T.V. RAJAGOPALA RAO, J.M. This is appeal filed by assessee against order of CIT(A), Visakhapatnam, dt. 25th Jan., 1985 and it relates to asst. yr. 1981-82. 2. only point involved in this appeal is about rejection of claim for weighted deduction under s. 35B of IT Act. assessee is individual. assessment year involved is 1981-82 for which previous year is calendar year 1980. M/s Engineering Products India Ltd., Delhi, entered into contract with Iraq Government for construction of buildings for Council of Ministers at Baghdad. proprietary concern of assessee was functioning under name and style of M/s K. Pattabhiramareddy from 1st Jan., 1980. business carried on by assessee was to provide labour force required for others in construction works. assessee entered into sub-contract with M/s Engineering Products India Ltd., Delhi (hereinafter called main contractor) on 5th March, 1980. assessee is hereinafter called sub-contractor. Under terms of contract referred to above sub-contractor is to provide labour force required for carrying on construction works at Iraq by main contractor and for supplying labour force for said purpose. Admittedly assessee had maintained branch office at Baghdad. branch office at Baghdad belonging to assessee sub-contractor incurred total expenditure of Rs. 81,88,102 during accounting year in question. said total expenditure represents not only wages paid to labourers who were engaged in construction but also office salaries and other expenses. assessee seeks to bring its claim under cls. (i), (iv), (vii) and (ix) of s. 35B(1)(b) of IT Act. So also, assessee wants to bring his claim under cl. (c) of r. 6AA of IT Rules Further, he wanted to reply upon following three decisions: (1) CIT vs. Machinery Manufacturing Corpn. Ltd. (1984) 147 ITR (St) 3 (2) V.D. Swami & Co. Pvt. Ltd. vs. CIT (1984) 146 ITR 425 (Mad) (3) CIT vs. C.R. Narayana Rao (1984) 146 ITR 310 (Mad) Out of total expenditure, expenditure debitable to trading account has to be disallowed according to provisions of Expln. 2 to s. 35B(1) which was inserted from 1st April, 1981 and which reads as follows: Expln. 2 : For removal of doubts, it is hereby declared that nothing in cl. (b) shall be construed to include any expenditure which is in nature of purchasing and manufacturing expenses ordinarily debatable to trading or manufacturing account ant not to profit and loss account." ITO then took up examining claims of assessee put forward under four different sub-clauses of s. 35B(1)(b) one after other. Considering his claim under sub-cl. (i), he held that assessee s contention that it could successfully execute contract outside country would amount to publicity of his capacity to undertake large contracts, does not bring its case within cl. (i) as expenditure incurred on advertisement and publicity outside India. What can be allowed under this clause is actual expenditure incurred on advertisement and publicity outside India and not successful completion of project which might go to help assessee in promoting business of assessee outside country. Here, ITO wants to stress on fact that assessee was only sub-contractor executing only part of work relating to project and, therefore, his case does not fall under cl. (i). 3. Examining his case under sub-cl. (iv) ITO held that requirement under that sub-cl. (iv) is that expenditure incurred on maintenance of branch office outside India would be allowable if branch office is maintained for promotion of sale outside India of goods dealt in or services of facilities provided by assessee. Mere incurring expenditure on branch office outside India does not entitle assessee to claim weighted deduction under this sub-clause. In addition, it should also be proved that maintenance of branch office was for promotion of sale outside India of goods dealt in or services or facilities provided by assessee. It cannot be said in assessee s case that branch office was set up for specific purpose of promotion of sale outside India of assessee s activities. 4 . Dealing with case of assessee under sub-cl. (vii) ITO held that expenditure on travelling outside India should be incurred by assessee not for sale outside India of goods or services dealt in by assessee but to enable it to complete sub-contractor s work undertaken by assessee from main contractor. Then lastly dealing with assessee s case under cl. (c) of r. 6AA, ITO held that this clause speaks of expenditure incurred on maintenance of laboratory of facilities for quality control or inspection of such goods dealt in by assessee. It may be that assessee engaged services of few engineers to inspect construction to see that it was in conformity with standards laid down by main contractor. But it is not same as maintaining laboratory for quality control of goods dealt in by assessee. Therefore, it would have been possible for assessee to bring in his case under sub-cl. (viii) of s. 35B(1)(b), but unfortunately it was omitted w.e.f. 1st April, 1981 and so it cannot be invoked by him. three