Weighted deduction on packing credit interest denied absent proof of services outside India; leave with wages remained allowable.

Weighted deduction under section 35B(1)(b)(viii) was confined to expenditure incurred wholly and exclusively on services performed outside India in connection with a qualifying contract. On the facts stated, bank interest on packing credit was not shown to be referable to such services or to execution of any contract outside India, so the deduction was denied. The claim for leave with wages was treated as allowable because an earlier binding decision of the same High Court had accepted it, and the contention that it was a contingent liability was rejected. The matter thus reflected a mixed outcome, with one issue accepted and the other rejected.

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Issues: (i) Whether weighted deduction was admissible on bank interest paid on packing credit under section 35B(1)(b)(viii) of the Income-tax Act, 1961. (ii) Whether the assessee's claim for leave with wages was allowable, or whether it was a contingent liability not deductible in law.

Issue (i): Whether weighted deduction was admissible on bank interest paid on packing credit under section 35B(1)(b)(viii) of the Income-tax Act, 1961.

Analysis: Weighted deduction under section 35B(1)(b)(viii) is available only where the expenditure is incurred wholly and exclusively on the performance of services outside India, in connection with or incidental to the execution of a contract for supply of goods or provision of services or facilities outside India. No material showed that the bank loan or the interest thereon was referable to such services or to execution of any contract outside India. A binding precedent of the same court had also denied the deduction where there was no evidence of any service rendered outside India.

Conclusion: The weighted deduction was not admissible and the issue was decided in favour of the Revenue.

Issue (ii): Whether the assessee's claim for leave with wages was allowable, or whether it was a contingent liability not deductible in law.

Analysis: The second question stood concluded by an earlier decision of the same court holding the claim allowable. In view of that binding authority, the Revenue's objection that the liability was contingent was not accepted.

Conclusion: The claim for leave with wages was allowable and the issue was decided against the Revenue.

Final Conclusion: The reference was answered on one issue in favour of the Revenue and on the other against the Revenue, resulting in a mixed outcome with no order as to costs.

Ratio Decidendi: Weighted deduction under section 35B(1)(b)(viii) is allowable only when the expenditure is shown to be incurred wholly and exclusively for services performed outside India in connection with the execution of a qualifying contract; absent such evidence, the deduction cannot be granted.

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