs. 75,000 and Rs. 12,898, these are only estimated amounts of the assessee's claim before the Income-tax Officer made in a tabular statement (copy furnished by the assessee) that these are incidental to the export and delivery of goods outside India and fully qualify for the allowance under section 35B(1)(b)(iii), since this sub-clause excludes only ‘freight for the carriage of goods from India to foreign countries and insurance in transit’. The Tribunal has rejected the assessee's similar claim for the earlier year on the ground that these were incurred in India and would not be admissible under sub-clause (iii). For the same reason, the assessee's claim is inadmissible for this year also. Further, these items of expenditure claims are on mere estimate and there is no material to show the actual expenditure incurred. Regarding the last item C of Rs. 19,711, being salary paid to the five employees, the assessee's explanation in its tabular state-ment given to the Income-tax Officer is that these are for services rendered in procuring and shipping materials, preparation of export documents negotiation of the same with banks and allied correspondence. Such expenditure does not fall under any of the activities mentioned in section 35B(1)(b)(iii). In fact, a part of the salary paid to the first three out of these five persons has been allowed in the assessee's appeal by the Commis-sioner of Income-tax (Appeals) included in the sum of Rs. 1,45,405.

5. The assessee's claim for deduction in respect of the balance of the salary payment to the same persons under sub-clause (v), is obviously incorrect as it is not for ‘preparation and submission of tenders’ referred to in sub-clause (v). We are, therefore, of the view that the assessee's alternate claim in respect of the entire expenditure of Rs. 1,23,449 cannot also be allowed under sub-clause (v) as the expenditure in question has not been established to have been incurred for the preparation and submission of tenders.”

6. In the case of Commissioner Of Income-Tax v. Southern Sea Foods Ltd., [1995] 215 ITR 176 (Mad), a Bench of this court has observed as follows (at page 182):

“The Income-tax Act is the law under which tax is levied, assessed and collected for any assessment year at any given rate or rates in respect of the total income of the previous year or previous years as the case may be, on every person. ‘Person’ is defined as an individual, a Hindu undi-vided family, a company, a firm, an association of persons or a body of individuals whether incorporated or not, a local authority, and every artifi-cial juridical person, as well as a person who is the beneficial owner of shares in a company, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent, of the voting power. Such a person who is charge-able under the Act can claim the deduction, contribution or depreciation on various accounts including deduction on account of ‘export markets development allowance’. Expenditure on 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, obtaining information regarding markets outside India for such goods, services, or facilities, distribution, supply or provision outside India of such goods, services or facilities, maintenance outside India of a branch, office or agency for the promotion of the sale outside India of sueh goods, services or facilities; preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities, and activities incidental thereto, furnishing to a person outside India samples or technical information for the promotion of the sale of such goods, services or facilities; for 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; 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 such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed, are allowable as deduction, a sum equal to one and one-third times the amount of such expenditure incurred during the previous year. In respect of items such as advertisements or publicity outside India, obtaining information regarding markets outside India, maintenance outside India of a branch, office or agency, preparation and submission of tenders for the supply, and such other activities for the promotion of sale, outside India, are couched in such words that one can take notice of the expen-diture of the assessee on advertisements or publicity and such other functions, which being in India, get their effect outside India except distribution, supply or provision outside India of such goods, services or facilities, which is found in section 35B(1)(b)(iii) and which is qualified by the words ‘not being expenditure incurred in India in connection with or expenditure incurred on carriage of such goods to destinations outside India or on the insurance of such goods while in transit.’ These qualifying words in respect of expenditure on distribution, supply or provision outside India of goods, services or facilities, are not available in the other clauses of sub-section (1)(b) of section 35B, and thus it is irresistible that while assessing any claim to expenditure on advertisement or publicity can be allowed to be deducted it is necessary to find that such expenses are closely connected with the activities of the assessee outside India.”

7. These observations are expressions of the time-tested wisdom which is found in an earlier judgment of this court in the case of CIT v. Southern Sea Foods (P.) Ltd., [1983] 140 ITR 855, in these words (at page 859):

“We may, however, add that the reason given by the Income-tax Officer in disallowing the assessee's claim for weighted allowance was that the commission to Mody Export Pvt. Ltd. was paid, not outside India, but within this country. Although the assessment order does not, in terms, refer to sub-clause (iii) of section 35B(1)(b), it is easy to see that this was the sub-clause, which the Income-tax Officer had in mind. The sub-clause provides that where the expenditure relates wholly and exclusively to the distribution, supply or provision outside India of goods, services or facili-ties, then, ordinarily, that expenditure is eligible for weighted allowance. But, that is subject to certain conditions and restrictions. One of the restrictions is that the expenditure in question must not have been incurred in India. If the expenditure for distribution, supply or provision of goods outside India is incurred in India, then the weighted allowance will not be exigible. Likewise, in the case of expenditure for the carriage of goods and services overseas to their destination, wherever the expenditure is incurred, even if in foreign countries, such expenditure cannot claim the weighted allowance.”

