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TMI Blog2020 (6) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change, for the services provided by them to foreign enterprises, qualifies for deduction under Section 80-O of the Income Tax Act, 1961 , as applicable during the respective assessment years from 1993-94 to 1997-98. 3. Put in a nutshell, the question involved in these appeals has arisen in the backdrop of facts that the appellants herein, who had been engaged in providing services to certain foreign buyers of frozen seafood and/or marine products and had received service charges from such foreign buyers/enterprises in foreign exchange, claimed deduction under Section 80-O of the Act of 1961, as applicable for the relevant assessment year/s. In both these cases, the respective Assessing Officer/s denied such claim for deduction essentially with the finding that the services rendered by respective assessees were the services rendered in India and not the services rendered from India and, therefore, the service charges received by the assessees from the foreign enterprises did not qualify for deduction in view of clause (iii) of the Explanation to Section 80-O of the Act of 1961. After different orders from the respective Appellate Authorities, the Income Tax Appellate Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and background aspects for dealing with the questions raised in these appeals. RELEVANT FACTUAL AND BACKGROUND ASPECTS: 5. The appellant Ramnath Co. is a firm engaged in the business of providing services to foreign buyers of Indian marine products. The appellant filed its return of income for the assessment year 1993-1994 on 29.10.1993 declaring total taxable income at ₹ 6,21,710/- while claiming 50% deduction (amounting to ₹ 22,39,825/-) under Section 80-O of the Act in relation to the amount of ₹ 44,79,649/- received by it as service charges from foreign enterprises 1 . 5.1. While asserting its claim for such deduction under Section 80-O of the Act, the appellant submitted that it had rendered myriad services to the foreign enterprises like: (i) locating reliable source of quality and assured supply of frozen seafood for the purpose of import and communicating its expert opinion and advice in that regard; (ii) keeping a close liaison with agencies concerned for bacteriological analysis and communicating the result of inspection together with expert comments and advice; (iii) making available full and detailed analysis of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreements of the appellant with the two foreign enterprises and reproduced the relevant terms thereof in extenso. This part of the order of the AO, containing material terms of agreements, being relevant for the present purpose, is reproduced as under: - In the context of the above claim of the assessee, it is necessary to go through the agreements entered into by the assessee with the foreign enterprises to find out the nature of the relationship of the assessee with the foreign enterprises. I have gone through the agreements entered into by the assessee with HOKO Fishingco Ltd. is captioned agreement regarding marine products and that with GELAZURE S.A. is captioned agency agreement regarding marine products. Articles 1 to 4 of the agreement with HOKO fishing Co. Ltd. reads as under:- Article 1:HOKO desires to avail of the benefit of the commercial and technical knowledge experience and skill of RC-CN foods/Marine products of good quality and on favourable terms and is willing to remunerate RC-CN for use of such commercial and technical knowledge, expert and skill and other related services. Article 2: RC-CN agrees to render to HOKO the following ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other markets, prices paid by French competitors, business opportunities, monthly supplies of seafood-data. Article 3: After reception of the goods, GELAZURE will pay RAMNATH commissions calculated on the following basis: -CHAM ICE/Porbandar-Veraval-Bombay: Cephalepods or Fishes : 1.5% of the C+F Value Shripps-Lobsters: 0.75% of the C+F Value OTHER PACKERS SHRIMPS LOBSERS: 1% OF THE C+F value Squids, cuttlefish, Cockies Mussels and other Fishes: USD O.65/Kg When the quality and the packaging of the goods are found to be unsatisfactory to GELAZUR after inspection in FRANCE, GELAZURE, shall have no responsibility regarding the payment of the Agent s fee. Article 4: If any claim arises out of or in relation to the purchases of products for which GELAZUR has no responsibility, RAMNATH will do their best to settle the claim through negotiation with manufacturers. The settlement of the claim will have to be carried out 60 days after the reception of the goods. 2 5.5. Having examined the contents of two agreements, the Assessing Officer did not feel convinced with the claim that the appellant had been rendering servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent. It is also not as if the foreign enterprises completely stayed away from India. Though it might be a fact that none of the foreign enterprises had any office or branch anywhere in India, available information indicates that the representatives of the foreign enterprises used to visit India in connection with the procurement of marine products from various packers in India and it fell upon the assessee to take these persons to the processing facilities of various suppliers with a view to ensure quality and hygiene standards. This is evident from the fact that a sum of ₹ 23,122/- has been incurred by the assessee during the visit of buyers, representatives to various seafood packers in Calcutta, Bombay vizag, Madras Nandapam, Cochin, Calicut etc. Expenses for souvenirs, compliments and samples of the value of ₹ 29,411.99 have also been incurred presumably in connection with the visit of the representatives of the foreign buyers. By any stretch of imagination, it cannot be claimed that the services rendered on the occasions of the visit of the representatives of foreign enterprises were not rendered in India. The foreign travels undertaken by the Managing Partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that merely because the foreign enterprises utilized the benefit of services rendered outside India, the deduction under Section 80-O cannot be denied. In the case before the C.B.D.T, there was not dispute as to where the technical services were rendered, In the case before me, there is absolutely no scope for doubt that the services as an agent were rendered by the assessee in India only. In 132 ITR 637, the Bombay High Court held that an assessee acting as a mere employment recruiting bureau was not entitled for deduction under Section 80-O and the services rendered in locating prospective candidates and collecting their bio-datas and conveying names of candidates to foreign employers did not represent services rendered outside India. Similarly, in 145 ITR 673 in the case of Searls (India) Ltd , the same High Court ruled that testing of samples in India and giving results and certificate to foreign company did represent technical services rendered outside India. In view of the forgoing discussion, I would hold that the assessee is not entitled for deduction u/s 80-O as the services made available to the foreign enterprises were rendered in India. 