Bombay High Court
Sam Fashion Wear Pvt. Ltd. vs Commissioner Of Income-Tax on 13 September, 1993
Equivalent citations: [1994]209ITR214(BOM)
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 256(1) of the Income-tax act, 1961, made at the instance of the assessee, the Income-tax Appellate Tribunal has referred the following question of law for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the assessee was not entitled to weighted deduction under section 35B of the Income-tax Act, 1961, on the export freight and packing expenses amounting to Rs. 4,01,018 and Rs. 2,26,989, respectively?"
2. The assessee is a private limited company. This reference relates to the assessment year 1979-80. The controversy raised herein pertains to the disallowance of the claim of the assessee for weighted deduction under section 35B of the Income-tax Act, 1961 ("the Act"), in respect of two items of expenditure on "export freight" amounting to Rs. 4,01,018 and the other "packing expenses" amounting to Rs. 2,23,989. There is no dispute that all these expenses were incurred by the assessee in India. It is also the admitted position in this case that the packing of the goods was done in India.
3. So far as the controversy in regard to the claim of the assessee for weighted deduction in respect of expenses on "export freight" is concerned, counsel for the parties are agreed that no weighted deduction under section 35B of the Act is allowable in respect thereof in view of the decision of this court in M. H. Daryani v. CIT [1993] 202 ITR 731.
4. There is however a controversy about the allowability of weighted deduction in respect of "packing expenses". Learned counsel for the assessee submits that weighted deduction would be allowable in respect of this item of expenditure either under sub-clause (i) or sub-clause (viii) of clause (b) of section 35B(1). We have considered the above submission. Section 35B(1) of the Act provides for allowance of weighted deduction in respect of revenue expenditure incurred by any assessee specified therein on any of the items falling in the various sub-clauses of clause (b). Section 35B of the Act, as it stood at the material time, reads :
"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 persona 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 -
(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, service 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. ...
(2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year." .
5. On a plain reading of the above section, more particularly the various sub-clauses of clause (b) of sub-section (1) and sub-section (2), it is clear that this provision is enacted to cover mainly expenditure incurred wholly and exclusively on activities specified therein undertaken or performed outside India for development of export market. The benefit of this provision has been made available only to an assessee,
(i) being a domestic company, or
(ii) a person (other than a company) who is resident in India.
6. A non-resident or a foreign company which does not declare or pay dividend in India is outside the purview of this section. Besides, weighted deduction under this section is allowed only on expenditure incurred wholly and exclusively on the activities specified in the various sub-clauses of clause (b) of sub-section (1) thereof. The activities, however, should be for or in relation to or in respect of the "goods, services or facilities which the assessee deals in or provides in the course of his business." This is clear from the language of sub-clause (i) which speaks of "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" and the expression "such" which precedes the expression "goods, services or facilities" in the other sub-clauses. A close scrutiny of the various sub-clauses of clause (b) also goes to show that most of the activities mentioned therein are activities performed outside India. this section does not appear to cover expenditure incurred on activities inside India except those specifically provided for in any of the sub-clauses as being incidental to export business, such as those specified in sub-clauses (v) and (vi). Sub-section (2) makes it further clear that once deduction is allowed under this section, the assessee is not allowed to claim deduction under any other section of the Act in the same year or in any other assessment year. This is intended to operate as a bar on a claim of double deduction in respect of the same expenditure once under section 35B and again under any general provision of the Act. On a perusal of the scheme, object and purpose of the section, it is clear that in order to be eligible to allowance of weighted deduction under this section, the expenditure must meet the description of expenditure specified in any of the sub-clauses of clause (b) of sub-section (1) thereof. Unless a particular expenditure falls in any one of the aforesaid sub-clauses of clause (b), no deduction can be allowed under this section.
