Weighted deduction under section 35B requires expenditure incurred outside India, not merely foreign exchange receipts from Indian sales.

Weighted deduction under section 35B was confined to expenditure falling within the specified statutory sub-clauses, and the relevant requirement under section 35B(1)(b)(iii) was that the expenditure be incurred outside India in connection with distribution, supply or provision outside India of goods, services or facilities. Expenditure incurred in India on sales made in India did not satisfy that condition merely because the consideration was received in foreign exchange. On that principle, the assessee was not entitled to weighted deduction on the expenditure in question.

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Issues: Whether expenditure incurred in India on sales effected in India to foreign tourists against foreign exchange qualified for weighted deduction under section 35B of the Income-tax Act, 1961.

Analysis: Weighted deduction under section 35B is confined to expenditure falling within the specified sub-clauses of clause (b). The governing principle applied was that, for allowance under section 35B(1)(b)(iii), the expenditure must be incurred outside India in connection with the distribution, supply, or provision outside India of the relevant goods, services, or facilities. Expenditure incurred in India on domestic sales, even if the consideration is received in foreign exchange, does not satisfy that requirement.

Conclusion: The assessee was not entitled to weighted deduction under section 35B on the expenditure in question.

Ratio Decidendi: Expenditure incurred in India on sales made in India does not qualify for weighted deduction under section 35B merely because payment is received in foreign exchange; the statutory requirement of expenditure incurred outside India must be satisfied.

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