5.7. In the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le source of quality and assured supply of frozen sea-food products to the various foreign enterprises at Japan, France and other countries and supplied information with regard to sea-food processing, manufacturing details and also government policies, exchange fluctuations etc. to the foreign enterprises. The appellant has negotiated and finalised prices for the Indian exporters of frozen sea-food products and communicated the same to the foreign enterprises. Thus, the appellant has rendered the services from India to these foreign enterprises. That the appellant s information and experience have been effectively utilised by the foreign enterprises can be seen from the fact that the export effected by the appellantconcern have risen from 20 crores in the AY 1991-92 to 100 crores by AY 1996-97. For the year under consideration, the exports are approximately 60 crores on which the appellant has earned a commission of ₹ 44.79 lakhs. 16. The major issue to be decided in this case is whether theservices rendered by the appellant can be said to be from India . On the facts and circumstances of the case, I am of the opinion that the services have been rendered from India and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person rendering the services even if the foreign recipient of the services utilises the benefit of such services in India . Now the question is whether the assessee rendered any service and communicated the same to the foreign party. Article 2 (4) of the agency agreement regarding marine products entered into between Gelazur S.A. and Ramnath Co. (assessee) states that the assessee is to inform GELAZUR regularly about the market situation, i.e. fishing situation, prices paid by other markets, prices paid by French Competitors, business opportunities, monthly supplies of seafood data. This indicates that the assessee has to communicate the data it collected, and on the basis of this, the foreign party acts either to purchase or not to purchase. It is also true that Article 4 of the said agreement states that if, any claim arises out of or in relation to the purchase of products for which GELAZUR , has no responsibility, RAMNATH will do their best to settle the claim through negotiation with manufacturers . This indicates that the party is also doing supply of services. But, this part of the service is only consequential to the first. The agreement entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, the services rendered from India can be treated as services rendered, as desired by the foreign party, which need specialisation. If the foreign party is interested in details or information or specific details and such details are supplied by the Indian party and such details are utilised either to purchase or not to purchase from India, such services can be treated as services rendered from India . If the foreign party seeks any service and it is rendered, it is a service rendered from India, whereas the services rendered in India are not necessarily by virtue of the other party s request or demand. In Godrej Boyce Mfg. Co. Ltd. vs. S.B. Potnis, Chief Commissioner [1993] 203 ITR 947 the Hon ble Bombay High Court held that a provision made for the giving of all marketing, industrial manufacturing, commercial and scientific knowledge, experience and skill for the efficient working and management of the foreign company could be treated as services rendered that make the assessee eligible for the benefit under Section 80-O. 11. In Mittal Corporation s case (supra), the Delhi bench-D of the Tribunal held that the object and spirit of Section 80-O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that have led the High Court to disagree with ITAT and to reject the claim of the appellant for deduction under Section 80-O of the Act in requisite specifics. 3 8.1. The main plank of submissions on behalf of revenue, with reference to the agreements between the assessee on one hand and the two foreign companies respectively on the other, had been that the assessee was simply an agent of the foreign enterprises for procuring marine products from India; that all its services were incidental to its main functioning as a fish-procuring agent; and that the assessee rendered its services in India , contra-distinguished with the expression from India . It was also contended on behalf of the revenue that mere communication between the assessee based in India and the principal based abroad does not bring their transactions within the purview of Section 80-O. The submissions on behalf of the revenue were supported with a Division Bench decision of that High Court in Commissioner of Income Tax v. Thomas Kurian (Dead) through LR Smt. Primari C. Thomas, since reported as (2012) 72 DTR (Ker). On the other hand, it was contended on behalf of the assessee that on reading the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in with reference to their dictionary meanings. Then, reverting to Section 80-O of the Act, the High Court observed that therein, the constants were the Indian agent, the foreign principal, and the Indian agent rendering services from India but the variables were as to how and where the services were used. Thereafter, the High Court looked at the intent and purpose behind Section 80 O of the Act and observed as under: 29. Every nation meets any measure more than half way if it results in the nation's augmenting the foreign reserves. India is no exception. It encourages and provides incentives to those who earn foreign exchange. Over and above the incentive is the facility of deduction from the taxable income in foreign exchange--that is what Section 80-O is. The legislative intent behind the provision is not far to seek. The Government encourages entrepreneurial initiative and innovation by the Indian companies at the international level. In a measure, the nation encourages any Indian showcasing the Indian intellect internationally. That accepted, if Indian technology, know-how, etc., is used in India itself even by a foreign company, it is an intellectual enterp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lines, electrical and electronic products according to the existing standards of European and American markets, etc. It was also pointed out that the issue arose much before the insertion of Explanation (iii) to Section 80-O of the Act. In reference to the decision in Li Fung (supra), the High Court pointed out that therein, assessee claimed to have rendered technical services out of India as a buying agent and the High Court of Delhi held that the services rendered by the assessee required knowledge, expertise and experience; and, therefore, the fee it received from foreign enterprises for supply of commercial information sent from India for use outside India was eligible for deduction under Section 80-O of the Act. The Court observed that the said decision gave judicial imprimatur to the Board's clarification to the effect that if an assessee renders technical or professional services from India to a foreign Government or enterprise outside India, it can claim deduction even if the foreign recipient utilises the 'benefit of such services in India'. In this line of consideration, the High Court lastly referred to the decision in the case of Chakiath Agencies (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court while observing that the assessee was a company and any technical services rendered by it could only be through the medium of its employees. As regards the claim for a deduction based on labelling of the receipts, this Court held that that eligibility of an item to tax or tax deduction could hardly be made to depend on the label given to it by the parties in that, an assessee was not entitled to claim deduction under Section 80-O merely because certain receipts were described in the contract as royalty, fee or commission and at the same time, absence of a specific label cannot destroy the right of an assessee to claim deduction if, in fact, the consideration for the receipts can be attributed to the sources stated in the section. The High Court also noted the dictum of Continental Construction that it is the duty of the revenue and the right of the assessee to see that the consideration paid under the contract legitimately attributable to such information and services is apportioned, and the assessee is given the benefit of deduction available under the section to the extent of such consideration. 