7. The contention on behalf of the assessee is that "packing expenses" fall either in sub-clause (i) or sub-clause (viii) of clause (b). On a reading of these two sub-clauses, we find it difficult to accept this contention of the assessee. Sub-clause (i) deals with expenditure incurred wholly and exclusively on "advertisement or publicity outside India" in respect of the goods, services or facilities dealt in or provided by the assessee in the course of his business. The contention of the assessee is that packing also helps advertisement or publicity of goods and hence "packing charges" can be termed as "expenditure on advertisement or publicity in respect of the goods". We do not find any force in the above contention. The words "advertisement" and "publicity" have to be given their natural meaning. By no amount of stretching or straining the meaning of these expressions, can "packing charges" be brought within their ambit. It may also be expedient to notice in this connection that in order to fall within sub-clause (i), even advertisement or publicity must be "outside India". Clause (i) does not cover expenditure incurred on "advertisement or publicity" in India. In the instant case, packing of goods was done "in India". That by itself is enough to take the expenditure out of the purview of sub-clause (i). Similarly, sub-clause (viii) also does not take within its ambit expenditure incurred on packing of goods because packing of the goods in India cannot tantamount to "performance of service outside India" in connection with or incidental to the supply of the goods outside India. Sub-clause (viii) also requires performance of services outside India. Though packing charges normally do not constitute expenditure on performance of service in connection with supply of goods, even if in a given case it is held to be so, that will not be enough to bring it within the scope of sub-clause (viii) because the packing in the instant case has not been done outside India. In that view of the matter also, it cannot fall in sub-clause (viii) even if it is held to be expenditure incurred in connection with supply of goods outside India. Counsel for the assessee referred to the decision of the Kerala High Court in Kesaria Tea Co. Ltd. v. CIT [1991] 189 ITR 374 where, on the facts and circumstances of that case, allowance of weighted deduction on the printing of the cartons by the Tribunal was upheld by the High Court. On going through the above decision, we find that the controversy before the High Court was regarding allowance of weighted deduction on the cost of cartons used for packing the assessee's goods for export. The Tribunal allowed the claim for weighted deduction on the cost of printing of the cartons but rejected the claim in respect of the cost of the cartons. The assessee went to the High Court by way of reference claiming weighted deduction on the cost of cartons. The High Court rejected the claim of the assessee and held that he was not entitled to weighted deduction on the cost of the cartons. The correctness of the allowance of weighted deduction on the cot of printing of the cartons was not the subject-matter or reference before the High Court. The controversy before the High Court was confined to the allowability of weighted deduction on the cost of cartons which was decided against the assessee and it was held that the assessee is not entitled to weighted deduction on the cost of cartons. The above decision does not in any way support the contention of the assessee.
8. Counsel for the assessee further submitted before us that section 35B being a beneficial provision enacted with a view to encourage exports, we should give a liberal interpretation to the various sub-clauses of clause (b) of sub-section (1) thereof which may enable the assessee to get the allowance in respect of expenditure incurred by him in connection with export of goods. We have dealt with this aspect of the matter in our decision in M. H. Daryani v. CIT [1993] 202 ITR 731, wherein it was made clear that the principle of beneficial interpretation can be applied only in cases where there is an ambiguity in the language of the statute. Where the language is plain, precise and unambiguous, resort cannot be taken to this principle to give benefit to the assessee which the Legislature itself did not intend to give. It was observed (at page 735) :
"..... the well-settled principle of interpretation is that the statutory provision should be construed according to the plain natural meaning of its language. When the language of a particular provision is clear and according to the plain natural meaning thereof the assessee is not entitled to any rebate, relief or allowance, it is not for the court to strain and stretch the language of the statutory provision to enable the assessee to get such relief. Such an approach will be against all accepted principles of interpretation."
9. Counsel for the Revenue relied on the decision of the Madras High Court in K. Vensimal and Sons v. CIT [1986] 157 ITR 807 and the decision of the Calcutta High Court in Brooke Bond India Ltd. v. CIT [1992] 193 ITR 390 in support of his submission that no weighted deduction can be allowed on expenditure incurred by the assessee on packing of the goods in India and that in order to claim the benefit of section 35B, it is for the assessee to satisfy the authorities that his claim satisfied the requirements of section 35B and the expenditure falls in one of the sub-clauses of clause (b) of sub-section (1) thereof. We have considered the above decision. We find that these decisions fully support the view taken by us in this case. The Calcutta High Court in Brooke Bond India Ltd.'s case [1992] 193 ITR 390, dealing with sub-clause (viii) of clause (b) of section 35B(1), has held (at page 396) :
"Sub-clause (viii) of section 35B(1)(b) does not allow all expenditure incurred wholly and exclusively in connection with, or incidental to, the execution of any contract for supply of goods, services and facilities outside India. The allowance is restricted to expenditure which has been incurred wholly and exclusively on 'performance of services outside India' when it is found that such services were in connection with, or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities."
10. The above passage fully supports our conclusion in the present case.
11. In view of the above discussion, we are of the clear opinion that the assessee is not entitled to weighted deduction in respect of packing charges incurred in India.
12. Accordingly, we answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee.
13. No order as to costs.