Indian Aluminium Cables vs Cit, Delhi
1998 Latest Caselaw 206 Del

JUDGMENT

R.C.Lahoti, J.

1. Statement of case has been drawn up and the following question( referable to assessment year 1978-79) referred for the opinion of the High Court by the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee :

"Whether on facts and in the circumstances of the case the Tribunal was right in law in disallowing weighted deduction u/s 35B of the Income-tax Act on the following expenses :-

a) Insurance charges on export sales 71,903

b) Freight from factory to port 6,90,260

c) Ocean freight 7,17,883"

2. The assessee is a company manufacturing AAC and ACSR conductors. During the assessment year 1978-79 the assessee had export sales of Rs 2.98 crores and local sales of Rs. 2.15 crores. The assessee claimed weighted deduction under Section 35B of the Act at Rs. 16,52,219/- as per revised return as against Rs. 3,77,886/- claimed in the original return. The ITO allowed weighted deduction of Rs.1,84,044/-. The assessee carried the matter to CIT(Appeals) and further to ITAT claiming weighted deduction under section 35B on the following items :-

Issuance charges on export sales. Rs 71,903/-

     Freight from
     Factory to Port    Rs.6,90,260/-
     Ocean Freight .    Rs.7,17,883/-.
 

 3.   The  Tribunal rejected the assessee's claim. Hence the present  reference. 
 

4. During the course of hearing the learned counsel for the petitioner assessee submitted that he would be confining and pressing the reference only as regards insurance charges on export sales limited to insurance of goods after they had left the country and the ocean freight only. In all fairness, he submitted that the freight from factory to port and the charges incurred on insurance within country could not have been the subject matter of weighted deduction under Section 35B and therefore the assessee was giving up the claim to that extent.

5. Section 35B of the Act, as it stood at the relevant time, provided that an assessee resident in India having incurred any expenditure not being in the nature of capital expenditure or personal expenses of the assessee was allowed a deduction of a sum equal to 1 and 1/2 times the amount of such expenditure, if the expenditure was incurred wholly and exclusively on any one of the nine items set out in clause (b) of sub -section (1) of Section 35B. Out of the said nine items, the relevant ones for the purpose of the case at hand are sub-clause (iii) and (viii) which are extracted and reproduced hereunder :

(6). The expenditure referred to in clause (a) is that incurred wholly and exclusively on-

xxxx xxxx xxxx

(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 in the insurance of such goods while in transit, where such expenditure is incurred before the 1st day of April, 1978.

      xxx xxx xxx
 

      (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." 
     xxx xxx xxx 
 

6. The learned counsel for the petitioner-assessee submitted that clause (viii) was a residuary entry and wide in its application. If an item of expenditure was excluded from sub-clause (iii) but covered by sub clause (viii) then the assessee though not entitled to weighted deduction by reference to sub-clause (iii) would be so entitled by reference to sub-clause (viii).

7. To appreciate the contention of the learned counsel for the assessee, the language of the two subclauses referred to hereinabove need an in- depth scrutiny. Any expenditure on the carriage of goods to their destination outside India or on the insurance of such goods while in transit, whether incurred within the country or outside the country has been specifically excluded from category of allowable expenditure by subclause (iii). According to the learned counsel for the assessee, such heads of expenditure, though excluded from out of the Ken of sub-clause (iii) would yet fall within the ambit of sub-clause (viii) inasmuch as insurance and carriage of goods are both "service" and the expenditure having been incurred on securing performance of such services outside India but in connection with or incidental to the execution of a contract for the supply of goods outside India would be specifically covered by sub-clause (viii). It was further submitted by the learned counsel for the assessee that the provisions of Section 35B are intended to confer a benefit on the assessee with a view to securing a laudable object of increasing exports so as to earn foreign exchange. It should be liberally construed in favour of the assesses. If an item of expenditure falls within two clauses at the same time and one of them denies the benefit while the other allows the benefit then the assessee should be permitted to claim benefit by reference to the other entry and allowed such benefit. The learned standing counsel for the revenue has submitted that the legislature having specifically expressed its intention to deny the benefit of weighted deduction to a particular head of expenditure, the legislative intent cannot be defeated by providing the item of expenditure an entry into the home of benefits through another door though turned out from one door.

8. Having heard the learned counsel for the parties, we are of the opinion that the benefit as claimed by the assessee has rightly been denied by the Tribunal.

9. It appears that there is a controversy between the High Court of Punjab & Haryana and the High Court of Bombay on this issue. The two high courts have adopted two lines of approach opposed to each other, as will be noticed shortly hereinafter.