8.5. The High Court further took note of a decision of Madras High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals, the assessees had placed any material as regards the services they had rendered to qualify under that provision. 8.8. While referring to Explanation (iii) to Section 80-O of the Act, the High Court held that mere transferring information abroad would not establish that the service is rendered from India and not in India; that all receipts cannot qualify for concession; that the range of services referred to in Section 80-O of the Act have the thread of connectivity in all the intellectual endeavours mentioned therein. The High Court summed up its discussion in the following passages:- 56. To sum up, we wish to conclude that the Tribunal has erred on two counts in holding that the assessees are entitled to the benefit of deduction under Section. 80-O of the Act : First, mere transmission of the information to a foreign enterprise, evidently, abroad does not go to show that it is a service rendered from India, but not in India. With an element of certainty, we can as well say that once there is a contract, an Indian agent always interacts with and sends information--even technical know-how--to a foreign enterprise abroad. If that alone qualifies for deduction w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The High Court also observed that, if the assessees had at all rendered certain services which qualify for deduction, they had failed to place any material in that regard; and the agreements in question only point out that the assessees were marine product procuring agents for the foreign enterprises without any claim for expertise capable of being used abroad rather than in India. Accordingly, the High Court answered the question of law in favour of revenue and set aside the orders passed by ITAT. RIVAL SUBMISSIONS Lead arguments on behalf of the appellant 9. On the debate relating to the question of applicability of Section 80O of the Act to the foreign exchange earned by the appellant in lieu of the services rendered by it to the foreign enterprises, the learned senior counsel for the appellant has made wide-ranging emphatic submissions on the process of interpretation, the scheme and object of Section 80-O and has also referred to the decisions which, in his contention, cover the present case on the substance and principles. 9.1. The learned senior counsel for the appellant has strenuously argued that the High Court has approached the entire case from an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Section as services rendered outside India. Learned counsel has argued that Section 80-O is by no means confined to grant of user of intellectual property rights or intellectual activities, as contended by the revenue and as observed by the High Court. In this regard, the learned counsel has again referred to the words information concerning industrial, commercial or scientific knowledge, experience or skill in the latter part of Section 80-O and has argued that these words are distinct from the initial part of this Section, dealing with the use of intellectual property rights. The learned counsel has further argued that even commission , which could relate to ordinary commercial activities, is also covered by Section 80-O. 9.3. While strongly relying upon the decision of this Court in the case of J. B. Boda Co. Pvt. Ltd v. Central Board of Direct Taxes, New Delhi: (1997) 223 ITR 271 (SC), the learned senior counsel has argued that therein, even a commission received by the reinsurance broker, who only sent information to the foreign reinsurance company regarding the risk involved and other related data, was held entitled to the benefit of Section 80-O of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Section 80-O, i.e., remittance of the amount in convertible foreign exchange to India has also been fulfilled. According to the learned counsel, the clear and unequivocal findings of the Appellate Authority and ITAT are findings of fact and they fully establish that the appellant furnished information from India to its customers abroad regarding its industrial and commercial knowledge and skill, and such information was utilized abroad by the said foreign customers and the appellant s commission was remitted to India in convertible foreign exchange. The learned counsel would argue that nothing of perversity was shown in regard to such findings of fact so as to call for interference but the High Court has proceeded on a basis which is totally inconsistent with those findings. With reference to the decision of this Court in the case of K. Ravindranathan Nair v. Commissioner of Income Tax, Ernakulam: (2001) 247 ITR 178 (SC), the learned counsel has argued that there was no scope of interference in the findings of fact in this case. 9.6. Assailing the findings of High Court in the impugned judgment, the learned senior counsel has also argued that the approach of the High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would submit that some of the essential requirements for its applicability are that the assessee must receive income by way of royalty, commission, fees or similar payment from a foreign enterprise; the consideration must be for technical or professional services, of patents, inventions or similar intellectual property or information concerning industrial, commercial or scientific knowledge; and the services must be rendered outside India. While reiterating and emphatically underscoring the observations in impugned judgment, the learned counsel would submit that the intention of legislature behind introducing Section 80O was to provide deductions for only that income which is received through intellectual activity/intellectual endeavours; and simple trading activity, though may require certain commercial or industrial information, cannot be said to be covered by this provision. With reference to Explanation (iii) to Section 80-O, the learned counsel would argue that the principal provision specifically states that it covers the services rendered outside India and the explanation clarifies that the services rendered or agreed to be rendered outside India shall include services ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability to pay the agent s fee. Thus, according to the learned counsel, the activities in respect of which the agreements were entered into by the appellant were only that of a buying or procuring agent and do not fall within the ambit of Section 80-O of the Act; and the primary activity being of certification, which is done in India, and of sourcing the goods, which is also done in India, Section 80-O of the Act is not applicable per the force of its Explanation (iii). The learned counsel has yet further submitted, while supporting the observations of High Court, that if one were to assume that the appellant had rendered certain services which qualify for deduction, no material in that regard has been placed on record. 