2008 (4) TMI 12 - HC - Income Tax

Deduction u/s 80O - technical services rendered out of India - even if it was to be held that a portion of the said services were managerial services, the same would be regarded as technical services - further benefit is available when the services are rendered outside India but utilized in India.

Summary

Issues:
1. Eligibility for deduction under Section 80-O of the Income Tax Act, 1961.

Analysis:
The case involved a dispute regarding the eligibility of an assessee for deduction under Section 80-O of the Income Tax Act, 1961. The assessee claimed to have rendered technical services as a buying agent outside India and sought a deduction of Rs. 3,20,81,836. The Assessing Officer denied the deduction, stating that the services were managerial, not technical. The CIT(A) ruled in favor of the assessee, considering the services as professional and technical. The Tribunal directed the Assessing Officer to re-compute the deduction, allowing 70% of the fees received by the assessee. The assessee challenged this decision in the High Court.

The main contention was whether the services rendered by the assessee qualified as technical services under Section 80-O. The assessee argued that even if some services were managerial, they should be considered technical under Explanation (2) to Section 9(i)(vii) of the Act. The revenue contended that no deductions were permissible for services rendered in India as per Explanation (iii) to Section 80-O. The Court examined the definition of technical services and professional services under relevant clauses of the Act.

The Court referred to previous judgments to interpret the term "technical services." It noted that technical services involve specialized knowledge, experience, and skill, and the term has a broad connotation. It also considered a case where commission income was earned for providing commercial information, ruling that such services could qualify for deduction under Section 80-O. The Court analyzed the Circular No.700 dated 23.3.1995, clarifying that services rendered from India but used outside India could still qualify for the deduction.

Based on the facts presented, the Court concluded that the services provided by the assessee required knowledge, expertise, and experience, making them eligible for deduction under Section 80-O. The Court held that the assessee should be granted the benefit of the deduction as per the Act and relevant circular. Consequently, the substantial question of law was decided in favor of the assessee, allowing them to qualify for the deduction under Section 80-O. The appeal was allowed accordingly.