Weighted deduction under section 35B excludes customs duty, sales tax, and India-incurred foreign office maintenance expenses.

Customs duty and sales tax were held not to qualify as expenditure for weighted deduction under section 35B, because statutory liabilities are not deductible expenditure for that purpose. Expenses incurred in India for maintaining a foreign office also did not satisfy section 35B(1)(b)(iv), which requires maintenance of a branch or office outside India. The assessee was therefore not entitled to weighted deduction on the disputed items, and the reference was answered against the assessee on both substantive issues.

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Issues: (i) Whether customs duty and sales tax incurred in respect of a foreign office qualified for weighted deduction under section 35B of the Income-tax Act, 1961; (ii) Whether expenses incurred in India for maintaining a foreign office qualified for weighted deduction under section 35B(1)(b)(iv) of the Income-tax Act, 1961.

Issue (i): Whether customs duty and sales tax incurred in respect of a foreign office qualified for weighted deduction under section 35B of the Income-tax Act, 1961.

Analysis: Customs duty cannot be treated as expenditure for the purpose of weighted deduction under section 35B, and the same principle applies to sales tax, being a statutory liability.

Conclusion: The claim for weighted deduction on customs duty and sales tax was rejected and the issue was answered in favour of the Revenue.

Issue (ii): Whether expenses incurred in India for maintaining a foreign office qualified for weighted deduction under section 35B(1)(b)(iv) of the Income-tax Act, 1961.

Analysis: The statutory language refers to maintenance outside India of a branch or office, so the qualifying expenditure must be incurred for maintaining that office outside India. Expenses incurred in India do not satisfy that requirement.

Conclusion: Weighted deduction was not allowable on expenses incurred in India for maintaining a foreign office, and the issue was answered in favour of the Revenue.

Final Conclusion: The court held that the assessee was not entitled to weighted deduction on the disputed items, and the reference was answered against the assessee on the substantive questions decided.

Ratio Decidendi: For deduction under section 35B(1)(b)(iv), the expenditure must relate to maintenance of a branch or office outside India, and statutory liabilities such as customs duty and sales tax do not qualify as deductible expenditure for that purpose.

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