COMMISSIONER OF INCOME TAXversusBOMBAY BURMAH TRADING CORPORATION

                  COMMISSIONER OF INCOME TAX                                        A
                                       v.
           BOMBAY BURMAH TRADING CORPORATION

                           FEBRUARY 15, 2000

       !D.P. WADHWA AND S.S. MOHAMMED OUADRI, JJ.I                                  B

       Income-tax Act, 1961-Section 35-B-Export Markets developments al-
lowance-Weighted ded1tction-Gaim of-Requ,irements of Sec. 35-B-Held,
it is not necessa1y that expo1t sho1tld be directly ex-India-Contract for s1tpply
of tea in United Kingdom-Expenditllre i11c1t"ed with regard to pelfonnance          c
of services outside India in execlltion of the contract-Whether assessee, an
India11 resident company was entitled to claim benefit of Sec. 35-B-Held,
Yes.

       The respondent assessee, an Indian resident company, carrying on
the business of exporting tea, claimed weighted deduction u/s. 35-B of the D
Income Tax Act, 1961, in respect of the expenditure incurred on export of
tea from East Africa to the United Kingdom in connection with the
execution of the contract for the supply of tea in the United Kingdom.
Revenue disallowed the claim holding that Section 35-B would apply only
if the exports were made from India. On reference, the High Court upheld E
the assessee's claim, holding that to avail the benefit of weighted deduction
the provision does not require that the export should be ex-India and that
expenditure was incurred with regard to the performance of the service
outside India, i.e. from East Africa to United Kingdom in connection with
the execution of contract for supply of tea in the United Kingdom. These
appeals had been filed by the Revenue against the decision of the High F
Court.

      Dismissing the appeal, this Court

      HELD : 1.1. To claim the benefit of section 35-B of the Income-tax
Act, 1961, the conditions to be satisfied are that : (i) the assessee must be G
a domestic company which is resident in India; (ii) It must have incurred
expenditure after February 29, 1968 but before March 1, 1983; (iii) Such
expenditure should not be in the nature of capital expenditure or personal
expenses of the assessee; (iv) the expenditure might have been incurred
either or in association with any other person; (v) the nature of the H
                                      809
    810                   SUPREME COURT REPORTS                  (2000] 1 S.C.R.

A expenditure must answer the description referred in any one of the sub·
    clauses of clause (b). On these requirements being satisfied the assessee-
    company becomes entitled to the weighted deduction under Section 35-B.
    It is not necessary that the export should be directly ex-India (from India).
                                                              [812-F-H; 813-A-B]
B         1.2. The weighted deduction under Section 35-B was claimed by the
    assessee, an Indian resident company, in respect of the expenditure in-
    curred with regard to the performance of the services outside India i.e. in
    East Africa and United Kingdom in connection with the execution of the
    contract for supply of tea in the United Kingdom. The High Court rightly
    allowed assessee's claim. The Tribunal's reading of tine section that the
C   export should be ex-India is not supported by the language of the
    provision. [814-B; 813-C]

       CIT. v Continental Constmction Ltd., (1998) ITR 485 SC; Continental
  Constmction Ltd. v. CIT, (1990) 185 ITR 178; Bombay Bunnah Trading
D Corporation Ltd. v. CIT, Bombay City-IV, (1984) 145 ITR 793, referred to.
          CIVIL APPELLATE JL:RISDICTION: Civil Appeal Nos. 2600-03
    of 1994.

         From the Judgment and Order dated 12.12.88 of the Bombay High
E   Court in I.T.R 242 of 1976.

         K.N. Rawal, Additional Solicitor General, M.L. Verma, Ms. Neera
    Gupta, Ms. Sushma Suri, Shail Kumar Dwivedi, S. Rajappa, B.K. Prasad,
    Hemant Sharma, K.N. Shukla, K.C. Kaushik, A.K. Sharma, M.B. Rao and
    Ms. A. Subhashini for the Appellant.
F
         Ranjit Kumar, Ankur Chauhan, R. Karanjawala, Ms. Nandini Gore
    and Mrs. M. Karanjawala for the Respondents.

          The Judgment of the Court was delivered by

G          SYED SHAH MOHAMMED QUADRI, J. In these five appeals the
     parties are common; the Revenue is the appellant and the assessee is the
     respondent, C.A. Nos. 2600-03 of 1994, which relate to the assessment years
     1967-68 to 1970-71, arise from the judgment and order of the Division
     Bench of the High Court of Judicature at Bombay in Income-Tax Refer-
H    ence No. 242 of 1976 dated December 12, 1988. Following that judgment
     CJ.T. v. BOMBAY BURMAH, TRADING CORPN. [QUADRI, J.j                  81 l

the Division Bench disposed of Income Tax Reference No. 10 of 1987               A
which pertains to the assessment years 1974-75 on July 30, 1998 which is
under challenge in Civil Appeal No. 3788 of 1999. The common substantial
question of law, which arises in these appeals, is question No. 2 noted
below.

