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TMI Blog2006 (10) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of personal and household effects of foreign clients like multinational companies, diplomatic missions, Government agencies and private non-resident clients etc. It is explained that the international relocation projects handled by the assessee-company involve complete pre-importation solution including advice to forwarding/destination agents in the foreign country on the type of packing, mode of forwarding, advice/assistance on negotiation of favourable freight rates from the foreign country to India, advice on customs formalities, tariffs and classification, monitoring of the shipment from pick up in the foreign country to arrival at port in India, etc. The international relocation projects also involve complete door-to-door specialized packing, moving relocation from residence in India to residence in a foreign country, monitoring of the consignment until they reach at the port of entry in the foreign country, receiving consignment at entry port in the foreign country, arranging clearance, reloading, transfer of shipment to shipper s residence unloading, unpacking, placement of items, removal of debris, handyman solutions, etc. It is stated that all these activities involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handling of the goods in India. During the year there were no receipts on account of such activity in respect of which deduction under section 80-O has been claimed. 3.Outbound - I : The client requires to transport its goods from "I" place within India. In such transactions, the client directly contacts the assessee with a request to transport cargo from "I" place within India to "F" place outside India. The assessee in turn, obtains a quotation from an entity at place "F", which is in the same business as that of the assessee and based on the quotation, the assessee chooses the entity offering the most favourable rate for handling the work relating to picking up the goods from the airport/seaport in place "F" outside India and transporting the same to the destination in place "F" outside India. The assessee handles the work relating to packing of the goods from the clients place in India and movement of the same to the airport/sea port and its booking on the shipping line/airline. During the year gross foreign exchange earned by the appellant assessee for such services/job is of Rs. 11,85,57,951. Foreign exchange expenditure is of Rs. 1,53,16,505. Net foreign exchange in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,496 - 5,12,48,496 2,04,99,398 Total 30,70,97,116 3,18,05,719 27,52,91,397 11,01,16,557 It can be seen that while claiming deduction under section 80-O, the appellant assessee has not taken into account the indirect expenses incurred to earn the above stated foreign exchange income. The Assessing Officer, however, has taken note of this aspect and has held that in case the appellant assessee is found eligible for deduction under section 80-O, same would be allowed only on the net foreign exchange income i.e. after allocating direct as well as indirect expenditure incurred for the purpose of earning the income." 3. In order to explain its claim for grant of deduction under section 80-O the assessee had contended that the income derived from specialized packing, moving and relocation solutions and system offered by the company in respect of international relocation projects can be considered as income received in consideration for the use out of India of any registered trademark as also exploitation of its know-how. It was also pointed out that the income so received in convertible foreign exchange from foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as gone through the submissions of the assessee in detail and after taking into cognizance of section 80-O as it exist prior to the amendment carried out in assessment year 1998-99 as also the amended provision brought on the statute book with effect from assessment year 1998-99. The ld. Assessing Officer for construing the true import of section 80-O took into consideration the Circular No. 763, dated 18-2-1998 issued by the CBDT wherein the object and true import of section 80-O has been explained. After considering the comparative difference between section 80-O as it stood prior to assessment year 1998-99 and in its present form the ld. Assessing Officer has observed that deduction under section 80-O after amendment carried out with effect from 1998-99 would not be allowable to an assessee who is rendering professional services outside India. According to him the deduction would be available only to an assessee who is exploiting a patent right, trademark and technical know-how abroad. In other words, the exploitation has to be of intellectual property and should not involved the actual export of goods or services. In the opinion of the Assessing Officer the assessee in the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee-company by the bye-laws of the trade associations; ( d )There is no inherent antithesis between earnings from technical or professional services and earnings from the use of the trademark, particularly if one keeps in mind that the trademark law in all countries currently envisages the registration of trademarks in respect of services also. ( e )The fee for services includes consideration for the use of trademark and that the nomenclature assigned to a receipt is not conclusive of its substance and content and is not conclusive as to the claim for exemption under Income-tax laws; ( f )The owner of an asset can derive income from the asset in multifarious forms and in the manner as may be decided by him; ( g )The fact that the assessee-company itself directly uses the trademark and earns income does not make any difference and it would still constitute income arising out of the user of the registered trademark. The income from the user of trademark need not necessarily have to be through letting out or licensing the trademark. It must be noted that the wordings fees, commission, etc. have been dropped and the work any income is added in the amendment to