10.4. The learned senior counsel for the revenue has drawn support to his contentions that Section 80-O of the Act does not apply to the appellant by making reference mainly to two decisions. In the first place, the learned counsel has relied upon the decision of this Court in B.L. Passi v. Commissioner of Income-Tax: 2018 (404) ITR 19 (SC) with the submissions that this decision applies on all fours to the present case. Therein, the assessee stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data collection because those services enabled BBC to broadcast not only in India but other parts of the world. As regards the decision in B. Suresh (supra), it has been submitted that in that case, there was admittedly transfer of rights of feature films for exploitation outside India and the main issue was only whether there could be said to be a sale within the meaning of Section 80HHC, which is irrelevant to present case. 10.5.1. It has also been submitted on behalf of the respondent that, in the judgments relied upon by the appellant before the High Court, the crucial twin aspects of Section 80-O, i.e., as to what type of service rendered by the Indian entity comes within the sweep of this provision; and as to what is the true import of the expression use outside India as per Explanation (iii) to Section 80-O, did not fall for consideration and hence, those judgments were of no support to the proposition sought to be advanced by the appellant. It has also been submitted that in the case of Continental Construction (supra), the contracts were for carrying out physical construction of dams and irrigation projects in foreign countries, i.e., not in India and besides th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80-O of the Act is not available to the appellant. 10.6.1. As regards the circular relied upon by the counsel for the appellant, i.e., Circular No. 700 dated 23.03.1995, it has been contended on behalf of revenue that the same is of no assistance to the appellant because, as per paragraphs 3 and 4 thereof, the services have to be rendered outside India, and it only clarifies that the foreign recipient of the services may utilise the benefit of such services in India whereas in the present case, the appellant merely rendered services in India and only as an agent. 10.7. The learned senior counsel for revenue has also submitted that the findings of fact arrived at by the ITAT were clearly challenged before the High Court in ITA No. 131 of 2002 and, in any case, it being a matter of interpretation of statutory language of Section 80-O and its Explanation (iii), the contention on behalf of the appellant about want of challenge to the findings is without substance. Rejoinder submissions on behalf of the appellant 11. The submissions made on behalf of the respondent have been duly refuted on behalf of the appellant by way of rejoinder submissions. 11.1. As regards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1975 and 30.04.1979, it has been contended that reference to these circulars is wholly misplaced because they dealt with the matter of approval by CBDT of an agreement with foreign customers but such need for approval of CBDT had been dispensed with by amendment of Section 80-O long ago and these circulars have nothing to do with the issues involved in the present case. 11.3. With reiteration of the submissions relating to the nature of activity of the appellant and the findings of ITAT, it has been argued that the contention of the respondents that the primary activity of the appellant had merely been of procuring agent remains untenable. It has also been contended that as per the finding of fact of ITAT, it is but clear that whole of the services rendered by the appellant and the entire amount received by it in foreign exchange was covered by Section 80-O of the Act; and that the attempt on the part of the respondent to suggest as if only a part of the amount received by the appellant may be eligible for benefit of Section 80O remains baseless. In the rejoinder submissions, it has also been indicated that reference to the decision of this Court in Continental Construction (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India; *** *** *** 4 14. Worthwhile it would also be to take a little excursion into the relevant parts of history related with Section 80-O of the Act while putting a glance over some of the features of developments relating to the provision/s in the Income Tax, 1961 concerning such deduction in respect of particular class of income, received by way of royalty, commissions etc., by an assessee in consideration of imparting specified intellectual property, or extending specified information, or rendering specified services to foreign State or foreign enterprise. 14.1. In the early stages of advent of the Act of 1961, Chapters VI-A, VII and VIII respectively dealt with the deductions to be made in computing the total income, exempted portion/s of income, and rebates and reliefs but, several of the provisions in these Chapters as also some of the provisions of Chapter XII were recast and were put together in the newly framed Chapter VI-A by the Finance (No.2) Act, 1967 with effect from 01.04.1968 with the result that all s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall notice hereafter a little later. At this juncture, we may usefully reproduce the relevant text of these two notifications which throw light on the provisions as then existing and as applied. The relevant parts of the said circulars read as under:- Circular No. 187, dated 23rd December, 1975. Subject : Section 80-O of the Income-tax Act, 1961Guidelines for approval of agreements. With the twin objectives of encouraging the export of Indian technical know-how and augmentation of the foreign exchange resources of the country, section 80-O of the Income-tax Act, 1961, provides for concessional tax treatment in respect of income by way of royalty, commission, fees or any similar payment received from a foreign Government or a foreign enterprise, subject to the satisfaction of certain conditions laid down in the said section. 