The main legal point established in the judgment is the requirement of expenditure incurred outside India for weighted deduction under section 35B and the direct nexus between the expenditure and the promotion of exports as a key factor influencing the decision.

K. Shivashankar Bhat, J.—In respect of the assessment year 1980-81 and 1981-82, the questions referred respectively read as follows :

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in confirming the orders of the Commissioner of Income Tax (Appeals) who held that the assessee is, entitled to weighted deduction under section 35B in respect of expense incurred on delegation, export promotion, compliments, etc. ? (Question of 1980-81)

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right is right in law in confirming the order of the Commissioner of Income Tax (Appeals) who held that the assessee is entitled to weighted deduction under section 35B in respect of delegation expenses of Rs. 3,03,954 and the expenditure on complimentary articles given to foreign delegates amounting to Rs. 32,280 ?" (Question of 1981-82)

2. Though the questions are differently worded, there is no dispute that the answer in I. T. R. C. No. 75 of 1991 would govern the question referred in I. T. R. C. No. 20 of 1991 also.

3. The assessee is engaged in export of goods. This is an admitted position. The assessee claimed weighted deduction under section 35B in respect of the expenditure incurred towards compliment Aries and giveaways to foreign delegate and similarly the assessee claimed weighted deduction in respect of the expenditure on the said foreign delegates as export promotion activities. Since the claim of the assessee was not accepted by the Income Tax Officer, the assessee approached the Commissioner of Income Tax (Appeals). Ground (a) before the said appellate authority pertains to the present question. The Commissioner (Appeals) accepted the appeal and observed that a similar has been already dealt with by the said authority while disposing of the assessee's appeal for the assessment year 1978-79. The Appellate Tribunal rejected the Revenue's appeal observing that a similar contention of the Revenue has been rejected when raised that a similar contention of the Revenue has been rejected when raised for the assessment year 1979-80.

4. Mr. Raghavendra Rao, learned counsel for the Revenue, contended that the expenditure incurred is within India and, therefore, on the face of it, the claim of the assessee under section 35B cannot be entertained. According to learned counsel for the Revenue, only the expenditure incurred outside India could be the subject of weighted deduction under section 35B. Mr. Kumar, learned counsel for the assessee, on the other hand, relied heavily on clause (ii) of section 35B(1)(b).

5. Under section 35B(1)(a), provision is made for export markets development allowance referred to as any expenditure referred to in clause (b). Sub-clause (ii) of this clause (b) would read thus : the expenditure incurred wholly and exclusively on obtaining information regarding markets outside India for such goods, services of facilities. We may also refer to clause (i) which refers to the expenditure incurred wholly and exclusively on advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business.

6. According to the assessee, the delegates from foreign countries are received and entertained so that the assessee could obtain proper information regarding the markets outside India for the goods marketed by the assessee.

7. The fact that the assessee has been receiving such delegates is not in dispute. In fact, during the earlier years, the expenditure incurred in respect of such delegations has been accepted by the Revenue.

8. However, Mr. Raghavendra Rao relied on a decision of the Madras High Court in V.D. Swami and Co. Pvt. Ltd. Vs. Commissioner of Income Tax, Tamil Nadu-I, (1984) 146 ITR 425 Mad It was a case where the deduction was claimed under sub-clause (iii) of section 35B(1)(b). The language of the sub-clause is quite clear that it specifically