Bombay High Court
Forbes Forbes Campbell And Co. Ltd. vs Commissioner Of Income-Tax on 6 September, 1993
Equivalent citations: 1993(63)ELT23(BOM), [1994]206ITR495(BOM)
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion :
"Whether, on the facts and in the circumstance of the case, the Income-tax Appellate Tribunal has rightly held that the assessee is not entitled to weighted deduction under section 35B of the Income-tax Act, 1961, in respect of the following item of expenditure :
"Nature of expenditure Amount
Rs.
1. Freight charges 3,68,708
2. Export inspection charges 8,783
3. Brokerage 562
4. Insurance 5,247
5. Bank charges 12,707
6. Clearing charges 41,250."
2. The admitted position is that all the expenses mentioned in the above-referred question were incurred by the assessee in India, though in connection with carriage of the goods to their destination outside India.
3. Learned counsel for the Revenue submits that the controversy in this case is fully covered by the decision of this court in M. H. Daryani v. CIT [1993] 202 ITR 731 and a number of other decisions of this court on the point. Learned counsel for the assessee does not dispute this position. He, however, submits that the decision of this court in M. H. Daryani [1993] 202 ITR 731, requires reconsideration in the light of the decision of the Punjab and Haryana High Court in CIT v. Roadmaster Industries of India Pvt. Ltd. [1993] 202 ITR 968. According to him, though such expenditure does not fall in sub-clause (iii) by reason of the specific prohibition contained therein, it would fall in the residuary item of expenditure specified in sub-clause (viii) of clause (b) of section 35B(1) of the Act.
4. We have considered the above submission. We, however, do not find and merit in the same. Sub-clauses (iii) and (viii) of clause (b) of section 35B(1), as they stood at the material time, are in the following terms :
"(iii) distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in Indian 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;"
5. From a plain reading of the above sub-clauses, it is clear that sub-clause (iii) specifically deals with expenditure incurred by the assessee on the carriage of goods to their destination outside India and on insurance of such while in transit. It contains a specific prohibition on the allowability of weighted deduction on such expenditure. This clause came up for the consideration of this court in M. H. Daryani's case [1993] 202 ITR 731, where it was observed (at page 734) as under :
"A close reading of this clause makes it clear that allowance by way of weighted deduction contemplated by clause (a) of sub-section (1) of section 35B is available to an assessee specified therein who claims to fall under sub-clause (iii) of clause (b) only on the ground of the expenditure being incurred wholly and exclusively on 'the distribution, supply or provision outside India of such goods, services or facilities which the assessee deals in or provides in the course of his business.' By the underlined portion [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] which was inserted by the Finance Act, 1970, with retrospective effect from April 1, 1968, certain expenditure which otherwise might have fallen in clause (b) (ii) were taken our of its ambit by specifically saying so. These expenditures are :
(1) Expenditure incurred in India in connection with the activities mentioned in sub-clause (iii), or (2) Expenditure wherever incurred (i) on the carriage of such goods to their destination outside India, or
(ii) on the insurance of such goods while in transit."
6. It is thus clear that sub-clause (iii) contains a specific prohibition on allowance of weighted deduction on expenditure incurred on carriage of goods to their destination outside India and on insurance of such goods while in transit, whether incurred in India or outside India. It also prohibits allowances of weighted deduction on expenditure on the distribution, supply or provision outside India of such goods, services, etc., if incurred in India, Weighted deduction on such expenditure, is however, allowed if it is "incurred outside India". That being so, no weighted deduction is allowable at all on expenditure on freight and insurance whether incurred in India or outside India. In the instant case, it is also not allowable on expenditure incurred on account of (i) export inspection charges, (ii) brokerage, (iii) bank charges, and (iv) clearing charges incurring in India.
7. The only question that survives for consideration is whether, in such a situation, weighted deduction can be claimed by the assessee on expenditure on freight and insurance, etc., under sub-clauses (viii). In other words, whether despite the specific prohibition in sub-clause (iii) on allowance of weighted deduction on freight and insurance, it can be allowed by resort to sub-clause (viii). The answer, in our opinion, has to be in the negative. It is a well-settled principle of interpretation that a statue must be read as a whole and every provision must be construed with reference to the context and other clauses in the statue so as to make a consistent enactment of the whole statue. It is equally well-settled that the sub-sections or sub-clauses must be read as parts of an integral whole and as being interdependent and an attempt should be made in construing them to reconcile them, it is reasonably possible to do so, and to avoid repugnancy. If there are two conflicting provisions in the same section or clause, the courts should find out which of the two provisions is more general and which is more specific and construe the more general one as to exclude the more specific. The principle is expressed in the maxim : Generalia specialibus non-derogant and generalibus specialia derogant. If a special provision is made on a certain subject-matter, that matter is excluded from the general provision.
8. If we construe sub-clause (iii) and (viii) of clause (b) in the manner set out above, sub-clause (iii), which is a special provision dealing with allowance of weighted deduction on expenditure mentioned therein including expenditure on freight and insurance, will prevail over sub-clause (viii) which is a general provision and deals with "expenditure on performance of services outside India in connection with the execution of any contract for the supply outside India of any goods, services or facilities." This sub-clause, evidently, does not deal with expenditure which has been specifically dealt with in sub-clause (iii) wherein the conditions on the allowability of weighted deduction have been laid down.
9. We are, therefore, of the clear opinion that allowability of weighted deduction on expenditure falling under sub-section (iii) will have to be determined with reference to the conditions and restrictions specified therein and not with reference to any other sub-clause which deals with expenditure of a general nature. We find it difficult to agree with the opinion of the Punjab and Haryana High Court in CIT v. Roadmaster Industries of Indian Pvt. Ltd. [1993] 202 ITR 968 that each sub-clause must be read into those of another sub-clause. This view is not in consonance with the well-settled principle of interpretation of statues. In our opinion, the specific exclusion made in sub-clause (iii) will prevail over the general provisions contained in the other sub-clauses of clauses (b). Such an interpretation is also in accord with the principle of harmonious construction.
10. Besides, even on the facts, these items of expenditure incurred by the assessee in the instant case so not fall under clause (viii) because none of them had been incurred on performance of any service outside India in connection with or incidental to the contract for supply of goods outside India.
11. In view of the foregoing discussion, we answer the question referred to us in the affirmative, i.e., against the assessee and in favour of the Revenue.
12. Under the facts and circumstances of the case, we make no order as to costs.