cases cited by assessee were held to be not relevant In case of Machinery Manufacturing Corporation (supra) it is held that question related to allowance of weighted deduction in relation to erection of cotton textile plant and machinery in UAR by Indian company. In this case provisions of s. 35B(1)(b) prior to 1st April, 1981 were applied, but not provisions of said section after its amendment on 1st April, 1981 and so it cannot be of any help to assessee. V.D. Swami & Co. Pvt. Ltd. vs. CIT (1984) 146 ITR 425 (Mad) and CIT vs. C.R. Narayana Rao (1984) 146 ITR 310 (Mad) were also held to be not relevant for issue involved in assessee s case. Therefore, total claim of Rs. 2, 29 ,700 as weighted deduction under s. 35B was disallowed by ITO. 5 . Aggrieved against disallowance matter is carried on in appeal before CIT(A), Visakhapatnam. amount of weighted deduction was stated to be equivalent to 3,14,927 Iraqi Dinars. Each Iraqi Dinar was Rs. 26 of value at relevant time. It is argued before ld. CIT(A) that there can be advertisement in many ways. If building is erected completion of construction of building itself would amount to advertisement and if construction looks attractive to viewer it may attract more orders, to assessee. Delivery of services to customers in exchange of cash or in pursuance of contractual obligation amounts to sale. It was claimed that assessee mobilised all staff and employees from India and extensive travelling was done by them from India to Baghdad and back. travelling was intended only for promotion and sale outside India of such services and facilities. ld. CIT(A) rejected all these contentions, dismissed appeal filed by assessee and confirmed order of disallowance made by ITO. Hence second appeal before this Tribunal by assessee. 6. We have heard Shri M.J. Swamy, learned counsel for assessee and Shri N. Santhanam, ld. departmental representative. Firstly, it was argued that supply of labour is also sale is proposition which was never doubted. assessee had contract from main contractor which is Government of India concern. He repeated all arguments which were advanced before ITO. He invited our attention to decision of Bombay Bench of Tribunal in case of ITO vs. Lata Mangeshkar (1983) 15 TTJ (Bom) 516 : (1982) 2 ITD 618 (Bom). In that case assessee, famous professional play-back singer, gave public consorts abroad as commercial venture under agreement with promotors and went to USA and gave public performances. ITO disallowed assessee s claim for weighted deduction on expenses incurred abroad by her on her trip on ground that there was no physical transfer of goods and that her services being intangible could not be physically transferred. ITO disallowed weighted deduction. ld. CIT(A) had set aside disallowance and granted her weighted deduction. When matter was carried in second appeal by Revenue before Tribunal, Bombay Bench held that dictionary meaning of export is to carry and send goods beyond national boundaries. assessee had certainly sold her professional services which were bought by customers abroad. In very nature of things professional goes abroad and exchanges her services for price to foreign customers. Had assessee tape-recorded her talents and sold them abroad it would have been case of export of tangible goods in form of types and it would not have been case of export of services. Instead, what assessee exported was her live music performances. CIT (A) was held to be quite correct in holding that assessee was entitled to weighted deduction under s. 35B. On strength of this decision ld. counsel for assessee contended that assessee is entitled to whole of weighted deduction prayed for. Mr. Swamy argued that it is no doubt true that s. 35B(1)(b) underwent many changes after 1st April, 1981. It is also true that as we are dealing with asst. yr. 1981-82 law as from 1st April, 1981 is to be applied to facts of present case. However, his case would directly come under cls. (I), (iv), (vii) and (ix) of s. 35B(1)(b). He contended that he had taken skilled as well as unskilled labour from India to Baghdad. speed with which they execute work, workmanship exhibited by skilled labour, ultimate building and nice way in which it is brought out would all be known by public of Baghdad, and therefore, it would amount to publicity or advertisement of services of assessee s stock-in-trade (skilled and unskilled labour). This case is to be equated with sculptor exhibiting his model pictures in art exhibition or sculptor opening art exhibition himself. If in case of sculptor his art- pieces are considered to be advertised or publicised why not work done by Indian skilled and unskilled labour by producing beautiful structures which they were assigned to bring about? Asks Mr. Swamy. What was difference between two categories? Now arguing his case under cl. (iv) Mr Swamy contends that admittedly he maintains branch office at Baghdad it would be too much for Department to say that it existed only with view to supervise