V. GURUVIAH NAIDU and SONS vs COMMISSIONER OF INCOME TAX.

MISHRA, J. :

This reference, at the instance of the assessee, has posed three questions :

Whether the Tribunal was right in law in holding that the assessee was not entitled to weighted deduction under s. 35B(1)(b)(iii) of the IT Act,

1961, in respect of the expenditure incurred by it on transport of goods and marine insurance ?

(2) Whether the Tribunal was right in law in its interpretation of s. 35B(1)(b)(iii) as intending a wider net of exclusion for the latter two heads than

for the former ?

(3) Whether the Tribunal was right in law in holding that the phrase wherever incurred occurring in s. 35B(1)(b)(iii) applied to expenditure incurred

on the carriage of goods outside India as also on the insurance of goods while in transit ?

The assessee is a registered firm. It exported leather goods. It claimed export markets development allowance for the asst. yr. 1974-75 and

repeated the claim for the following assessment years including the asst. yr. 19976-77. The ITO declined to allow the same for the asst. yr. 1974-

The assessee appealed. The AAC allowed the same. The Revenue preferred an appeal before the Tribunal. The Tribunal set aside the order of

the AAC and confirmed the disallowance by the ITO. The assessees claim for the subsequent assessment years was, accordingly, disallowed by

the ITO. The AAC, however, once again permitted the allowance. The Tribunal has held in the Revenues appeal that the assessee is not entitled to

the weighted deduction in respect of the expenses incurred on the transport of goods and marine insurance.

Sec. 35B(1)(a) of the IT Act, 1961 (hereinafter referred to as ""the Act"") say :

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 cl. (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.

This provisions, thus, provides for allowance of a deduction of a sum as specified therein with respect to any expenditure, not being in the nature of

capital expenditure or personal expenses of the assessee referred to in cl. (b). Clause (b) contains various items and says, the expenditure referred

to in cl. (a) is that incurred wholly and exclusively on the items specified therein. Item (iii) specifies the expenditure in these words :

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.

This item is divisible as,

(1) distribution, supply or provision outside India of such goods, services of facilities, not being expenditure incurred in India in connection

therewith, and

(2) expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in

transit.

We have dealt with more than once and noted that various items of cl. (b) of s. 35B(1) of the Act required ""expenditure""to qualify for the

deduction to be incurred wholly and exclusively on advertisement or publicity outside India, obtaining information regarding markets outside India,

etc., but not necessarily the expenditure itself being incurred outside India and not incurred in India.""Expenditure"", in so far as item (iii) aforequoted

is concerned in which there is a noticeable departure by the qualifying expression ""not being expenditure incurred in India in connection therewith"",

is dealt with in a judgment of this court in V.D. Swami and Co. Pvt. Ltd. Vs. Commissioner of Income Tax, Tamil Nadu-I, wherein it is observed :

As earlier mentioned, sub-cl. (iii) of s. 35B(1)(b) expressly excludes expenditure not being expenditure incurred in India in connection therewith.

To maintain that weighted deduction is available even where expenditure is incurred inside India would go against the teeth of this specific

exclusionary provisions. A look at the other sub-clauses of s. 35B(1)(b), such for instance as sub-cls. (i), (iv), (vi), (vii), (viii), and (ix), also shows

the insistence of Parliament that the weighted deduction cannot be exigible unless the expenditure under the different heads are incurred outside

India, a phrase which occurs again and again in the various sub-clauses. To accept learned counsels argument that the Indian situs of the export

expenditure is no disqualification for eligibility for weighted deduction would be to bring in under one broad indiscriminate sweep, all expenses in an

exporters business. If that were the position Parliament need not have troubled to enact so many clauses in s. 35B. The section would have been

simpler and been enacted differently. We have, therefore, no hesitation in rejecting the construction of s. 35B advocated by Mr. Subramaniam for

the assessee.

It, however, needed clarification that exclusionary clauses in s. 35B(1)(b) of the Act are confined to item (iii) and other items in cl. (b) of sub-s.

(1) of s. 35B have to be interpreted independently and seen whether the expenditure wherever incurred, that is, in India or outside India, is one

relatable to the particular item or not. In Tax Case No. 896 of 1982, judgment dt. 14th Feb., 1995, [ V.D. Swami and Co. Ltd. Vs.

Commissioner of Income Tax, we have taken notice of the consensus of judicial opinion and, accordingly, observed and quoted the observations

of a Bench of this Court in the case of Commissioner of Income Tax Vs. Southern Sea Foods Ltd., as follow :

It is not necessary to multiply and add to the authorities already cited the judgments of other Courts, except referring to the judgment of the

Karnataka High Court in Chief Commissioner of Income Tax Vs. H.M.T. (International) Ltd., , wherein the above view is reiterated and the

judgment of this Court in V.D. Swami and Co. Pvt. Ltd. Vs. Commissioner of Income Tax, Tamil Nadu-I, is explained.

