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TMI Blog2006 (5) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The deduction claimed by the assessee was accordingly denied. The Assessing Officer for his view relied upon the decision of Hon ble Delhi High Court in the case of J.K. (Bombay) Ltd. v. CBDT [1979] 118 ITR 312 1 . 3. On appeal, the CIT (Appeals) noted that assessee was rendering following services to its customers abroad : "1. Preparations of drawings and designs, supervision, and advising the buyer on market trends etc. The appellant employs designers/technicians for doing creative work for the merchandise. 2. Providing merchandising assistance for selection of products from various vendors. 3. Evaluate factories for technological superiority and infrastructure. 4. Negotiation with vendors for best prices. 5. Protecting the buyer s interest for patents, designs and trade-marks. 6. Working out the logistics of the whole movement of goods from vendors to customers including freight forwarding, packing instructions and the completion of bank formalities. 7. Inspecting the goods online at the factory premises in accordance with internationally accepted quality levels, evaluating the patterns and designs of the goods, conducting final inspections on a random v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant constantly communi- cates with the foreign principals and liaises with the Indian customers. The appellant makes available to the foreign principal commercial information relating to the fabrics in vogues, changing fashion trends, latest styles etc., which is evident from the samples of the portfolios shown to me. The orders are placed by the foreign principals on the Indian customers on the basis of such communication from the appellant. Further the appellant inspects the products or samples thereof at the premises of the Indian customers to see that the same conform to the agreed specification and quality and arranges with the buyer timely dispatches according to agreed schedule and keeps the foreign principals constantly updated about the same. The appellant is a qualified designer/merchandiser having substantial experience in then line of business to discharge the function towards the foreign principals. In view of the aforesaid factual situation, I have no hesitation to hold that the services rendered by the appellant are professional and/or technical services. The view taken by the Assessing Officer that technical services would be restricted to services which are pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from whom commission/fees was received by the assessee in foreign exchange. He drew our attention to Explanation ( iii ) to section 80-O of the Income-tax Act which provided that deduction was not permissible in respect of services rendered in India. He emphasized that assessee in this case was rendering services to foreign buyers in India. Alternatively, he submitted that if certain portion of services was rendered outside India, then assessee could only be allowed deduction qua such portion of service. Deduction could not be allowed on the whole amount. 5. The learned Sr. D.R. further submitted that bifurcation of deduction under section 80-O was permissible in the light of decision of Hon ble Supreme Court in the case of Continental Construction Ltd. v. CIT [1992] 195 ITR 81 . Shri Jain emphasized that in profit and loss account, receipt in dispute was shown as "commission". Later on it was added and shown as fees for "technical services". Shri Jain referred to and relied upon decision of Searle (India) Ltd. v. CBDT [1984] 145 ITR 673 (Bom.) in which it was held that assessee carrying on certain tests and certifying product to conform required specification - wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r examination of case was not carried and, therefore, it was necessary to send back the case to the Assessing Officer to examine and restrict allowance of deduction under section 80-O to the services rendered outside India as envisaged by the statutory provision. 7. Shri Ajay Vohra, learned counsel for the assessee supported the impugned order of learned CIT(A). He argued that details of services and role of assessee as "agent" was placed in detail before the Assessing Officer. As a buying agent of foreign principal, the assessee is involved in collecting information relating to trends and designs in India, what material and fabrics are available which can be exported. He has to collect source of pattern from India, scout the market and find manufacturers in India who can supply quality goods. A fair assessment of suppliers in India on behalf of foreign buyers is required to be made and this information is required to be collected and sent abroad. The assessee is not an ordinary commission agent, as understood in India. The assessee has employed large number of designers to prepare samples, for making selection of garments to be imported to principals abroad. After procuring or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Oberoi Hotels (India) (P.) Ltd. v. CBDT [1982] 135 ITR 257. Shri Vohra further drew our attention to decision in the case of CBDT v. Oberoi Hotels (India) (P.) Ltd. [1998] 231 ITR 148 (SC). He also referred to page 19 of the paper book which contained some of the correspondence carried on by the assessee with its principals. Some evidence was available at page 29 as to how samples were placed/approved and orders placed with buyers for export of goods. At page 57, services rendered by the assessee have been enumerated. Shri Vohra maintained that services were not rendered in India, although these are rendered from India. The assessee carried on preparatory work to enable foreign buyers to select garments to be exported. The decision in the case of Continental Construction Ltd. ( supra ) had no applica- tion. Likewise, Shri Vohra said that decision of Income-tax Appe-llate Tribunal, Patna in the case of Kamkap (India) v. Dy. CIT [1998] 67 ITD 237 was distinguishable as in the said case, services were rendered in India. Further, in the decision, Circular No. 700 was referred to but was not given due importance. Shri Vohra further argued that even a broker was trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation were as under: "Where the gross total income of an assessee, being an Indian company, or a person other than a company who is resident in India, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign state or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret of formula or process or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee and such income is received in convertible foreign exchange in India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payment, and dealing in foreign exchange, there shall be allowed, in accordance with and subject to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any technical service and assessee therefore not entitled to deduction. As the information which was commercial in nature, the assessee is held to be not covered by the section for the following reasons : "Therefore, the information conveyed may include many kinds of information though technical services rendered would not include commercial services rendered by a company. To sum up, the main reason why the word "technical" in section 80-O cannot be given a wider meaning to include "managerial" or "commercial" is that the performance managerial or commercial services by an Indian company for a foreign enterprises would amount to virtually managing of running the foreign company and remuneration obtained by running or managing a foreign company would be in the nature of profits, while section 80-O deliberately restricts itself to income by way of royalty, commission or fees and excludes other types of remunerations." 