2011 (3) TMI 1240 - AT - Income Tax

Deduction u/s.80RRA - deduction denied by the AO because assessee had not fulfilled the condition as per section 80 RRA(2)(ii) - assessee had also claimed alternate deduction u/s.80-O set aside by the Tribunal Held that - If the approvals of the technical services have not been granted, obviously then assessee is not entitled for deduction u/s.80RRA. The Tribunal cannot go beyond its scope to hold that CBDT was not correct in refusing the permission for which assessee could have taken appropriate steps before the Hon ble High Court. In the light of this discussion assessee is not entitle for deduction u/s.80 RRA. Against assessee. As Deduction u/s. 80O is only in respect of royalty and such royalties are receivable in respect of patent, invention, design or registered trademark, tax incentive u/s. 80-0 is contemplated to encourage the export of Indian know-how and skills abroad. This incentive was to encourage them to exploit their patent rights, trademark and technical know-how abroad. It is not meant merely to sell their technique as technical know-how, which is the case for availing deduction u/s.8ORRA. In other words, deduction u/s.80-0 is available for export of much higher skills which can quality as a design or even better an invention, or they should be capable of being patented or registered as trade-marks. It is not available for ordinary export of skills - assessee has not supplied any design or not used any intellectual property. The learned counsel had emphasised that assessee had provided technical know-how but there is nothing on record to show that assessee was in possession of any technical know-how, assessee was merely providing technical services or some kind of software for which deduction is not available u/s.80-O. Therefore, in case of Ontrack Systems Ltd. (2006 (10) TMI 206 - ITAT MADRAS-B) also, the fact was that assessee had provided services of designing the website that is why deduction was held to be allowable, assessee is not entitle for deduction u/s.80-O. Against assessee.

Summary

Issues Involved:
1. Confirmation of the rejection of the claim of deduction under Section 80RRA of Rs. 8,48,155/-.
2. Rejection of the alternate claim of deductions under Section 80-O.

Issue-wise Detailed Analysis:

1. Confirmation of the rejection of the claim of deduction under Section 80RRA of Rs. 8,48,155/-:

The assessee, an Electronic Engineer and expert in Laser Technology, rendered technical services to foreign parties and claimed a deduction under Section 80RRA. The Assessing Officer (AO) denied this deduction because the assessee did not fulfill the condition stipulated in Section 80RRA, sub-section (2), clause (ii), which requires approval of the terms and conditions of services provided outside India by the Central Government or the prescribed authority.

Upon appeal, the Commissioner of Income Tax (Appeals) upheld the AO's decision, observing that the necessary approval was not granted, making the assessee ineligible for the deduction under Section 80RRA. The Tribunal noted that the refusal of approval by the Central Board of Direct Taxes (CBDT) was due to the assessee not traveling outside India. However, the Tribunal emphasized that it does not have the jurisdiction to override administrative decisions by the CBDT, which can only be contested in the High Court. Consequently, the Tribunal upheld the CIT(A)'s decision, confirming the rejection of the deduction under Section 80RRA.

2. Rejection of the alternate claim of deductions under Section 80-O:

The assessee also claimed an alternate deduction under Section 80-O, which was denied because the services provided did not fall into the categories of patent, invention, design, or registered trademark as envisaged by Section 80-O. The CIT(A) conducted a detailed examination and concluded that the deduction under Section 80-O is intended for royalties or income derived from the use of intellectual property such as patents, inventions, designs, or registered trademarks outside India. The CIT(A) noted that the services provided by the assessee were technical consultancy in software, hardware, laser optics, and related development work, which do not qualify as intellectual property under Section 80-O.

The Tribunal concurred with the CIT(A)'s findings, emphasizing that Section 80-O requires the use of intellectual property outside India, and the income must be received in convertible foreign exchange. The Tribunal referenced the decision in CIT vs. Charles M. Correa, where architectural designs supplied and used outside India qualified for the deduction under Section 80-O. However, in the present case, the assessee did not supply any design or intellectual property but merely provided technical services. Therefore, the Tribunal upheld the CIT(A)'s decision, rejecting the deduction under Section 80-O.

Conclusion:

The Tribunal dismissed the assessee's appeals, confirming the rejection of the claims for deductions under both Section 80RRA and Section 80-O, as the necessary conditions for these deductions were not met. The order was pronounced on March 4, 2011.