IN THE SUPREME COURT OF INDIA
\nCIVIL APPELLATE JURISDICTION
\nCIVIL APPEAL Nos\u20262506-2509 OF 2020
\n(Arising out of SLP (Civil) Nos. 23535 \u2013 23538 of 2016)
\nRAMNATH & CO. \u2026.Appellant (s)
\nVs.
\nTHE COMMISSIONER OF INCOME TAX \u2026.Respondent (s)
\nWith
\nCivil Appeal No. 2510 of 2020 @ SLP(C) No. 23699 of 2016
\nJUDGMENT
\nDinesh Maheshwari, J.
\nPRELIMINARY WITH BRIEF OUTLINE
\nLeave granted.
\n2. The short point calling for determination in these appeals against the
\ncommon judgment dated 09.06.2016 passed by the High Court of Kerala at
\nErnakulam in a batch of appeals is as to whether the income received by
\nthe appellants in foreign exchange, for the services provided by them to
\nforeign enterprises, qualifies for deduction under Section 80-O of the
\nIncome Tax Act, 19611, as applicable during the respective assessment
\nyears from 1993-94 to 1997-98.
\n1 Hereinafter also referred to as \u2018the Act of 1961\u2019 or \u2018the Act\u2019
\n1
\n3. Put in a nutshell, the question involved in these appeals has arisen in
\nthe backdrop of facts that the appellants herein, who had been engaged in
\nproviding services to certain foreign buyers of frozen seafood and\/or marine
\nproducts and had received service charges from such foreign
\nbuyers\/enterprises in foreign exchange, claimed deduction under Section
\n80-O of the Act of 1961, as applicable for the relevant assessment year\/s.
\nIn both these cases, the respective Assessing Officer\/s2 denied such claim
\nfor deduction essentially with the finding that the services rendered by
\nrespective assessees were the \u2018services rendered in India\u2019 and not the
\n\u2018services rendered from India\u2019 and, therefore, the service charges received
\nby the assessees from the foreign enterprises did not qualify for deduction
\nin view of clause (iii) of the Explanation to Section 80-O of the Act of 1961.
\nAfter different orders from the respective Appellate Authorities, the Income
\nTax Appellate Tribunal3, Cochin Bench accepted the claim for such
\ndeduction under Section 80-O of the Act with the finding in case of the
\nassessee Ramnath & Co.4 for the assessment year 1993-94 that as per the
\nagreements with the referred foreign enterprises, the assessee had passed
\non the necessary information which were utilised by the foreign enterprises
\nconcerned to make a decision either to purchase or not to purchase; and
\nhence, it were a service rendered from India. The same decision was
\nfollowed by ITAT in the case of this assessee for other assessment years
\nunder consideration as also in the case of other assessee M\/s Laxmi
\n2 \u2018AO\u2019 for short
\n3 \u2018ITAT\u2019 for short
\n4 Related with the appeal arising out of SLP (Civil) Nos. 23535-23538 of 2016.
\n2
\nAgencies5. The revenue preferred appeals before the High Court against
\nthe orders so passed by ITAT in favour of the present appellants as also a
\nfew other assessees. These appeals have been considered together by the
\nHigh Court of Kerala; and similar questions regarding eligibility for
\ndeduction under Section 80-O of the Act in relation to the similarly
\ncircumstanced assessees have been decided by the impugned common
\njudgment dated 09.06.2016. The High Court has essentially held that the
\nassessees were merely marine product procuring agents for the foreign
\nenterprises, without any claim for expertise capable of being used abroad
\nrather than in India and hence, the services rendered by them do not qualify
\nas the \u2018services rendered from India\u2019, for the purpose of Section 80-O of the
\nAct of 1961. Therefore, the High Court has allowed the appeals of revenue
\nwhile setting aside the respective orders of ITAT. Aggrieved, the assessees
\nhave preferred these appeals6.
\n4. The basic factual and background aspects relating to the two
\nassessees in appeal before us are more or less similar in nature but, having
\nregard to the position that ITAT had decided all other appeals based on its
\norder dated 19.11.2001 for the assessment year 1993-94 in relation to the
\nassessee-appellant Ramnath & Co. and the High Court has also rendered
\ncommon judgment essentially with reference to the facts relating to this
\nassessee (with other assessees having adopted the same contentions), it
\n5 Related with the appeal arising out of SLP(Civil) No. 23699 of 2016.
\n6 The appeals herein relate to ITA Nos. 132 of 2002, 11 of 2003, 761 of 2009 and 294 of 2009 as
\nalso ITA No. 771 of 2009, decided by High Court in the common impugned judgment dated
\n09.06.2016, rendered in the batch of appeals led by ITA No. 131 of 2002.
\n3
\nappears appropriate to elucidate the same facts and background aspects
\nfor dealing with the questions raised in these appeals.
\nRELEVANT FACTUAL AND BACKGROUND ASPECTS:
\n5. The appellant Ramnath & Co. is a firm engaged in the business of
\nproviding services to foreign buyers of Indian marine products. The
\nappellant filed its return of income for the assessment year 1993-1994 on
\n29.10.1993 declaring total taxable income at Rs. 6,21,710\/- while claiming
\n50% deduction (amounting to Rs. 22,39,825\/-) under Section 80-O of the
\nAct in relation to the amount of Rs. 44,79,649\/- received by it as service
\ncharges from foreign enterprises7.
\n5.1. While asserting its claim for such deduction under Section 80-O of
\nthe Act, the appellant submitted that it had rendered myriad services to the
\nforeign enterprises like: (i) locating reliable source of quality and assured
\nsupply of frozen seafood for the purpose of import and communicating its
\nexpert opinion and advice in that regard; (ii) keeping a close liaison with
\nagencies concerned for bacteriological analysis and communicating the
\nresult of inspection together with expert comments and advice; (iii) making
\navailable full and detailed analysis of seafood supply situation and prices;
\n(iv) advising and informing about the latest trends in manufacturing and
\nmarkets; and (v) negotiating and finalising the prices for Indian exporters of
\nfrozen marines products and communicating such other related information
\n7 It was noticed by the Assessing Officer in the assessment order dated 28.03.1996 that the
\nassessee had been in the business of marine products export since a very long time; and until the
\nassessment year 1992-93, the assessee had been claiming deduction under Section 80HHC of
\nthe Act of 1961, which provides for deduction in respect of profits derived from export of the
\nspecified class of goods or merchandise.
\n4
\nto the foreign enterprises. The appellant claimed that pursuant to the terms
\nand conditions of the agreements with the foreign enterprises, it had
\nreceived the said service charges; and its services had directly and
\nindirectly assisted the foreign enterprises to organise, develop, regulate and
\nimprove their business.
\n5.2. In regard to such claim for deduction under Section 80-O of the Act,
\nthe AO, by his letter dated 29.01.1996, raised the following queries and
\nsought clarifications from the appellant:-
\n\u201c1.The location of services rendered by the assessee may be
\nmentioned if there are any services rendered outside India.
\n2. Whether the technical\/professional services rendered by
\nthe assessee were utilized by the foreign enterprises
\nanywhere in India or outside India independently of the
\nassessee.
\n3. Whether the technical\/professional services rendered by
\nthe assessee were utilized by the foreign enterprises, in
\nIndia, independently and without the assessee.
\n4. To clarify whether the technical\/professional services
\nrendered by the assessee are capable or being made use of
\nby the foreign enterprises independently and without the
\nassessee.\u201d
\n5.3. In response, the appellant justified its claim for deduction under
\nSection 80-O of the Act by way of its letter dated 19.02.1996 while asserting
\nas under:
\n\u201c1. The technical\/professional services rendered by us are
\n\u201cfrom India\u201d.
\n2. Foreign buyers to whom we have rendered these services
\nare located in Japan, U.S.A., U.K. and France. None of
\nthese foreign enterprises have utilized our services in any
\npart of India. But the entire benefit of our services were
\n5
\nutilized by them in effectively distributing and marketing the
\nIndian sea-foods in their respective countries.
\n3. We would like to emphasize that the foreign enterprises
\nhave no place of business in India nor do they market any
\ngoods or services in India.
\n4. Without services the import of marine products from India
\nby the foreign enterprises will not be possible.\u201d
\n5.4. In his assessment order dated 28.03.1996, the Assessing Officer
\nproceeded to analyse the agreements of the appellant with the two foreign
\nenterprises and reproduced the relevant terms thereof in extenso. This part
\nof the order of the AO, containing material terms of agreements, being
\nrelevant for the present purpose, is reproduced as under: –
\n\u201cIn the context of the above claim of the assessee, it is
\nnecessary to go through the agreements entered into by the
\nassessee with the foreign enterprises to find out the nature of
\nthe relationship of the assessee with the foreign enterprises.
\nI have gone through the agreements entered into by the
\nassessee with HOKO Fishingco Ltd. is captioned agreement
\nregarding marine products and that with GELAZURE S.A. is
\ncaptioned agency agreement regarding marine products.
\nArticles 1 to 4 of the agreement with HOKO fishing Co. Ltd.
\nreads as under:-
\nArticle 1:HOKO desires to avail of the benefit of the
\ncommercial and technical knowledge experience
\nand skill of \u201cRC-CN foods\/Marine products of good
\nquality and on favourable terms and is willing to
\nremunerate \u201cRC-CN\u201d for use of such commercial
\nand technical knowledge, expert and skill and other
\nrelated services.
\nArticle 2:\u201cRC-CN agrees to render to \u201cHOKO\u201d the following
\nservices on a continuing basis.
\na) Locating reliable sources of quality and
\nassured supply of frozen seafood\/marine products
\nfor the purpose of import by HOK and communicate
\nits expert opinion and advice to HOKO.\u201d
\n6
\nb) In addition to the above services rendered by
\n\u201cRC-CN, it will also keep a close liaison with
\nagencies such as EIA\/LLOYDS\/SGS especially for
\norganoleptic\/bacteriological analysis and
\ncommunicate the results of inspection along with its
\nexpert comment and advise.
\nc) Making available full and detailed analysis of
\nthe sea food supply situation and prices.
\nd) To advise HOKO and keep them informed of
\nthe latest trends\/processes application in
\nmanufacturing and of all valuable commercial and
\neconomic information about the markets.
\nGovernment Policies, exchange fluctuations,
\nbanking laws which will directly or indirectly assist
\nHOKO to organize, develop control or regulate their
\nimport business from India.
\ne) To negotiate and finalize prices for Indian
\nExporters of frozen marine products and to
\ncommunicate such and other related information to
\nHOKO.
\nArticle 5 RC-CN\u201d shall also do everything that is required to
\nensure highest standards of quality hygiene and
\nfreshness of products including supervision at
\nvarious stages.
\nArticle 4: HOKO pays to RC-CN 0.7% of the invoice amount
\non the C & F basis and US$ 2,000.00 per month as
\ncommission. When the quality of goods is found to
\nbe unsatisfactory to HOKO after inspection in
\nJapan, HOKO shall have no responsibility to pay
\nthe agent fee.\u201d
\nSimilarly, articles 1 to 4 of the Agreement with GELAZUR S.A
\nread as under:-
\nArticle 1:\u2018GELAZUR appoints RAMNATH\u201d as agent to
\noperate in priority their purchases in frozen
\nseafood\u2019s products in India.
\nArticle 2 : RAMNATH\u2019 does the following business as Agent
\non behalf of GELAZUR.\u201d
\n1)To negotiate with the local packers for the purchase of the
\nfrozen seafood products which \u2018GELAZUR\u2019 requires:
\n2)To give \u201cGELAZUR\u2019 all the accurate information in respect
\nof the standard, quantity, price, quality, time of shipment, etc.
\npromptly, whenever the purchase of the products is made
\n7
\n3)To carry out technical guidance for processing and for
\nquality control and inspection of the products and to advise
\n\u201cGELAZURE\u201d of the results.
\n4)To inform GELAZURE\u2019 regularly about the market situation,
\ni.e. fishing situation, prices paid by other markets, prices paid
\nby French competitors, business opportunities, monthly
\nsupplies of seafood-data.
\nArticle 3: After reception of the goods, GELAZURE\u2019 will pay
\nRAMNATH\u201d commissions calculated on the following
\nbasis:
\n-CHAM ICE\/Porbandar-Veraval-Bombay:
\nCephalepods or Fishes : 1.5% of the C+F Value
\nShripps-Lobsters: 0.75% of the C+F Value
\nOTHER PACKERS
\nSHRIMPS & LOBSERS: 1% OF THE C+F value
\nSquids, cuttlefish, Cockies
\nMussels and other Fishes: USD O.65\/Kg
\nWhen the quality and the packaging of the goods
\nare found to be unsatisfactory to \u2018GELAZUR\u201d after
\ninspection in FRANCE, GELAZURE, shall have no
\nresponsibility regarding the payment of the Agent\u2019s
\nfee.
\nArticle 4: If any claim arises out of or in relation to the
\npurchases of products for which \u2018GELAZUR\u2019 has no
\nresponsibility, RAMNATH will do their best to settle
\nthe claim through negotiation with manufacturers.
\nThe settlement of the claim will have to be carried
\nout 60 days after the reception of the goods.\u201d8
\n5.5. Having examined the contents of two agreements, the Assessing
\nOfficer did not feel convinced with the claim that the appellant had been
\nrendering services from India so as to qualify for deduction under
\nExplanation (iii) to Section 80-O of the Act. The Assessing Officer was
\n8 Note: In the papers placed on record, the name of this foreign company has been mentioned
\nboth as \u2018GELAZUR\u2019 and \u2018GELAZURE\u2019. We have retained the particulars in extractions as stated in
\nthe respective papers but in our discussion, have referred it as \u2018GELAZUR\u2019.
\n8
\nfirmly of the view that the appellant had worked only as an agent of the
\nforeign enterprises in the matter of procurement of marine products from
\nIndia; and all the services envisaged in the agreements were incidental to
\nthe carrying out of main function as agent. The Assessing Officer recorded
\nhis observations and findings as follows: –
\n\u201c\u2026.A close study of the articles extracted above, would
\nestablish that the assessee is merely an agent of the foreign
\nenterprises in India in the matter of procurement of marine
\nproducts from India. All the services which are required to be
\ncarried out by the assessee in terms of the agreements are
\nincidental to the carrying out of the primary function of acting
\nas an agent. The assessee\u2019s role is to act on behalf of the
\nforeign principals within the limits allowed by them. In terms
\nof the agreements, the assessee negotiates with local
\npackers with regard to quality, quantity and price. On behalf
\nof the principals, the assessee carries out technical guidance
\nfor processing and for quality control and also inspection of
\nthe products and also keeps close liaison with various
\nagencies. These are definitely services rendered in India and
\ncannot be construed as services rendered from India merely
\nrelying on the facts that the foreign principals are advised of
\nthe results and that they are stationed outside India. It is true
\nthat as per agreement, the assessee was to supply certain
\ninformation of a general nature regarding markets,
\ngovernment policies, exchange fluctuations, banking laws,
\nprices paid by competitors, monthly supplies of seafood data
\netc. However, the agreements do not envisage any payment
\nof separate in commission or service charge for such
\ninformation. The commission is payable to the assessee as
\na percentage of the C & F value of the imports by the foreign
\nenterprises through the assessee. However, the payment of
\ncommission is conditional on the foreign enterprises
\nfinding the quality of goods satisfactory. This would
\nreinforce my earlier observation that the assessee is
\nonly an agent of the foreign enterprises in the matter of
\nprocurement of marine products from India and all the
\nservices envisaged in the agreement are incidental to the
\ncarrying out of the main function as agent. It is also not as if
\nthe foreign enterprises completely stayed away from India.
