1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following question for our decision. The question is :
' Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that expenses incurred in respect of carriage of goods from the port of destination to the ultimate place of sale would not qualify for weighted deduction under Section 35B(1)(b)(iii) of the Income-tax Act, 1961 ?'
2. The following facts are necessary for a proper appreciation of the above question. The assesses is a firm consisting of four partners, viz., K. E. Kesavan, K. K. Raghavan and their wives, K. Kunjamma and K. A. Kamalam, the former two being entitled to 30% of the profits or losses and the latter two, 20%. The firm carries on the business in export of sea foods. It filed a return on June 30, 1969, disclosing an income of Rs. 1,80,462 for the assessment year 1969-70. The firm claimed deduction of Rs. 46,973.85 under Section 35B of the Income-tax Act, 1961 (briefly stated 'the Act'), the amount being one-third of Rs. 1,40,923.97 alleged to have been expended by way of commission to foreign agents, insurance premium paid outside India and other items of expenditure. The Income-tax Officer allowed only Rs. 23,151, which being one-third of Rs. 69,555 representing the commission paid to foreign agents. No reasons were, however, stated by him. The assessee appealed to the Appellate Assistant Commissioner, Ernakulam, contending that the Income-tax Officer should have allowed weighted deduction under Section 35B of the Act. TheAppellate Assistant Commissioner held by his order dated October 5, 1970, that since the above-mentioned expenses were in respect of freight and insurance, the assessee was not entitled to weighted deduction in respect thereof. Further appeal was preferred by the assessee to the Tribunal and before the Tribunal it was contended that the weighted deduction in respect of expenses incurred for insurance, transport, storage, warehousing, etc., should be allowed as deduction under Section 35B(1)(b)(iii) of the Act. It was further urged before the Tribunal that the expenditure incurred by way of insurance premium covered not merely premium paid for insurance during transit but also premium paid for insurance after landing of the goods, that other incidental expenses included storage and other handling charges incurred in America and expenses incurred for transporting goods from the port of destination to other places where they were ultimately sold and delivered, that the assessee was entitled to weighted deduction in respect of such expenditure and that the lower authorities had not considered that matter. The Tribunal held that only expenses incurred for insurance of goods while in transit was excluded under the section and that expenses incurred for insurance of goods after landing was not so excluded. The contention that expenses incurred for carriage of goods after landing at the port of destination to the places where they were sold and delivered also qualified for weighted deduction, was rejected. The Tribunal held that when such goods were carried from the port of destination to other places where they were ultimately sold and delivered, that would still be carriage of the assessee's goods to destinations outside India and, therefore, expenses incurred therefor would not qualify for weighted deduction. So also, expenses incurred for storage and by way of handling charges in America would qualify for weighted deduction since they were expenses incurred in respect of distribution of goods outside India. The Tribunal accordingly directed the Income-tax Officer to examine the details of the expenditure and allow weighted deduction in respect of expenses incurred by the assessee as indicated above.
3. On a consideration of the above question in its relevant aspects, we are led to the conclusion that the view taken by the Appellate Tribunal is correct. Section 35B was introduced by the Finance Act, 1968, with effect from April 1, 1968. Clause(a) of Sub-section (1) of Section 35B provides that 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, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in Clause (b), he shall be allowed deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year. Sub-clause (iii) ofclause (b) of Sub-section (1) of Section 35B mentions 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. This was amended by Section 8 of the Finance Act, 1970, with retrospective effect. The sub-clause, after the amendment, would read :
' 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.'
4. From the above, it follows that claim for weighted deduction in respect of expenditure incurred can be claimed only if the following conditions are satisfied :
(1) it should not have been incurred in India ;
(2) it should not be expenditure incurred on the carriage of goods to destinations outside India ; and
(3) it should not be expenditure on the insurance of such goods while in transit.
5. It, therefore, follows that expenditure incurred on the carriage of goods to destinations outside India and those incurred on the insurance of such goods while in transit do not qualify for weighted deduction. According to the assessee, expenses incurred for carriage of goods after their landing at the port of destination to places where they were sold or delivered, also qualify for weighted deduction. We agree with the Tribunal that this claim is unsustainable. Goods are admittedly sold only as the assessee's goods on consignment basis by the assessee's foreign agents. When such goods are carried from the port of destination to other places where they are ultimately sold and delivered, it would still be carriage of the assessee's goods to destinations outside India and, therefore, expenses incurred would not qualify for weighted deduction. The expression 'destination' in Sub-clause (iii) of Clause (b) of Sub-section (I) of Section 35B cannot mean the port of destination mentioned in the bills of lading. It would include the ultimate place or places where the goods are taken and sold. In this view, the expenses incurred under the above items would be expenses incurred in respect of distribution of goods outside India which would not qualify for weighted deduction.
6. The result is that we answer the question in the affirmative, i.e., for the Department and against the assessee. The parties will bear their costs.
7. A copy of this judgment with the seal of the court and under the signature of the Registrar will be sent to the Income-tax Appellate Tribunal, Cochin Bench.