In CIT vs. Southern Sea Foods Ltd. (supra), a Bench of this Court has observed as follows :

The IT Act is the law under which tax is levied, assessed and collected for any assessment year at any given rate or rates in respect of the total

income of the previous year or previous years as the case may be on every person. The person is defined as an individual, an HUF, a company, a

firm, an AOP or a BOI whether incorporated or not, a local authority, and every artificial juridical person, as well as a person who is the beneficial

owner of shares in a company, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying

not less than twenty per cent of the voting power. Such a person who is chargeable under the Act can claim the deduction, contribution or

depreciation on various accounts including deduction on account of export markets development allowance. Expenditure on advertisement or

publicity outside India in respect of the goods, services or facilities in which the assessee deals or provides in the course of his business, obtaining

information regarding markets outside India for such goods, services or facilities, distribution, supply or provisions outside India of such goods, or

facilities, maintenance outside India of a branch office or agency for the promotion of sale outside India of such goods, services or facilities;

preparation and submission of tenders for the supply or provision outside India of such goods, services or facilities, and activities incidental thereto;

furnishing to a person outside India samples or technical information for the promotion of sale of such goods, services or facilities; for travelling

outside India for the promotion of sale outside India of such goods, services or facilities, including travelling outward from and return to India;

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 and such other activities for the promotion of sale outside India of such goods, services or facilities as may be prescribed, are

allowable as deduction, a sum equal to one and one-third times the amount of such expenditure incurred during the previous year. In respect of

items such as advertisements or publicity out side India, obtaining information regarding markets outside India, maintenance outside India of a

branch, office or agency, preparation and submission of tenders for the supply, and such other activities for the promotion of sale outside India, are

couched in such words that one can take notice of the expenditure of the assessee on advertisement or publicity and such other functions, which

being in India, but get their effect outside India except distribution, supply or provision outside India of such goods, services or facilities, which is

found in s. 35B(1)(b)(iii) and which is qualified by the words not being expenditure incurred in India in connection with or expenditure incurred on

the carriage of such goods to the destination outside India or on the insurance of such goods while in transit. These qualifying words in respect of

expenditure on distribution, supply or provision outisde India of goods, services or facilities, are not available in other clauses of sub-s. (1)(b) of s.

35B, and thus it is irresistible that while assessing any claim to expenditure on advertisement or publicity can be allowed to be deducted, it is

necessary to find that such expenses are closely connected with the activities of the assessee outside India.

Neither learned counsel for the Revenue nor learned counsel for the assessee has, however, brought to our attention any case where the

question involved was, whether ""expenditure"" falling in the first part of item (iii) of cl. (b) of sub-s. (1) of s. 35B of the Act should be one not being

an expenditure incurred in India or the second part of the said item should also be the expenditure not having been incurred in India. We are left in

the instant case with the arguments on behalf of the parties and the interpretation which we may choose to give to the said item. We however, find

it difficult to appreciate the view taken by the Tribunal and accordingly to accept the construction that expenditure on the carriage of goods to a

destination outside India or the insurance should be incurred only outside India.

The first part ""distribution, supply or provision outside India of such goods, services or facilities not being expenditure incurred in India in

connection therewith"" is separated by the disjunctive ""or"" from the second part ""expenditure (wherever incurred) on the carriage of such goods to

their destination outside India or on the insurance of such goods while in transit"". If the qualifying expression ""not being expenditure incurred in

India"" is imposed on the second part ""expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the

insurance of such goods while in transit"", the expression ""wherever incurred"" shall be of no purpose and, thus will be surplusage or wastage of

words by the legislature, and shall make the expression ""in connection therewith"", which is found after the words not being expenditure incurred in

India"" fit for all purposes. The most fitting meaning which these words appear to convey is that the expenditure incurred wholly and exclusively on

distribution, supply or provision outside India of such goods, services or facilities should not be expenditure incurred in India and the expenditure

on the carriage of goods to their destination outside India or on the insurance of such goods while in transit should not necessarily be one not

incurred in India. There are good reasons to think that any expenditure on distribution, supply or provision outside India cannot be incurred in

India, unless an extended meaning is given to the words ""distribution, supply or provision outside India"", in the sense that some distribution of

goods, services or facilities, or some supply of goods, services or facilities, or some provision of goods, services or facilities outside India is also

found to have occurred in India and thus, some expenditure is incurred on it in India. Any doubts, however, that expenditure on distribution, supply

or provision outside India of such goods, services or facilities can only be outside India, are removed by the qualifying expression ""not being

expenditure incurred in India in connection therewith"", which expression was not originally there, but has been retrospectively inserted by s. 8 of

the Finance Act, 1970. The legislature, however, carefully divided the qualifying expressions and while retrospectively inserting ""not being

expenditure incurred in India in connection therewith"" to qualify ""expenditure on distribution, supply or provision outside India"", it separated

expenditure on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit"" by clearly

pronouncing ""expenditure wherever incurred"".

