Court allows section 35B relief for foreign branch expenses promoting sales

The court ruled in favor of the assessee, allowing relief under section 35B for expenses incurred by its foreign branches in promoting sales. The interpretation of "such goods" under section 35B was clarified, stating that dealing in Indian goods exported from India qualifies for the deduction. Marginal notes were deemed irrelevant for statutory interpretation, and customs duty and packing charges for importing goods were permitted under section 35B. The assessee prevailed in all issues, including costs awarded.

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Issues Involved:
1. Eligibility for relief u/s 35B for expenses incurred by foreign branches.
2. Interpretation of "such goods" in the context of s. 35B.
3. Consideration of marginal notes for statutory interpretation.
4. Allowance of customs duty and packing charges u/s 35B.

Summary:

Issue 1: Eligibility for relief u/s 35B for expenses incurred by foreign branches

The main question across all references was whether the assessee is entitled to relief u/s 35B for expenses incurred by its branches in Kulalumpur and Penang. The assessee, a registered firm with its head office in Madras and branches outside India, claimed relief for expenses incurred abroad. The ITO allowed a partial deduction, which was later contested by the Addl. CIT, who argued that the expenses did not qualify for relief as they were not incurred for the purpose of the assessee's business in exports. The Tribunal, however, concluded that the expenses were wholly and exclusively incurred for the promotion of sales and thus eligible for relief u/s 35B.

Issue 2: Interpretation of "such goods" in the context of s. 35B

Section 35B(1)(a) allows a deduction for certain expenditures incurred after February 29, 1968. The term "such goods" in sub-clause (iii) and "such goods, services or facilities" in sub-clause (iv) refers to the goods, services, or facilities dealt with by the assessee in the course of its business. The court rejected the argument that the assessee must deal in the same goods in India to qualify for the allowance. The court held that the provision aims to encourage exports from India by Indian traders, and the assessee is eligible for the allowance as long as it deals in Indian goods exported from India, even if it does not deal in those goods in India.

Issue 3: Consideration of marginal notes for statutory interpretation

The court discussed the role of marginal notes in statutory interpretation, citing various legal authorities. It concluded that marginal notes are not part of the Act and cannot control the interpretation of the section unless there is ambiguity. In this case, the court found no ambiguity in s. 35B and thus did not consider the marginal note as controlling the provision's operation or construction.

Issue 4: Allowance of customs duty and packing charges u/s 35B

For the assessment years 1971-72, 1972-73, and 1973-74, the court considered whether customs duty and packing charges incurred by the branches for importing textile goods from India could be allowed u/s 35B. The court held that these expenses do not fall within the category of expenses disallowed by sub-clause (iii) of s. 35B(1)(b), which bans expenditure on the carriage of goods to their destination outside India or on the insurance of such goods while in transit. Therefore, these expenses were allowed.

Conclusion

The questions referred for the assessment years 1969-70 and 1970-71 were answered in the affirmative and in favor of the assessee. The same answer applied to the other years, including the additional point regarding customs duty and packing charges for the years 1971-72, 1972-73, and 1973-74. The assessee was entitled to costs, with counsel's fee set at Rs. 500.

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