\nThough it might be a fact that none of the foreign enterprises
\n9
\nhad any office or branch anywhere in India, available
\ninformation indicates that the representatives of the foreign
\nenterprises used to visit India in connection with the
\nprocurement of marine products from various packers in India
\nand it fell upon the assessee to take these persons to the
\nprocessing facilities of various suppliers with a view to ensure
\nquality and hygiene standards. This is evident from the fact
\nthat a sum of Rs.23,122\/- has been incurred by the assessee
\nduring the visit of buyers, representatives to various seafood
\npackers in Calcutta, Bombay vizag, Madras Nandapam,
\nCochin, Calicut etc. Expenses for souvenirs, compliments
\nand samples of the value of Rs.29,411.99 have also been
\nincurred presumably in connection with the visit of the
\nrepresentatives of the foreign buyers. By any stretch of
\nimagination, it cannot be claimed that the services rendered
\non the occasions of the visit of the representatives of foreign
\nenterprises were not rendered in India. The foreign travels
\nundertaken by the Managing Partner for meeting various
\nbuyers can been seen as only an extension of the assessee\u2019s
\nrole as an agent of the foreign enterprises in India. An agent
\nof a foreign enterprise in India necessarily acts on behalf of
\nthe foreign enterprise in India, and therefore, the services,
\nnamely carrying out inspections to ensure quality of the
\nproducts and packaging, supervision of processing,
\nnegotiating prices in respect of marine products
\nexported with the assistance of the assessee, could not
\nhave been rendered outside India as the parties to be
\ncontacted, products to be inspected, processing to the
\nsupervised etc. were situated in India only. In my view
\nservices that are incapable of being rendered outside India
\nwill not come under the category of services that can be
\nrendered from India. Therefore, there is no merit in the
\ncontention of the assessee that these services were rendered
\nfrom India but not within India\u2026.\u201d
\n(emphasis in bold supplied)
\n5.6. The appellant also relied upon Circular No. 700 dated 23.03.1995
\nissued by the Central Board of Direct Taxes9 in support of its contentions.
\nThe Assessing Officer distinguished the matter dealt with by the said
\nCircular from that involved in the present case in the following passage: –
\n9 \u2018CBDT\u2019 for short
\n10
\n\u201c\u2026..The assessee also strongly relies on circular No.700
\ndated 23\/3\/95 issued by the C.B.D.T. In my view, the reliance
\non the above circular by the assessee to buttress its case is
\nmisplaced. Para 3 & 4 of the above circular which are quits
\nrelevant, reads as under : –
\n\u201c3. A question has been raised as to whether the
\nbenefit of Section 80-O would be available if the
\ntechnical and professional services, though
\nrendered outside India, are used by the foreign
\ngovernment or enterprise in India.
\n\u201c4. The matter has been considered by the Board. It
\nis clarified that as long as the technical and
\nprofessional services are rendered from India and
\nare received by a foreign government or enterprise
\noutside India deduction under Section 80-O would
\nbe available to the person rendering the services
\neven if the foreign recipient of the services utilizes
\nthe benefit of such services in India.\u201d
\nAs is clear from the above, the C.B.D.T. was dealing with a
\nquestion whether deduction under Section 80-O could be
\ndenied on the ground that the foreign enterprise uses the
\nservices rendered outside India, in India. It has been clarified
\nthat merely because the foreign enterprises utilized the
\nbenefit of services rendered outside India, the deduction
\nunder Section 80-O cannot be denied. In the case before the
\nC.B.D.T, there was not dispute as to where the technical
\nservices were rendered, In the case before me, there is
\nabsolutely no scope for doubt that the services as an agent
\nwere rendered by the assessee in India only. In 132 ITR 637,
\nthe Bombay High Court held that an assessee acting as a
\nmere employment recruiting bureau was not entitled for
\ndeduction under Section 80-O and the services rendered in
\nlocating prospective candidates and collecting their bio-datas
\nand conveying names of candidates to foreign employers did
\nnot represent services rendered outside India. Similarly, in
\n145 ITR 673 in the case of Searls (India) Ltd, the same High
\nCourt ruled that testing of samples in India and giving results
\nand certificate to foreign company did represent technical
\nservices rendered outside India. In view of the forgoing
\ndiscussion, I would hold that the assessee is not entitled for
\ndeduction u\/s 80-O as the services made available to the
\nforeign enterprises were rendered in India.\u201d
\n11
\n5.7. In the aforesaid view of the matter, the AO disallowed the claim for
\ndeduction under Section 80-O of the Act.
\n5.8. In the appeal taken by the appellant, the Appellate Authority did not
\nagree with the opinion of the Assessing Officer, particularly with reference to
\nthe decision of Delhi High Court in the case E.P.W. Da Costa and Ors. v.
\nUnion of India: (1980) 121 ITR 751 (Delhi) and a decision of ITAT Delhi, D
\nBench in the case of Capt. K. C. Saigal v. Income Tax Officer: (1995) 54
\nITD 488 (Delhi) and hence, allowed the appeal while observing, inter alia,
\nas under: –
\n\u201c14\u2026\u2026In the present case, there is no dispute that the
\nappellant is supplying information with regard to the markets,
\ngovernment policies, exchange fluctuations, banking laws,
\ndata with regard to monthly supply of sea-food etc. to the
\nforeign enterprises. Secondly, even if the appellant is a
\nmere agent of the foreign enterprises, he is bringing the
\nforeign enterprises in contact with the manufacturers or
\nprocessors of shrimps, lobsters etc. and negotiating with
\nthe local packers and is locating sources of frozen seafoods
\nfor the foreign enterprises. Though the various items
\nof activity are rendered in India, they are done on behalf of
\nthe foreign enterprises and the market and other
\ninformation had been supplied from India to the foreign
\nenterprises.
\n15. In section 80-O, Explanation (iii) reads as under : –
\n\u201cServices rendered or agreed to be rendered
\noutside India shall include services rendered from
\nIndia but shall not include services rendered in
\nIndia\u201d.
\nThe word \u201cfrom\u201d means \u201cout of\u201d or \u201cspringing out of\u201d. Thus,
\n\u2018from India\u2019 necessarily means that some of the activities will
\nspring out of or will be in India because the services are
\nrendered from India. In this connection, I am of the view that
\nthe decision of the Delhi High Court in E.P.W. De Costa &
\nAnother vs. Union of India (121 ITR 751) is really applicable
\nto the facts of the case. The services rendered with regard to
\n12
\nassessing the radio-listening habits of the people were
\nrendered in India i.e. The data had been collected in India.
\nHowever, it was held that a mere mass of information without
\nanalysis and without being understandable would not be of
\nuse to the B.B.C. The information is not, therefore, mere
\ndata but scientific knowledge. In the present case, the
\nappellant has located reliable source of quality and assured
\nsupply of frozen sea-food products to the various foreign
\nenterprises at Japan, France and other countries and
\nsupplied information with regard to sea-food processing,
\nmanufacturing details and also government policies,
\nexchange fluctuations etc. to the foreign enterprises. The
\nappellant has negotiated and finalised prices for the Indian
\nexporters of frozen sea-food products and communicated the
\nsame to the foreign enterprises. Thus, the appellant has
\nrendered the services from India to these foreign enterprises.
\nThat the appellant\u2019s information and experience have been
\neffectively utilised by the foreign enterprises can be seen
\nfrom the fact that the export effected by the appellantconcern
\nhave risen from 20 crores in the AY 1991-92 to 100
\ncrores by AY 1996-97. For the year under consideration, the
\nexports are approximately 60 crores on which the appellant
\nhas earned a commission of Rs. 44.79 lakhs.
\n16. The major issue to be decided in this case is whether the
\nservices rendered by the appellant can be said to be \u2018from
\nIndia\u2019. On the facts and circumstances of the case, I am of
\nthe opinion that the services have been rendered from India
\nand hence, the appellant is eligible for deduction u\/s 80-O,
\nespecially in view of the decision of the Delhi High Court in
\nE.P.W. De Costa & Another vs. Union of India (121 ITR 751)
\nand the I.T.A.T. Delhi \u2019D\u2019 Bench decision in the case of Capt.
\nK. C. Saigal vs. I.T.O. (54 ITD 488).\u201d
\n(emphasis in bold supplied)
\n5.9. Aggrieved by the decision aforesaid, the revenue preferred appeal
\nbefore the ITAT, being ITA No. 84\/Coch\/1997, that was considered and
\ndecided by ITAT by its order dated 19.11.2001. The ITAT took note of the
\nhistory of introduction of Chapter VI-A and Section 80-O to the Act of 1961
\nby the Finance (No. 2) Act, 1967 as also the fact that Section 80-O had
\nundergone several amendments over the course of time. The ITAT
\n13
\nconcurred with the findings of the Appellate Authority that the services
\nrendered by the appellant, which helped the foreign parties to import marine
\nproducts from India, had been specialised and technical services and
\nthereby, the appellant was entitled to claim deduction under Section 80-O of
\nthe Act. The ITAT observed and held, inter alia, as follows: –
\n\u201c9. The case of the Revenue is that the assessee has
\nrendered services only in India and not from India. The
\nservices that entitle the assessee for the benefit under
\nSection 80-O should be of such nature that it can only be
\nrendered outside India and not services that are capable of
\nbeing rendered in India. According to the revenue, the
\nassessee was rendering only a generalised service such as
\nmarket studies, study of processing, etc. so as to satisfy the
\nquality of the materials exported, like any other general
\nagent. Therefore, the assessee is not entitled to claim the
\nbenefit under Section 80-O. Considering the facts and
\ncircumstances of the case, we are unable to agree with the
\nabove proposition. In CBDT v. Oberoi Hotels (India) (P) Ltd.
\n[1998] 231 ITR 148\u2019 the Supreme Court has held that the
\nagreement for managing modern hotel, including promotion
\nof business, recruiting and training staff are all such services
\nthat entitle the assessee for the benefit of Section 80-O\u2026.
\n\u2026\u2026In circular No.700 issued on 23-3-1995 the Board
\nclarifies the position. It clarifies that \u201cas long as the technical
\nand professional services are rendered from India and are
\nreceived by a foreign Government or enterprise outside India,
\ndeduction under Section 80-O would be available to the
\nperson rendering the services even if the foreign recipient of
\nthe services utilises the benefit of such services in India\u201d.
\nNow the question is whether the assessee rendered any
\nservice and communicated the same to the foreign party.
\nArticle 2 (4) of the agency agreement regarding marine
\nproducts entered into between Gelazur S.A. and Ramnath &
\nCo. (assessee) states that the assessee is to inform
\n\u201cGELAZUR\u201d regularly about the market situation, i.e. fishing
\nsituation, prices paid by other markets, prices paid by French
\nCompetitors, business opportunities, monthly supplies of
\nseafood data. This indicates that the assessee has to
\ncommunicate the data it collected, and on the basis of
\nthis, the foreign party acts either to purchase or not to
\n14
\npurchase. It is also true that Article 4 of the said agreement
\nstates that \u201cif, any claim arises out of or in relation to the
\npurchase of products for which \u2018GELAZUR\u2019, has no
\nresponsibility, \u2018RAMNATH\u2019 will do their best to settle the claim
\nthrough negotiation with manufacturers\u201d. This indicates that
\nthe party is also doing supply of services. But, this part
\nof the service is only consequential to the first. The
\nagreement entered into between Hoko Fishing Co. Ltd.,
\nTokyo, Japan and the assessee also stipulates that the
\nassessee has to keep \u201cHoko\u201d informed of the latest
\ntrends\/processes applications in manufacturing and of
\nall valuable commercial and economic information about
\nthe market, Government Policies, exchange fluctuations,
\nbanking laws which will directly or indirectly assist \u201cHoko\u201d to
\norganise, develop, control or regulate their import business
\nfrom India. In addition to this, the assessee has to render
\nservices to ensure highest standards of quality, hygiene
\nand freshness of products including supervision at
\nvarious stages. The second mentioned services may be
\nconsidered as services rendered in India. But, definitely
\nthe other services rendered and informed to the other
\nparty like latest trends\/processes applications in
\nmanufacturing, commercial and economic, information
\nabout the markets, Government Policies, exchange
\nfluctuations, banking laws etc. which help the foreign
\nparty to import marine products from India is a
\nspecialised and technical service. That, in our view,
\nqualifies the assessee to claim deduction under Section 80-
\nO.\u201d
\n(emphasis in bold supplied)
\n5.10. The ITAT also referred to the subtle distinction in the two phrases:
\n\u2018the services rendered from India\u2019 and \u2018the services rendered in India\u2019; and
\nwhile referring to a decision of Bombay High Court in the case of Godrej &
\nBoyce Mfg. Co. Ltd. v. S.B. Potnis, Chief Commissioner: (1993) 203 ITR
\n947 (Bom) as also other decisions, observed that if the assessee had not
\npassed on the requisite information, the export would not have materialised.
\nAccording to ITAT, if the assessee had done the services like packing,
\nshipping etc., in that case, the assessee would have been merely an
\n15
\nexporter and could not have claimed the benefit under Section 80-O but,
\nthe services rendered by the assessee were of specialised nature, which
\nhad been utilised by the foreign party. Accordingly, the ITAT dismissed the
\nappeal of revenue while observing as under:-
\n\u201c10. It is true that the difference between \u2018the services
\nrendered from India\u2019 and \u2018the services rendered in India\u2019 used
\nin the Explanation below the proviso to the section is waferthin.
\nBut still the difference exists when looked from the point
\nof view the Indian Exporter. The services rendered in India
\nare services to make the goods eligible for export. On the
\nother hand, the services rendered from India can be treated
\nas services rendered, as desired by the foreign party, which
\nneed specialisation. If the foreign party is interested in
\ndetails or information or specific details and such details
\nare supplied by the Indian party and such details are
\nutilised either to purchase or not to purchase from India,
\nsuch services can be treated as \u201cservices rendered from
\nIndia\u201d. If the foreign party seeks any service and it is
\nrendered, it is a service rendered from India, whereas the
\nservices rendered in India are not necessarily by virtue of the
\nother party\u2019s request or demand. In Godrej & Boyce Mfg. Co.
\nLtd. vs. S.B. Potnis, Chief Commissioner [1993] 203 ITR 947\u2019
\nthe Hon\u2019ble Bombay High Court held that a provision made
\nfor the giving of all marketing, industrial manufacturing,
\ncommercial and scientific knowledge, experience and skill for
\nthe efficient working and management of the foreign
\ncompany could be treated as services rendered that make
\nthe assessee eligible for the benefit under Section 80-O.
\n11. In Mittal Corporation\u2019s case (supra), the Delhi bench-D of
\nthe Tribunal held that the object and spirit of Section 80-O
\nwas to mainly encourage Indian technical know-how and skill
\nabroad and since the information was given outside India
\nparty and it was used outside India and payment was
\nreceived in convertible foreign exchange, the condition
\nrequired for allowing deduction under Section 80-O could
\nsaid to have been fulfilled. In the case of E.P.W. Da Costa
\n(supra) the Delhi High Court has held that if the information
\npassed on by the assessee is of practical nature and was a
\nresult of making or manufacturing some concrete thing and
\nsuch information has been utilised by the foreign party, such
\n16
\ninformation is sufficient to claim the benefit under Section 80-
\nO.