10. A reading of the provisions of Section 35B shows that an xpenditure incurred on distribution, supply or provision outside India of such goods, services or facilities is the subject matter of sub clause (iii). Eligibility for weighted deduction of any such expenditure has to be decided by reference to sub clause (iii) only. So long as it is an expenditure incurred on distribution, supply or provision outside India of such goods, services or facilities, to be eligible for weighted deduction, it must either fall within the scope of sub-clause (iii) or fail. Being such an expenditure is the genus. If species thereof is spefically excluded from operation of sub clause (iii), the same cannot by any parity of reasoning be held to be covered by a residuary or general clause such as sub clause

(viii).

11. A Division Bench of Punjab & Haryana High Court in CIT Vs. Roadmaster Industries of India Pvt Ltd, [1993] 202 ITR 968 (PH) took the view that each sub clause of clause (b) of sub-section (1) of Section 35B must be read independently and that the terms of one sub clause cannot be read into another sub clause. On such reasoning the expenditure as claimed by the assessee herein were held to be allowable.

12. A Division Bench of Bombay High Court in Forbes Forbes Campbell Co Ltd Vs. CIT, [1994] 206 ITR 495 dissented from and did not follow the above said Punjab High Court view. The Division Bench held as under :

"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 clause (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 statute must be read as a whole and every provision must be construed with reference to the context and other clauses in the statute so as to make a consistent enactment of the whole statute. 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 if 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 (sic). The principle is expressed in the maxims : Generalia specialibus non derogant and general bus specially derogant. If a special provision is made on a certain subject matter, that matter is excluded from the general provision.

If we construe sub clauses (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, oes not deal with expenditure which has been specifically dealt with in sub clause (iii) wherein the conditions and restrictions on the allowability of weighted deduction thereon has been laid down."

13. The Bombay decision in Forbes Forbes Campbell Co Ltd case ( supra) was brought to the notice of a subsequent Division Bench of Punjab & Haryana High Court in Vijay Kumar Aggarwal Vs. CIT. The Division Bench chose to follow the earlier Division Bench view of its own High Court and not the view taken by the Bombay High Court. The Punjab & Haryana view is based on the principle that the basic approach for the grant of weighted deduction in respect of an expenditure on the development of export was primarily to provide an incentive for promoting export on continuing basis;it was, therefore, necessary to give a liberal interpretation to the provisions so that the purpose behind it could be properly achieved.

13A. In CIT Vs. Indo Asian Switch-Gears (P) Ltd (1996) 222 ITR 772 (P&H) also the Division Bench of Punjab and Haryana High Court has reiterated the same view. It has been observed at pages 787-788 that a SLP prepared against the decision in Roadmaster Industries' case was dismissed by Supreme Court as not admitted and this has been treated by the Division Bench as the view taken by this Court, nevertheless, stands approved. With respect, we find it difficult to subscribe to this view.

14. A similar question arose before the High Court of Calcutta in Bhansali & co Vs. CIT, [1995] 78 Taxman 501( Cal). Vide para 17, expenditure on the carriage of goods to the destination outside India and on the insurance of such goods while in transit were held not entitled to weighted deduction. The Division Bench has held :

"The various sub-clauses under clause (b) of section 35B(1) have tried to enumerate the various categories of expenditure which will qualify for weighted deduction. If a particular category has been specifically mentioned as not allowable in any of the sub-clauses, then that specifically excluded expenditure cannot be allowed as a weighted deduction under any other sub-clause. The Legislature has specifically forbidden allowance of weighted deduction of expenditure on the carriage of goods to their destination or on the insurance of such goods while in transit in sub-clause (ii) which deals with distribution, supply or provision of goods meant for export. The manifest intention of the Legislature cannot be defeated by giving an extended meaning to the provision of sub-clause (viii) so as to allow weighted deduction on the said expenditure. It is difficult to comprehend why the Legislature should forbid specifically and in clear words deduction of expenditure incurred on the carriage of goods to their destination outside India or on the insurance of such goods while in transit but at the same time allow these very expenditures as deduction under sub-clause (viii) by implication. The clear language of sub-clause (viii) does not warrant such a construction."

15. We find ourselves in entire agreement with the view so taken by the High Courts of Calcutta and Bombay. We are not persuaded to subscribe to the view taken by the High Court of Punjab & Haryana as in our humble opinion and with respect to the Hon'ble Judges taking such a view, the same is contrary to the well settled principles of interpretation of statutes as pointed out by the High Court of Bombay.

16. For the foregoing reasons the question is answered in the affirmative i.e. in favour of the Revenue and against ther assessee. No order as to costs.