8. The above is found reiterated in a later judgment of this court in the case of V.D Swami and Co. P. Ltd. v. CIT, [1984] 146 ITR 425. We have, however, referred to the later judgment in particular because there is some misapprehension at the Bar and learned counsel for the Revenue has emphasised accordingly that this court in V.D Swami and Co. P. Ltd. v. CIT, [1984] 146 ITR 425 has held that not only under section 35B(1)(b)(iii) of the Act but in other sub-clauses also, the inhibition that it should be the expenditure incurred outside India, is attracted. Balasubrahmanyam J., who has delivered the judgment has said - “The claims, which are now the subject of the present references, were laid by the assessee before the Tribunal as being eligible for weighted deduction under section 35B(1)(b)(iii) of the Act,” and noted the contention of learned counsel for the assessee, that “for expenses to be incurred on distribution of goods outside India, within the meaning of the section, it is not necessary that the expenditure must be incurred outside India. If the distribution of goods is outside India,…., it does not matter whether the expenditure on such distri-bution is incurred in India or abroad” and observed : “The latter part of learned counsel's contention cannot, in any event, be accepted as a correct interpretation of the provision. As earlier mentioned, sub-clause (iii) of section 35B(1)(b) expressly excludes ‘expenditure not being expenditure incurred in India in connection therewith’. 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 is incurred ‘outside India’, a phrase which occurs again and again in the various sub-clauses.” We do not read in the last observation that the pronouncement “for expenses” quoted in this judgment ever intended to say that in no case any expense within India for the purpose as envisaged under section 35B(1)(a) which qualifies under one or other clause of section 35(1)(b), can qualify at all. The qualifying words have been noticed by this court in Commissioner Of Income-Tax v. Southern Sea Foods Ltd., [1995] 215 ITR 176 as not available in other provisions of sub-section (1)(b) of section 35B. This view has been found expressed in judgments of other High Courts including two judgments of the Delhi High Court, i.e, CIT v. Jay Engineering Works, [1984] 149 ITR 297 and Commissioner Of Income-Tax, Delhi (Central-I) v. Raunaq International Ltd., [1986] 158 ITR 701. In the latter case, placing reliance upon the judgment of this court in CIT v. Southern Sea Foods (P.) Ltd., [1983] 140 ITR 855, the Delhi High Court has said as follows (at page 703):

“Two points were made on behalf of counsel for the petitioner. One is that these were items of expenditure incurred in India and were, therefore, not entitled to weighted deduction. The second was that the assessee had not established the deductibility of these items under various specific clauses set out in section 35B(2) and, therefore, was not entitled to weighted deduction. So far as the first of these points is concerned, the language of section 35B itself shows that, except for expenditure falling under clause (iii), the expenditure incurred under the other clauses need not be necessarily in (sic) India; all that is necessary is that the expenditure should promote development of exports in the various aspects referred to in those clauses. This is clear not only from the language of the section but also from the decision of the Madras High Court in CIT v. Southern Sea Foods (P.) Ltd., [1983] 140 ITR 855 and of this court in CIT v. Jay Engineering Works, [1984] 149 ITR 297 referred to by learned coun-sel for the parties. There is, therefore, no substance in this contention.”

9. It is not necessary to multiply and add to the authorities already cited, the judgments of other courts, except referring to the judgment of the Karnataka High Court in Chief CIT v. H.M.T (International) Ltd., [1993] 203 ITR 573, wherein the above view is reiterated and the judgment of this court in V.D Swami and Co. Pvt. Ltd. v. CIT, [1984] 146 ITR 425, which is explained in these words (at page 575):

“However, Mr. Raghavendra Rao relied on a decision of the Madras High Court in V.D Swami and Co. Pvt. Ltd. v. CIT, [1984] 146 ITR 425. It was a case where the deduction was claimed under sub-clause (iii) of section 35B(1)(b). The language of the sub-clause is quite clear that it specifically excludes the expenditure incurred in India from being con-sidered for the purpose of weighted deduction. While considering the scope of the said clause, the High Court 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”. To maintain that weighted deduction is avail-able 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 indis-criminate 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.’

While comparing sub-clause (iii) with the other sub-clauses, the Madras High Court in fact has not referred to sub-clause (ii) at all. It has referred only to such of the sub-clauses which involved expenditure outside India. In fact, the reasoning of the Madras High Court would support the contention of the assessee because if the expenditure incurred in India were to be outside the scope of the weighted deduction under sub-section (ii), Parliament certainly would have used similar words as in sub-clause (iii)….”

10. The Tribunal has also given a consideration whether the claim of the assessee for the entire expenditure of Rs. 1,23,449 under sub-clause (v).of section 35B(1)(b), is sustainable and found against the assessee. The Tri-bunal has considered the assessee's alternative claim because admittedly no part of the said expenditure was incurred outside India. There can be no doubt that in case it is found that the assessee was required to employ someone for the activities stipulated under section 35B(1)(b)(v) and pay any wages or emoluments or engage some one who also worked for matters falling under section 35B(1)(b)(v), the assessee can claim apportionment and seek allowances. The expenditure referable under sub-clause (v) of clause (b) of sub-section (1) of section 35B is that incurred wholly and exclusively on the preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities and activities incidental thereto. We do not get any idea from the order of the Tribunal or from any other material on record that the Revenue, at any stage, gave any consideration whether any of the servants for whom the assessee claimed allowances, worked in the preparation and submission of tenders for the supply of goods or provision outside India of such goods, services or facilities and activities incidental thereto, except one sentence of observa-tion in the order of the Tribunal, (i.e):

“The assessee's claim for deduction in respect of the balance of the salary payment to the same persons under sub-clause (v) is obviously incorrect as it is not for ‘preparation and submission of tenders’ referred to in sub-clause (v).”

11. It is not possible, therefore, to answer specifically whether the Tri-bunal has rightly disallowed the claim of the assessee under section 35B(1)(b)(v) of the Act. The proper course, in such a situation for the Tribunal, will be to re-examine the whole matter in the light of the observa-tions above. The reference is answered accordingly.