\n12. Before parting with, let us think in a negative way. If the
\nassessee had not passed on the information like
\nmarketing, processing, quality control, etc. to the other
\nparty, the export would not have materialised. Short of
\nthis information, if the assessee had done services like
\npacking, shipping, etc. and ensured quality and quantity,
\nthe assessee is merely an exporter and cannot claim the
\nbenefit contemplated under Section 80-O. If we look from
\nthis angle also, we are of the opinion that the assessee is
\nentitled to succeed.\u201d
\n(emphasis in bold supplied)
\n6. The facts discernible from the material on record make out that on
\nthe similar pattern, the ITAT also allowed the claim of this appellant in
\nrelation to the assessment years 1994-95, 1995-96 and 1996-97, while
\nfollowing its earlier orders. As noticed, the appeals against the orders
\npassed for these assessment years were clubbed together and disposed of
\nby the High Court by way of the common judgment dated 09.06.2016,
\nwhich is in challenge in these appeals.
\nThe impugned judgment by the High Court
\n7. In its impugned common judgment dated 09.06.2016, the High
\nCourt of Kerala has disagreed with ITAT and has disallowed the claim for
\ndeduction by the appellant essentially with the finding that the appellant was
\nmerely a marine product procuring agent for the foreign enterprises, without
\nany claim for expertise capable of being used abroad rather than in India
\nand hence, the alleged services do not qualify as the \u2018services rendered
\nfrom India\u2019, for the purpose of Section 80-O of the Act of 1961.
\n17
\n8. In view of the submissions made and the subject-matter of these
\nappeals, we may examine the observations and reasoning in the impugned
\njudgment that have led the High Court to disagree with ITAT and to reject
\nthe claim of the appellant for deduction under Section 80-O of the Act in
\nrequisite specifics.10
\n8.1. The main plank of submissions on behalf of revenue, with reference
\nto the agreements between the assessee on one hand and the two foreign
\ncompanies respectively on the other, had been that the assessee was
\nsimply an agent of the foreign enterprises for procuring marine products
\nfrom India; that all its services were incidental to its main functioning as a
\nfish-procuring agent; and that the assessee rendered its services “in India”,
\ncontra-distinguished with the expression “from India”. It was also contended
\non behalf of the revenue that mere communication between the assessee
\nbased in India and the principal based abroad does not bring their
\ntransactions within the purview of Section 80-O. The submissions on behalf
\nof the revenue were supported with a Division Bench decision of that High
\nCourt in Commissioner of Income Tax v. Thomas Kurian (Dead)
\nthrough LR Smt. Primari C. Thomas, since reported as (2012) 72 DTR
\n(Ker). On the other hand, it was contended on behalf of the assessee that
\non reading the principal provision of Section 80-O of the Act with clause (iii)
\n10 It may, in the passing, be observed that one of the preliminary points raised before the High
\nCourt by the assessees had been on the maintainability of appeals by the revenue in the face of
\nCircular No. 21\/2015 dated 10.12.2015 due to low-tax effect and no likelihood of cascading effect
\nbecause the provision having been amended subsequently. The High Court did not agree with the
\nassessees on this aspect while observing that ITAT has passed all the orders by following its initial
\norder relating to ITA No. 131 of 2002; and the order impugned has a cascading effect. This aspect
\nof the matter does not concern us in these appeals and hence, need no further comment.
\n18
\nof the Explanation, it was clear that once the service is provided by an
\nIndian company (or other person who is resident in India) and the same is
\n‘used’ by a foreign entity outside India, it made no difference if the advice is
\nrendered from Indian soil. In relation to the query of the Court as to whether
\nall the services mentioned in the agreement would come within the purview
\nof Section 80-O, the response on behalf of the assessee had been that \u2018if
\nthe recipient of services is situated outside, all the services rendered by the
\nassessee in terms of the agreement come within the sweep of the
\nprovision\u2019. It was, therefore, contended on behalf of the assessee that the
\nassessee’s establishing \u2018which of its services qualifies for the deduction is
\nof no consequence, rather unnecessary\u2019. The decision in Thomas Kurian
\n(supra) was distinguished on behalf of the assessee with reference to the
\nfacts that the assessee therein was engaged only in verification of quality
\nand fitness of marine products but provided no commercial or technical
\ninformation from India to the foreign buyers whereas the assessee in the
\npresent case had been supplying commercial and technical information
\nand, using the information supplied by the assessee, the foreign companies
\nhad taken decision outside India as regards how they could purchase the
\nmerchandise. The submissions on behalf of the assessee were supported
\nwith reliance on the said Circular No. 700 dated 23.03.1995 and the
\ndecisions in M\/s Continental Construction Ltd. v. Commissioner of
\nIncome Tax, Central-I: (1992) 195 ITR 81 (SC); Commissioner of
\nIncome Tax v. Mittal Corporation: (2005) 272 ITR 87 (Delhi); Li & Fung
\n19
\nIndia (P) Ltd. v. Commissioner of Income Tax: (2008) 305 ITR 105
\n(Delhi); Commissioner of Income Tax v. Chakiat Agencies (P) Ltd.:
\n(2009) 314 ITR 200 (Mad); Commissioner of Income Tax v. Inchcape
\nIndia (P) Ltd: (2005) 273 ITR 92 (Delhi); Central Board of Direct Taxes,
\nNew Delhi & Ors. v. Oberoi Hotels (India) Pvt. Ltd.: (1998) 231 ITR 148
\n(SC) and E.P.W. Da Costa (supra).
\n8.2. Having thus taken note of the rival submissions, the High Court
\nproceeded to analyse Section 80-O of the Act with its Explanation (iii). After
\nreproducing the relevant text of the provisions, the High Court entered into
\nthe lexical semantics of the prepositions \u2018from\u2019 and \u2018in\u2019 with reference to
\ntheir dictionary meanings. Then, reverting to Section 80-O of the Act, the
\nHigh Court observed that therein, the constants were the Indian agent, the
\nforeign principal, and the Indian agent rendering services from India but the
\nvariables were as to \u2018how\u2019 and \u2018where\u2019 the services were used. Thereafter,
\nthe High Court looked at the intent and purpose behind Section 80\u2013O of the
\nAct and observed as under: \u2013
\n\u201c29. Every nation meets any measure more than half way if it
\nresults in the nation’s augmenting the foreign reserves. India
\nis no exception. It encourages and provides incentives to
\nthose who earn foreign exchange. Over and above the
\nincentive is the facility of deduction from the taxable income
\nin foreign exchange–that is what Section 80-O is. The
\nlegislative intent behind the provision is not far to seek. The
\nGovernment encourages entrepreneurial initiative and
\ninnovation by the Indian companies at the international level.
\nIn a measure, the nation encourages any Indian showcasing
\nthe Indian intellect internationally. That accepted, if Indian
\ntechnology, know-how, etc., is used in India itself even by a
\nforeign company, it is an intellectual enterprise not only from
\n20
\nIndia but also in India. We reckon that use means the end
\nuse of the information or know-how, but not its mere
\nprocessing.\u201d
\n8.3. Proceeding further, the High Court examined the position obtainable
\nin regard to the interpretation and application of Section 80-O of the Act
\nfrom the precedents cited at Bar. The High Court pointed out that in
\nThomas Kurian (supra), a case dealt with by the same High Court, the
\nmain service rendered by the assessee was admittedly of examining the
\nquality and type of fish processed by the exporters in India and certifying
\nthe fitness of the product for shipment; and such a service was rendered
\nentirely in India. It was further pointed out that in E.P.W. Da Costa (supra),
\nthe assessee had been a consultant engaged in conducting specialised
\neconomic and public opinion research on an all-India basis to assess the
\nattitudes of political, social and economic subjects and in the given nature
\nof work, the High Court of Delhi held that BBC, based in London, can be
\nsaid to have used the information received from the assessee to formulate
\nor modify its broadcasting programmes to India; and though the information
\nwas provided by the assessee from India, it was used in another country in
\nits entirety. As regards the decision in Mittal Corporation (supra), the High
\nCourt observed that the assessee therein received commission as a buying
\nagent of certain foreign enterprises and it was held that it was not
\nnecessary that the assessee must provide technical services even where it
\nreceived consideration for only providing commercial information. The High
\nCourt, however, observed that from the said decision, it could not be
\n21
\ngathered as to how the commercial information provided by the assessee
\nwas used by the foreign enterprises outside India which was \u2018a crucial
\naspect for determining the application of the provision\u2019. As regards the
\ndecision in Oberoi Hotels (supra), the High Court again observed that the
\nfactual background was not explicit, but since the agreement involved the
\nassessee’s training the Nigerian personnel, it was held that the assessee
\nundoubtedly under the contract must make use of its commercial and
\nscientific expertise as well as experience and skill, outside India. As regards
\nthe case of Inchcape India (supra), it was pointed out that the assessee
\nhad to work in textile testing, inspection of soft lines, electrical and
\nelectronic products according to the existing standards of European and
\nAmerican markets, etc. It was also pointed out that the issue arose much
\nbefore the insertion of Explanation (iii) to Section 80-O of the Act. In
\nreference to the decision in Li & Fung (supra), the High Court pointed out
\nthat therein, assessee claimed to have rendered technical services out of
\nIndia as a buying agent and the High Court of Delhi held that the services
\nrendered by the assessee required knowledge, expertise and experience;
\nand, therefore, the fee it received from foreign enterprises for supply of
\ncommercial information sent from India for use outside India was eligible for
\ndeduction under Section 80-O of the Act. The Court observed that the said
\ndecision gave judicial imprimatur to the Board’s clarification to the effect that
\nif an assessee renders technical or professional services from India to a
\nforeign Government or enterprise outside India, it can claim deduction even
\n22
\nif the foreign recipient utilises the ‘benefit of such services in India’. In this
\nline of consideration, the High Court lastly referred to the decision in the
\ncase of Chakiath Agencies (supra) and pointed out that therein, the
\nassessee, a shipping agent, was to ensure that the ship owner picks up the
\ncargo and transports it within time and at the agreed rates; and the
\ninformation regarding the availability of cargo to ship owners and its
\ndestinations at frequent intervals enabled the ship owners to program the
\nships’ travel touching the Indian coasts. In the given facts, it was held that
\nthe assessee had rendered commercial service to the foreign shipping
\nowner for his use outside India and received a commission in convertible
\nforeign exchange, entitling it to the benefit of Section 80-O of the Act. After
\nsuch discussion in relation to the aforesaid decisions, the High Court
\nobserved that two crucial aspects of Section 80-O of the Act had not fallen
\nfor consideration therein: as to what type of services rendered by an Indian
\nentity falls within the sweep of the provision and as to what is the true
\nimport of the expression \u2018use outside India\u2019. The High Court said thus:
\n\u201c46 With due regard to the above pronouncements, we,
\nhowever, feel it necessary to point out that in none of them,
\ntwo crucial aspects of Section 80-O of the Act have not fallen
\nfor consideration : (i) What type of services rendered by an
\nIndian entity falls within the sweep of the provision; (ii) what is
\nthe true import of the expression \u2018use outside India\u2019?\u201d
\n8.4. Having said so in relation to the aforementioned decisions, the High
\nCourt took note of the decision of this Court in the case of Continental
\nConstruction (supra), wherein the assessee was a civil construction
\ncompany that had entered into various contracts for the construction, inter
\n23
\nalia, of a dam and irrigation projects in Libya and water supply projects in
\nIraq after obtaining the approval of CBDT in terms of the then applicable
\nrequirements of Section 80-O of the Act. The High Court noticed that in that
\ncase, on the assessee’s claim for the benefit under Section 80-O of the Act,
\nthis Court has held that the assessee was undoubtedly rendering services
\nto the foreign Government and those were technical services indeed, for
\nthey required specialised knowledge, experience and skill. The revenue\u2019s
\ncontention that those services were not covered by Section 80-O of the Act
\nbecause there was no privity of contract between the employees of the
\nassessee and the foreign Government was rejected by this Court while
\nobserving that the assessee was a company and any technical services
\nrendered by it could only be through the medium of its employees. As
\nregards the claim for a deduction based on labelling of the receipts, this
\nCourt held that that eligibility of an item to tax or tax deduction could hardly
\nbe made to depend on the label given to it by the parties in that, an
\nassessee was not entitled to claim deduction under Section 80-O merely
\nbecause certain receipts were described in the contract as royalty, fee or
\ncommission and at the same time, absence of a specific label cannot
\ndestroy the right of an assessee to claim deduction if, in fact, the
\nconsideration for the receipts can be attributed to the sources stated in the
\nsection. The High Court also noted the dictum of Continental
\nConstruction that it is the duty of the revenue and the right of the assessee
\nto see that the consideration paid under the contract legitimately attributable
\n24
\nto such information and services is apportioned, and the assessee is given
\nthe benefit of deduction available under the section to the extent of such
\nconsideration.
\n8.5. The High Court further took note of a decision of Madras High Court
\nin the case of Commissioner of Income Tax v. Khursheed Anwar: (2009)
\n311 ITR 468 (Mad) wherein the assessee had an exclusive agency for
\npromoting and concluding sales contract in India for machinery and
\nequipment for an enterprise based in Italy. On the strength of agreement,
\nthe assessee worked with the foreign enterprise but the Court observed that
\nthe benefit under Section 80-O of the Act was not available to the assessee
\nfor mere asking; the records and materials must support the claim and the
\nbenefit of the said Section cannot be claimed as a matter of right, it being a
\nquestion of fact, which could be considered by the AO on the basis of the
\nrecords. In that case, the Appellate Authority had recorded a specific finding
\nthat the assessee has simply effected the sale of machinery and spares
\nmanufactured by the foreign enterprise; and, therefore, the assessee
\nreceived only the sales commission, which was not for any activities relating
\nto technical or professional services and hence, the assessee was not
\nentitled to claim deduction under Section 80-O of the Act.
\n8.6. The High Court summed up the requirements, as emanating from
\nthe ratio of the decisions in Continental Construction and Khursheed
\nAnwar (supra) as follows: –
\n25
\n\u201c53. Both from Continental Construction and Khursheed
\nAnwar we gather that not every receipt from a foreign
\nenterprise in convertible foreign exchange does not (sic)
\nautomatically get qualified for deduction under Section 80-O–
\nthe nomenclature notwithstanding. The burden, in fact, is on
\nthe assessee to prove before the Revenue through cogent
\nmaterial that the commission is for the services it rendered
\nfalling within the scope of the section. Neither of the facts–
\nthe existence of the contract and the receipt of convertible
\nforeign exchange–leads to a presumption that the
\ncommission is deductible as provided in Section 80-O of the
\nAct.\u201d
\n8.7. Having, thus, traversed through the provision of law applicable; the
\nmeaning of the expressions occurring in text thereof; and the position
\nobtainable from the precedents, the High Court proceeded to examine the
\nfacts and, with reference to the aforesaid agreements of the appellant with
\nFrench and Japanese companies respectively, held that some of the
\nfunctions said to have been discharged by the assessee cannot qualify for
\ndeduction under Section 80-O of the Act; and in none of the appeals, the
\nassessees had placed any material as regards the services they had
\nrendered to qualify under that provision.
\n8.8. While referring to Explanation (iii) to Section 80-O of the Act, the
\nHigh Court held that mere transferring information abroad would not
\nestablish that the service is rendered from India and not in India; that all
\nreceipts cannot qualify for concession; that the range of services referred to
\nin Section 80-O of the Act have the thread of connectivity in all the
\nintellectual endeavours mentioned therein. The High Court summed up its
\ndiscussion in the following passages:-
\n26
\n\u201c56. To sum up, we wish to conclude that the Tribunal has
\nerred on two counts in holding that the assessees are entitled
\nto the benefit of deduction under Section. 80-O of the Act :
\nFirst, mere transmission of the information to a foreign
\nenterprise, evidently, abroad does not go to show that it
\nis a service rendered from India, but not in India. With an
\nelement of certainty, we can as well say that once there is a
\ncontract, an Indian agent always interacts with and sends
\ninformation–even technical know-how–to a foreign enterprise
\nabroad. If that alone qualifies for deduction without reference
\nto \u2018the services rendered in India\u2019, the very expression in
\nexplanation (iii) becomes otiose. Trite it is to observe that
\nstatutory surplusage is not a settled canon of construction;
\nrather it is to be avoided.
