2016 (10) TMI 702

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....nt allowance, allowing weighted deduction in a sum equal to one and onethird times the amount of expenditure incurred for various export related activities enumerated in clause (1)(a) of Section 35B during the previous year by a domestic company. 4. The case of the assessee is that by an agreement dated 18 June 1977, entered into between Electricity Corporation of Saudi Arabia ("ECSA") and Bharat Heavy Electricals Ltd. ("BHEL"), the latter agreed to provide, deliver at site, erect, set up, work, test, hand over and maintain a turn key project for an electrification scheme known as Wadi Jizan Electrification Scheme ("Main agreement"). BHEL, in turn, entered into agreement dated 24 August 1977 with the assessee, subcontracting a portion of the work to the latter ("subcontract"). The subcontract related to laying out of transmission lines, overhead lines and distribution lines. Under this agreement, the assessee agreed to discharge and fulfill all the duties, obligations and covenants of BHEL under the main agreement entered into between BHEL and ECSA insofar as it related to the work under the subcontract. The assessee claimed to have incurred expenditure, whilst executing this su....

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....is whether or not these services are rendered to a person outside India by the assessee within a meaning of subsection (1A) of Section 35B. We will accordingly restrict our enquiry to the above question. 7. Section 35B of the Act, as it existed at the relevant time (i.e. Assessment Year1979-80), is in the following terms. 35B. (1)(a) Where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred after the 29th day of February, 1968, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in clause (b), he shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one third times the amount of such expenditure incurred during the previous year : Provided that in respect of the expenditure incurred after 28th day of February 1973 [but before the 1st day of April, 1978], by a domestic company, being a company in which the public are substantially interested, the provisions of this clause shall have effect as if for the words "one and onethird times", the wo....

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....rrangements for carriage (including in each case expenditure incurred on the provision of any benefit, amenity or facility to the crew, passengers or livestock) shall not be regarded as expenditure incurred by the assessee on the supply outside India of services or facilities.] [(1A) Notwithstanding anything contained in subsection (1), no deduction under this section shall be allowed in relation to any expenditure incurred after 31st day of March, 1978, unless the following conditions are fulfilled, namely : (a) the assessee referred to in that subsection is engaged in (i) the business of export of goods and is either a smallscale exporter or a holder of an Export House Certificate; or (ii) the business of provision of technical knowhow, or the rendering of services in connection with the provision of technical knowhow, to persons outside India; and (b) the expenditure referred to in that subsection is incurred by the assessee wholly and exclusively for the purposes of the business referred to in sub-clause (I) or, as the case may be, sub-clause (ii) of clause (a). Explanation : For the purpose of this subsection, (a) ....

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.... such business of export of goods or technical knowhow, as the case may be. 9. A bare reading of the provision makes it clear that whatever may have been the position earlier, for the assessment year 1979-80, i.e. after introduction of subsection (1A), the assessee for claiming deduction under Section 35B has to be an exporter of goods or technical knowhow and the expenditure should have been incurred by him in connection with that business. 10. If one has regard to the agreement between the assessee and BHEL, which is described as a "back to back agreement", the main contract for supply, delivery and provision to a person outside India, namely, in this case, ECSA, was entered into by BHEL and that it was at the instance of BHEL that the assessee had submitted its offer with regard to the provision of services in terms of the main contract. This was essentially a subcontract and the assessee was a subcontractor, who was responsible to, and supplied goods and services to, BHEL, an Indian party. The back to back agreement shows that the assessee was to furnish programme for submission of design calculations, layout drawings and documents forming part of the contract for approva....