DIPAK KUMAR SEN, J. ( 1 ) THE material facts found or admitted or as are matters of record in this reference are, inter alia, that Duncan Brothers and Co. Ltd. , the assessee, entered into a contract in writing dated August 14, 1969, with one Economic Trading of Cairo for shipment of 3,719 bales of hessian cloth of a specified size. It was a term of the said contract that shipment would be made by a vessel nominated by the foreign purchaser to be ready in the second half of September, 1969. It was further provided that in case of failure of the assessee to ship the goods within the stipulated time, the foreign purchasers would be entitled to cancel the contract or demand appropriate late shipment penalty from the assessee. It was further provided that in case the shipment was delayed for reasons beyond the control of the assessee, the aforesaid provisions will not apply. ( 2 ) THE assessee failed to ship the goods in September, 1969. The shipments were actually made during January, February, March and May, 1970. On the claim of late shipment penalty by the foreign purchaser, a dispute arose between the parties which was referred to the arbitration of the Bengal Chamber of Commerce and Industry. An award was passed in the proceedings on May 31, 1971, under which a sum of Rs. 3,01,239 was awarded in favour of the foreign purchaser. The assessee was directed to pay the said amount to the foreign purchaser. With the approval of the Reserve Bank of India, the assessee paid the said amount of Rs. 3,01,239 to the foreign purchaser in foreign currency. ( 3 ) IN the assessment year 1972-73, the corresponding accounting year ending on December 31, 1971, the assessee was assessed to income-tax. In the assessment, the assessee claimed export markets development allowance under Section 35b of the Income-tax Act, 1961. Weighted deduction of a portion of the said sum of Rs. 3,01,239 was claimed. The Income-tax Officer held that the assessee was not entitled to such weighted deduction on account of export markets development allowance under Section 35b and disallowed the claim. ( 4 ) BEING aggrieved, the assessee preferred an appeal from the order of assessment to the Appellate Assistant Commissioner challenging, inter alia, the said disallowance. 3,01,239 was claimed. The Income-tax Officer held that the assessee was not entitled to such weighted deduction on account of export markets development allowance under Section 35b and disallowed the claim. ( 4 ) BEING aggrieved, the assessee preferred an appeal from the order of assessment to the Appellate Assistant Commissioner challenging, inter alia, the said disallowance. ( 5 ) ON a consideration of the facts of the case, the Appellate Assistant Commissioner accepted the contentions of the assessee and held that the said expenditure incurred by the assessee for payment of late shipment penalty entitled the assessee to claim export markets development allowance under Section 35b of the Act and directed the Income-tax Officer to allow the weighted deduction on one-third of the expenditure. ( 6 ) BEING aggrieved, the Revenue preferred a further appeal against the decision of the Appellate Assistant Commissioner before the Income-tax Appellate Tribunal, It was contended on behalf of the Revenue before the Tribunal that the expenditure incurred by the assessee on account of late shipment penalty or demurrage had been incurred in connection with the loading and the carriage of goods and that such expenditure had been incurred in India. The payment had to be made on account of delay in loading and loading was a part of the process of the carriage of goods. It was contended that the assessee was not entitled to claim the allowance, under Section 35b, of weighted deduction. ( 7 ) IT was contended on behalf of the assessee that under the contract with the foreign purchaser, the assessee was not required to carry the goods to their destination. The assessee had to pay the amount for non-fulfilment of contractual obligations, viz. , to deliver the goods on board the vessel within the time. The amount paid was actually compensation for late delivery of the goods. It was submitted that inasmuch as the amount had been paid by the assessee in foreign currency outside India with the approval of the Reserve Bank of India, the expenditure had been incurred outside India. It was contended that Section 35b of the Income-tax Act, 1961, was attracted to the facts of the case and the assessee was entitled to claim the weighted deduction thereunder in respect of the said amount. It was contended that Section 35b of the Income-tax Act, 1961, was attracted to the facts of the case and the assessee was entitled to claim the weighted deduction thereunder in respect of the said amount. ( 8 ) ON a consideration of the facts and circumstances, the Tribunal found that the situs of the contract between the assessee and the foreign purchaser was in India, that the sale took place in India, that the dispute between the assessee and the foreign buyer in respect of non-fulfilment of the said terms of the contract arose in India and that the dispute was settled in India through the arbitration of the Bengal Chamber of Commerce and Industry at Calcutta. The Tribunal held that the fact that the penalty for late shipment was paid in foreign currency with the approval of the Reserve Bank of India could not decide the place where the liability to pay arose. ( 9 ) AS, under the contract, the assessee was liable to pay late shipment penalty