\n57. The purpose of the provision is to provide an
\nincentive to the indigenous know-how of whatever
\nnature that reaches the shores of foreign nations and gets
\napplied there. The resultant fruits may percolate to India, too,
\nas is the case in E.P.W. Da Costa and Continental
\nConstruction, even in which the Apex Court has held that not
\nall receipts can claim the concession. If we refer back to
\nthe analogy employed by the learned senior counsel for the
\nassessees, an advocate in India may render services to a
\nforeign client stationed abroad concerning a case pending in
\nIndia. It is a service rendered not only from India, but also in
\nIndia. On the other hand, if that piece of professional advice
\nis used abroad, even involving clients of Indian origin or laws
\nof this nation as it happens in international arbitrations, the
\nremuneration is qualified for the benefit.
\n58. Once we look at the range of services referred to in
\nSection 80-O, we can discern the thread of connectivity
\nin all the intellectual endeavours mentioned therein : any
\npatent, invention, model, design, secret formula or process,
\nor similar property right, or information concerning industrial,
\ncommercial or scientific knowledge, experience or skill made
\navailable or provided or agreed to be made available or
\nprovided to such Government or enterprise by the assessee.
\nIt can also be in consideration of technical or professional
\nservices rendered or agreed to be rendered outside India to
\nsuch Government or enterprise by the assessee. They
\ncannot be said to be entirely discrete and disparate. The
\nservices have an air of intellectuality; as such, all and
\nsundry services rendered to a foreign enterprise cannot
\nbe taken into account, lest it should amount to doing
\nviolence to the explanation (iii).\u201d
\n27
\n(emphasis in bold supplied)
\n8.9. While concluding on the matter, the High Court referred to the
\ndictionary meaning of the expression \u201crender\u201d and observed that \u201crendering\u201d
\nincludes both \u201cproviding\u201d and \u201cperforming\u201d; and that in the context of Section
\n80-O of the Act, the services may be rendered in India but have to be
\nperformed on the foreign soil. The High Court also observed that, if the
\nassessees had at all rendered certain services which qualify for deduction,
\nthey had failed to place any material in that regard; and the agreements in
\nquestion only point out that the assessees were marine product procuring
\nagents for the foreign enterprises without any claim for expertise capable of
\nbeing used abroad rather than in India. Accordingly, the High Court
\nanswered the question of law in favour of revenue and set aside the orders
\npassed by ITAT.
\nRIVAL SUBMISSIONS
\nLead arguments on behalf of the appellant
\n9. On the debate relating to the question of applicability of Section 80-
\nO of the Act to the foreign exchange earned by the appellant in lieu of the
\nservices rendered by it to the foreign enterprises, the learned senior
\ncounsel for the appellant has made wide-ranging emphatic submissions on
\nthe process of interpretation, the scheme and object of Section 80-O and
\nhas also referred to the decisions which, in his contention, cover the
\npresent case on the substance and principles.
\n28
\n9.1. The learned senior counsel for the appellant has strenuously argued
\nthat the High Court has approached the entire case from an altogether
\nwrong angle and with rather linguistic and pedantic approach to
\ninterpretation while ignoring the basic object and purpose of Section 80-O
\nof the Act, which is meant to give incentive for earning foreign exchange.
\nWith reference to the decision in Abhiram Singh v. C.D. Commachen
\n(Dead) by LRs. and Ors.: 2017(2) SCC 629, the learned counsel has
\nsubmitted that this Court has cautioned against making a \u2018fortress out of the
\ndictionary\u2019 but the High Court has proceeded with excessive reliance on
\ndictionary and has merely looked at the text without its context and object
\nand with such approach, has unjustifiably upturned the well-considered
\ndecision of ITAT. Learned counsel has also referred to the decision of this
\nCourt in the case of Commissioner of Income Tax, Thiruvananthapuram
\nv. Baby Marine Exports, Kollam: (2007) 290 ITR 323 (SC), to submit that
\nan incentive provision has to be construed purposively, broadly and
\nliberally; and for the provision like Section 80-O of the Act, when the basic
\nobject is to earn foreign exchange, the incentive is required to be granted if
\nthe object is to be achieved. With reference to the decision in
\nCommissioner of Income Tax-IV, Tamil Nadu v. B. Suresh: (2009) 313
\nITR 149 (SC), the learned counsel has pointed out that therein, even five
\nyears\u2019 licence to exhibit an Indian film abroad was held to be that of export
\nof goods and merchandise, covered by Section 80HHC of the Act; and
\nSection 80-O of the Act, being equally a provision for incentives to earn
\n29
\nforeign exchange, ought to receive the same liberal approach. According to
\nthe learned counsel, the approach of High Court in the present case had
\nbeen too narrow and rather unrealistic.
\n9.2. The learned senior counsel would contend that on a plain reading of
\nSection 80-O, it is clear that it applies to the income by way of royalty,
\ncommission, fees or any similar payment received by the assessee from a
\nforeign enterprise in consideration for the use outside India, inter alia, of
\n\u201cinformation concerning industrial, commercial or scientific knowledge,
\nexperience or skill\u201d made available to foreign enterprises, provided that the
\nincome is received in convertible foreign exchange in India; and
\nExplanation (iii) to Section 80-O makes it clear that this Section would apply
\neven to the services rendered from India, which are to be treated for the
\npurpose of this Section as services rendered outside India. Learned
\ncounsel has argued that Section 80-O is by no means confined to grant of
\nuser of intellectual property rights or intellectual activities, as contended by
\nthe revenue and as observed by the High Court. In this regard, the learned
\ncounsel has again referred to the words \u201cinformation concerning industrial,
\ncommercial or scientific knowledge, experience or skill\u201d in the latter part of
\nSection 80-O and has argued that these words are distinct from the initial
\npart of this Section, dealing with the use of intellectual property rights. The
\nlearned counsel has further argued that even \u2018commission\u2019, which could
\nrelate to ordinary commercial activities, is also covered by Section 80-O.
\n30
\n9.3. While strongly relying upon the decision of this Court in the case of
\nJ. B. Boda & Co. Pvt. Ltd v. Central Board of Direct Taxes, New Delhi:
\n(1997) 223 ITR 271 (SC), the learned senior counsel has argued that
\ntherein, even a commission received by the reinsurance broker, who only
\nsent information to the foreign reinsurance company regarding the risk
\ninvolved and other related data, was held entitled to the benefit of Section
\n80-O of the Act in respect of the entire commission. The learned counsel
\nhas argued that the activity of reinsurance broker cannot possibly be
\ndescribed as an intellectual activity or as a technical or professional service;
\nand in that case of J.B. Boda & Co., the activity only consisted of sending
\ncommercial information from India about a proposed reinsurance contract
\non the basis of which, the reinsurance company took a commercial decision
\nto enter into the contract. The learned counsel has pointed out that in that
\ncase, this Court had referred to the Circular issued by CBDT specifically
\ndirecting that the deduction under Section 80-O should be allowed on the
\ncommission received by an Indian reinsurance broker even though it was
\nonly deducted from the remittance made to the company abroad and there
\nwas no actual inward remittance of foreign exchange. According to the
\nlearned counsel, this judgment decisively negatives the stand of the
\nrevenue that Section 80-O applies only to a payment for use of intellectual
\nproperty rights or for intellectual activities. The learned counsel would argue
\nthat the broad, liberal and purposive interpretation of Section 80-O in J. B.
\n31
\nBoda & Co. is of crucial importance and the analogy thereof applies to the
\nappellant.
\n9.4. The learned senior counsel for the appellant has further relied upon
\nthe decision of Delhi High Court in E.P.W. Da Costa (supra) with the
\nsubmissions that therein, the Indian assessee only carried out market
\nsurvey of radio listeners in India and communicated the information to BBC
\nin London; and BBC utilized that information to frame Hindi language
\nbroadcasts to India. However, the payments made towards such services
\nby BBC to the assessee were also taken to be covered by Section 80-O of
\nthe Act.
\n9.5. As regards the services and activities of the appellant, the learned
\nsenior counsel has referred to the findings of the Appellate Authority as also
\nof ITAT and has submitted that the said findings are to the effect that the
\nappellant rendered services from India to its foreign customers by making
\nover to them the information regarding seafood available in various Indian
\nmarkets, their quality, price ranges etc.; and, on the basis of this
\ninformation, the foreign customers took decisions on whether or not to
\nimport seafood from India, what to import and from which market and
\nsupplier. Further, the other basic requirement of Section 80-O, i.e.,
\nremittance of the amount in convertible foreign exchange to India has also
\nbeen fulfilled. According to the learned counsel, the clear and unequivocal
\nfindings of the Appellate Authority and ITAT are findings of fact and they
\nfully establish that the appellant furnished information from India to its
\n32
\ncustomers abroad regarding its industrial and commercial knowledge and
\nskill, and such information was utilized abroad by the said foreign
\ncustomers and the appellant\u2019s commission was remitted to India in
\nconvertible foreign exchange. The learned counsel would argue that
\nnothing of perversity was shown in regard to such findings of fact so as to
\ncall for interference but the High Court has proceeded on a basis which is
\ntotally inconsistent with those findings. With reference to the decision of this
\nCourt in the case of K. Ravindranathan Nair v. Commissioner of Income
\nTax, Ernakulam: (2001) 247 ITR 178 (SC), the learned counsel has argued
\nthat there was no scope of interference in the findings of fact in this case.
\n9.6. Assailing the findings of High Court in the impugned judgment, the
\nlearned senior counsel has also argued that the approach of the High Court
\nthat unless services were rendered abroad, the amount received would not
\nqualify for the benefit of Section 80-O is directly contrary to the plain
\nprovision contained in Explanation (iii) to Section 80-O and is also contrary
\nto Circular No. 700 dated 23.09.1995 which had clarified that Section 80-O
\ncovered not only the services rendered outside India but also the services
\nrendered from India to a party outside India; and it does not matter if the
\nservice is subsequently utilized by the foreign customer in India. In regard
\nto the case of the appellant, the learned counsel would submit that in fact,
\nthe foreign enterprises related with the appellant do not have any operation
\nor place of business in India and in such a situation, there was no question
\nof the appellant rendering service to the customers in India. Thus, according
\n33
\nto the learned senior counsel, the activities in question are squarely
\ncovered by Section 80-O of the Act.
\nThe respondent-revenue
\n10. In counter to the submissions so made on behalf of the appellant,
\nlearned senior counsel for the respondent-revenue has also referred to the
\nobject and purpose behind the provisions contained in Section 80-O of the
\nAct; the rules of interpretation, which, in his contention, ought to be applied
\nto these provisions; and, while seeking to distinguish the decisions cited on
\nbehalf of the appellant, has relied upon other decisions, which, according to
\nhim, apply to the present case and which duly support the view taken by the
\nHigh Court in the impugned judgment.
\n10.1. The learned senior counsel for the revenue has pointed out that the
\nprovisions similar to Section 80-O were originally available in the former
\nSection 85-C of the Income Tax Act, 1961, which was introduced with the
\npurpose to encourage Indian industries to develop technical know-how and
\nservices and make it available to foreign companies so as to augment the
\nforeign exchange earning of our country and to establish a reputation of
\nIndian technical know-how in foreign countries. Reverting to the contents of
\nSection 80-O of the Act, as applicable to the case at hand, the learned
\ncounsel has submitted that its purpose is indicated in the heading itself that
\nthe same is for providing deduction in respect of royalties etc., received
\nfrom certain foreign enterprises. Dissecting the relevant parts of this
\nprovision, the learned counsel would submit that some of the essential
\n34
\nrequirements for its applicability are that the assessee must receive income
\nby way of royalty, commission, fees or similar payment from a foreign
\nenterprise; the consideration must be for technical or professional services,
\nof patents, inventions or similar intellectual property or information
\nconcerning industrial, commercial or scientific knowledge; and the services
\nmust be rendered outside India. While reiterating and emphatically
\nunderscoring the observations in impugned judgment, the learned counsel
\nwould submit that the intention of legislature behind introducing Section 80-
\nO was to provide deductions for only that income which is received through
\nintellectual activity\/intellectual endeavours; and simple trading activity,
\nthough may require certain commercial or industrial information, cannot be
\nsaid to be covered by this provision. With reference to Explanation (iii) to
\nSection 80-O, the learned counsel would argue that the principal provision
\nspecifically states that it covers the services rendered \u201coutside India\u201d and
\nthe explanation clarifies that the services rendered or agreed to be
\nrendered outside India shall include services rendered from India but shall
\nnot include services rendered in India; and therefore, services rendered by
\nthe assessee to a foreign entity must be rendered outside India, in foreign
\nsoil, and not in India, though they may be rendered from India.
\n10.2. As regards the principles of interpretation, the learned senior
\ncounsel for revenue has strongly relied upon the Constitution Bench
\ndecision in Commissioner of Customs (Import), Mumbai v. Dilip Kumar
\n& Co. and Ors: (2018) 9 SCC 1 to submit that it is now settled beyond
\n35
\ndoubt that taxing statutes are subject to the rule of strict interpretation,
\nleaving no room for any intendment; and the benefit of ambiguity in case of
\nan exemption notification or an exemption clause must go in favour of the
\nrevenue, as exemptions from taxation have a tendency to increase the
\nburden on the unexempted class of tax payers. The same principles,
\naccording to the learned counsel, shall apply to Section 80-O of the Act
\nand, for the law declared by the Constitution Bench, the decision relied
\nupon by the learned counsel for the appellant in Baby Marine Exports
\n(supra), which even otherwise dealt with Section 80HHC of the Act and not
\nSection 80-O, is of no help to the appellant.
\n10.3. Taking on to the facts, the learned senior counsel would submit that
\nthe activities alleged to be rendered by the appellant to foreign entities as
\nper the respective agreements were not of technical or professional
\nservices so as to be covered by the main part of the provision; and further,
\nthey are excluded by virtue of Explanation (iii) to Section 80-O, for having
\nbeen rendered \u201cin India\u201d and not \u201cfrom India\u201d. The learned counsel would
\nelaborate on the submissions that as per the agreements, the appellant was
\nonly to locate reliable and assured suppliers of marine products, to finalise
\npricing and before exporting, to check the quality of goods to be exported
\nfrom India to the foreign entity and to communicate the same to the foreign
\nentity. Moreover, the payment was made on the basis of invoice amount;
\nand not on basis of any specialised commercial or technical knowledge
\ngiven to the foreign entity. The learned counsel has particularly referred to
\n36
\nArticle 3 of the above-referred agreement with GELAZUR to point out that if
\nthe quality or packaging of the goods was found to be unsatisfactory after
\ninspection in France, the foreign company had no liability to pay the agent\u2019s
\nfee. Thus, according to the learned counsel, the activities in respect of
\nwhich the agreements were entered into by the appellant were only that of a
\n\u2018buying or procuring agent\u2019 and do not fall within the ambit of Section 80-O
\nof the Act; and the primary activity being of certification, which is done in
\nIndia, and of sourcing the goods, which is also done in India, Section 80-O
\nof the Act is not applicable per the force of its Explanation (iii). The learned
\ncounsel has yet further submitted, while supporting the observations of High
\nCourt, that if one were to assume that the appellant had rendered certain
\nservices which qualify for deduction, no material in that regard has been
\nplaced on record.