2. One of the conditions for availability of the tax concession under section 80-O is that the agreement should be approved by the Central Board of Direct Taxes in this behalf. The application for the approval of the agreement is required to be made to the Central Board of Direct Taxes before the 1st day of October of the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s now been decided that approvals under section 80-O would not be denied on this ground. In other words, para 3(iii) of the Circular dated 23-12-1975 may be treated as deleted. (ii) In para (ix) of the said circular, it was mentioned that consideration for use of trade-mark would be outside the scope of section 80-O. It has now been decided that payments made for the use of trade-marks, are of the nature of royalty, and, therefore, fall within the scope of section 80-O. (iii) It was also stated in para 3(ix) of circular dated 2312-75 that in the case of a composite agreement which specified a consolidated amount as consideration for purposes which included matters outside the scope of section 80-O, the Board may not approve such an agreement for the purposes of section 80-O of the Act if it was not possible to properly ascertain and determine the amount of the consideration relatable to the provision of the knowhow or technical services, etc., qualifying for section 80-O. Thus, the benefit of section 80-O could be denied to the entire amount of royalty, commission, fees, etc., receivable under such an agreement. It has since been decided that in such cases approval wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, an Indian company, deriving income by way of royalties, commission, fees etc., from a foreign Government or a foreign enterprise in consideration of the provision of technical know-how or technical services under an approved agreement, is entitled to a deduction, in computing its taxable income, of an amount equal to 50 per cent. of such income provided such income is received in, or brought into, India in convertible foreign exchange. 37.1 With a view to bringing this provision on a parity with other tax concessions for the export sector and also as a measure of rationalisation, the benefit under section 80-0 has been extended to a non-corporate tax payers resident in India. The concession will now also be available in relation to professional services as well as for services rendered to foreign enterprise from India. Further, the requirement of prior approval of the tax authorities in this regard has been done away with. 37.2 This amendment will take effect from 1st April, 1992 and will, accordingly, apply in relation to the assessment year 1992--93 and subsequent years. **** **** **** 14.5 There had been several further clarifications concerning Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to augment the foreign exchange earnings of our country and at the same time, earning a goodwill of the Indian technical know-how in the foreign countries, the provisions like Section 85-C earlier and Section 80-O later were inserted to the Act of 1961. Noteworthy it is that from time to time, the ambit and sphere of Section 80-O were expanded and even the dealings with foreign Government or foreign enterprise were included in place of foreign company as initially provided. The requirement of approval by the Central Government of any such arrangement was also modified and was ultimately done away with. Significantly, while initially the benefit of Section 80-O was envisaged only for an Indian company but later on, it was also extended to a person other than a company, who is resident of India. The extent of deduction had also varied from time to time. 14.7. Broadly speaking, a few major and important factors related with Section 80-O of the Act of 1961, with reference to its background and its development, make it clear that the tax incentive for imparting technical know-how and akin specialities from our country to the foreign countries ultimately took the shape in the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details. Baby Marine Exports 16. The question that came up for determination before this Court in the case of Baby Marine Exports (supra) was as to whether the export house premium received by assessee was includible in profits of business while computing deduction under Section 80HHC? 16.1. The assessee in the case of Baby Marine Exports was engaged in the business of selling marine products both in domestic market and was also exporting it to direct buyers as also through export houses. Contracts with export houses were entered into where assessee received entire FOB value of exports plus export house premium of 2.25% of FOB value. While claiming deduction under Section 80HHC of the Act, this export house premium was also shown as part of total turnover, as being part of sale consideration and not commission or service charge; and deduction was claimed accordingly. The AO rejected such claim for deduction with reference to clause 12 of the agreement and with the observation that such premium was clearly a commission or service charge. The Appellate Authority held that what the assessee received was only reimbursement of certain expenses or payments towards comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing processing), goods or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export : According to the said definition, the respondent clearly comes within the purview of supporting manufacturer. On plain construction of section 80HHC(1A) the assessee being supporting as manufacturer shall be entitled to a deduction of the profit derived by the assessee from the sale of goods or merchandise. The respondent - a supporting manufacturer sold the goods or merchandise to the export house and received the entire FOB value of the goods plus the export house premium of 2.25 per cent. of the FOB value. The relevant clause 12 of the agreement has already been extracted in the earlier part of the judgment and according to the said clause, the export house is under obligation to pay to the supporting manufacturer an incentive of 2.25 per cent. on the F.O.B. value according to the terms of the agreement. The respondent, a supporting manufacturer, admittedly sold the goods to the export house in respect of which the export house has issued a certificate under proviso to sub-section (1). According to the section, the respondent - a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who is claiming benefit thereunder. 7 17.1. In Dilip Kumar Co., the Constitution Bench of this Court examined several of the past decisions including that by another Constitution Bench in CCE v. Hari Chand Shri Gopal: (2011) 1 SCC 236 as also that by a Division Bench of this Court in the case of UOI v. Wood Papers Ltd.: (1990) 4 SCC 256 wherein, the principles were stated in clear terms that the question as to whether a subject falls in the notification or in the exemption clause has to be strictly construed; and once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the exemption clause liberally. This Court found that in Wood Papers Ltd. (supra), some of the observations in an earlier decision in the case of CCE v. Parle Exports (P) Ltd.: (1989) 1 SCC 345 were also explained with all clarity. This Court noted the enunciations in Wood Paper Ltd. with total approval as could be noticed in the following:- 46. In the judgment of the two learned Judges in Union of India v. Wood Papers Ltd.: (1990) 4 SCC 256 (hereinafter referred to as Wood Papers Ltd. case , for brevity), a disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the general rule of tax has to be construed strictly against those who invoke for their benefit. This was explained in a subsequent decision in Wood Papers Ltd. case. In para 6, it was observed as follows: (SCC p. 262) 6. In CCE v. Parle Exports (P) Ltd., this Court while accepting that exemption clause should be construed liberally applied rigorous test for determining if expensive items like Gold Spot base or Limca base or Thums Up base were covered in the expression food products and food preparations used in Item No. 68 of First Schedule of Central Excises and Salt Act and held that it should not be in consonance with spirit and the reason of law to give exemption for non-alcoholic beverage basis under the notification in question . Rationale or ratio is same. Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed construe it liberally. Since the respondent did not fall in the first clause of the notification there was no question of giving the clause a liberal construction and hold that production of goods by respondent mentioned in the notification were entitled to benefit. 59. The above decision, which is also a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench then considered and reiterated the settled principles qua the test of construction of exemption clause, the mandatory requirements to be complied with and the distinction between the eligibility criteria with reference to the conditions which need to be strictly complied with and the conditions which need to be substantially complied with. The Constitution Bench followed the ratio in Hansraj Gordhandas case, to reiterate the law on the aspect of interpretation of exemption clause in para 29 as follows: (Hari Chand case, SCC p. 247) 29. The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign exchange, there are other provisions in the Act, including Section 80HHC, whereunder the appellant was indeed taking benefit before the assessment year 1993 94. 19. Without expanding unnecessarily on variegated provisions dealing with different incentives, suffice would be to notice that the proposition that incentive provisions must receive liberal interpretation or to say, leaning in favour of grant of relief to the assessee is not an approach countenanced by this Court. The law declared by the Constitution Bench in relation to exemption notification, proprio vigore, would apply to the interpretation and application of any akin proposition in the taxing statutes for exemption, deduction, rebate et al., which all are essentially the form of tax incentives given by the Government to incite or encourage or support any particular activity 9 . 20. The principles laid down by the Constitution Bench, when applied to incentive provisions like those for deduction, would also be that the burden lies on the assessee to prove its applicability to his case; and if there be any ambiguity in the deduction clause, the same is subject to strict interpretation with the result that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text and dictionary rather than the object of the provision. In our view, this part of criticism on behalf of the appellant on the approach of the High Court is entirely inapt and rather unnecessary. The referred observations in the majority view in Abhiram Singh s case occurred in relation to the interpretation of Section 123(3) of the Representation of People Act, 1951, which is aimed at curbing the unwarranted tendencies of communalism during election campaign and operates in entirely different fields of social welfare and ethos of democracy. 22.1. It remains trite that any process of construction of a written text primarily begins with comprehension of the plain language used. In such process of comprehension of a statutory provision, the meaning of any word or phrase used therein has to be understood in its natural, ordinary or grammatical meaning unless that leads to some absurdity or unless the object of the statute suggests to the contrary. 10 In the context of taxing statute, the requirement of looking plainly at the language is more pronounced with no room for intendment or presumption. 11 In this process, if natural, ordinary or grammatical meaning of any word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (supra) does not advance the cause of the appellant. Interpretation and application of Section 80-O of the Act of 1961 in the referred decisions 23. Having thus taken note of the provision applicable as also the principles for its interpretation, we may now take note of the relevant decisions wherein the claim for deduction under Section 80-O of the Act has been dealt with by the Courts in the given fact situations and in the particular set of circumstances. J.B. Boda Co. 24. The decision of this Court in J.B. Boda Co. (supra) has been rather the mainstay of the contentions urged on behalf of the appellant. 24.1. In the case of J.B. Boda Co., the appellant was engaged in brokerage business as reinsurance broker. The appellant had been arranging for reinsurance of a portion of risk with various reinsurance companies either directly or through foreign brokers against which, it was rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance companies in India and remit the same to their principals. In such cases, brokerage can be paid either by allowing the brokers to deduct their brokerage out of the gross premia collected from Indian insurance companies and remit the net premia overseas or they could simply remit the gross premia and get back their brokerage in the form of remittance through banking channels. *** *** *** 4. The matter has been examined. The condition for deduction under section 80-O is that the receipt should be in convertible foreign exchange. When the commission is remitted aboard, it should be in a currency that is regarded as convertible foreign exchange according to FERA. The Board are of the view that in such cases the receipt of brokerage by a reinsurance agent in India from the gross premia before remittance to his foreign principals will also be entitled to the deduction under section 80-O of the Act. (emphasis in italics in original) 24.2.1. This Court found the said Circular binding on revenue and also found meaningless the insistence of revenue on a formal remittance to foreign reinsurer and receiving commission from them. This Court observed that such two way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly contended on behalf of the appellant that the decision in J.B. Boda Co. should be decisive of the matter because even the brokerage of a reinsurance broker was held eligible for deduction under Section 80-O of the Act but, we are afraid, the said decision has no relevance whatsoever to the question at hand. The eligibility of the concerned services of reinsurance broker for the purpose of Section 80-O was not even a question involved therein. Needless to observe that the business of insurance carries its own peculiarities where the factor of risk involved is of unique significance; and any information and assessment of risk involved is itself a specialised task related with the business of insurance. In the fact sheet of the case in J.B. Boda Co., in the every opening paragraph of judgment, it has been distinctively recorded that in respect of the insurance risk covered by Indian or foreign insurance companies, the appellant had been arranging for the reinsurance of a portion of risk with various reinsurance companies either directly or through foreign brokers. As regards, the services of the appellant with a broker in London, the Court noted, inter alia, that the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not scientific or commercial knowledge. Perhaps data may be distinguished from knowledge inasmuch as data may be mere masses of information which is not properly analysed and made intelligible, while knowledge is analysed and presented for understanding. The information supplied by the petitioner to the BBC must fall in the second category or else the BBC would not have entered into an agreement with the petitioner for the supply of the information. A mere mass of information without analysis and without being understandable would not be of use to the BBC. The information is not, therefore, mere