JUDGMENT
Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1980-81, the following questions of law have been referred to this court :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in directing the Income-tax Officer to allow relief under Section 35B(1)(b)(iii) of the Income-tax Act, 1961, on warehousing expenses of Rs. 10,16,517 if, on examination, he finds that the storage charges were for keeping the goods before their sale ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that although Rule 6AA of the Income-tax Rules, 1962, was introduced with effect from August 1, 1981, it would be applicable in this case as the assessment has been completed on September 11, 1984 (i.e., after introduction of the said rule) and, in that view, whether the Tribunal was correct in law in directing the Income-tax Officer to examine the assessee’s claim for relief under Section 35B(1)(b)(ix) read with Rule 6AA of the Income-tax Rules, 1962, as an alternative contention?”
2. The facts are that the assessment for the assessment year 1980-81 was completed by the Income-tax Officer under Section 143(3) read with Section 144B of the Income-tax Act, 1961, on September 11, 1984. The Commissioner of Income-tax, on a scrutiny of the assessment records, found that the Income-tax Officer had wrongly allowed weighted deduction under Section 35B of the following :
Rs.
(a) Expenses on maintenance of a warehouse outside India
10,16,517
(b) Commission charges paid outside India
5,75,051
(c) Insurance charges paid outside India
14,508
3. Notice under Section 263 dated November 7, 1986, was issued and served on the assessee. After considering the objections filed by the assessee, the Commissioner of Income-tax found that there was no cause for interference with the allowance of weighted deduction in regard to
the payment of commission of Rs. .5,75,051 ouside India. It was submitted by the assessee that the expenditure on the payment of warehouse charges of Rs. 10,16,517 would be allowable under Section 35B(1)(b)(iii) and that the Income-tax Officer did not commit any mistake in allowing weighted deduction. It was also urged that weighted deduction would be allowable under Section 35B(1)(b)(ix) read with Rule 6AA of the Income-tax Rules, 1962, as well. The Commissioner of Income-tax held that the expenditure on maintenance of a warehouse outside India was allowable under Section 35B(1)(b)(ix) read with Rule 6AA of the Income-tax Rules, 1962, only with effect from August 1, 1981, and, therefore, deduction under this section was not admissible for the assessment year 1980-81. In that view of .the matter, he held that the Income-tax Officer incorrectly allowed weighted deduction in respect of the sum of Rs. 10,16,517 and, to this extent, the order of the Income-tax Officer was erroneous in so far as it was prejudicial to the interests of the Revenue. He also held that the Income-tax Officer committed a mistake in allowing weighted deduction in respect of insurance charges paid outside India during the accounting period which ended on December 31, 1979. The action of the Income-tax Officer in allowing weighted deduction on insurance charges of Rs. 14,508 was considered to be erroneous in so far as it was prejudicial to the interests of the Revenue. The Commissioner of income-tax, therefore, directed the Income-tax Officer to amend the assessment order by withdrawing the weighted deduction in respect of the sums of Rs. 10,16,517 and Rs. 14,508 as mentioned above.
4. Being aggrieved by the order of the Commissioner of Income tax, the assessee preferred an appeal before the Tribunal. At the time of hearing, the assessee did not press the ground relating to the incorrect allowance of weighted deduction on insurance charges paid outside India amounting to Rs. 14,508. This ground was, accordingly, dismissed.
5. It was, however, contended that the goods of the assessee were kept in the warehouse (abroad) before their sale and the warehouse charges of Rs. 10,16,517 were paid in foreign currency. It was urged that warehouse charges were eligible for weighted deduction under Section 35B(1)(b)(iii) of the Act. The alternative contention of the assessee was that warehouse charges were eligible for weighted deduction under Section 35B(1)(b)(ix) read with Rule 6AA. It was urged that Rule 6AA inserted with effect from August 1, 1981, would apply to all the assessments which were completed after that date.
6. It was urged on behalf of the Revenue that the words “distribution, supply or provision” outside India of such goods, in Clause (iii) of Section 35B(1)(b) would not cover warehouse charges abroad. The further contention was that the law as on April 1, 1980, would be applicable for the assessment year 1980-81.