\n10.4. The learned senior counsel for the revenue has drawn support to his
\ncontentions that Section 80-O of the Act does not apply to the appellant by
\nmaking reference mainly to two decisions. In the first place, the learned
\ncounsel has relied upon the decision of this Court in B.L. Passi v.
\nCommissioner of Income-Tax: 2018 (404) ITR 19 (SC) with the
\nsubmissions that this decision applies on all fours to the present case.
\nTherein, the assessee stated that as per the agreement, it was to provide
\nblueprints for manufacture of dies for stamping of doors of cars, though no
\nblueprint sent was produced and there was nothing to show that sales were
\neffected because of information given by assessee. This Court held that the
\n37
\nassessee was only a managing agent and was not rendering \u2018technical
\nservices\u2019 within the meaning of Section 80-O of the Act. Hence, there was
\nno basis for grant of deduction. Next, the learned senior counsel has
\nreferred to the decision of Kerala High Court in the case of Thomas Kurian
\n(supra), where the assessee was only examining the quality and type of fish
\nprocessed by the exporters and was certifying fitness for shipment to
\nforeign buyer, who was bound to accept the goods shipped from India. It
\nwas held that the referred services were rendered \u201cin India\u201d and hence, the
\nfirst eligibility condition of Section 80-O, that the services should be
\nrendered outside India, was not fulfilled and hence, benefit of deduction
\nunder Section 80-O of the Act was held not available even though the
\nsecond condition of receiving foreign exchange was fulfilled. The learned
\nsenior counsel would submit that the principles available in the said
\ndecisions directly apply hereto and the appellant is not entitled to claim
\ndeduction under Section 80-O of the Act.
\n10.5. Seeking to distinguish the decisions cited by the other side, the
\nlearned counsel for revenue has submitted that in the case of J.B. Boda &
\nCo. (supra), the issue was only about the method of receipt of foreign
\nexchange which would qualify for Section 80-O deduction, which is not in
\ndispute in the present appeals; and the relied upon Circular of 1995 was
\nalso limited to the point as to what constitutes receipt of foreign exchange.
\nAccording to the learned counsel, the nature of activity was not in issue in
\nthat case and hence, there is no such ratio decidendi which could support
\n38
\nthe case of appellant. The learned counsel has further submitted that the
\ncase of E.W.P. Da Costa (supra) was of entirely different activity inasmuch
\nas therein, statistical tables were compiled by the assessee after analysing
\nmasses of numerical data, which was collected with audience research
\nstudies in India to assess and analyse the radio listening habits of Indians
\nfor BBC; and such services were held to be highly technical, pertaining to
\nscientific knowledge and not mere data collection because those services
\nenabled BBC to broadcast not only in India but other parts of the world. As
\nregards the decision in B. Suresh (supra), it has been submitted that in that
\ncase, there was admittedly transfer of rights of feature films for exploitation
\n\u2018outside India\u2019 and the main issue was only whether there could be said to
\nbe a \u2018sale\u2019 within the meaning of Section 80HHC, which is irrelevant to
\npresent case.
\n10.5.1. It has also been submitted on behalf of the respondent that, in the
\njudgments relied upon by the appellant before the High Court, the crucial
\ntwin aspects of Section 80-O, i.e., as to what type of service rendered by
\nthe Indian entity comes within the sweep of this provision; and as to what is
\nthe true import of the expression \u201cuse outside India\u201d as per Explanation (iii)
\nto Section 80-O, did not fall for consideration and hence, those judgments
\nwere of no support to the proposition sought to be advanced by the
\nappellant. It has also been submitted that in the case of Continental
\nConstruction (supra), the contracts were for carrying out physical
\nconstruction of dams and irrigation projects in foreign countries, i.e., \u2018not in
\n39
\nIndia\u2019 and besides that, in special circumstances, the benefit of Section 80-
\nO was only allowed in part rather than on the entire contract, where the
\nrevenue was directed to bifurcate and look at each of the services
\nrendered. According to the submissions on behalf of the respondent, the
\nappellant relied upon this decision in the High Court but gave it up in this
\nCourt realising that the same is in favour of revenue; and if at all the ratio is
\napplied, at best, the benefit of Section 80-O might have been considered
\nactivity-wise, if the appellant had placed any material as to the actual
\nservices rendered, but no such material had been placed on record by the
\nappellant.
\n10.6. In regard to different services by the same assessee, some of which
\nmay not qualify for deduction, apart from relying on the observations in
\nContinental Construction (supra), reference has also been made on
\nbehalf of revenue to two circulars of CBDT i.e., Circular No. 187 dated
\n23.12.1975 and Circular No. 253 dated 30.04.1979. It has been pointed out
\nthat Circular dated 23.12.1975 provided, inter alia, that in the case of a
\ncomposite agreement which specified a consolidated amount as
\nconsideration for purposes which included matters outside the scope of
\nSection 80-O, CBDT may not approve such an agreement for the purposes
\nof Section 80-O if it was not possible to properly ascertain and determine
\nthe amount of consideration relatable to the provision of the know-how or
\ntechnical services etc., qualifying for Section 80-O. Thus, the benefit of
\nSection 80-O could have been denied to the entire amount of royalty,
\n40
\ncommission, fees etc., receivable under such an agreement. Thereafter, by
\nCircular dated 30.04.1979, it was decided that in such cases of composite
\nagreement, approval would be granted by CBDT subject to a suitable
\ndisallowance for the non-qualifying services, after taking into consideration
\nthe totality of agreement, so that the balance of the royalty\/fees, etc., which
\nwas for the services covered by Section 80-O, could be exempted. This
\nCircular also clarified that trade enquires will not qualify for deduction under
\nSection 80-O as also technical services rendered in India. It has been
\ncontended that if at all the appellant had been rendering some such
\nservices which could qualify for deduction, it had not given any such breakup
\nof services and corresponding receipts and therefore, benefit of Section
\n80-O of the Act is not available to the appellant.
\n10.6.1. As regards the circular relied upon by the counsel for the appellant,
\ni.e., Circular No. 700 dated 23.03.1995, it has been contended on behalf of
\nrevenue that the same is of no assistance to the appellant because, as per
\nparagraphs 3 and 4 thereof, the services have to be rendered outside India,
\nand it only clarifies that the foreign recipient of the services may utilise the
\nbenefit of such services in India whereas in the present case, the appellant
\nmerely rendered services in India and only as an agent.
\n10.7. The learned senior counsel for revenue has also submitted that the
\nfindings of fact arrived at by the ITAT were clearly challenged before the
\nHigh Court in ITA No. 131 of 2002 and, in any case, it being a matter of
\ninterpretation of statutory language of Section 80-O and its Explanation (iii),
\n41
\nthe contention on behalf of the appellant about want of challenge to the
\nfindings is without substance.
\nRejoinder submissions on behalf of the appellant
\n11. The submissions made on behalf of the respondent have been duly
\nrefuted on behalf of the appellant by way of rejoinder submissions.
\n11.1. As regards the principles of interpretation in the case of Dilip
\nKumar & Co. (supra), it has been contended on behalf of the appellant that
\nreference to the said decision is wholly inapposite because that deals with
\ninterpretation of an exemption notification and not an incentive provision like
\nSection 80-O, which has been interpreted in J.B. Boda & Co. (supra) or
\nSection 80HHC, which has been interpreted in B. Suresh and Baby
\nMarine Exports (supra).
\n11.2. As regards the decisions relied upon by revenue on application of
\nSection 80-O of the Act, it has been submitted that reference to the case of
\nB.L. Passi (supra) is completely misplaced because therein, the assessee
\nhad not placed any material whatsoever to show that it had rendered any
\nservice to the foreign customer; and therefore, the issue regarding the
\nnature of service did not even arise. As regards the decision of Kerala High
\nCourt in Thomas Kurian (supra), it has been submitted that the nature of
\nservices rendered therein were very different from those of the appellant
\nbecause the said assessee was only an inspector and certifier; and even
\notherwise, the said decision is not of any force because the decision of this
\nCourt in J.B. Boda & Co. (supra) was not considered therein and the
\n42
\ndecision of Delhi High Court in E.P.W. Da Costa (supra), which was
\naccepted by revenue and was allowed to become final, was also not
\nconsidered. It has also been submitted that there is no cogent or specific
\nreply by the respondents to the submissions based on the decisions of this
\nCourt in the case of J.B. Boda & Co. (supra); and it has been reiterated
\nthat even the activity of reinsurance broker was taken to be covered for the
\nbenefit of Section 80-O though such activity cannot possibly be described
\nas an intellectual activity or as a technical or professional service. It has
\nbeen contended that a liberal and purposive approach adopted by this
\nCourt in J.B.Boda & Co. for interpreting the incentive provision of Section
\n80-O is of utmost importance to the present case. It has further been
\ncontended in rejoinder submissions that there is no material distinction
\nbetween the cases of J.B. Boda & Co. and E.P.W. Da Costa on one hand
\nand that of the appellant on the other; and superficial comments made on
\nbehalf of the respondents in regard to these decisions remain meritless.
\n11.2.1. Similarly, as regards the Circulars dated 23.12.1975 and
\n30.04.1979, it has been contended that reference to these circulars is
\nwholly misplaced because they dealt with the matter of approval by CBDT
\nof an agreement with foreign customers but such need for approval of
\nCBDT had been dispensed with by amendment of Section 80-O long ago
\nand these circulars have nothing to do with the issues involved in the
\npresent case.
\n43
\n11.3. With reiteration of the submissions relating to the nature of activity of
\nthe appellant and the findings of ITAT, it has been argued that the
\ncontention of the respondents that the primary activity of the appellant had
\nmerely been of procuring agent remains untenable. It has also been
\ncontended that as per the finding of fact of ITAT, it is but clear that whole of
\nthe services rendered by the appellant and the entire amount received by it
\nin foreign exchange was covered by Section 80-O of the Act; and that the
\nattempt on the part of the respondent to suggest as if only a part of the
\namount received by the appellant may be eligible for benefit of Section 80-
\nO remains baseless. In the rejoinder submissions, it has also been
\nindicated that reference to the decision of this Court in Continental
\nConstruction (supra) by the respondents is irrelevant, as the same has not
\nbeen relied upon by the appellant.
\n12. We have given thoughtful consideration to the rival submissions and
\nhave examined the records with reference to the law applicable.
\nSECTION 80-O OF THE INCOME TAX ACT, 1961
\n13. Having regard to the subject-matter and the questions involved,
\nappropriate it would be to take note of the relevant provisions contained in
\nSection 80-O of the Act of 1961 and clause (iii) of the Explanation thereto at
\nthe outset. This Section 80-O has undergone several amendments from
\ntime to time but, for the present purpose, suffice would be to extract the
\nrelevant and pivotal provisions therein, as existing at the relevant time and
\nas applicable to the present appeal, as under: –
\n44
\n\u201c80-O. Deduction in respect of royalties, etc. from certain
\nforeign enterprises.\u2014 Where the gross total income of an
\nassessee, being an Indian company or a person (other than a
\ncompany) who is resident in India, includes any income by
\nway of royalty, commission, fees or any similar payment
\nreceived by the assessee from the Government of a foreign
\nState or a foreign enterprise in consideration for the use
\noutside India of any patent, invention, model, design, secret
\nformula or process, or similar property right, or information
\nconcerning industrial, commercial or scientific knowledge,
\nexperience or skill made available or provided or agreed to
\nbe made available or provided to such Government or
\nenterprise by the assessee, or in consideration of technical or
\nprofessional services rendered or agreed to be rendered
\noutside India to such Government or enterprise by the
\nassessee, and such income is received in convertible foreign
\nexchange in India, or having been received in convertible
\nforeign exchange outside India, or having been converted
\ninto convertible foreign exchange outside India, is brought
\ninto India, by or on behalf of the assessee in accordance with
\nany law for the time being in force for regulating payments
\nand dealings in foreign exchange, there shall be allowed, in
\naccordance with and subject to the provisions of this section,
\na deduction of an amount equal to fifty per cent of the income
\nso received in, or brought into, India, in computing the total
\nincome of the assessee:
\n*** *** ***
\nExplanation.\u2014For the purposes of this section,\u2014
\n*** *** ***
\n(iii) \u201cservices rendered or agreed to be rendered outside
\nIndia\u201d shall include services rendered from India but shall not
\ninclude services rendered in India;
\n*** *** ***\u201d11
\n14. Worthwhile it would also be to take a little excursion into the relevant
\nparts of history related with Section 80-O of the Act while putting a glance
\nover some of the features of developments relating to the provision\/s in the
\nIncome Tax, 1961 concerning such deduction in respect of particular class
\nof income, received by way of royalty, commissions etc., by an assessee in
\n11 This extraction is after omitting the other parts of Section 80-O of the Act, including its Provisos
\nand other clauses of Explanation, being not relevant for the question at hand.
\n45
\nconsideration of imparting specified intellectual property, or extending
\nspecified information, or rendering specified services to foreign State or
\nforeign enterprise.
\n14.1. In the early stages of advent of the Act of 1961, Chapters VI-A, VII
\nand VIII respectively dealt with the deductions to be made in computing the
\ntotal income, exempted portion\/s of income, and rebates and reliefs but,
\nseveral of the provisions in these Chapters as also some of the provisions
\nof Chapter XII were recast and were put together in the newly framed
\nChapter VI-A by the Finance (No.2) Act, 1967 with effect from 01.04.1968
\nwith the result that all such incentives or reliefs were directly provided by
\nway of deductions from the total income itself. In its framework, while Part A
\nof this Chapter VI-A contains general provisions including definitions, Part B
\nthereof provides for deductions in respect of certain payments and Part C
\nprovides for deductions in respect of certain incomes in computation of total
\nincome. Part CA and Part D making provisions for special class of income
\nor persons were introduced later.
\n14.2. The aspect germane to the present case is that forerunner to the
\nprovision relating to deduction of tax on royalties etc., received from certain
\nforeign companies, was Section 85-C in the Act of 1961, that was inserted
\nby Act No.13 of 1966 w.e.f. 01.04.1966 and was placed in Chapter VII. The
\nsaid Section 85-C and several other provisions of Chapter VII were omitted
\nby Section 33, read with Third Schedule, item 14, of the Finance (No.2) Act,
\n1967. The reason for omission of the said Section 85-C was that similar
\n46
\nprovision, with revised requirements, came to be introduced by way of
\nSection 80-O in the new Chapter VI-A12-13.