data but scientific knowledge. (emphasis in bold supplied) 25.3. Reference to this decision in the case of E.P.W. Da Costa also suffers from the same shortcomings as we have commented in relation to the decision in J.B. Boda Co. The appellant would suggest that the assessee in the case of E.P.W. Da Costa was merely compiling data and forwarding it to BBC. The Court has precisely pointed out that it was not merely the collection of data but it was analysis thereof that was the root of agreement between the principal and the assessee. Again, statistics and statistical ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e . (emphasis in bold supplied) 25.4 The decision in E.P.W. Da Costa, again, does not make out any case in favour of the appellant. B. L. Passi 26. In counter to the contentions on behalf of appellant, the decision by Coordinate Bench of this Court in the case of B.L. Passi (supra) has been strongly relied upon by the revenue but is sought to be distinguished on behalf of the appellant with the submissions that therein, no material at all was produced by the assessee. We may examine this case also with the necessary specifics. 26.1. The relevant facts of the case in B.L. Passi had been that a Japanese enterprise, Sumitomo Corporation, Japan, was interested in supplying dies for manufacturing of body parts to Indian automobile manufacturers and an agreement was entered with the appellant (who claimed having vast experience in the Indian automobile industry) whereunder, the appellant was to provide services which involved passing of industrial and commercial knowledge, information about market conditions and Indian manufacturers of automobiles and also technical assistance as required, so as to assist the principal in establishing its business in the Indian a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oors. Several letters were exchanged between the parties but there is nothing on record as to how this blueprint was obtained and dispatched to the aforesaid company. It is also evident on record that the appellant has not furnished the copy of the blueprint which was sent to the Sumitomo Corporation neither before the Assessing Officer nor before the appellate authority nor before the Tribunal. The provisions of section 80-O of the Income-tax Act mandate the production of document in respect of which relief has been sought. We, therefore, have to examine whether the services rendered in the form of blueprints and information provided by the appellant fall within the ambit of section 80-O of the Income-tax Act or any of the conditions stipulated therein in order to entitle the assessee to claim deduction. *** *** *** The blueprints made available by the appellant to the Corporation can be considered as technical assistance provided by the appellant to the Corporation in the circumstances if the description of the blueprints is available on record. The said blueprints were not even produced before the lower authorities. In such scenario, when the claim of the appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i (supra) had not been a matter where nothing at all was on record. Indeed the letters exchanged by the assessee with the principal were on record, but the core of information that was allegedly supplied by the assessee to the foreign company, was not furnished, nor it was shown as to how that information was utilized by the foreign company and further, it was also not shown as to how the service charges payable to the assessee were computed when it was to get the payment on the basis of sale to be made by the foreign company. These crucial facts and factors directly co-relate with the requirements of Section 80-O of the Act; and upon the assessee failing to meet with such requirements, the claim for deduction under Section 80-O failed. Thomas Kurian 27. Thomas Kurian (supra) had been another case where, for want of any specific material to connect the activity/service of the assessee with Section 80-O, the assessee was held to be merely an inspector or a certifier for the purpose of export as follows:- 6. On a reading of the above provisions what we notice is that assessees service is certainly professional services which are covered by the provisions of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and irrigation project in Libya, a fibre-board factory at Abu Sukhair in Iraq and the huge Karkh Water Supply Project in Baghdad. For these contracts, the assessee obtained the approval of CBDT in terms of Section 80-O. In its claim for deduction, various issues related with different assessment years were raised, which included the applicability of the CBDT s approval and the nature of activities of the assessee, as also the question as to whether the assessee was entitled to claim deduction only under Section 80HHB of the Act and not under Section 80-O of the Act? A wide range of issues raised in the matter were dealt with by this Court, all of which are not necessary to be dilated upon. 28.2 The relevant aspect of the matter is that regarding the eligibility for deduction under Section 80-O of the Act, in Continental Construction, this Court said that eligibility of an item to tax or tax deduction could hardly be made dependent on the label given to it by the parties. Thus, the assessee was not entitled to claim deduction under Section 80-O regarding certain receipts merely because they were described as royalty, fees or commission; and at the same time, absence of any speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an entirely different context. For purposes of income-tax, a principle of apportionment has always been applied in different contexts. Consolidated receipts and expenses have always been considered apportionable in the contexts: (a) of the capital and revenue constituents comprised in them; (b) portions of expenditure attributable to business and non-business purposes; (c) of places of accrual or arisal; and (d) of agricultural and non-agricultural elements in such receipts or payments. This is a point that does not need much elaboration and it is sufficient to refer to decided cases cited under the passages on this topic at pp. 47, 137, 264, 621 and 677 of Kanga and Palkhivala s The Law and Practice of Income Tax (Volumne I, eighth edition). We are, therefore, of the opinion that, if, as we have held, the contracts in the present case oblige the assessee to make available information and render services to the foreign Government of the nature outlined in section 80-O, it is the duty of the Revenue and the right of the assessee to see that the consideration paid under the contract legitimately attributable to such information and services is apportioned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 29. In the impugned judgment, the decision of High Court of Madras in the case of Khursheed Anwar (supra) has also been taken note of. Therein too, the claim for deduction under Section 80-O of the Act was declined for want of necessary material while observing that the benefit of Section 80-O cannot be claimed by merely asking for the same; it has to be substantiated with the requisite record. In the said case, on the query of the Assessing Officer, the assessee had submitted its reply but could not furnish the material so as to bring the case within the four corners of Section 80-O of the Act. The High Court, inter alia, observed as under (at p. 474 of ITR): Having regard to the above discussions, in our view, as the assessee has not established his claim for deduction by producing the relevant records, the Tribunal has erred in reversing the finding of the Commissioner of Income-tax (Appeals) rendered on the basis that the assessee was not entitled to the benefit in view of the fact that the commission received by the assessee was not for any of the activities mentioned in paragraph 4.1 of the order of the Commissioner of Income-tax (Appeals). There is absolutely no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merchandise and inform the principals; to keep liaison with the agencies carrying out organoleptic/bacteriological analysis and communicate the result of inspection; to make available to the foreign principals the analysis of seafood supply situation and prices; and to keep the foreign principals informed of the latest trends in the market and also to negotiate and finalise the prices. As per the agreements, in lieu of such services, the appellant was to receive the agreed commission on the invoice amounts. 