section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80-O makes it unambiguously clear that deduction is admissible to only an Indian resident company. It will be available at foreign receipts received on export of certain intellectual properties. Thus according to the ld. CIT(A) the conditions enumerated in section 80-O make it amply clear that the origin, certification and registration of such intellectual property should be in India only. Thus intellectual property may be any such as patent, design or trademark. The ld. first appellate authority further observed that the expression "trademark" is qualified by the expression "registered", hence it is not any trademark which qualifies deduction under section 80HHE. According to the ld. CIT(A) it is only that trademark which is registered and exported outside, receipt received on such export will only qualify for deduction under section 80-O. If trademark is registered outside India then how it can be said that such registered trademark is exported outside for the use by foreign enterprises. If the Legislature had an intention to allow benefit of the deduction under section 80-O in spite of a trademark registered outside India the Legislature would have specified such a liberalized r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement, to safeguard rights and privilege of the owner of the trademark. Whereas section 80-O of the Income-tax Act is concerned it is a beneficial section and such convention has no relevance while considering the case of assessee under this section. This section allows tax relief to certain Indian Companies who fulfils the conditions laid down under section 80-O of the Act. According to the ld. CIT(A) there is no force in the claim of assessee that even if it has no trademark registered in India it should be allowed deduction under section 80-O on the strength that it has registered trademark in Switzerland. 10. The next proposition made out by the ld. CIT(A) reads as under : "( d )What is the intent and meaning of the expression "any income received... In consideration for the use outside India of any registered trademark?" Under this proposition the ld. CIT(A) has explained the expression "any income received by the assessee ... in consideration for the use outside India of any registered trademark" employed in section 80-O. According to the ld. CIT(A) expression "any income" and "use of registered trade-mark" are mutually exclusive and two separate independent condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant on account of rendering professional services both outside and inside India?" Under this proposition ld. first appellate authority has simply observed that the income in convertible foreign exchange received by the assessee was not on account of use of the assessee s registered trademark by any foreign enterprise. According to the ld. CIT(A) the income was received on account of rendering professional services to the clients both outside and inside India. 12. The next proposition propounded by ld. CIT(A) reads as under : "( f )How can foreign enterprises use the trademark owned by and registered in the name of the appellant assessee? Whether the income paid by such foreign enterprises to the appellant assessee in the instant case was on account of use of the registered trademark owned by the appellant assessee or on account of specialized services rendered by the appellant assessee?" This proposition is directly related to the proposition earlier propounded and under this point ld. first appellate authority again observed that the income received by the assessee is not on account of use of its registered trademark by the foreign enterprises. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity who is in the similar line of business contact with the assessee for providing service within India. The assessee has only rendered services within India that is packing and handling of the shipment from the clients place "I" in India to Airport or Seaport in India. Thus according to the ld. CIT(A) the activities which have been carried out only within India and the receipts received for such activity will not qualify for the deduction under section 80-O. 15. The next proposition propounded by the ld. CIT(A) reads as under : "( i )Whether the assessee is eligible for deduction in respect of any income received from a foreign enterprise in convertible foreign exchange on the basis of a contract awarded in India or on the basis of a business deal which originated in India and part of the services were also rendered in India in the course of execution of such business deal or performance of such contract in addition to the services to be rendered outside India ?" In this proposition the ld. CIT(A) recorded the following finding : "In my opinion, any income received from a foreign enterprise in convertible foreign exchange on the basis of a contract awarded in India or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appellate authority has considered all the arguments of the assessee elaborately but failed to interpret it and construed the true meaning of section 80-O. He pointed out that the issue involved in this appeal are whether fees for services can, in law, include consideration for use of trademark, ( ii ) once it is agreed that fees for services can include fees for use of trademark then next question would be whether nomenclature of the receipt as fee for services would preclude an assessee from claiming deduction under section 80-O. The ld. counsel for the assessee while apprising us with the activities of the assessee and the nature of receipt contended that appropriateness of the claim of the assessee-company would depend upon the following three question of facts. (1) Whether, in fact, the assessee-company had used any trademark (whether own or that of others) to earn its remittance from abroad; (2) Whether, in fact, the fee for services received by the assessee-company includes consideration for the use of trademark; (3) If the answer to question (2) is yes, then how much of the fee is consideration for the use of the registered trademark; Therefore, whether the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables him to charge that higher fee and the higher fee is attributable to the registered trademark. 