2010 (3) TMI 170 - HC - Income Tax

Deduction- The assessee was an architect, during the previous year relevant to the assessment year 2003-04, he received professional fees of Rs. 3.15 crores including an amount of Rs. 2.43 crores, which was received in convertible foreign exchange from G and M of the U.S.A. the assessee claimed a deduction on the receipts received in convertible foreign exchange under section 80-O to the extent of 20 per cent. The Assessing officer denied the benefit of deduction under section 80-O. In appeal, the Commissioner (Appeals) held that the assessee was entitled to a deduction under section 80-O to the extent of 20%. The assessing officer denied the benefit of deduction under section 80-O. The Tribunal confirm the decision of Commissioner (Appeals). Held that-dismissing the appeal, that it had not been disputed that the assessee did as a matter of fact provide the designs. Nor was it disputed that the designs provided by the assessee were used outside India. Moreover, it was an admitted position that income in convertible foreign exchange was received by the assessee in India. The assessee was entitled to special deduction under section 80-O for the assessment year 200-04.

Summary

Issues:
Interpretation of section 80-O for deduction eligibility based on income received in convertible foreign exchange for use of intellectual property outside India.

Analysis:

Issue 1: Interpretation of Section 80-O Eligibility
The case involved an appeal by the Revenue regarding the eligibility of an architect for deduction under section 80-O of the Income-tax Act, 1961. The architect received professional fees, including amounts in convertible foreign exchange, and claimed a deduction under section 80-O. The Assessing Officer initially denied the deduction, but the Commissioner of Income-tax (Appeals) and the Tribunal allowed it. The primary issue revolved around whether the architect fulfilled the conditions specified in section 80-O, particularly regarding income received for the use of intellectual property outside India.

Issue 2: Conditions for Deduction under Section 80-O
Section 80-O requires income to be received in convertible foreign exchange for the use outside India of patents, inventions, designs, or registered trademarks. The court analyzed the contracts of the architect, where designs were provided to foreign entities and used outside India. The court highlighted that the essence of section 80-O is to allow deductions for income received in convertible foreign exchange for the use of specific intellectual property categories outside India, which was evident in the architect's case.

Issue 3: Professional Services vs. Intellectual Property Ownership
The Revenue contended that the architect, providing professional services, could not be considered the owner of intellectual property, thus ineligible for the deduction. However, the court rejected this argument, emphasizing that the income received was specifically for the use of designs outside India, not merely for professional services. The court clarified that as long as the intellectual property was used outside India, and payment was received in convertible foreign exchange, the deduction under section 80-O was warranted.

Conclusion:
The court dismissed the appeal, stating that all conditions for exemption under section 80-O were met by the architect. The court noted the absence of a relevant Supreme Court judgment referenced in the appeal and highlighted the acceptance of a similar deduction in the preceding assessment year. Consequently, the court found no substantial question of law and ruled in favor of the architect, upholding the eligibility for the deduction under section 80-O.