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Issues Involved:
1. Eligibility of the appellant for deduction under section 80-O of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Eligibility for Deduction under Section 80-O: The primary issue in this appeal is whether the appellant is entitled to claim a deduction under section 80-O of the Income-tax Act, 1961, amounting to Rs. 15,13,593. The appellant's business involves creating designs in man-made and synthetic fabrics, which are sold to both foreign and local customers. The appellant maintained separate income and expenditure accounts for fees received from local and foreign enterprises and claimed a deduction under section 80-O for fees received from foreign enterprises. The Assessing Officer (AO) denied the deduction, arguing that the term "design" in section 80-O should refer to identifiable or registered designs similar to patents, inventions, and registered trademarks, and not merely garment designs. The Commissioner of Income-tax (Appeals) (CIT(A)) upheld this view, stating that the sketches of cloth outfits prepared by the appellant do not fall under the term "design" as contemplated in section 80-O, which implies something akin to engineering designs. The appellant argued that the term "design" is not defined in the Income-tax Act, and therefore, its dictionary meaning should be adopted. The appellant cited various definitions and the Designs Act, 1911, which defines "design" as features of shape, configuration, pattern applied to any article by industrial process or manual means. The appellant also provided evidence of foreign remittances received for the designs, which were exclusively for those foreign companies. The Revenue's argument was twofold: first, the term "design" in section 80-O does not include the sketches made by the appellant; second, the designs were used in India by manufacturers of garments, and the section requires the use of the design outside India. The Tribunal examined the statutory interpretation principles and the object of section 80-O, which is to provide tax incentives for exporting know-how and skills abroad. The Tribunal noted that the term "design" should be understood in its conventional sense and that the appellant's sketches qualify as "designs" under section 80-O. The Tribunal also considered the Central Board of Direct Taxes (CBDT) Circular No. 700, which clarified that deduction under section 80-O is available if services are rendered from India and received by a foreign government or enterprise outside India, even if the benefit is utilized in India. The Tribunal concluded that the appellant's designs were ultimately used outside India as the garments stitched based on these designs were exported. The Tribunal also relied on various judicial precedents supporting the appellant's claim. The Tribunal held that the appellant fulfilled the conditions of section 80-O, including receiving income in convertible foreign exchange, and thus, the appellant is entitled to the deduction under section 80-O. Conclusion: The appeal of the assessee is allowed, and the appellant is entitled to claim a deduction under section 80-O of the Income-tax Act, 1961, for the amount of Rs. 15,13,593.
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