execution of contract work undertaken. This observation of ITO is only figment of imagination. He did not elicit from assessee as to what were functions undertaken by branch office of assessee at Baghdad. Heaving gone upto Baghdad and having had in command both skilled and unskilled labour as well as engineers in good numbers at least it would be plausible for assessee s branch office at Baghdad to disseminate information about their work and their availability for service to any person in that country. In any event, Mr. Swamy argues that assessee is entitled to all expenses incurred for maintaining branch office at Baghdad. For instance, for maintaining branch office assessee had taken good building on rent, had employed supervisory, clerical staff etc., had incurred expenditure on electricity, water, etc., and also bore salaries of all staff. From out of profit and loss account maintained by branch office at Baghdad for year ending 31st Dec., 1980 following amounts in Dinars were spent towards office expenses: Staff salaries 30471,049 Staff amenities 9053,165 Office expenses 2242,240 Export credit guarantee Corporation Charges 2622,115 Office rent 400,000 Advertisements 94,155 Miscellaneous expenses 330,235 Depreciation 74 29 ,623 Shri M.J. Swamy submitted that in case if we agree with his argument that assessee is entitled to weighted deduction for maintenance out of India of branch office, agency for promotion of sale outside India of such goods, services or facilities then assessee would at least be entitled to weighted deduction on exchange value of total of above sum given in Dinars. He also stressed his claim by seeking to bring it under r. 6AA(c). Excluding unnecessary portions rule reads as follows: "For purposes of sub-cl. (ix) of cl. (b) of sub-s. (1) of s. 35B, other activities for promotion of sale outside India of goods, services or facilities which assessee deals in or provides in course of his business shall be as follows namely: (c) maintenance out of laboratory or other facilities for quality control or inspection of such goods:" 7 . ld departmental representative, countering arguments of Shri M.J. Swamy, contended that assessee is not entitled to weighted deduction as law stands amended from 1st April, 1981. He admitted that services can be sold just like goods either in India or outside India. However, he argued that assuming that assessee is entitled to weighted deduction his case does not come under either of four sub-clauses which now remain in statute book. Firstly, he argued that main contractor is M/s Engineering Products of India Ltd. citus of contract is in India. assessee sold his services to main contractor at Delhi where sub-contract was entered into. So, there is no privity of contract between assessee on one hand and Iraq Government on other. Hence assessee cannot claim weighted deduction under s. 35B. Nextly, he argued that for two reasons claim under r. 6AA(c) cannot be sustained. Firstly, because rule itself came to be inserted w.e.f. 1st Aug., 1981 whereas we obliged to apply law as it stood on 1st April, 1981. Secondly, rule does not apply if inspection is of services or facilities. He argues that if we carefully watch wording of sub-r. (c) "out of goods services or facilities "mentioned in section inspection is confined only to goods and it was not extended to either services or facilities which are exported outside India. ld. Departmental Representative while explaining away dismissal of SLP by Hon ble Supreme Court refusing to interfere with Bombay High Court order dt. 13th April, 1981 passed in 203/1980 (CIT vs. Machinery Manufacturing Corporation Ltd.) submitted that decision might have been given by Supreme Court keeping in mind provisions of cl. (viii) of s. 35B(1)(b). Admittedly assessment year with which Bombay High Court and subsequently Supreme Court were concerned was much before 1980. At that time violent changes introduced from 1st April, 1981 were never present. It is no doubt true that Supreme Court declaimed to call reference on whether assessee who entered into contract for erection of cotton textile plant and machinery in UAR was entitled to weighted deduction under s. 35B of IT Act 1961 and whether expenses incurred by it on imparting training to foreign personnel and sending its own employees abroad for erection of plant and machinery supplied by it qualify as expenses for promotion or development of export market. Obviously this expenditure was covered by cl. (viii) as this is expenditure connecting with or incidental to execution of any contract. Unfortunately cl. (viii) was deleted from 1st April, 1981 and it is no longer available to assessee. ld. departmental representative then invited our attention to Third Member decision of Bombay C Bench in case of Second ITO vs. Ramji Dayawalla & Sons. In that case there was cleavage of opinion between ld. Accountant Member and ld. Judicial Member. ld. Judicial Member followed still earlier decision of Bombay D Bench in case of Bestow Cement