2020 (6) TMI 158 - SC - Income Tax

Deduction u/s 80-O - Royalties etc. - income received by the appellants in foreign exchange, for the services provided by them to foreign enterprises - High Court has essentially held that the assessees were merely marine product procuring agents for the foreign enterprises, without any claim for expertise capable of being used abroad rather than in India and hence, the services rendered by them do not qualify as the services rendered from India , for the purpose of Section 80-O - HELD THAT - In the setup of the present case, for a proper comprehension of the contents and text of the relevant provision of Section 80-O and Explanation (iii), which are carrying even the minute distinction of the expressions from India and in India , recourse to lexical semantics has been inevitable. However, in all fairness, the High Court has not only discussed semantics and dictionary meanings but, has equally looked at the object and purpose of Section 80-O of the Act. Hence, without further expanding on this issue, suffice it to say for the present purpose that the submissions against the approach of High Court with reference to the decision in Abhiram Singh 2017 (1) TMI 1419 - SUPREME COURT does not advance the cause of the appellant. Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue. Though the expressions expert information and advice , analysis , technical guidance etc., have been used in the agreements but, these expressions cannot be read out of context and de hors the purpose of the agreement. All the clauses of the agreements read together make it absolutely clear that the appellant was merely a procuring agent and it was his responsibility to ensure that proper goods are supplied in proper packing to the satisfaction of the principal. All other services or activities mentioned in the agreements were only incidental to its main functioning as agent. Significantly, the payment to the appellant, whatever label it might have carried, was only on the basis of the amount of invoice pertaining to the goods. There had not been any provision for any specific payment referable to the so-called analysis or technical guidance or advice. Viewed from any angle, the services of the appellant were nothing but of an agent, who was procuring the merchandise for its principals; and such services by the appellant, as agent, were rendered in India. Even if certain information was sent by the assessee to the principals, the information did not fall in the category of such professional services or information which could justify its claim for deduction under Section 80-O of the Act. In other words, in the holistic view of the terms of the agreements, we have not an iota of doubt that the appellant was only a procuring agent, as rightly described by the High Court. Default clauses effectively demolish the case of the appellant and fortify the submissions of the revenue that the appellant was merely a procuring agent and nothing more. Merely for having a contract with a foreign enterprise and mere earning foreign exchange does not ipso facto lead to the application of Section 80-O of the Act. Circular No.700 dated 23.03.1995 is neither of any application to this case nor of any assistance to the appellant. The appellant is not entitled to claim deduction under Section 80-O of the Act. High Court has rightly analysed the entire matter with reference to the relevant questions and has rightly proceeded on the law applicable to the case. The impugned judgment calls for no interference.- Decided in favour of revenue.

Issues Involved:
1. Whether the income received by the appellants in foreign exchange for services provided to foreign enterprises qualifies for deduction under Section 80-O of the Income Tax Act, 1961.
2. Interpretation and application of Section 80-O of the Income Tax Act, 1961.
3. The nature of services rendered by the appellants and whether they qualify as "services rendered from India" under Section 80-O.
4. The relevance and application of various judicial precedents and CBDT Circulars to the issue at hand.

Issue-Wise Detailed Analysis:

1. Eligibility for Deduction under Section 80-O:
The core issue was whether the income received by the appellants in foreign exchange for services provided to foreign enterprises qualifies for deduction under Section 80-O of the Income Tax Act, 1961. The appellants, engaged in providing services to foreign buyers of frozen seafood, claimed deduction under Section 80-O. The Assessing Officers denied the claims, stating that the services were "rendered in India" and not "from India." The Income Tax Appellate Tribunal (ITAT) accepted the claims, but the High Court of Kerala reversed the ITAT's decision, holding that the appellants were merely marine product procuring agents without any claim for expertise capable of being used abroad.

2. Interpretation and Application of Section 80-O:
Section 80-O provides deduction for income by way of royalty, commission, fees, or any similar payment received from a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula, or process, or information concerning industrial, commercial, or scientific knowledge, experience, or skill, or for technical or professional services rendered outside India. Explanation (iii) to Section 80-O includes services rendered from India but excludes services rendered in India. The provision aims to encourage Indian companies to export their technical know-how and earn foreign exchange.

3. Nature of Services Rendered by the Appellants:
The appellants claimed that they provided various services such as locating reliable sources of frozen seafood, communicating expert opinions, liaising with inspection agencies, providing market analysis, and negotiating prices. However, the High Court found that these services were incidental to the primary function of acting as agents for foreign enterprises in procuring marine products from India. The agreements specified that the appellants were responsible for ensuring the quality and packaging of goods, and their commission was contingent on the satisfaction of the foreign enterprises. The High Court concluded that the services rendered were not of the nature contemplated by Section 80-O.

4. Relevance of Judicial Precedents and CBDT Circulars:
The appellants relied on various judicial precedents and CBDT Circulars to support their claims. The decision in J.B. Boda & Co. Pvt. Ltd. v. CBDT was cited, where the Supreme Court allowed deduction under Section 80-O for commission received by a reinsurance broker. However, the Supreme Court clarified that the issue in J.B. Boda & Co. was different, as it dealt with the method of receiving foreign exchange, not the nature of services. The High Court also referred to other decisions, such as E.P.W. Da Costa, where the services involved statistical analysis and were considered scientific knowledge. The High Court distinguished these cases, noting that the appellants' services were primarily of a procuring agent.

Conclusion:
The Supreme Court upheld the High Court's decision, concluding that the appellants were merely procuring agents and their services did not qualify for deduction under Section 80-O. The Court emphasized that for a service to qualify under Section 80-O, it must be rendered from India and be of the nature specified in the provision. The appellants failed to provide sufficient material to establish that their services met these criteria. The appeals were dismissed, and the High Court's judgment was affirmed.

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