\n14.3. Section 80-O as introduced in Chapter VI-A got several
\nmodifications\/alterations in regard to the entities eligible to claim such
\ndeductions as also the extent (that is percentage) of admissible deduction,
\nbut the core of object remained that of encouraging the export of Indian
\ntechnical know-how and augmentation of the foreign exchange reserves of
\nthe country. While the relief was originally admitted in Section 80-O for
\n12 For the purpose of reference, we are reproducing the said repealed Section 85-C as under:-
\n\u201c85C. Deduction of tax on royalties, etc., received from certain foreign
\ncompanies \u2013 Where the total income of an assessee, being an Indian
\ncompany, includes any income by way of royalty, commission, fees or any
\nsimilar payment received by it from a company which is neither an Indian
\ncompany nor a company which has made the prescribed arrangements for the
\ndeclaration and payment of dividends within India (hereafter, in this section,
\nreferred to as the foreign company) in consideration for the use of any patent,
\ninvention, model, design, secret formula or process, or similar property right, or
\ninformation concerning industrial, commercial or scientific knowledge,
\nexperience or skill made available or provided or agreed to be made available
\nor provided to the foreign company by the assessee, or in consideration of
\ntechnical services rendered or agreed to be rendered to the foreign company by
\nthe assessee, under an agreement approved by the Central Government in this
\nbehalf before the 1st day of October of the relevant assessment year, the
\nassessee shall be entitled to a deduction from the income-tax with which it is
\nchargeable on its total income for the assessment year of so much of the
\namount of income-tax calculated at the average rate of income-tax on the
\nincome so included as exceeds the amount of twenty-five per cent. thereof.\u201d
\n13 For the purpose of reference, we may also reproduce Section 80-O in its original form, as
\ninserted by the Finance (No.2) Act, 1967 as under:
\n\u201c80O. Deduction in respect of royalties, etc., received from certain
\nforeign companies. \u2013 Where the gross total income of an assessee being an
\nIndian company includes any income by way of royalty, commission, fees or any
\nsimilar payment received by it from a foreign company in consideration for the
\nuse of any patent, invention, model, design, secret formula or process, or
\nsimilar property right, or information concerning industrial, commercial or
\nscientific knowledge, experience or skill made available or provided or agreed to
\nbe made available or provided to the foreign company by the assessee, or in
\nconsideration of technical services rendered or agreed to be rendered to the
\nforeign company by the assessee, under an agreement approved by the Central
\nGovernment in this behalf before the 1st day of October of the relevant
\nassessment year, there shall be allowed a deduction from such income of an
\namount equal to sixty per cent. thereof, in computing the total income of the
\nassessee.\u201d
\n47
\ndealing with a foreign company only, but later on, dealing with a foreign
\nGovernment or foreign enterprise was included and thereby, the scope of
\ncoverage and activities was substantially expanded. However, as noticed
\nfrom the erstwhile Section 85-C and the originally inserted Section 80-O,
\nany such agreement with the foreign entity required the approval of Central
\nGovernment and this requirement was later on altered to that of the
\napproval of CBDT. Various other features and aspects related with the
\ndevelopment and operation of Section 80-O, as then existing, were dealt
\nwith by the two circulars referred to on behalf of the revenue that is, Circular
\nNo. 187 dated 23.12.1975 and Circular No. 253 dated 30.04.1979. In fact,
\nthese circulars came up for their fuller exposition by this Court in the case of
\nContinental Construction (supra), as we shall notice hereafter a little later.
\nAt this juncture, we may usefully reproduce the relevant text of these two
\nnotifications which throw light on the provisions as then existing and as
\napplied. The relevant parts of the said circulars read as under:-
\n\u201cCircular No. 187, dated 23rd December, 1975.
\nSubject : Section 80-O of the Income-tax Act, 1961-
\nGuidelines for approval of agreements.
\n\u201cWith the twin objectives of encouraging the export of
\nIndian technical know-how and augmentation of the foreign
\nexchange resources of the country, section 80-O of the
\nIncome-tax Act, 1961, provides for concessional tax
\ntreatment in respect of income by way of royalty, commission,
\nfees or any similar payment received from a foreign
\nGovernment or a foreign enterprise, subject to the
\nsatisfaction of certain conditions laid down in the said section.
\n2. One of the conditions for availability of the tax
\nconcession under section 80-O is that the agreement should
\nbe approved by the Central Board of Direct Taxes in this
\n48
\nbehalf. The application for the approval of the agreement is
\nrequired to be made to the Central Board of Direct Taxes
\nbefore the 1st day of October of the assessment year in
\nrelation to which the approval is first sought. The form of
\napplication for this purpose has been standardised and a
\nspecimen is given in the Appendix.
\n3. The object of the provision when it was first introduced
\nas section 85C in the Income-tax Act, 1961, was stated in
\nBoard\u2019s Circular No.4P (LXXVI-61) of 1966, to be to
\nencourage Indian companies to export their technical knowhow
\nand skill abroad and augment the foreign exchange
\nresources of the country. This was reiterated in Board\u2019s
\nCircular No.72 explaining the changes introduced by the
\nFinance (No.2) Act, 1971. Keeping in view the purpose
\nbehind this tax incentive and the requirements of the
\nstatutory provisions, the Board have evolved the following
\nguidelines for the grant of such approval:-\u2026..
\n*** *** ***
\n(ix) In the case of a composite agreement specifying a
\nconsolidated amount as consideration for purposes
\nwhich include matters outside the scope of Section 80-O
\n(e.g., use of trade-marks, supply of equipment, etc.) the
\namount of the consideration relating to the provision of
\ntechnical know-how or technical services, etc., qualifying
\nfor purposes of section 80-O will have to be determined
\nby the Income-tax Officer separately at the time of
\nassessment after due appreciation of the relevant facts.
\nWhere, however, in the opinion of the Board, it will not be
\npossible to properly ascertain and determine the amount
\nof the consideration relatable to the provision of the
\nknow-how or the technical services, etc., qualifying for
\nsection 80-O, the Board may not approve such an
\nagreement for the purposes of section 80-O of the Act.\u201d
\n*** *** ***\u201d
\nCircular No.253, dated 30th April, 1979.
\nSection 80-O of the Income-tax Act, 1961 \u2013 Guidelines for
\napproval of agreements \u2013 Further clarifications. \u2013 Attention is
\ninvited to the Board\u2019s Circular No. 187 (F. No. 473\/15\/73-
\nFTD), dated 23rd December, 1975, on the above subject
\nlaying down the guidelines for the grant of approval under
\nsection 80-O. The Board has had occasion to re-examine the
\naforesaid guidelines and it has been decided to modify the
\nguidelines to the extent indicated below : –
\n49
\n(i) Para.3(iii) of the Circular dated 23-12-1975 provided
\nthat the agreement should have been genuinely
\nentered into on and after the date when the tax
\nconcession was announced by the introduction of
\nthe relevant Bill in the Lok Sabha. It has now been
\ndecided that approvals under section 80-O would not
\nbe denied on this ground. In other words, para 3(iii)
\nof the Circular dated 23-12-1975 may be treated as
\ndeleted.
\n(ii) In para (ix) of the said circular, it was mentioned that
\nconsideration for use of trade-mark would be outside
\nthe scope of section 80-O. It has now been decided
\nthat payments made for the use of trade-marks, are
\nof the nature of royalty, and, therefore, fall within the
\nscope of section 80-O.
\n(iii) It was also stated in para 3(ix) of circular dated 23-
\n12-75 that in the case of a composite agreement
\nwhich specified a consolidated amount as
\nconsideration for purposes which included matters
\noutside the scope of section 80-O, the Board may
\nnot approve such an agreement for the purposes of
\nsection 80-O of the Act if it was not possible to
\nproperly ascertain and determine the amount of the
\nconsideration relatable to the provision of the knowhow
\nor technical services, etc., qualifying for section
\n80-O. Thus, the benefit of section 80-O could be
\ndenied to the entire amount of royalty, commission,
\nfees, etc., receivable under such an agreement. It
\nhas since been decided that in such cases
\napproval would be granted by the Board subject
\nto a suitable disallowance for the non-qualifying
\nservices, after taking into consideration the
\ntotality of the agreement, so the balance of
\nroyalty\/fees, etc., which is for the services
\ncovered by section 80-O, can be exempted.\u201d
\n(emphasis in bold supplied)
\n14.4 There had been several other modifications of Section 80-O from
\ntime to time. The relevant aspects noticeable for the present purpose are
\nthat the extent of deduction under Section 80-O was also altered from time
\n50
\nto time and it even came to be allowed 100 per cent. but, by the Finance
\nAct, 1984, it was reduced to 50 per cent. of the referred income. Then, the
\nrequirement of approval by CBDT was substituted by Finance Act, 1988 to
\nthe approval by Chief Commissioner or Director General. However, by
\nFinance (No. 2) Act of 1991, even that requirement was deleted. In fact, the
\nFinance (No. 2) Act of 1991 brought about a sea of changes in Section 80-
\nO whereby, first and second provisos were omitted and the abovementioned
\nclause (iii) of Explanation was inserted. The words \u201cor a person
\n(other than a company) who is resident in India\u201d were also inserted by this
\nvery Finance (No. 2) Act of 1991 expanding the reach of Section 80-O even
\nto non-corporate tax payers. Moreover, the earlier expressions \u201ctechnical
\nservices\u201d were also altered to \u201ctechnical or professional services\u201d. There is
\nno gainsaying the fact that Finance (No. 2) Act of 1991 led to a
\nconsiderable recasting of Section 80-O of the Act of 1961 with substantial
\nexpansion of its ambit and area of coverage. These amendments were
\nmade applicable from the assessment year 1992-93 onwards and
\nobviously, this had been the reason that the assessees like the appellant,
\nwho had earlier been taking the benefit of deduction under Section 80HHC
\nwith reference to their earning of foreign exchange, attempted to shift, for
\nthe purpose of deduction, to this provision of Section 80-O. The effect of the
\namendments to Section 80-O by Finance (No. 2) Act of 1991 was also
\nexplained by the revenue in its Circular No. 621 dated 19.12.1991, the
\nrelevant part whereof could be extracted as under:-
\n51
\n\u201cCircular No. 621, dated 19th December, 1991:-
\n\u2018Extending the scope of deduction in respect of income from
\nroyalties, commission, technical fee, etc. —37. Under the
\nexisting provisions of section 80-0 of the Income-tax Act, an
\nIndian company, deriving income by way of royalties,
\ncommission, fees etc., from a foreign Government or a
\nforeign enterprise in consideration of the provision of
\ntechnical know-how or technical services under an approved
\nagreement, is entitled to a deduction, in computing its taxable
\nincome, of an amount equal to 50 per cent. of such income
\nprovided such income is received in, or brought into, India in
\nconvertible foreign exchange.
\n37.1 With a view to bringing this provision on a parity with
\nother tax concessions for the export sector and also as a
\nmeasure of rationalisation, the benefit under section 80-0 has
\nbeen extended to a non-corporate tax payers resident in
\nIndia. The concession will now also be available in relation to
\nprofessional services as well as for services rendered to
\nforeign enterprise from India. Further, the requirement of
\nprior approval of the tax authorities in this regard has been
\ndone away with.
\n37.2 This amendment will take effect from 1st April, 1992
\nand will, accordingly, apply in relation to the assessment year
\n1992–93 and subsequent years.
\n**** **** ****\u201d
\n14.5 There had been several further clarifications concerning Section 80-
\nO, as refurbished by the Finance (No. 2) Act of 1991; and one such
\nclarification by the revenue had been by way of Circular No. 700 dated
\n23.03.1995, which has been strongly relied upon by the learned senior
\ncounsel for the appellant. The relevant contents of this circular could also
\nbe extracted as follows:-
\n\u201cCircular No. 700, dated 23rd March, 1995
\n\u2018Deduction under section 80-O of the Income-tax Act, 1961 \u2013
\nClarification regarding.- Section 80-O of the Income-tax
\nAct,1961, provides for a deduction of 50% from the income of
\nan Indian resident by way of royalty, commission, fees or any
\nsimilar payment from a foreign Government or enterprise:
\n52
\n(a) in consideration for the use outside India of any
\npatent, invention, model, design, secret formula or
\nprocess, etc.; or
\n(b) in consideration of technical or professional services
\nrendered or agreed to be rendered outside India to
\nsuch foreign Government or enterprise.
\nIn either case, the requirement is that the income should be
\nin convertible foreign exchange.
\n2. It has been clarified in the Explanation (iii) to section 80-O
\nthat services rendered or agreed to be rendered outside India
\n[ i.e., item (b) above] shall include services rendered from
\nIndia but shall not include services rendered in India.
\n3. A question has been raised as to whether the benefit of
\nsection 80-O would be available if the technical and
\nprofessional services, though rendered outside India, are
\nused by the foreign Government or enterprise in India.
\n4. The matter has been considered by the Board. It is
\nclarified that as long as the technical and professional
\nservices are rendered from India and are received by a
\nforeign Government or enterprise outside India, deduction
\nunder section 80-O would be available to the person
\nrendering the services even if the foreign recipient of the
\nservices utilises the benefit of such services in India.
\n5. The contents of this circular may be given wide publicity
\nand brought to the notice of all the subordinate authorities
\nunder your charge for information and necessary action.\u201d
\n14.6 In summation of what has been noticed hereinabove, it turns out
\nthat with the objectives of giving impetus to the functioning of Indian
\nindustries to provide intellectual property or information concerning
\nindustrial, commercial or scientific knowledge to the foreign countries so as
\nto augment the foreign exchange earnings of our country and at the same
\ntime, earning a goodwill of the Indian technical know-how in the foreign
\ncountries, the provisions like Section 85-C earlier and Section 80-O later
\nwere inserted to the Act of 1961. Noteworthy it is that from time to time, the
\n53
\nambit and sphere of Section 80-O were expanded and even the dealings
\nwith foreign Government or foreign enterprise were included in place of
\n\u201cforeign company\u201d as initially provided. The requirement of approval by the
\nCentral Government of any such arrangement was also modified and was
\nultimately done away with. Significantly, while initially the benefit of Section
\n80-O was envisaged only for an Indian company but later on, it was also
\nextended to a person other than a company, who is resident of India. The
\nextent of deduction had also varied from time to time.
\n14.7. Broadly speaking, a few major and important factors related with
\nSection 80-O of the Act of 1961, with reference to its background and its
\ndevelopment, make it clear that the tax incentive for imparting technical
\nknow-how and akin specialities from our country to the foreign countries
\nultimately took the shape in the manner that earning of foreign exchange,
\nby way of imparting intellectual property, or furnishing the information
\nconcerning industrial, commercial, scientific knowledge, or rendering of
\ntechnical or professional services to the foreign Government or foreign
\nenterprise, was made eligible for deduction in computation of total income,
\nto the tune of 50 per cent. of the income so received. The finer details like
\nthose occurring in Explanation (iii) of Section 80-O were also taken care of
\nby providing that the services envisaged by Section 80-O ought to be
\nrendered outside India but they may be rendered \u2018from India\u2019, while making
\nit clear that the services which are rendered \u2018in India\u2019 would not qualify for
\nsuch a deduction.
\n54
\nThe relevant principles for interpretation
\n15. Having thus taken note of annals and historical perspectives of
\ndevelopment of Section 80-O of the Act and the relevant parts of the
\ncirculars issued by the department from time to time in tune with such
\ndevelopments, we may now examine the principles for interpretation and
\napplication of this provision. In this regard, as noticed, it has been argued
\non behalf of the appellant, with reference to the decisions in Baby Marine
\nExports and B. Suresh (supra), that an incentive provision like Section 80-
\nO of the Act has to be construed purposively, broadly and liberally so as to
\nachieve its avowed object to earn foreign exchange. Per contra, it has been
\ncontended on behalf of revenue, with reference to the Constitution Bench
\ndecision in Dilip Kumar & Co. (supra), that the taxing statutes are subject
\nto the rule of strict interpretation, and the benefit of ambiguity in case of an
\nexemption notification or an exemption clause must go in favour of the
\nrevenue; and the same principles would apply in relation to Section 80-O of
\nthe Act.
\n15.1. So far the decision in the case of B. Suresh (supra) is concerned, it
\ndoes not appear necessary to dilate on the same because the question
\ninvolved therein was entirely different that is, as to whether the foreign
\nexchange earned by transferring the right of exploitation of films outside
\nIndia by way of lease was admissible for deduction under Section 80HHC of
\nthe Act, where the department attempted to contend that movies\/films were
\n55
\nnot goods. However, having regard to the submissions made, we may look
\nat the ratio from the other cited decisions in requisite details.