20. While taking us through section 80-O of the Act he emphasized that the section nowhere requires that the registered trademark should have been necessarily registered in India. The ld. CIT(A) has unnecessarily emphasized on the point that the registered trademark possessed by the assessee should have been registered in India. He further submitted that ld. CIT(A) has taken very narrow interpretation of the expression "used" outside India employed in section 80-O. The self-exploitation of the registered trademark outside India would also denote the user of the trademark for earning foreign exchange. According to the ld. counsel for the assessee it is not the requirement of the law that the trademark should have been used by a third entity and for the use of such trademark any consideration received by the assessee would only qualify the deduction under section 80-O. 21. The ld. D.R on the other hand, relied upon the order of ld. CIT(A) and pointed out that the CIT(A) has dealt with all the arguments of the assessee raised before the Tribunal. He pointed out that the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the 1st day of April, 2005 and any subsequent assessment year : Provided that such income is received in India within a period of six months from the end of the previous year, or within such further period as the competent authority may allow in this behalf. Provided further that no deduction under this section shall be allowed unless the assessee furnishes a certificate, in the prescribed form, along with the return of income, certifying that the deduction has been correctly claimed in accordance with the provisions of this section." 24. The ld. CIT(A) while construing and expounding the scope of the section mainly emphasized on two aspects. Firstly the registered trademark possessed by an assessee should be registered in India. Secondly such trademark should have been exported out of India which should have been used by a third entity. The consideration received on such user in foreign exchange would qualify deduction under section 80-O. The ld. first appellate authority has also explained the expression "any income" and "any consideration for use". In our opinion all such discussions are peripheral to the main controversy and not having much relevancy for the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e way is that assessee can allow any other concern to use its trademark outside India and receive payment of such user. The other way is that assessee may give it to some foreign concern and receive sale commission. The third possibility is self- exploitation of the registered trademark. For example assessee operating in 10 countries and getting business by the use of its registered trademark. Simultaneously it is not viable for the assessee to do business by self in another 15 countries and it allowed its trademark to be used by other concerns in those 15 countries and received the consideration. The receipts are being received by exploitation of the trademark either by self or by other concerns. There can be a situation that assessee likes to operate in those 15 countries where it has allowed to use its trademark by third entities. It can restrain the operation of those entities regarding the user of its trademark. In that case the assessee would get business by the exploitation of its registered trademark by self. How such receipts should be excluded as not eligible for grant of deduction under section 80-O? 28. Thus on due consideration of all facts and circumstances we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and justice, not according to private opinion; according to law and not humour. It is to be not arbitrary, vague, and fanciful, but legal and regular. And it must be exercised within the limit, to which an honest man, competent to the discharge of his office ought to confine himself." In the present case as to how to quantify the receipts relatable to the use of registered trademark outside India, one way is to approach the controversy in a way that if somebody violated the registered trademark of a concern and that concern approached the Court for damages then how the Court would quantity the damages. It is to be quantified keeping in view the business loss of the owner of the registered trademark vis- -vis business gain of the violator. The second way is to analyse the profit of assessee on account of services provided by it in the shape of packing, transportation, clearance at Seaport, Airport etc. The net profit computed for this regular business can be excluded from the inclusive receipts i.e., eligible and ineligible, for deduction under section 80-O. The resultant receipt could be termed as the receipt qualifying for deduction under section 80-O. We find that ld. firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 per cent is accepted for assessment year 2002-03. In the assessee s own case the non-eligible turnover has been to the extent of 13.06 per cent over the years. Having regard to all these factors it can be concluded that profit from its ineligible business activity should not be considered as eligible for section 80-O deduction. It should be what is relatable to the exploitation of the registered trademark. It is very difficult to arrive at that figure unless we exclude the part of the profits attributable to its normal business of packing and transportation etc. We can safely conclude that 25 per cent of the above net receipts are attributable to its regular business activity of packing and forwarding and the rest of it is definitely for the usage and exploitation of registered trademark. We, therefore, direct the Assessing Officer to allow deduction under section 80-O after reducing from the above figure 25 per cent which is attributable to normal profits of its packaging and forwarding business. The balance will be treated as profits eligible for deduction under section 80-O of the Act. We are required to do this exercise because we do not accept the plea of the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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