The Judgment of the Court was delivered by

Dipak Kumar Sen, J.:— This reference arises out of the assessment of Birla Jute Manufacturing Co. Ltd., the assessee, to income-tax in the assessment years 1973–74, 1974–75 and 1976–77. On an application of the assessee under section 256(1) of the Income-tax Act, 1961, the following questions have been referred as questions of law arising out of the order of the Tribunal for the opinion of this court:

1. Question common to all the assessment years:

“Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction for export markets development allowance in respect of the various expenses which the Tribunal disallowed?”

2. Common question relating to the assessment years 1973–74 and 1974–75:

“Whether, on the facts and in the circumstances of the case, the assessee's claim for deduction in respect of liability for surtax is allowable while computing the total income?”

3. Question relating to the assessment year 1973–74:

“Whether, on the facts and in the circumstances of the case, for the purpose of capital computation under section 80J, the actual cost of depreciable assets as against the written down value should be taken into account ignoring rule 19A of the Income-tax Rules, 1962?”

2. The controversy raised in question No. 2 is covered by a decision of this court in Molins Of India Ltd. v. Commissioner Of Income-Tax, West Bengal-Iii., [1983] 144 ITR 317. Following the said decision, we answer question No. 2 in the negative and in favour of the Revenue. The controversy raised in question No. 3 is similarly covered by a decision of this court in Bharat General & Textile Industries Ltd. v. CIT, [1985] 153 ITR 747. Following the said decision, we answer this question also in the negative and in favour of the Revenue. We state that in computing the capital employed for the purpose of deduction under section 80J of the Income-tax Act, 1961, the written down value of the assets should be considered and not the actual cost. The facts pertaining to question No. 1 are, inter alia, that in the assessment year 1973–74, the assessee claimed weighted deduction in respect of export markets development allowance before the Income-tax Officer and was allowed such deduction in respect of some items. On an appeal before the Appellate Assistant Commissioner, the assessee subsequently claimed further deduction under section 35B in respect of a number of additional items. The Appellate Assistant Commissioner allowed the assessee to make such further claim. The additional items for which the assessee claimed further deduction under section 35B were, inter alia, as follows:

(a) Commission in respect of export sales;

(b) Salaries to export staff;

(c) Ocean freight;

(d) Bank charges;

(e) Shipping expenses;

(f) Postage, telegram and telephone;

(g) Stationery and printing;

(h) Staff welfare expenses;

(i) Travelling expenses in India relating to export;

(j) Marine insurance.

3. The Appellate Assistant Commissioner allowed the claim of the assessee in respect of salaries to export staff, postage, telegram and tele-phone and stationery and printing and directed the Income-tax Officer to allow weighted deduction on the said items in the proportion as between the total sales and export sales of the assessee. The Appellate Assistant Commissioner rejected the claim of the assessee in respect of the other items. On a further appeal by the assessee, the Income-tax Appellate Tribunal allowed another item claimed by the assessee, viz., commission, in respect of export sales and disallowed the assessee's claim in respect of the other items which had also been disallowed by the Appellate Assistant Commissioner.

4. For the assessment year 1974–75, the assessee for the first time claimed weighted deduction in respect of export markets development allowance before the Tribunal in respect of the same items as claimed in the assessment year 1973–74. As the claim had not been raised either before the Income-tax Officer or the Appellate Assistant Commissioner, the Tribunal held that the claim could not be determined without reference to fresh facts which had not been brought on record. The Tribunal accordingly disallowed the entire claim of the assessee.

5. For the assessment year 1976–77, the claim of the assessee for weighted deduction in respect of export markets development allowance was allowed by the Income-tax Officer in respect of foreign travelling allowance, advertisement expenses in foreign countries and commission in respect of export sales but disallowed in respect of the other items claimed. In the appeal before the Appellate Assistant Commissioner, the assessee claimed such deduction in respect of the following further items:

(a) Salaries to export staff;

(b) Ocean freight;

(c) Export bank charges;

(d) Payment made for advice on export potentiality and market condition;

(e) Payment to Carbide Research and Development Organisation;

(f) Shipping expenses.

6. The Appellate Assistant Commissioner allowed the assessee's claim for deduction in respect of a portion of salaries to the export staff, the payment made for advice on export potentiality and market condition as also the payment made to the Carbide Research and Development Organisation. The claims of the assessee in respect of the other items were disallowed.