32. In contrast to what has been observed in the cases of J.B. Boda Co. (advising on the risk factor related to the proposed insurance/reinsurance) and E.P.W. Da Costa (dealing with statistical analysis of data collected), what turns out as regards the activities/services of the appellant is that the appellant was essentially to ensure supply of enough quantity of good quality merchandise in proper packing and at competitive prices to the satisfaction of the principals. This has essentially been the job of a procuring agent. Though the expressions expert information and advice , analysis , technical guidance etc., have been used in the agreements but, these expressions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay the agent s fees. If at all it had been a matter of the appellant furnishing some technical or material information which served the foreign enterprises in making the decision for procurement, in the ordinary circumstances, after completion of such service and its utilization by the foreign enterprises, the appellant was likely to receive the professional service charges for furnishing such information but, contrary and converse to it, the agreements provide for no payment to the appellant in case of principal being dissatisfied with goods. These 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. 34. The matter can be viewed from yet another angle, as indicated by the High Court in the last paragraph of its judgment. If at all it be assumed that out of various tasks mentioned in the agreements, some of them involved such services which answered to the requirements of Section 80O, it was definitely required of the appellant to establish as to what had been such information of special nature or of expertise that was given by it and how the same was utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... threshold for the reasons foregoing. 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. 36. For what we have discussed hereinabove, it is also apparent that the Appellate Authority as also the ITAT had viewed the present case from an altogether wrong angle. As noticed, the Appellate Authority even did not comprehend the observations in E.P.W. Da Costa (supra) and assumed that every information is scientific knowledge. On facts, the Appellate Authority observed that even if acting as agent of the foreign enterprises, the appellant was locating the sources of frozen seafoods, bringing the foreign enterprises in contact with the manufacturers or processors of seafood, and negotiating with the local packers; and these activities, though carried out in India, had been on behalf of the foreign enterprises. The ITAT, though took note of different services contemplated by the agreements in question and even observed that the clauses like those requiring the appellant to settle the claim with manufacturers might be the services rendered in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. To keep close liaison with agencies such as EIA/Llyods/ SGS especially for organoleptic/bacteriological analysis and communicate the results of inspection along with assessee s expert comments and advice. This also enables the foreign enterprises to take decisions for import from various sources from several countries available to them. 4. Making available full and detailed analysis of the seafood situation and prices for the above purpose. 5. To advise and keep informed the foreign buyers of the latest trends/process applications in manufacturing and all valuable commercial and economic information which will directly and indirectly assist them to organize, develop, control on regulate their import business from India. 6. To assist foreign buyers in negotiating and finalizing prices for Indian marine products and advise them of all rules and regulations and other related information for such import. In the case of this appellant, again, the AO was of the view that the services were rendered in India and the service charges received from the foreign enterprises in respect of such services did not qualify for deduction under Section 80-O. 38.2. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to its earlier decision in the case of the other assessee Ramnath Co. (as referred to hereinabove) and following the same, allowed the appeal of the appellant and dismissed that of the revenue and thereby, allowed the claim of appellant for deduction in toto. 38.5. Although, from the fact sheet of this case, it does not appear if the agreements of this appellant also carried the default clauses as we have noticed in the lead case but, on all other major features, the agreements had been of the same nature and again, this appellant has also failed to bring any material on record to show if it had received any specific consideration referable to the activities envisaged by Section 80-O of the Act. In the given set of facts and circumstances, this appellant also turns out to be only a procuring agent and not beyond. Hence, this appeal also deserves to be dismissed. Conclusion 39. For what has been discussed and held hereinabove, these appeals fail and are, therefore, dismissed. No costs. ---------------------- Notes: 1 . It was noticed by the Assessing Officer in the assessment order dated 28.03.1996 that the assessee had been in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered to the foreign company by the assessee, under an agreement approved by the Central Government in this behalf before the 1st day of October of the relevant assessment year, the assessee shall be entitled to a deduction from the income-tax with which it is chargeable on its total income for the assessment year of so much of the amount of income-tax calculated at the average rate of income-tax on the income so included as exceeds the amount of twenty-five per cent. thereof. 6. For the purpose of reference, we may also reproduce Section 80-O in its original form, as inserted by the Finance (No.2) Act, 1967 as under: 80O. Deduction in respect of royalties, etc., received from certain foreign companies. Where the gross total income of an assessee being an Indian company includes any income by way of royalty, commission, fees or any similar payment received by it from a foreign company in consideration for the use of any patent, invention, model, design, secret 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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