\nBaby Marine Exports
\n16. The question that came up for determination before this Court in the
\ncase of Baby Marine Exports (supra) was as to whether the export house
\npremium received by assessee was includible in \u2018profits of business\u2019 while
\ncomputing deduction under Section 80HHC?
\n16.1. The assessee in the case of Baby Marine Exports was engaged in
\nthe business of selling marine products both in domestic market and was
\nalso exporting it to direct buyers as also through export houses. Contracts
\nwith export houses were entered into where assessee received entire FOB
\nvalue of exports plus export house premium of 2.25% of FOB value. While
\nclaiming deduction under Section 80HHC of the Act, this export house
\npremium was also shown as part of total turnover, as being part of sale
\nconsideration and not commission or service charge; and deduction was
\nclaimed accordingly. The AO rejected such claim for deduction with
\nreference to clause 12 of the agreement and with the observation that such
\npremium was clearly a commission or service charge. The Appellate
\nAuthority held that what the assessee received was only reimbursement of
\ncertain expenses or payments towards commission or brokerage, falling
\nwithin the ambit of clause 1 of Explanation (baa) to Section 80HHC.
\nHowever, the ITAT allowed the appeal of the assessee by accepting the
\nstand that the export house premium was includible in \u2018profits of business\u2019
\n56
\nwhile computing deduction under Section 80HHC and that export house
\npremium was nothing but an integral part of sale price realised by assessee
\nand could not have been taken as either commission or brokerage. The
\nappeal by revenue was dismissed by the High Court while following its
\nearlier decision on the same point.
\n16.2. In further appeal by revenue, this Court observed, inter alia, with
\nreference to other decisions in Sea Pearl Industries v. CIT Cochin:
\n2001(127) ELT649(SC) and IPCA Laboratory Ltd. v. Dy. Commissioner
\nof Income Tax, Mumbai: (2004) 266 ITR521(SC) that Section 80HHC was
\nincorporated with the object of granting incentive to earners of foreign
\nexchange and this section must receive liberal interpretation. This Court
\nalso observed with reference to the decision in Bajaj Tempo Ltd. v.
\nCommissioner of Income Tax, Bombay: (1992) 196 ITR188(SC) that we
\n\u2018must always keep the object of the Act in view while interpreting the
\nSection. The legislative intention must be the foundation of the court’s
\ninterpretation\u2019. 16.3. However, noticeable it is that in Baby Marine
\nExports, ultimately this Court upheld the claim of assessee for deduction
\nunder Section 80HHC of the Act not by way of any liberal or extended
\nmeaning to the provision, but only on its plain construction with reference to
\nthe definition of the term \u201csupporting manufacturer\u201d in that provision and its
\ndirect application to the facts of the case as would distinctly appear from the
\nfollowing passages (at pp. 334-335 of ITR):-
\n\u201cAccording to section 80HHC(1), the export house in
\ncomputing its total income is entitled to deduction to the
\n57
\nextent of the profit derived by the assessee from the export of
\nthe goods or merchandise. Whereas, according to section
\n80HHC(1A), the supporting manufacturer shall be entitled to
\na deduction of profit derived by the assessee from the sale of
\ngoods or merchandise. The term “supporting manufacturer”
\nhas been defined in this section and it reads as under:
\n\u201c \u2018supporting manufacturer\u2019 means a person being an
\nIndian company or a person (other than a company)
\nresident in India, manufacturing (including processing),
\ngoods or merchandise and selling such goods or
\nmerchandise to an Export House or a Trading House for
\nthe purposes of export\u201d: According to the said definition,
\nthe respondent clearly comes within the purview of
\nsupporting manufacturer. On plain construction of
\nsection 80HHC(1A) the assessee being supporting
\nas manufacturer shall be entitled to a deduction of
\nthe profit derived by the assessee from the sale of
\ngoods or merchandise.
\nThe respondent – a supporting manufacturer sold the
\ngoods or merchandise to the export house and received the
\nentire FOB value of the goods plus the export house
\npremium of 2.25 per cent. of the FOB value. The relevant
\nclause 12 of the agreement has already been extracted in the
\nearlier part of the judgment and according to the said clause,
\nthe export house is under obligation to pay to the supporting
\nmanufacturer an incentive of 2.25 per cent. on the F.O.B.
\nvalue according to the terms of the agreement. The
\nrespondent, a supporting manufacturer, admittedly sold the
\ngoods to the export house in respect of which the export
\nhouse has issued a certificate under proviso to sub-section
\n(1). According to the section, the respondent – assessee, in
\ncomputing the total income be allowed a deduction to the
\nextent of profits referred to in sub-section (1B) derived by the
\nassessee from the sale of goods to the export house.
\nThe Appellate Tribunal has arrived at the definite
\nconclusion that the Export House premium is nothing but an
\nintegral part of sale price realized by the assessee – a
\nsupporting manufacturer from the Export House. The Tribunal
\nfurther held that the Export House premium cannot possibly
\nbe considered to be either commission or brokerage, as a
\nperson cannot earn commission or brokerage for himself.
\nThe High Court has upheld the findings of the Tribunal. In
\nour considered view, the order of the Appellate Tribunal is
\nbased on proper construction of section 80HHC(1A) of the
\n58
\nIncome-tax Act that the Export House premium is an integral
\npart of the sale price realized by the assessee from the
\nexport house.
\n*** *** ***
\nThe submission of the appellant that the premium earned
\nby the respondent assessee is totally unrelated to export is
\nfallacious and devoid of any merit. This submission of the
\nappellant is also contrary to the specific terms of the
\nagreement between the appellant and the respondent.
\nOn a plain construction of section 80HHC(1A), the
\nrespondent is clearly entitled to claim deduction of the
\npremium amount received from the export house in
\ncomputing the total income. The export house premium
\ncan be included in the business profit because it is an integral
\npart of business operation of the respondent which consists
\nof sale of goods by the respondent to the export house.\u201d
\n(emphasis in bold supplied)
\nDilip Kumar & Co.
\n17. The core question referred for authoritative pronouncement to the
\nConstitution Bench in the case of Dilip Kumar & Co. (supra) was as to
\nwhat interpretative rule should be applied while interpreting a tax exemption
\nprovision\/notification when there is an ambiguity as to its applicability with
\nreference to the entitlement of the assessee or the rate of tax? The
\nreference to the Constitution Bench was necessitated essentially for the
\nreason that in a few decisions, one of them by a 3-Judge Bench of this
\nCourt in the case of Sun Export Corpn. v. Collector of Customs: (1997)
\n6 SCC 564, the proposition came to be stated that any ambiguity in a tax
\nprovision\/notification must be interpreted in favour of the assessee who is
\nclaiming benefit thereunder.14
\n14 In Sun Export Corpn. v. Collector of Customs, (1997) 6 SCC 564 the Court had stated the
\nlaw as follows (at page 568) :
\n\u201cEven assuming that there are two views possible, it is well settled that one
\nfavourable to the assessee in matters of taxation has to be preferred.\u201d
\n59
\n17.1. In Dilip Kumar & Co., the Constitution Bench of this Court
\nexamined several of the past decisions including that by another
\nConstitution Bench in CCE v. Hari Chand Shri Gopal: (2011) 1 SCC 236
\nas also that by a Division Bench of this Court in the case of UOI v. Wood
\nPapers Ltd.: (1990) 4 SCC 256 wherein, the principles were stated in clear
\nterms that the question as to whether a subject falls in the notification or in
\nthe exemption clause has to be strictly construed; and once the ambiguity
\nor doubt is resolved by interpreting the applicability of exemption clause
\nstrictly, the Court may construe the exemption clause liberally. This Court
\nfound that in Wood Papers Ltd. (supra), some of the observations in an
\nearlier decision in the case of CCE v. Parle Exports (P) Ltd.: (1989) 1 SCC
\n345 were also explained with all clarity. This Court noted the enunciations in
\nWood Paper Ltd. with total approval as could be noticed in the following:-
\n\u201c46. In the judgment of the two learned Judges in Union of
\nIndia v. Wood Papers Ltd.: (1990) 4 SCC 256 (hereinafter
\nreferred to as \u201cWood Papers Ltd. case\u201d, for brevity), a
\ndistinction between stage of finding out the eligibility to seek
\nexemption and stage of applying the nature of exemption was
\nmade. Relying on the decision in CCE v. Parle Exports (P)
\nLtd. : (1989) 1 SCC 345, it was held: (Wood Papers Ltd.
\ncase, SCC p. 262, para 6)
\n\u201c6. \u2026 Do not extend or widen the ambit at the stage of
\napplicability. But once that hurdle is crossed, construe it
\nliberally.\u201d
\nThe reasoning for arriving at such conclusion is found in para
\n4 of Wood Papers Ltd. case, which reads: (SCC p. 260)
\n\u201c4. \u2026 Literally exemption is freedom from liability, tax or
\nduty. Fiscally, it may assume varying shapes, specially,
\nin a growing economy. For instance tax holiday to new
\nunits, concessional rate of tax to goods or persons for
\nlimited period or with the specific objective, etc. That is
\nwhy its construction, unlike charging provision, has to be
\n60
\ntested on different touchstone. In fact, an exemption
\nprovision is like an exception and on normal principle of
\nconstruction or interpretation of statutes it is construed
\nstrictly either because of legislative intention or on
\neconomic justification of inequitable burden or
\nprogressive approach of fiscal provisions intended to
\naugment State revenue. But once exception or
\nexemption becomes applicable no rule or principle
\nrequires it to be construed strictly. Truly speaking liberal
\nand strict construction of an exemption provision are to
\nbe invoked at different stages of interpreting it. When
\nthe question is whether a subject falls in the notification
\nor in the exemption clause then it being in nature of
\nexception is to be construed strictly and against the
\nsubject, but once ambiguity or doubt about applicability
\nis lifted and the subject falls in the notification then full
\nplay should be given to it and it calls for a wider and
\nliberal construction.\u201d
\n(emphasis supplied)
\n*** *** ***
\n58. In the above passage, no doubt this Court observed that:
\n(Parle Exports case, SCC p. 357, para 17)
\n\u201c17. when two views of a notification are possible, it
\nshould be construed in favour of the subject as
\nnotification is part of a fiscal enactment.\u201d
\nThis observation may appear to support the view that
\nambiguity in a notification for exemption must be interpreted
\nto benefit the subject\/assessee. A careful reading of the
\nentire para, as extracted hereinabove would, however,
\nsuggest that an exception to the general rule of tax has to be
\nconstrued strictly against those who invoke for their benefit.
\nThis was explained in a subsequent decision in Wood
\nPapers Ltd. case. In para 6, it was observed as follows: (SCC
\np. 262)
\n\u201c6. \u2026 In CCE v. Parle Exports (P) Ltd., this Court while
\naccepting that exemption clause should be construed
\nliberally applied rigorous test for determining if
\nexpensive items like Gold Spot base or Limca base or
\nThums Up base were covered in the expression food
\nproducts and food preparations used in Item No. 68 of
\nFirst Schedule of Central Excises and Salt Act and held
\n\u2018that it should not be in consonance with spirit and the
\nreason of law to give exemption for non-alcoholic
\nbeverage basis under the notification in question\u2019.
\nRationale or ratio is same. Do not extend or widen the
\n61
\nambit at stage of applicability. But once that hurdle is
\ncrossed construe it liberally. Since the respondent did
\nnot fall in the first clause of the notification there was no
\nquestion of giving the clause a liberal construction and
\nhold that production of goods by respondent mentioned
\nin the notification were entitled to benefit.\u201d
\n59. The above decision, which is also a decision of a two-
\nJudge Bench of this Court, for the first time took a view that
\nliberal and strict construction of exemption provisions are to
\nbe invoked at different stages of interpreting it. The question
\nwhether a subject falls in the notification or in the
\nexemption clause, has to be strictly construed. When
\nonce the ambiguity or doubt is resolved by interpreting
\nthe applicability of exemption clause strictly, the Court
\nmay construe the notification by giving full play
\nbestowing wider and liberal construction. The ratio of
\nParle Exports case deduced as follows: (Wood Papers Ltd.
\ncase, SCC p. 262, para 6)
\n\u201c6. \u2026 Do not extend or widen the ambit at stage of
\napplicability. But once that hurdle is crossed, construe it
\nliberally.\u201d
\n60. We do not find any strong and compelling reasons to
\ndiffer, taking a contra view, from this. We respectfully record
\nour concurrence to this view which has been
\nsubsequently, elaborated by the Constitution Bench in
\nHari Chand case.\u201d
\n(emphasis in bold supplied)
\n17.2. The Constitution Bench decision in Hari Chand Shri Gopal (supra)
\nwas also taken note of, inter alia, in the following:-
\n\u201c50. We will now consider another Constitution Bench
\ndecision in CCE v. Hari Chand Shri Gopal (hereinafter
\nreferred as \u201cHari Chand case\u201d, for brevity). We need not refer
\nto the facts of the case which gave rise to the questions for
\nconsideration before the Constitutional Bench. K.S.
\nRadhakrishnan, J., who wrote the unanimous opinion for the
\nConstitution Bench, framed the question viz. whether
\nmanufacturer of a specified final product falling under the
\nSchedule to the Central Excise Tariff Act, 1985 is eligible to
\nget the benefit of exemption of remission of excise duty on
\nspecified intermediate goods as per the Central Government
\nNotification dated 11-8-1994, if captively consumed for the
\nmanufacture of final product on the ground that the records
\n62
\nkept by it at the recipient end would indicate its \u201cintended
\nuse\u201d and \u201csubstantial compliance\u201d with procedure set out in
\nChapter 10 of the Central Excise Rules, 1994, for
\nconsideration? The Constitution Bench answering the said
\nquestion concluded that a manufacturer qualified to seek
\nexemption was required to comply with the preconditions for
\nclaiming exemption and therefore is not exempt or absolved
\nfrom following the statutory requirements as contained in the
\nRules. The Constitution Bench then considered and
\nreiterated the settled principles qua the test of construction of
\nexemption clause, the mandatory requirements to be
\ncomplied with and the distinction between the eligibility
\ncriteria with reference to the conditions which need to be
\nstrictly complied with and the conditions which need to be
\nsubstantially complied with. The Constitution Bench followed
\nthe ratio in Hansraj Gordhandas case, to reiterate the law on
\nthe aspect of interpretation of exemption clause in para 29 as
\nfollows: (Hari Chand case, SCC p. 247)
\n\u201c29. The law is well settled that a person who claims
\nexemption or concession has to establish that he is
\nentitled to that exemption or concession. A provision
\nproviding for an exemption, concession or
\nexception, as the case may be, has to be construed
\nstrictly with certain exceptions depending upon the
\nsettings on which the provision has been placed in
\nthe statute and the object and purpose to be
\nachieved. If exemption is available on complying
\nwith certain conditions, the conditions have to be
\ncomplied with. The mandatory requirements of
\nthose conditions must be obeyed or fulfilled exactly,
\nthough at times, some latitude can be shown, if
\nthere is failure to comply with some requirements
\nwhich are directory in nature, the non-compliance of
\nwhich would not affect the essence or substance of the
\nnotification granting exemption.
\n*** *** ***\u201d
\n(emphasis in bold supplied)
\n17.3. In view of above and with reference to several other decisions, in
\nDilip Kumar & Co., the Constitution Bench summed up the principles as
\nfollows:-
\n\u201c66. To sum up, we answer the reference holding as under:
\n63
\n66.1. Exemption notification should be interpreted
\nstrictly; the burden of proving applicability would be on the
\nassessee to show that his case comes within the parameters
\nof the exemption clause or exemption notification.