7. On further appeal by the assessee, the Tribunal allowed the assessee's claim in respect of salaries paid to the export staff in full as the same had been paid only to the export staff. For salaries paid to other employees, the Tribunal noted, that no claim was made by the assessee.

8. At the hearing, the learned advocate for the assessee drew our attention to section 35B of the Income-tax Act, 1961, the material part of which is set out as follows:

“(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.

(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;

(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.”

9. The learned advocate for the assessee submitted that in the instant case, the assessee was entitled to the allowance under section 35B on the basis of weighted deduction in respect of staff welfare expenses incurred relating to employees engaged in export and also travelling expenses incurred in India in relation to such export.

10. He drew our attention to the decision of this court in Bharat General & Textiles Industries Ltd. v. CIT, [1985] 153 ITR 747, where it was held that expenditure incurred on freight, loading charges, insurance, etc., in connection with export was not allowable for weighted deduction under section 35B. On the principles laid down in the said decision, the learned advocate for the assessee did not press his claim for deduction in respect of ocean freight, export bank charges and shipping expenses.

11. In support of its claim for weighted deduction in respect of the said two items, viz., staff welfare expenses relating to employees engaged in export and travelling expenses incurred in India in relation to exports, the learned advocate for the assessee drew our attention to a decision of the Delhi High Court in Commissioner Of Income-Tax, Delhi-I v. Jay Engineering Works., [1984] 149 ITR 297. Here, a Division Bench of the Delhi High Court held, inter alia, that to be entitled to export markets development allowance under section 35B(1) of the Income-tax Act, 1961, it was not required that expenses for the activities contemplated under sub-clauses (i), (ii), (v), (vi), (vii) and (ix) should be incurred outside India. In particular, expenses incurred for obtaining information on markets outside India as visualised in sub-clause (ii), or preparation of tenders for the supply of goods as visualised by sub-clause (v), or furnishing of samples or technical information outside India as visualised by sub-clause (vi), could reasonably be incurred in Indian currency in India and, therefore, if such expenses were incurred, they were entitled to qualify for the export markets development allowance under section 35B.

12. On the authority of this decision, the learned advocate for the assessee submitted that the assessee was entitled to allowance under section 35B on the basis of weighted deduction for staff welfare expenses relating to employees engaged in export and particularly so, as their entire salary has been allowed. On the same logic, the learned advocate for the assessee submitted that travelling expenses incurred in India in relation to export should have been allowed.

13. The learned advocate for the Revenue contended on the other hand that the items on which deduction was being claimed by way of export markets development allowance did not come strictly within the items mentioned in sub-section (1)(b) of section 35B and, therefore, they should not be allowed. The learned advocate cited a decision of the Madras High Court in V.D Swami & Co. Pvt. Ltd. v. CIT, [1984] 146 ITR 425. This decision is not of particular relevance in the instant case inasmuch as there it was held by the High Court that weighted deduction under section 35B(1)(b)(iii) of the Income-tax Act, 1961, would be available only in respect of expenses incurred outside India and not in respect of expenses incurred in India by reason of the specific language of the said sub-clause (iii).

14. It appears to us that in order to be eligible to weighted deduction on the export markets development allowance, it is required to be established by the assessee that the expenditure for which such deduction was being claimed had been incurred wholly and exclusively for the specified purposes. On the facts on record, it does not appear that the assessee was able to establish that the expenses incurred by it on account of staff welfare or for travelling in India was exclusively for obtaining information under sub-clause (ii) or for preparation and submission of tenders for the supply of goods outside India or activities incidental thereto under subclause (v) of section 35B(1)(b). The claim of the assessee was a general claim on the basis of apportionment. Particulars were not furnished by the assessee to establish that the staff for whose welfare the expenditure was incurred were deputed exclusively for the aforesaid purpose of obtaining information or for preparation and submission of tenders. Similar particulars in respect of travelling expenses incurred were also not furnished. Unless such facts were brought on record and established, the assessee was not entitled to claim weighted deduction in respect of export markets development allowance in respect of the said two items.

15. For the reasons as aforesaid, on the facts on record, we are unable to answer the question referred even to the limited extent as sought for by the assessee. We remand the matter to the Tribunal for being considered afresh in accordance with the principles laid down in this judgment. The Tribunal will dispose of the matter accordingly after taking further evidence, if necessary. We make it clear that so far as the assessment year 1974–75 is concerned, we answer the question in the negative and in favour of the Revenue.

Monjula Bose, J.:— I agree.