Law:

Section:

Section 35B [omitted with effect from 1-4-1989] of the Income-tax Act, 1961 - Export markets development allowance - Assessment year 1978-79 - Assessee- company was engaged in export of certain goods and as per terms foreign buyer used to make payment for goods on presentation of documents - However, foreign buyer informed that due to credit squeeze and difficult money position, it was not in position to make payment for goods on presentation of documents but it would make payment on arrival of goods - As a result of this arrangement assessee incurred certain expenditure in paying service charges to bank - Whether aforesaid expenditure fell under sub-clause (viii) of clause (b) of section 35B(1) and thus assessee was entitled to weighted deduction in respect thereof- Held, no FACTS During the accounting year relevant to the assessment year 1978-79 the assessee-company exported certain goods. It was the normal practice that the foreign buyer had to pay cash against documents. the foreign buyer, however, informed the assessee that on account of credit squeeze and difficult money position, which was prevailing, it was not in a position to make payment on presentation of the documents and bill. It was also informed that it was possible to make payment of the price of the goods supplied on the arrival of the steamer. As a result of the new arrangement the assessee incurred certain expenditure in paying service charges to the bank in providing facility to make payment on arrival of the ship. the assessee claimed that the aforesaid expenditure fell within the provisions of section 35B(1) and, therefore, it was entitled to weighted deduction. the ITO disallowed the assessee's claim on the ground that the expenditure was incurred in India. On second appeal, the Tribunal upheld the disallowance. On reference: HELD the facts did not disclose that the assessee had rendered any service to the foreign buyer outside India. In other words, there was no performance of services outside India for which the assessee had incurred the aforesaid expenditure. It was as a result of the mode of payment of the price of the goods accepted by the assessee under the terms of the contract…

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