       Briefly stated, the facts giving rise to these appeals are as follows :   B
The respondent-assessee is an Indian resident company. It is carrying on
the business of exporting tea. In the aforementioned assessment year it
claimed weighted deduction under Section 35-B of the Income-Tax Act
(for short 'the Act') in respect of the expenditure of Rs. 1,95,935 incurred
on export of tea from East Africa to the United Kingdom. The claim was           c
disallowed by the Income-tax Officer on the ground that Section 35-B
would apply only if the exports were made from India. That view was
upheld by the Appellate Assistant Commissioner and the Income-tax Ap-
pellate Tribunal. Among others, the following two questions in Income Tax
Reference No. 242 of 1976 and question No. 2, in Income Tax Reference            D
No. 10 of 1987 were referred to the High Court of Judicature at Bombay
by the Income-tax Appellate Tribunal under Section 256(1) of the Act :

        "(1) Whether on the facts and in the circumstances of the case,
             the provisions of Section 40(c)(iii)/40(a)(v) applied in the
             case of the employees of the Assessee in its overseas               E
             branches?

        (2) Whether on the facts and in the circumstances of the case,
            the assessee is entitled to weighted deduction under Section
            35-B in respect of the expenditure of Rs. 1,95,935 incurred          F
            on export of tea from East Africa to the United Kingdom?"

      The first question was answered in the negative i.e., in favour of the
assessee and against the Revenue following the judgment in the case of the
respondent-assessee for the earlier assessn•.:nt years in Bombay Bunnah
Trading Corporation Ltd. v. Commissioner of Income Tax, Bombay City-IV,          G
(1984) 145 ITR 793, it is conceded by the learned counsel for the parties
that this question is covered against the Revenue by the judgment of this
Court in Commissioner of Income Tax v. Continental Construction Ltd.,
(1998) 230 ITR 485 affirming the judgment in Continental Construction Ltd.
v. Commissioner of Income Tax, (1990) 185 ITR 178.                               H
    812                        SUPREME COURT REPORTS                   [2000] 1 S.C.R.
A         Adverting to the second question, the High Court answered 1t in the
    affirmative i.e in favour of the assessee and against the Revenue. It will be
    apt to refer to Section 35-B of the Act, which is the subject-matter of
    debate in all the five appeals.

             "35-B. Export Markets developments allowance - (l)(a). Where an
B            assessee, being d domestic company or a person (other than a
             company) who is resident in India, has incurred after the 29th day
             of February, 1968, but before the 1st day of March, 1983, whether
             directly or in association with any other person, any expenditure
             (not being in the nature of capital expenditure or personal expen-
c            ses 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
D            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....... ;

E                  •••                                      •••
                   (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."
F
    On a plain reading of the provision of sub-section (1), extracted above, it
    is clear that to claim the benefit of this section the following conditions
    have to be satisfied :

          (i)        the assessee must be a domestic company which is resident
G
                     in India;

          (ii)       it must have incurred expenditure after February 29, 1968 but ·
                     before March 1, 1983;

H          (iii)         such expenditure should not be in the nature of capital
          C.LT. v. BOMBAY BURMAH, TRADING CORPN. [QUADRI, J.J                 813


-·         (iv)
                  expenditure or personal expenses of the assessee;

                  the expc;nditure might have bt:t:n incurred either directly or
                                                                                      A

                  in aswciation with any other pt:rson; and

           (v)     the nature of the expenditure must answer the description
                   referred to in any one of the sub-clauses of clause (h).           B

     On these requirements being satisfied the a:>sessee-company becomes en-
     titled to the weighted deduction under Section 35-B. it is not necessary that
     the export should he directly ex- India (from India).

           The Tribunal's reading of the section that the export should he            C
     ex-India is not supported by the language of the provision or any authority.
     The High Court has, therefore, rightly concluded that to avail the benefit
     to weighted deduction the provision docs not require that the export should
     he ex-India. It must be observed in fairness to Mr. M.L. Verma, learned
     senior counsel appeanng for the Revenue, that he dues not seriously              D
     dispute this proposition. Once this position is accepted, the order under
     challenge has to be sustained.

           However, what Mr. Verma contends is that the respondent claims
     the expt:nditure under sub-claims (viii) for which there is no factual finding
     by the Tribunal. The High Court, submits Mr. Verma, has gone wrong in            E
     recording a fresh finding - "the expenditure was incurred with regard to
     the performance of the service outside India i.t:. from East Africa to United
     Kingdom in connet:tion with the execution of contract for supply of tea in
     the United Kingdom'' - and on that basis upholding the claim of the
     respondent under St:ction 35-B; his further submission is neither the High
     Court nor this Court can do so without calling for a supplementary state-        F
     ment from the Tribunal on this aspect of the fact.

           Mr. Ranjit Kumar learned counsel appearing for the respondent-
     assessee company, invited our attention tu the orders passed by the In-
     come-Tax Officer; the Commissioner and the Tribunal and contended that           G
     there was no dispute with regard to the nature of the expenditure and
     therefore Mr. Verma's contention has to be rejected.

           We have perused the orders of the Income Tax Officer, the Commis-
     sioner, the Appellate Assistant Commissioner and the Tribunal as also the
     order under appeal passed by the High Court. Though a copy of the return H
    814                  SUPREME COL'RT REPORTS                 [2000] 1 S.C.R.
A containing details of the expenditure claimed by respondent under the
    above provision has not beein placed on record of the department
    authorities as well as of the Tribunal and of the High Court leave us in no
    doubt that the weighted deduction under Section 35-B was claimed in
    respect of the expenditure incurred with regard to the performance of the
B   service outside India i.e. in East Africa and United Kingdom in connection
    with the execution of the contract for the supply of tea in the United
    Kingdom. Indeed, the said is embodied in question No. 2 itself.

        In view of the question pointed out above, we find no illegality in the
  orders under challenge in these appeals. The appeals are accordingly
C dismissed with costs.
    R.A.                                                   Appt:als dismissed.