Co. Ltd. in ITA No. 1958 of 1979 dt. 8th Oct., 1980 where it is held that sub-cl. (viii) covers such expenses which exporter incurs in performance of services outside India, after goods have been delivered to or received by foreign buyers. Therefore, applying ratio of said decision ld. Judicial Member opined that expenses should be incidental to supply of services for purposes of getting weighted deduction and no weighted deduction would be available for expenses incurred for acquiring services themselves. Applying said decision of ld. Judicial Member in that case ld. departmental representative argues before us that if travelling expenses incurred to transport labour skilled and unskilled of India to Baghdad represent only expenses for supplying services abroad and not incidental to supplying of said services. Therefore, according to him, assessee is not entitled to any weighted deduction over travelling expenses incurred for taking skilled and unskilled labour from India to Baghdad. Then quoting from Special Bench decision in J.Hemchand & Co. vs. Second ITO (1982) 1 SOT 150 (Bom) (SB) ld. Judicial Member who had dissented from Accountant Member found Special Bench holding as follows: "We therefore, find it impossible to accede to assessee s contention that expenses incurred by way of cost of goods exported should also be taken as attracting benefit of sub-cl. (iii)." Basing his decision, inter alia, on above observation, Judicial Member held that as in view of this discussion, cost of production or procurement of goods cannot be eligible for weighted deduction under s. 35B, cost of procurement of services also cannot be eligible for such deduction. Basing on these observations or finding of ld. Judicial Member ld. departmental representative argued that sea or air travel expenses incurred by assessee for skilled and unskilled labour taken to Baghdad would form part of cost of procurement of services at contractual site and they go into trading results and, therefore, they cannot be held eligible for weighted deduction. In said case, ld. President as Third Member held that assessee in that case would not be entitled to succeed as its case does not come within four corners of Board s Circular dt. 4th Sept., 1975, He held: "This to my mind, clearly shows that in case of contractor of pure and simple labour supply, amount paid to labour, both as salary and travelling expenses, is in nature of cost of raw material and will not qualify for weighted deduction." Thus, he agreed with ld. Judicial Member s order. Therefore, this case almost became sheet-anchor of ld. departmental representative s argument for persuading us to hold that assessee is not entitled to weighted deduction on travelling expenses of labour force from India to Baghdad and wages paid to them at Baghdad are not entitled to weighted deduction. Ultimately it is argued by ld. Departmental Representative that unless distorted meaning is given to explaining cl. of s. 35B(1)(b) benefits of weighted deduction cannot be extended to assessee. 8. Mr. Swamy in reply tried to argue 1 SOT 150 case is distinguishable from facts of present case in view of what is contained in para 4 of Judicial Member s order. para 4 referred to is as follows: "Thus, in my opinion, expenses that incurred are on procurement of services, which is assessee s stock-in-trade, and it is not eligible for weighted deduction under s. 35B." Mr. Swamy argued that ratio of 2 SOT 183 may not entitle him to ask for weighted deduction over travelling expenses of labour but it does not deal with foreign travel of staff manning branch office at Baghdad. 9 . After considering rival contentions we are of opinion that assessee is entitled to weighted deduction on expenses incurred by it for maintenance of branch and incidental expenses incurred for branch office at Baghdad. Weighted deduction over such expenses are clearly permissible according to us under s. 35B(1)(b)(iv). We have seen original assessment record. In profit and loss account prepared for branch office at Baghdad 94,155 dinars were incurred for advertisements. We cannot contemplate any other advertisement than offering labour supply by Baghdad branch office of assessee. Therefore, presumption of ITO that their is no evidence that branch did not publicise about goods and services available with assessee at Baghdad falls to ground. We also hold that assessee is not entitled to weighted deduction over labour wages, travelling expenses from India to Baghdad for conveying labour, amenities and other things provided to labour were not entitled to weighted deduction as per Special Bench decision in J. Hemchand & Co. vs. Second ITO(1982) 1 SOT (Bom) 150 (SB) as well as Third Member decision in 2 SOT 183. We have already stated in prior paras expenses incurred for maintaining branch office at Baghdad and we agree that all those expenses are entitled to weighted deduction under s. 35B(1)(b)(iv), In result, appeal is partly allowed. *** K. PATTABHIRAMAREDDY v. INCOME TAX OFFICER