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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 ..... , packing, moving and relocation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transportation and 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 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 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 clients is because of the exploitation of assessee technical know-how in such large international relocation projects. For getting this business the trademark possessed by the assessee is very important to create confidence in the minds of the persons using the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 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 present case is only providing transportation services and import consultancy services, that is also with the limit of India and therefore, there is no exploitation of trademark or technical know-how outside India. He further observed that as far as the argument of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visages 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 80-O. Therefore, after amendment, as long as there is income arising out of the user of the patent, invention, design or registered trademark, such income would be entitled to deduction under the provisions of section 80-O. (h)The assessee-company has put to bona fide use, both in law and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication 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 requirement in the language of section 80-O. 8. The second proposition propounded by the ld. CIT(A) is as under : "(b)Whether an assessee who is resident in India can be eligible for deduction under section 80-O in respect of any income received by him from a foreign enterprise in consideration for the use outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 required to be met by an assessee. The ld. first appellate authority is of the opinion that expression "any income" means income of all sorts received by the assessee in foreign exchange from a foreign enterprise who has used the registered trademark of the assessee. He observed that it is not necessary that such use of the regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording 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. 13. The next proposition propounded by ld. CIT(A) is :-- "(g)Whether it is justified to claim deduction in terms of section 80-O stating that it is sufficient that the assessee itself uses its trademark in foreign countries to procure business and earn income from a foreign enterprise in convertible foreign exchange or whether it is an essential c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia 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 on the basis of a business deal originating in India so far as the services in performance of such contract or deal were also rendered in India is not eligible to be covered under the provisions of section 80-O. This issue has been discussed in detail in question No. (h) above, therefore, repetition is avoided." 16. The next proposition propounded by the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 of the income derived by the company from in its clients is one of fee for service simplicitor or includes, fully or partially consideration for use of registered trademark is a mixed question of law and fact. 19. The ld. counsel for the assessee while buttressing his arguments apprised us with the meaning of expression 'trademark', evolution of trademark law in India and submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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 deduction would only admissible when a trademark developed by the assessee is exported outside India and it is used by foreign company out of India, the receipts received by assessee in consideration of such user would only qualify for the deduction. He heavily relied upon the finding of ld. CIT(A) regarding registration of the registered trademark within India. 22. We have duly considered the rival conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn 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 facts of the present case. 25. There is no dispute that section 80-O is a beneficial legislation and a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. The restriction or interdiction provided in the provision are to be construed so as to advance the object of the provision and not to frustrate it. 26. It is also not in dispute that the expressions "used" in a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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 of the view that a registered trademark not necessarily registered in India possessed by an Indian company used outside India even by self and received consideration in lieu of that user in the foreign exchange that would qualify for deduction under section 80-O. 29. The next question emerges out for adjudication is as to whether all the receipts received by assessee are to be construed as receipt in consideration of use of registered tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-á-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. first appellate authority has carried out an exercise in this regard while working out the net receipt for deduction under section in case such deduction is admissible to the assessee. However, the Tribunal in Tata Sons Ltd. [IT Appeal No. 629 (Mum.) of 2003] has already taken a view that only direct expenses will have to be considered in computing the net income. Insofar as the order of the CIT(A) which holds that even indirect expenses have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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