13. It is evident from above that the decision in the above case was given on peculiar facts of the case. The assessee claiming deduction under section 80-O was Managing Agent and was held to be performing only managerial services. This case, decided prior to am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the only issue that remained to be investigated was regarding the nature of service rendered by the assessee. The assessee brought on record the letter addressed to the Dy. Commissioner wherein it had been written that the assessee conducted inspection/survey as to the quality, quantity and also the price of cargos exported from India. The nature of service rendered by the assessee had not been disputed by the revenue. After inspection the assessee used to issue certificate of inspection which was called report of findings. Some of the sample copies of the report placed on record showed that the report was issued according to the Import Regulation of the Republic of Kenya. From the aforesaid facts it was clear that the Government clients of different countries required the aforesaid reports pursuant to the inspections made by the assessee on behalf of OMIC. The contract work was obtained by OMIC and the inspection was being made in India by the assessee in relation to the export goods sent to the destinations like Kenya, Benin and Peru. The assessee had brought on record the details of the certification job done by it for the purposes of deduction under section 80-O. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or enterprise by the assessee". The second sub-part reads as - "In consideration of technical (or professional) services rendered or agreed to be rendered outside India to such Government or enterprises by the assessee". The fourth part is the mode of receipt, such as, income received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, etc. The fifth and last part refers to the deduction to be allowed under the said section. The section is required to be read as indicated hereinabove. The two sub-parts of the third part are alternatives as they are separated by the word "or" and cannot be read conjunctively. Thus, it cannot be said that the assessee must provide "technical services" even where it receives consideration for only providing commercial information. The section is required to be interpreted accordingly. On the facts, the Tribunal clearly held that there is no dispute that it is commercial information which the assessee provided to the foreign buyers and in consideration thereof, the assessee received commission which was in convertible foreign exchange. In view of this, the claim made by the assessee canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circular by which the public at large is informed as to what is the provision of law. Therefore, we would like to answer the question in favour of the assessee and against the revenue. Ordered accordingly. The appeal stands disposed of." 18. Having regard to above decisions particularly of the jurisdic- tional High Court in the case of Mittal Corpn. ( supra ) and Inchcape India (P.) Ltd. s case ( supra ), it is clear that fee received from foreign enterprises for supply of commercial information sent from India for use outside India is eligible for deduction under section 80-O. Services can be rendered from India and "supply of information" would cover variety of cases as discussed above. All the same if service starts from India and ends in India then the assessee would not be entitled to deduction under section 80-O for such services. In case where composite fee is received both for services rendered in India and for information sent or services rendered from India, it is necessary to bifurcate amount received and allow deduction under section 80-O in respect of services rendered outside India. We shall elaborate on this while considering the facts of this case. 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information was to be received by the party situated abroad and the same was to be utilized by the said party only outside India for making the decision, it was a case of services rendered by the assessee from India and such services were to be treated as the services rendered outside India within the meaning of Explanation ( iii ) to section 80-O. The logic thus is that even if the services are rendered in India, the ultimate utilization of such services would be by the client outside India inasmuch as the analysis of the information received on the basis of such services in India is done abroad and the appropriate decision based on such analysis is also taken abroad. It is thus a case of rendering the services from India which ultimately are utilized abroad and thus are to be regarded as the services rendered outside India. 20. The position in respect of the services rendered or to be rendered after the order is placed by the foreign client directly on the Indian supplier, would normally be different and the services rendered after the placement of order in connection with the execution of the said order would be services rendered in India. For instance, if the scope of wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e given. This is a service rendered from India on which a decision is taken by the foreign buyers. Likewise, certificate of the agent that goods conform to specification and, therefore, payment should be remitted from foreign land is also a service rendered from India. On the basis of above information the decision is taken by the foreign buyers. Shri Vohra has shown us correspondence/telex messages between buyers and the assessee relating to various purchases and supplies to be sent from India. These contain instructions of the buyer relating to defects and alterations in the goods to be prepared for export to the foreign buyer. The correspondence shows that decisions were taken by foreign buyer on the basis of information supplied by the assessee. Thus even in above services, some element of supply of commercial information which qualify for deduction is involved. The present is a case in which composite services were rendered and, therefore, CIT(A) was not justified in allowing 100% relief to the assessee. A portion of fees for services rendered in India was to be disallowed. 22. Shri Jain had vehemently contended that matter should be remanded to the lower authorities for e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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