2003 (11) TMI 555 - AT - Income Tax

Deduction u/s 80-O - Nature of services - employment or recruitment bureau/establishment - Services comprise Technical or Professional services within the meaning of section 80-O of the Act, 1961 - HELD THAT - The assessee, as a franchisee of Boyden, is a professional consultancy firm conducting executive search for multinationals and large Indian business organizations. Executive search involves the use of computerized databank and sourcing techniques to locate the right top-level professionals from the industry. Know-how in the executive search field concerns the special knowledge relating to the executive search business developed by Boyden World Corporation. The assessee is approached by companies on the look out for selection of executives to be placed high in the hierarchy, including the chief executive officer. The assessee does not act as a mere employment or recruiting bureau. Since selection of the right leader and top executives is a sine qua non for the proper functioning and success of any organization, corporations and multinational organisations are increasingly relying on the knowledge, skill, research and experience of consultants like the assessee, to conduct executive searches in a professional and scientific manner. The assessee has built up a database of more than 40,000 executives. These details are not compiled by just writing or consolidating applications obtained through advertisements. They are compiled in a professional manner by study of annual reports, by contacting people who matter, by reference to various journals, market information and knowledge of the various industries and therein requirements and the availability of human resources. The database is built up in a highly professional and confidential manner by finding out the credentials, qualifications, skills and potentials of key personnel constituting the human resource data bank. It contains confidential prima facie SWOT analysis of the concerned individuals. The SWOT analysis is compiled on the basis of reference reports, published interviews, journal reports, etc. The assessee advises and guides its clients after assessing infor mation not obtained through advertisements from its database and conducting preliminary interviews of short-listed candidates. The assessee accomplishes this by presenting an evaluation report, enlisting the fundamental criteria influencing the selection. The reports cover a study of the industry to which the client belongs, a study of the work culture of the client, impressions about the traits of the prospective candidates, which would provide a good match to the organization, etc. After discussing the response of the client to the initial report, the assessee short-lists two or three candidates who, in the opinion of the assessee, would meet the requirements of the client. The assessee formulates its own judgment about the acceptability and usefulness of candidates to the client organization. This involves imparting of reliable advice of judgment on how an individual will perform in a given organisation. Such advice is contained in the evaluation report and the reference check report, which the assessee sends to its client with the assessee's comments, opinion and analysis. Thus, this advice is communicated by the assessee to its client in a specific objective manner, though the ultimate advice is based on a study of subjective perceptions and considerations. Assessment of technical competence, leadership and management skills and strengths of personality and stature is to be made during face to face interviews. The client of the assessee relies on and uses the advice and opinion of the assessee in making the final selection. The reports and advice of the assessee operate as important tools for the client. The final selection, however, is exclusively the prerogative and responsibility of the client and the assessee does not, at any stage act as an agent of the client to carry out the client's bidding. The fee charged by the assessee from its client is not dependent on the finalisation of the recruitment. It is payable irrespective of the short-listed candidate being recruited/not being recruited by the client. The final interview is conducted by the client and sometimes, the candidates have to go abroad for this purpose if the client is based abroad. The assessee's task gets over before the final interview and selection. That this procedure is carried out by the assessee is not disputed. It is only stressed that carrying out of such procedure is no different from the job of any other ordinary recruitment agency, not inviting entitlement to deduction under section 80-O, as held in Eastman 1981 (2) TMI 55 - BOMBAY HIGH COURT . The assessee seeks to address the issue of human resource promotion and strength. It irrefragably provides information concerning industrial and commercial knowledge and makes available experience and skill to its clients and provides technical and professional services from India. The search for quality management professionals is a task calling for extreme sensitivity, caution, professionalism and confidentiality. It is specialized job that only the best executive search consultants can be entrusted with. And the assessee undoubtedly qualifies to be that, as is obvious from the payment of Rs. 7.75 lakhs for one single assignment in the year 1994-95, which the assessee allegedly earned, more so, when such payment is incontingent on whether the client appoints any of the candidates recommended by the assessee, or not. That big corporations and multinationals have retained the assessee as their executive research consultant speaks volumes of the fact that the assessee has carved out a niche for itself as specialized professionals and consultants and that the information and services provided by it are of much value to foreign companies. If the job of the assessee was in the nature of a mere recruitment agent, its services would not be retained by the giant Indian companies who have their local offices and who do not need a recruitment agency to interview and appoint personnel. It is because the assessee is rendering valuable information experience, skill and professional services as consultants, that the assessee has huge receipts from local parties as well as foreign enterprises. Thus, in respectful consonance and agreement with E. P. W. Da Costa 1979 (2) TMI 40 - DELHI HIGH COURT , the professional services rendered by the assessee are entitled to deduction u/s 80-O. We hold accordingly. Thus, the impugned order of the learned CIT (A) is entirely correct and legal. It suffers from no infirmity. It is upheld. Resultantly, the appeal is dismissed.

Summary

Issues Involved:
1. Entitlement to deduction u/s 80-O of the Income-tax Act, 1961.
2. Nature of services provided by the assessee.
3. Applicability of the decisions in Eastman Consultants (P.) Ltd. v. CBDT and E. P. W. Da Costa v. Union of India.

Summary:

1. Entitlement to Deduction u/s 80-O:
The primary issue is whether the assessee is entitled to a deduction u/s 80-O of the Income-tax Act, 1961. The Revenue contends that the services provided by the assessee do not qualify as "technical or professional services" under section 80-O, while the assessee argues otherwise.

2. Nature of Services Provided by the Assessee:
The assessee, a franchisee of Boyden World Corporation, provides consultancy services for executive research, which involves a high degree of knowledge, experience, and skill. The services include building a professional database of executives, conducting SWOT analyses, advising clients on candidate selection, and preparing comprehensive evaluation reports. These services are distinct from those of a common employment or recruitment bureau, which merely registers details and advertises positions.

3. Applicability of the Decisions in Eastman Consultants (P.) Ltd. v. CBDT and E. P. W. Da Costa v. Union of India:
The Revenue relies on Eastman Consultants (P.) Ltd. v. CBDT [1981] 132 ITR 637, where the High Court held that the services provided by the assessee did not qualify for deduction u/s 80-O. However, the Tribunal finds that the facts of the present case are different. The assessee's services involve providing detailed and specialized consultancy reports used by clients outside India, unlike the mere collection and conveyance of bio-data in Eastman.

The assessee relies on E. P. W. Da Costa v. Union of India [1980] 121 ITR 751, where the Delhi High Court held that conducting an audience research study and providing analyzed information to the BBC qualified for deduction u/s 80-O. The Tribunal agrees with this precedent, noting that the assessee's services also involve providing specialized, professional information and advice.

Conclusion:
The Tribunal concludes that the services provided by the assessee qualify as "technical or professional services" under section 80-O. The decision of the Commissioner of Income-tax (Appeals) to allow the deduction is upheld, and the appeal by the Revenue is dismissed.