2006 (10) TMI 249 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for Deduction under Section 80-O
2. Registration and Use of Trademark
3. Calculation of Deduction Amount

Detailed Analysis:

1. Eligibility for Deduction under Section 80-O:
The primary issue is whether the assessee qualifies for a deduction under Section 80-O of the Income Tax Act. The assessee contends that the income derived from specialized relocation solutions, which involve the use of its registered trademark and technical know-how, should be eligible for this deduction.

The Assessing Officer (AO) and the first appellate authority (CIT(A)) have different interpretations. The AO argues that the deduction under Section 80-O is only available for the exploitation of intellectual property (patent, trademark, technical know-how) abroad and not for the actual export of goods or services. The CIT(A) supports this view, emphasizing that the assessee's income is from providing services, not from the use of its trademark or technical know-how by foreign enterprises.

2. Registration and Use of Trademark:
The assessee's trademark is registered in Switzerland, not in India. The CIT(A) asserts that for a deduction under Section 80-O, the trademark must be registered in India. The CIT(A) also argues that the income should be received from a foreign enterprise for the use of the registered trademark outside India.

The assessee counters that the trademark's registration in Switzerland should suffice and that the income derived from its use outside India, even if self-exploited, should qualify for the deduction. The assessee further argues that the trademark's role in securing business should be considered as "use" of the trademark.

3. Calculation of Deduction Amount:
The CIT(A) and the AO argue that only net income, after accounting for both direct and indirect expenses, should be considered for the deduction. The assessee, however, claims that only direct expenses should be deducted, as supported by the Tribunal's decision in Tata Sons Ltd.'s case.

The Tribunal agrees with the assessee's interpretation but finds it challenging to determine the exact portion of income attributable to the use of the registered trademark. The Tribunal suggests that 25% of the net receipts should be attributed to the assessee's regular business activities, and the remaining 75% should be considered for the deduction under Section 80-O.

Conclusion:
The Tribunal concludes that the assessee is eligible for a deduction under Section 80-O, even if the trademark is registered outside India. However, it limits the deduction to 75% of the net receipts, attributing the remaining 25% to regular business activities. The AO is directed to verify the revised working and ensure compliance with the Tribunal's guidelines. The appeal is partly allowed.