2007 (9) TMI 616 - HC - Income Tax

Summary

Issues:
The judgment involves the interpretation of section 80-O of the Income-tax Act, 1961 regarding the eligibility of deduction for consultancy services provided to foreign clients. The main issue is whether services rendered from India but utilized by a foreign recipient in India qualify for deduction under section 80-O.

Details:
The assessee entered into an agreement with a foreign company for consultancy services provided in India. The assessee claimed deduction under section 80-O for the income received in US dollars. The Assessing Officer initially disallowed the deduction, stating that the services were not rendered outside India to a foreign entity as required by the provision.

In the appeal, the Commissioner of Income-tax (Appeals) referred to a circular by the Central Board of Direct Taxes (CBDT) and directed the Assessing Officer to compute the net income for allowing the deduction under section 80-O. The revenue challenged this decision before the Tribunal, which upheld the allowance of deduction under section 80-O.

The revenue contended that since all services were performed in India, the assessee did not render services outside India as per Explanation (iii) to section 80-O. However, the CBDT circular clarified that as long as services are rendered from India and received by a foreign entity outside India, the deduction under section 80-O would be available.

The High Court noted that the key element for eligibility under section 80-O is the rendering of services to an entity outside India, not the location where the services are utilized. The Court cited a previous case to emphasize that consultancy services involve professional services, qualifying for the deduction. The Court agreed with the concurrent findings of the CIT(A) and the Tribunal that the services in this case were rendered from India to a foreign entity, thus upholding the allowance of deduction under section 80-O.

Ultimately, the Court found no substantial question of law in the appeal and dismissed it, affirming the decision to allow the deduction under section 80-O for the consultancy services provided by the assessee to the foreign client.