(a) whether expenditure incurred on purchase of raw materials and payment of wages will qualify for weighted deduction within the meaning of section 35B; and (b) whether drafting of labour for execution of such a contract locally or abroad would make any difference in the claim for weighted deduction.

Section 35B Explained: Weighted Deductions Allowed for Overseas Service Expenses, Not Raw Material Costs. Individual Case Assessment Required.

The circular addresses the applicability of weighted deductions under Section 35B of the Income-tax Act, 1961, specifically regarding expenditures on raw materials and wages. It clarifies that weighted deductions are permissible for expenses incurred in performing services outside India related to contract execution for goods, services, or facilities supplied abroad. However, the cost of raw materials does not qualify for such deductions. The drafting of labor, whether locally or internationally, does not affect eligibility for weighted deductions. Each case should be assessed individually based on contract specifics, and this guidance should be communicated to relevant officers for implementation.