in case of failure to put the goods on board the vessel by September, 1969, the liability arose directly in connection with the shipment of goods. The Tribunal held that the expenditure on account of late shipment penalty was incurred by the assessee in India in connection with the supply of goods and that such expenditure was also incidental to the carriage of such goods to their destination outside India. The Tribunal set aside the decision of the Appellate Assistant Commissioner and affirmed the order of the Income-tax Officer. ( 10 ) ON an application by the assessee under Section 256 (1) of the Income-tax Act, 1961, the Tribunal has referred the following question, as a question of law arising out of its order, for the opinion of this court:"whether, on the facts and in the circumstances of the case, the applicant company was entitled to weighted deduction under Sub-clause (in) of Clause (b) of Sub-section (1) of Section 35b to the Income-tax Act, 1961, in respect of payment of Rs. 3,01,239 in the assessment for the assessment year 1972-73 ?" ( 11 ) LEARNED advocate for the assessee contended at the hearing that the Tribunal having found as a fact that payment had been made in foreign currency outside India with the approval of the Reserve Bank of India, the conclusion of the Tribunal that the expenditure was incurred in India was erroneous. Merely because the liability had arisen in India under the contract, it did not follow that the expenditure incurred in respect of such liability had been incurred in India. ( 12 ) IT was contended that the said expenditure incurred by the assessee was not a loss as caused in the ordinary sense. The expenditure had been incurred wholly and exclusively for the purpose of the business of the assessee and was otherwise allowable as a deduction under Section 37 of the Income-tax Act, 1961. ( 13 ) LEARNED advocate for the assessee next contended that what was excluded by Section 35b (1) (b) (iii) of the Act was expenditure on the carriage of goods. It was submitted that the said expression should be construed to mean expenditure which is incurred directly on the carriage of goods. It was contended that the Legislature had not used the wider expression, viz. , "expenditure for the purpose of carriage of goods" in the said section and, therefore, the section as it stood had to be given a restricted meaning and effect. ( 14 ) IT was submitted that the Tribunal having held that the expenditure incurred by the assessee on account of late shipment being incidental to the carriage of goods, it should be held that such expenditure was necessarily not incurred on the carriage of goods. ( 15 ) IN support of his contentions, learned advocate for the assessee cited the following decisions : (a) Indian Molasses Co. (Private) Ltd. v. CIT. In this case, the Supreme Court considered and construed the meaning of the expression "expenditure" in the context of Section 10 (2) (xv) of the Indian Income-tax Act, 1922. The following observations in the judgment of the Supreme Court were relied on (at pages 76 and 78):"expenditure in this sense is equal to disbursement which, to use a homely phrase, means something which comes out of the trader's pocket. . . . . . The following observations in the judgment of the Supreme Court were relied on (at pages 76 and 78):"expenditure in this sense is equal to disbursement which, to use a homely phrase, means something which comes out of the trader's pocket. . . . . . What a prudent trader sets apart to meet a liability, not actually present but only contingent, cannot bear the character of expense till the liability becomes real. . . . . . . 'expenditure' is equal to 'expense' and 'expense' is money laid out by calculation and intention though in many uses of the word, this element may not be present, as when we speak of a joke at another's expense. But the idea of 'spending' in the sense of 'paying out or away' money is the primary meaning and it is with that meaning that we are concerned. 'expenditure' is thus what is 'paid out or away' and is something which is gone irretrievably. " (b) CIT v. Malayalam Plantations Ltd. In this case, the Supreme Court considered and construed the meaning of the expression "for the purpose of the business". The following observations were relied on (headnote):"the expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide ; it may take in not only the day to day running of a business but also the rationalisation of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for the carrying on of a business ; it may comprehend many other acts incidental to the carrying on of the business. " (c) CIT v. Kasturi Palayacat Co. " (c) CIT v. Kasturi Palayacat Co. In this case, a Division Bench of the Madras High Court held that on the customs duty paid and the packing charges incurred by the assessee in its branches abroad for import of goods, the assessee was entitled to claim export markets development allowance under Section 35b (1) (b) as such duty paid and packing charges incurred could not be held to be an expenditure on the carriage of goods and, therefore, excluded under Section 35b (1) (b) (iii) of the Act. Under the said section, what was excluded was expenditure on the carriage of goods to their destination outside India or on the insurance of such goods while in transit. (d) Nanhoomal Jyoti Prasad v. CIT. In this case, it was held by a Division Bench of the Allahabad High Court that demurrage charged by a port authority was by way of