We have some help to interpretation which we are giving to the above in the Explanation appended to the section which was retrospectively

inserted by s. 5 of the Finance Act, 1973. This Explanation say : ""For the purposes of sub-cl. (iii) and sub-cl. (viii) of cl. (b), expenditure incurred

by an assessee engaged in the business of - (i) operation of any ship or other vessel, aircraft or vehicle, or (ii) carriage of, or making arrangements

for carriage of, passengers, livestock, mail or goods, on or in relation to such operation or carriage or arrangements for carriage (including in each

case expenditure incurred on the provision of any benefit, amenity or facility to the crew, passengers or livestock) shall not be regarded as

expenditure incurred by the assessee on the supply outside India of services or facilities.

The Explanation has clearly excluded the expenditure incurred on certain items by an assessee engaged in the business of operation of any ship

or other vessel, aircraft or vehicle, or carriage of or making arrangements for carriage of passengers, livestock, mail or goods and expenditure

incurred on the provision of any benefit, amenity or facility to the crew, passengers or livestock, provided it is connected with export.

One of the well-recognised rules of interpretation is, where the language is plain and admits of but one meaning, the task of interpretation can

hardly be said to arise. The first and foremost elementary rule of construction is that it is to be assumed that words and phrases of technical

legislation are used in their technical meaning if they have acquired one and otherwise in their ordinary meaning and the second is that phrases and

sentences are to be construed according to the rules of grammar. It is a corollary to the general rule of literal construction that nothing is to be

added to or taken from a statute unless there are adequate grounds to justify the inference that the legislature intended something which it omitted

to express. A construction which would have leave ? without effect any part of the language of a statute will normally be rejected. The authority

which is almost a phenomenon and which has been cited almost in every case where any complication as to interpretation is felt and which has

assumed a high position as authority in Courts in India by the approval of the Supreme Court, i.e. Heydons case (1584) 3 Co. Rep 7 is mentioned

by Maxwell on The Interpretation of Statutes (12th Edition, page 40) in these word :

In Heydons case (1584) 3 Co. Rep. 7a, it was resolved by the Barons of the Exchequer (at page 7b) that for the sure and true interpretation of all

statues in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered : (1st)

What was the common law before the making of the Act, (2nd) What was the mischief and defect for which the common law did not provide,

(3rd) What remedy the Parliament hath resolved and appointed to cure the disease of the commonwealth, and (4th) The true reason of the

remedy; and then the office of all the judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to

suppress subtle inventions and evasions for continuance of the mischief and pro privato commodo, and to add force and life to the cure and

remedy, according to the true intent of the makers of the Act, pro bono publico. In 1898, Lindley M. R. said : In order properly to interpret any

statue it is as necessary now as it was when Lord Coke reported Heydons case (1584) 3 Co. Rep. 7 to consider how the law stood when the

statute to be construed was passed, what the mischief was for which the old law did not provide, and the remedy provided by the statute to cure

that mischief. [Re. Mayfair Property Co. (1898) 2 Ch. 28 . Although judges are unlikely to propound formally in their judgments the four questions

in Heydons case (1584) 3 Co. Rep. 7 consideration of the mischief or object of the enactment (see. Victoria Sporting Club Ltd. vs. Hannam

(1969) 2 WLR 454 (HL) is common, and will often provide the solution to a problem of interpretation.

We have chosen only such construction as we have thought, shall suppress the mischief and advance the remedy and confined to the golden

rule, which is really a modification of the literal rule and adhered to the ordinary meaning of the words used, and confined to the grammatical

construction. We have not noticed such intention of the legislature which can justify any other interpretation. In the ever extending trade and

demands of time, it is difficult to conceive that the transport cost on export of goods in India will not be available for deduction under s. 35B(1)(iii)

of the Act. An exporter of goods manufactured in Delhi for shipment will be required to bring his goods to a sea port and must, in this process

incur transport cost. A manufacturer of the same goods in the city of Bombay or in the city of Madras will hardly require any cost for transporting

the goods to the sea-shore/port. The legislative intention cannot be to deny to the manufacturer in the interior of the country the competition in

trade with a manufacturer in a place near a sea port. It will be so for the manufacturers or producers, who use the air cargo service. If a balanced

development of the country is the desire and dream of the nation, equalisation of transport expenditure, irrespective of the distance travelled by the

goods alone is the solution. We see good reasons, thus, to read in the words of the statue its intention to cover the expenditure on transport of

goods for export incurred in India for the allowance under s. 35B(1)(b)(iii) of the Act. So far as the insurance is concerned, it is difficult to think

that there shall be deduction if it is covered by an outside agency and not by an Indian agency. All that is required is, it should be insurance of the

goods while in transit. In any view, since the expenditure on transport and expenditure on insurance in transit are clubbed together, insurance

should receive the same treatment as the carriage of goods receives.

We are of the opinion that the Tribunal has committed an error of law. The questions aforementioned are answered in favour of the assessee

and against the Revenue. There will be no order as to costs.