7. The Tribunal referred to the decision of the Kerala High Court in, the case of CIT v. Asiatic Sea Foods , wherein it has been held that, when goods are stored in the foreign agent’s cold storage, the expenditure incurred on storage and handling charges would be expenses on distribution and supply of goods outside India qualifying for weighted deduction. Since the facts of the assessee’s case were not clear and needed verification, the Tribunal set aside the orders of the lower authorities on this point and restored the matter to the file of the Income-tax Officer. The Tribunal observed that if the warehouse charges are found on examination to have been incurred for keeping the assessee’s goods before their sale, weighted deduction has to be allowed under Section 35B(1)(b)(iii). But, if the warehouse charges represent storage expenditure in transit in the course of the carriage of the goods, weighted deduction would not be allowable. The Income-tax Officer was directed to make a fresh assessment order after allowing the assessee a reasonable opportunity of being heard.
8. The Tribunal also held that Rule 6AA was applicable for the relevant assessment year as the assessment was completed on September 11, 1984, after the said rule was introduced. Although the assessee’s counsel conceded that it did not own any warehouse abroad, the Tribunal directed the Income-tax Officer to examine the assessee’s case regarding the admissibility of weighted deduction under Section 35B(1)(b)(ix) read with Rule 6AA as an alternative contention after bringing out clearly the facts of the case.
9. The first question is whether the assessee is entitled to claim relief under Section 35B(1)(b)(iii) of the Act on warehousing expenses. Any expenditure incurred wholly and exclusively for distribution and supply outside India of goods would qualify for weighted deduction under Section 35B of the Act, so long as such expenditure does not form part of the expenses on the carriage of goods to destinations outside India. If the goods are stored in a warehouse for sale, although the assessee admittedly is not the owner of such warehouse, such expenditure will be eligible for weighted deduction. Where the expenditure is incurred for storing goods in the warehouse before the sale of goods exported, such expenditure
by way of warehousing expenses would relate to distribution and supply of the goods outside India qualifying for weighted deduction.
10. We are, therefore, of the view that the Tribunal is right in directing the Income-tax Officer to find out whether expenses for storage of the goods were incurred by the assessee in keeping the goods in the warehouse before their sale and if so to allow weighted deduction on such expenditure under Section 35B(1)(b)(iii) of the Act.
11. We, therefore, answer the first question in the affirmative and in favour of the assessee.
12. So far as the second question is concerned, it must be answered against the assessee.
13. Section 35B(1)(b)(ix) provides that weighted deduction will be allowed also on such other a’ctivities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed. By Rule 6AA of the Income-tax Rules, 1962, which was introduced only with effect from August 1, 1981, the other activities as mentioned in sub-clause (ix) of Section 35B(1)(b) of the Act have been prescribed. This cannot have any retrospective operation in respect of the assessment year 1980-81, although the assessment for the assessment year in question was completed after Rule 6AA came into force.
14. The Tribunal was of the view that since the Rule came into force with effect from August 1, 1981, and the assessment was completed on September 11, 1984, the Income-tax Officer should examine the alternative contention regarding allowability of the claim of the assessee under Section 35B(1)(b)(xi). The activities which would come within the purview of sub-clause (ix) are such activities which are not enunciated in sub- Clauses (i) to (viii) of Section 35B(1)(b). If the contention is accepted, it will create an anomaly. If an assessment was completed on August 2, 1981, the assessee would get the benefit of the rule whereas, if another assessment was completed on July 31, 1981, although for the same assessment year, that assessee would be denied the benefit. This cannot be the intention of the Legislature. Rule 6AA has not been given any retrospective effect by implication or otherwise. Dr. Pal has not seriously contended that he supports the views of the Tribunal that, inasmuch as the assessment was completed on September 11, 1984, after the introduction of Rule 6AA, the benefit of sub-clause (ix) would be available to the assessee, and that such a view is sustainable.
15. For the reasons aforesaid, the second question in this reference is answered in the negative and in favour of the Revenue.
16. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
17. agree.