compensation for delay in clearing the goods from the godowns of the port authority and included charges for storage and safe custody of the goods. It was held further that when a trader paid demurrage, the same was for such storage and safe custody and the same might include an additional amount for delayed clearance. The payment was essentially by way of liquidated damages for use of the storage facilities beyond the free period allowed. Such demurrage was not a fine paid for any infraction of any law. (e) Bharat General and Textile Industries Ltd. v, CIT. In this case, a Division Bench of this court held that items like clearing and forwarding charges paid by an assessee in Indian ports on goods exported to foreign countries and expenditure on the carriage of goods to their destination outside India or on insurance of such goods while in transit did not entitle the assessee to claim weighted deduction by way of export markets development allowance under Section 35b. ( 16 ) LEARNED advocate for the assessee also cited Mahalaxmi Sugar Mills Co. Ltd, v. CIT [1986] 157 ITR 683 (Delhi ). ( 17 ) LEARNED advocate for the Revenue contended to the contrary and sought to support the decision of the Tribunal. ( 18 ) WE may refer to the relevant provisions of Section 35b of the Income-tax Act, 1961, as it stood at the relevant time as set out below:"35b. Ltd, v. CIT [1986] 157 ITR 683 (Delhi ). ( 17 ) LEARNED advocate for the Revenue contended to the contrary and sought to support the decision of the Tribunal. ( 18 ) WE may refer to the relevant provisions of Section 35b of the Income-tax Act, 1961, as it stood at the relevant time as set out below:"35b. Export markets development allowance.-- (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 :. . . . . . (b) The expenditure referred to in Clause (a) is that incurred wholly and exclusively on- -. . . (iii) distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit. " ( 19 ) ON a plain reading of the said section, it appears that if the assessee has incurred expenses for late shipment of the goods in India or if the said expenditure has been incurred on the carriage of such goods to their destination outside India, the assessee would not be entitled to claim the allowance under Section 35b by way of weighted deduction. ( 20 ) IT has been the contention of the assessee that as payment had been made by the assessee in foreign currency to the foreign purchaser outside India with the permission of the Reserve Bank of India, it followed that the expenditure must have been incurred outside India. Even if the liability arose in India under the contract, the expenditure was incurred to meet such liability outside India. ( 21 ) IT appears to us that the two expressions "expenditure" and "payment" cannot be equated as has been suggested on behalf of the assessee. Even if the liability arose in India under the contract, the expenditure was incurred to meet such liability outside India. ( 21 ) IT appears to us that the two expressions "expenditure" and "payment" cannot be equated as has been suggested on behalf of the assessee. On the facts of this case, the assessee incurred liability in India to pay the penalty as the assessee failed to ship the goods in time. The foreign purchaser raised a claim on the assessee ,in India for late shipment which was taken up in arbitration before the Bengal Chamber of Commerce and Industry in India. The award of the arbitrator, in favour of the foreign purchaser, was made in India. The liability of the assessee to pay was finally determined by the said award. No doubt, the payment by the assessee ultimately reached the foreign purchaser outside India in foreign currency but so far as the assessee was concerned, it was out of pocket in respect of the expenditure when it arranged to remit the money abroad obviously through an authorised bank in the usual course. ( 22 ) FOR the above reasons, we are unable to accept the contention of the assessee that the expenditure was incurred by the assessee on account of the late shipment penalty outside India. ( 23 ) IN view of the above, since the expenditure was incurred in India, it is not necessary for us to decide whether the said expenditure was incurred by the assessee on the carriage of goods or not. We may observe, however, that in the relevant portion of Section 35b itself, distinction has been made between expenditure incurred in India in connection with distribution, supply or provision of goods outside India and an expenditure on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit. On a plain reading of the said section, it appears to us that the first category of expenditure in the said section is governed by the words "in connection therewith". The said words have not been used in respect of expenditure incurred either on the carriage of goods or on the insurance of goods. The contention of the assessee on this aspect does not appear to us to be without substance. The said words have not been used in respect of expenditure incurred either on the carriage of goods or on the insurance of goods. The contention of the assessee on this aspect does not appear to us to be without substance. However, as we intend to dispose of this reference on the other point, we do not express a final opinion on this aspect of the controversy. ( 24 ) FOR the above reasons, we answer the question referred in the negative and in favour of the Revenue. On the facts and circumstances of the case, there will be no order as to costs.