2009 (11) TMI 438 - HC - Income Tax

Royalty from foreign enterprises- The appellant is a reputed professor engaged in coaching students mainly for medical and engineering entrance examinations. Along with training students locally in the State, he has developed educational material in the form of CDs and in book form which are exported to students abroad. The appellant claimed the benefit of deduction under section 80-O of the Act. However, the Income-tax Officer disallowed the claim for the reason that the deduction under section 80-O of the Act is admissible only in respect of income received from foreign enterprises in consideration of use outside India of any patent, invention, design, registered trade mark and the consideration here is not for any such use. Commissioner(Appeals) and Tribunal disallowed the assessee claim. Held that- the item covered under section 80-O of the Act are generally items falling under the group of intellectual property rights . The assessee had not made any new invention. Thus there is no interference with the order of Tribunal and Commissioner (Appeals).

Summary

Issues:
1. Applicability of deduction under section 80-O of the Income-tax Act, 1961 for income received from educational material exported abroad.
2. Interpretation of the term "design" under section 80-O of the Act.
3. Determination of whether the educational material prepared qualifies as a design for the purpose of claiming the deduction.

Analysis:

Issue 1:
The appellant, a professor coaching students for medical and engineering entrance exams, claimed a deduction under section 80-O of the Income-tax Act for income derived from exporting educational material abroad. The Income-tax Officer disallowed the claim, stating that the deduction is only applicable to income received from foreign enterprises for the use outside India of patents, inventions, designs, or registered trademarks. The Tribunal upheld this decision, leading the appellant to appeal to the High Court for the years 1998-99 to 2001-02.

Issue 2:
The appellant argued that the educational material he produced should be considered a "design" under section 80-O, citing the dictionary definition of design. In contrast, the standing counsel contended that the appellant merely condensed existing educational material for better student comprehension, without creating any new design or invention.

Issue 3:
Upon review, the High Court found that items eligible for the deduction under section 80-O typically fall under "intellectual property rights," such as patents, trademarks, and designs protected by relevant legislation. The court determined that the appellant's work did not involve creating new designs or inventions but rather simplifying existing educational material for student benefit. As a result, the court upheld the Tribunal's decision, dismissing the appeals.

In conclusion, the High Court affirmed that the appellant's activities did not meet the criteria for claiming a deduction under section 80-O of the Income-tax Act, as they did not involve the creation of new designs or inventions falling under intellectual property rights. The court's decision was based on the interpretation of the term "design" in the context of the Act and the nature of the appellant's work in condensing educational material for student use.