A.P Chowdhri, J.:— 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.

3. 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:

Rs. (1) Railway freight 1,40,732.86 (2) Marine insurance 23,448.03 (3) Sea freight 5,82,832.64 7,47,013.53

4. 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.”

5. 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 subclause (viii). It is at the instance of the Revenue that the present reference has been made.

6. We have heard Mr. R.P Sawhney, senior standing counsel for the Revenue, and Mr. B.S Gupta, senior advocate for the assessee.

7. 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;”

8. It is not disputed that except sub-clauses (iii) and (viii) no other subclause 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.

9. It will be seen that under the second part stated as (b) above, expenditure incurred in India in connection with distribution, supply or provision outside India of such goods, services or facilities has been excluded in general terms. Under the third part, stated as (c) above, expenditure incurred, whether in India or outside India, on the carriage of goods to their destination outside India or on the insurance of such goods while in transit, have been expressly excluded from weighted deduction under section 35B of the Act. In Bharat General and Textile Industries Ltd. v. CIT, [1985] 153 ITR 747, after referring to the relevant decisions of the Madras High Court, Madhya Pradesh High Court and of the Delhi High Court, the learned judges of the Calcutta High Court analysed sub-clause (iii) to contain three prohibitions in the following words (at page 757):

“It appears to us that there are three prohibitions in sub-clause (iii) of section 35B(1)(b). Firstly, expenditure incurred in India in connection with distribution, supply or provision outside India of such goods, services or facilities. Secondly, expenditure, whether incurred in India or outside India, on the carriage of such goods to their destination outside India (i.e, freight, etc.), and, thirdly, expenditure, whether incurred in India or outside India, on the insurance of such goods while in transit.”

10. Mr. Sawhney has brought to our notice a later decision of the Madras High Court in K. Vensimal and Sons v. CIT, [1986] 157 ITR 807 and a decision of this court in Hmm Ltd. v. Commissioner Of Income-Tax., [1990] 184 ITR 236, in which a similar conclusion was reached. No decision to the contrary has been brought to our notice.

11. In view of the express prohibition contained in sub-clause (iii) expenditure incurred on carriage and insurance, whether incurred in India or outside India, cannot qualify for weighted deduction under that sub-clause.

12. The alternative contention of Mr. Gupta is that the assessee is entitled to weighted deduction in question under sub-clause (viii). According to Mr. Gupta, the essential conditions to attract the applicability of sub-clause (viii) is two fold: one, performance of services must be outside India and two, the services must be in connection with, or incidental to, the execution of the contract. In the present case, both these conditions are satisfied in so far as marine insurance and sea freight are concerned. These expenses were incurred by the assessee in terms of the CIF and C and F contracts under which the goods were sent to the foreign buyers. Once these conditions are held to have been satisfied, it would be of no consequence that the expenditure was incurred in India. What, according to Mr. Gupta, is of essence is that services are rendered outside India. We find merit in the contention of Mr. Gupta. Independently of the nature of the contract being CIF or C and F, section 39 of the Sale of Goods Act, 1930, casts a duty on the seller to make an appropriate contract with the carrier to ensure safety of the goods even though delivery to the carrier is tantamount to delivery to the buyer. It reads:

“39. Delivery to carrier or wharfinger.—(1) Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the buyer.

(2) Unless otherwise authorised by the buyer, the seller shall, make such contract with the carrier or wharfinger on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case. If the seller omits so to do, and the goods are lost or damaged in course of transit or whilst in the custody of the wharfinger, the buyer may decline to treat the delivery to the carrier or wharfinger as a delivery to himself, or may hold the seller responsible in damages.

(3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, in circumstances in which it is usual to insure, the seller shall give such notice to the buyer as may enable him to insure them during their sea transit, and if the seller fails so to do, the goods shall be deemed to be at his risk during such sea transit.”

13. Sea freight and marine insurance are clearly services rendered outside India. Further, both these services are in connection with the execution of the contract entered into with the foreign buyer. Both the conditions of sub-clause (viii) are, therefore, satisfied. Once this conclusion is reached, it is no reason to exclude sub-clause (viii) that the expenditure was incurred in India; because there is no such condition laid down in sub-clause (viii) either expressly or by necessary implication as distinguished from subclause (iii) where the expenditure incurred in India has been specifically excluded.

14. Expenditure on account of railway freight stands on a different footing. Carriage of goods by rail from the place of manufacture up to the port from where they were exported cannot, by any logic, be considered to be a service rendered outside the country. Sub-clause (viii) in terms is confined to performance of services outside India. Performance of services, which qualify for weighted deduction under sub-clause (viii), must fulfil two conditions, namely, (a) the services must be in connection with, or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities, and (b) such services must be performed outside India. In the case of railway freight, the first condition is satisfied but not the second condition and, therefore, in our view, railway freight did not qualify to be entitled to weighted deduction under section 35B of the Act. The only remaining question is whether the exclusion of expenditure on freight and insurance, specifically made in sub-clause (iii) will be applicable to cases falling under sub-clause (viii). We are of the view that the answer must be in the negative. Each sub-clause (b) must be read independently according to the words used by Parliament. There is no justification for reading the terms of one sub-clause into those of another sub-clause in the absence of words which compel such a construction. We are supported in this view by CIT v. Eldee Wire Ropes Limited, [1978] 114 ITR 485 (Bom), Commissioner Of Income-Tax, Delhi-I v. Jay Engineering Works., [1984] 149 ITR 297 (Delhi) and CIT v. Vippy Solvex Product Private Limited, [1986] 159 ITR 487 (MP).

15. For the foregoing reasons, we hold that the Appellate Tribunal was right in its conclusion that the assessee was entitled to weighted deduction in respect of expenditure incurred on marine insurance (Rs. 23,448.03) and sea freight (Rs. 5,82,832.64) under sub-clause (viii) of section 35B(1)(b) of the Act. We are, however, unable to agree with the Appellate Tribunal in so far as expenditure of Rs. 1,40,732.86 on account of railway freight being qualified for such weighted deduction is concerned. We decide accordingly.