\n66.2. When there is ambiguity in exemption notification
\nwhich is subject to strict interpretation, the benefit of
\nsuch ambiguity cannot be claimed by the
\nsubject\/assessee and it must be interpreted in favour of
\nthe Revenue.
\n66.3. The ratio in Sun Export case is not correct and all
\nthe decisions which took similar view as in Sun Export
\ncase stand overruled.\u201d
\n(emphasis in bold supplied)
\n17.4. Obviously, the generalised, rather sweeping, proposition stated in
\nthe case of Sun Export Corporation (supra) as also in other cases that in
\nthe matters of taxation, when two views are possible, the one favourable to
\nassessee has to be preferred, stands specifically disapproved by the
\nConstitution Bench in Dilip Kumar & Co. (supra). It has been laid down by
\nthe Constitution Bench in no uncertain terms that exemption notification has
\nto be interpreted strictly; the burden of proving its applicability is on the
\nassessee; and in case of any ambiguity, the benefit thereof cannot be
\nclaimed by the subject\/assessee, rather it would be interpreted in favour of
\nthe revenue.
\n18. It has been repeatedly emphasised on behalf of the appellant that
\nSection 80-O of the Act is essentially an incentive provision and, therefore,
\nneeds to be interpreted and applied liberally. In this regard, we may observe
\nthat deductions, exemptions, rebates et cetera are the different species of
\nincentives extended by the Act of 196115. In other words, incentive is a
\n15 As tersely put by this Court in Liberty India v. CIT: (2009) 9 SCC 328, the Act of 1961 broadly
\nprovides for two types of tax incentives, namely, investment-linked incentives and profit-linked
\nincentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially
\n64
\ngeneric term and \u2018deduction\u2019 is one of its species; \u2018exemption\u2019 is another.
\nFurthermore, Section 80-O is only one of the provisions in the Act of 1961
\ndealing with incentive; and even as regards the incentive for earning or
\nsaving foreign exchange, there are other provisions in the Act, including
\nSection 80HHC, whereunder the appellant was indeed taking benefit before
\nthe assessment year 1993\u201394.
\n19. Without expanding unnecessarily on variegated provisions dealing
\nwith different incentives, suffice would be to notice that the proposition that
\nincentive provisions must receive \u201cliberal interpretation\u201d or to say, leaning in
\nfavour of grant of relief to the assessee is not an approach countenanced
\nby this Court. The law declared by the Constitution Bench in relation to
\nexemption notification, proprio vigore, would apply to the interpretation and
\napplication of any akin proposition in the taxing statutes for exemption,
\ndeduction, rebate et al., which all are essentially the form of tax incentives
\ngiven by the Government to incite or encourage or support any particular
\nactivity16.
\n20. The principles laid down by the Constitution Bench, when applied to
\nincentive provisions like those for deduction, would also be that the burden
\nlies on the assessee to prove its applicability to his case; and if there be any
\nambiguity in the deduction clause, the same is subject to strict interpretation
\nwith the result that the benefit of such ambiguity cannot be claimed by the
\nbelong to the category of \u201cprofit-linked incentives\u201d (at p. 339).
\n16 Of course, there may be other objectives also like supporting any particular class of persons
\ne.g., those contained in Section 80TTB of the Act (for deduction in respect of interest on deposits
\nin case of senior citizen) or Section 80U of the Act (for deduction in case of differently abled
\nperson).
\n65
\nassessee, rather it would be interpreted in favour of the revenue. In view of
\nthe Constitution Bench decision in Dilip Kumar & Co. (supra), the
\ngeneralised observations in Baby Marine Exports (supra) with reference to
\na few other decisions, that a tax incentive provision must receive liberal
\ninterpretation, cannot be considered to be a sound statement of law; rather
\nthe applicable principles would be those enunciated in Wood Papers Ltd.
\n(supra), which have been precisely approved by the Constitution Bench.
\nThus, at and until the stage of finding out eligibility to claim deduction, the
\nambit and scope of the provision for the purpose of its applicability cannot
\nbe expanded or widened and remains subject to strict interpretation but,
\nonce eligibility is decided in favour of the person claiming such deduction, it
\ncould be construed liberally in regard to other requirements, which may be
\nformal or directory in nature.
\n21. As noticed, Section 80-O of the Act has a unique purpose and
\nhence, peculiarities of its own. Applying the aforesaid principles to an
\nenquiry for the purpose of a claim of deduction under Section 80-O of the
\nAct as applicable to the present case, evident it is that for the purpose of
\neligibility, the service or activity has to precisely conform to what has been
\nenvisaged by the provision read with its explanation; and the other
\nrequirements of receiving convertible foreign exchange etc., are also to be
\nfulfilled. It is only after that stage is crossed and a particular activity falls
\nwithin the ambit of Section 80-O, this provision will apply with full force and
\nmay be given liberal application. The basic question, therefore, would
\n66
\nremain as to whether the suggested activity of appellant had been of
\nrendering such service from India to its principals in foreign country which
\nanswers to the description provided by the provision. As regards this
\nenquiry, nothing of any liberal approach is envisaged. The activity must
\nstrictly conform to the requirements of Section 80-O of the Act.
\n22. At this juncture, we are impelled to deal with a segment of
\nsubmissions on behalf of the appellant with reference to the decision in the
\ncase of Abhiram Singh (supra). It has been argued that this Court has
\ncautioned against making \u2018a fortress out of the dictionary\u2019 but the High Court
\nhas relied heavily on text and dictionary rather than the object of the
\nprovision. In our view, this part of criticism on behalf of the appellant on the
\napproach of the High Court is entirely inapt and rather unnecessary. The
\nreferred observations in the majority view in Abhiram Singh\u2019s case
\noccurred in relation to the interpretation of Section 123(3) of the
\nRepresentation of People Act, 1951, which is aimed at curbing the
\nunwarranted tendencies of communalism during election campaign and
\noperates in entirely different fields of social welfare and ethos of democracy.
\n22.1. It remains trite that any process of construction of a written text
\nprimarily begins with comprehension of the plain language used. In such
\nprocess of comprehension of a statutory provision, the meaning of any word
\nor phrase used therein has to be understood in its natural, ordinary or
\ngrammatical meaning unless that leads to some absurdity or unless the
\n67
\nobject of the statute suggests to the contrary.17 In the context of taxing
\nstatute, the requirement of looking plainly at the language is more
\npronounced with no room for intendment or presumption.18 In this process,
\nif natural, ordinary or grammatical meaning of any word or phrase is
\navailable unquestionably and fits in the scheme and object of the statute,
\nthe same could be, rather need to be, applied. The other guiding rules of
\ninterpretation would be the internal aides like definition or interpretation
\nclauses in the statute itself. Yet further, if internal aides do not complete the
\ncomprehension, recourse to external aides like those of judicial decisions
\nexpounding the meaning of the words used in construing the statutes in
\npari materi, or effect of usage and practice etc., is not unknown; and in this
\nvery sequence, it is an accepted principle that when a word is not defined in
\nthe enactment itself, it is permissible to refer to the dictionaries to find out
\nthe general sense in which the word is understood in common parlance. In
\n17 In Principles of Statutory Interpretation by Justice G.P. Singh (14th edn.at p. 91) this elementary
\nrule of literal construction has been stated with reference to scores of decisions, including that in
\nCrawford v. Spooner : (1846) 4 MIA 179 as follows:
\n\u201cThe words of a statute are first understood in their natural, ordinary or
\npopular sense and phrases and sentences are construed according to their
\ngrammatical meaning, unless that leads to some absurdity or unless there is
\nsomething in the context, or in the object of the statute to suggest the contrary.\u201d
\n18 Apart from the principles already noticed hereinbefore, profitable it would be to point out that
\nthe basic principles of interpretation of taxing statutes have been re-condensed by this Court in
\nCIT v. Yokogawa India Ltd.: (2017) 391 ITR 274 (SC) as follows :
\n\u201cThe cardinal principles of interpretation of taxing statutes centres around
\nthe opinion of Rowlatt, J. in Cape Brandy Syndicate v. Inland Revenue
\nCommissioners which has virtually become the locus classicus. The above
\nwould dispense with the necessity of any further elaboration of the subject
\nnotwithstanding the numerous precedents available inasmuch as the evolution
\nof all such principles are within the four corners of the following opinion of
\nRowlatt, J.: (Cape Brandy case, KB p. 71)
\n\u201c\u2026 in a taxing Act one has to look merely at what is clearly said. There is
\nno room for any intendment. There is no equity about a tax. There is no
\npresumption as to a tax. Nothing is to be read in, nothing is to be implied.
\nOne can only look fairly at the language used.\u201d
\n68
\nfact, for the purpose of gathering ordinary meaning of any expression,
\nrecourse to its dictionary meaning is rather interlaced in the literal rule of
\ninterpretation. This aspect was amply highlighted and expounded by the
\nConstitution Bench of this Court in the case of Commissioner of Wealth-
\nTax, Andhra Pradesh v. Officer-in-Charge (Court of Wards), Paigah:
\n(1976) 105 ITR 133 as follows (at p.137 of ITR) :
\n\u201c8 . It is true that in Raja Benoy Kumar Sahas Roy’s case:
\n[1957] 32 ITR 466(SC) this court pointed out that meanings
\nof words used in Acts of Parliament are not necessarily to be
\ngathered from dictionaries which are not authorities on what
\nParliament must have meant. Nevertheless, it was also
\nindicated there that where there is nothing better to rely upon,
\ndictionaries may be used as an aid to resolve an ambiguity.
\nThe ordinary dictionary meaning cannot be discarded
\nsimply because it is given in a dictionary. To do that
\nwould be to destroy the literal rule of interpretation. This
\nis a basic rule relying upon the ordinary dictionary meaning
\nwhich, in the absence of some overriding or special reasons
\nto justify a departure, must prevail. \u2026\u2026.\u201d
\n(emphasis in bold supplied)
\n22.2. In the setup of the present case, for a proper comprehension of the
\ncontents and text of the relevant provision of Section 80-O and Explanation
\n(iii), which are carrying even the minute distinction of the expressions \u201cfrom
\nIndia\u201d and \u201cin India\u201d, recourse to lexical semantics has been inevitable.
\nHowever, in all fairness, the High Court has not only discussed semantics
\nand dictionary meanings but, has equally looked at the object and purpose
\nof Section 80-O of the Act. Hence, without further expanding on this issue,
\nsuffice it to say for the present purpose that the submissions against the
\napproach of High Court with reference to the decision in Abhiram Singh
\n(supra) does not advance the cause of the appellant.
\n69
\nInterpretation and application of Section 80-O of the Act of 1961 in the
\nreferred decisions
\n23. Having thus taken note of the provision applicable as also the
\nprinciples for its interpretation, we may now take note of the relevant
\ndecisions wherein the claim for deduction under Section 80-O of the Act has
\nbeen dealt with by the Courts in the given fact situations and in the
\nparticular set of circumstances.
\nJ.B. Boda & Co.
\n24. The decision of this Court in J.B. Boda & Co. (supra) has been
\nrather the mainstay of the contentions urged on behalf of the appellant.
\n24.1. In the case of J.B. Boda & Co., the appellant was engaged in
\nbrokerage business as reinsurance broker. The appellant had been
\narranging for reinsurance of a portion of risk with various reinsurance
\ncompanies either directly or through foreign brokers against which, it was
\nreceiving a percentage of premium received by the foreign companies as its
\nshare of brokerage. With respect to reinsurance business, appellant
\ncontacted M\/s Sedgwick Offshore Resources Ltd. (London brokers) and
\nfurnished all details about the risk involved etc., and confirmation about the
\nassignment was informed to the appellant. Following this, the Indian ceding
\ncompany handed over the premium to be paid by it to the foreign
\nreinsurance company to the appellant for onward transmission. Appellant
\napproached the RBI showing the amount payable after deducting its
\nbrokerage amount; and this amount of brokerage was claimed to be a
\nreceipt of convertible foreign exchange without a corresponding foreign
\n70
\nremittance with reference to the provision contained in Section 9 of the
\nForeign Exchange Regulation Act. However, the respondent revenue took
\nthe stand that the agreements of the appellant could not be approved for
\nthe purpose of Section 80-O of the Act, for the income having been
\ngenerated in India and not received in foreign currency. This was
\nunsuccessfully challenged by the assessee before the High Court and
\nhence, the matter was in appeal before this Court.
\n24.2. It is at once clear that in J. B. Boda & Co., the question, as to
\nwhether the foreign exchange received by the assessee in lieu of services
\nto the foreign company was eligible for deduction under Section 80-O of the
\nAct or not, did not even arise. This was because of the fact that the activity
\nof assessee was, in fact, accepted by CBDT to be eligible for deduction
\nunder Section 80-O of the Act in its Circular No. 731 dated 20.12.1995 and
\nthe only issue sought to be raised against the assessee by the revenue
\nrelated to the method of receiving the amount by the assessee. In the said
\nCircular, it was provided by the revenue that \u2018receipt of brokerage by a
\nreinsurance agent in India from the gross premia before remittance to is
\nforeign principals will also be entitled to the deduction under Section 80-O
\nof the Act\u2019. This Court noted the contents of the said Circular dated
\n20.04.1995; and two paragraphs therein with the emphasis supplied by this
\nCourt could be usefully reproduced as under (at p. 280 of ITR):-
\n\u201cCIRCULAR NO. 731 DATED 20-12-1995
\n*** *** ***
\n71
\n2. Reinsurance brokers, operating in India on behalf of
\nprincipals aboard are required to collect the reinsurance
\npremia from ceding insurance companies in India and remit
\nthe same to their principals. In such cases, brokerage can be
\npaid either by allowing the brokers to deduct their brokerage
\nout of the gross premia collected from Indian insurance
\ncompanies and remit the net premia overseas or they could
\nsimply remit the gross premia and get back their brokerage in
\nthe form of remittance through banking channels.
\n*** *** ***
\n4. The matter has been examined. The condition for
\ndeduction under section 80-O is that the receipt should be in
\nconvertible foreign exchange. When the commission is
\nremitted aboard, it should be in a currency that is regarded as
\nconvertible foreign exchange according to FERA. The Board
\nare of the view that in such cases the receipt of brokerage by
\na reinsurance agent in India from the gross premia before
\nremittance to his foreign principals will also be entitled to the
\ndeduction under section 80-O of the Act.\u201d
\n(emphasis in italics in original)
\n24.2.1. This Court found the said Circular binding on revenue and also
\nfound meaningless the insistence of revenue on a formal remittance to
\nforeign reinsurer and receiving commission from them. This Court observed
\nthat such \u201ctwo way traffic\u201d was unnecessary because in the end result, the
\nincome was generated in India in foreign exchange in a lawful and
\npermissible manner. Hence, this Court concluded on the matter while
\ndisapproving the stand of the revenue as follows (at p. 281 of ITR):-
\n\u201cThe facts brought out in this case are clear as to how the
\nremittance to the foreign reinsurance company is made
\nthrough the Reserve Bank of India in conformity with the
\nagreement between the appellant and the foreign reinsurers,
\nand that the remittance statement filed along with annexure
\n\u201cA\u201d which evidences that the amount due to the foreign
\nreinsurers as also the brokerage due to the appellant and the
\nbalance due to the foreign reinsurers is remitted (and
\nexpressed so) in dollars. It is common ground that the entire
\ntransaction effected through the medium of the Reserve Bank
\n72
\nof India is expressed in foreign exchange and in effect the
\nretention of the fee due to the appellant is in dollars for the
\nservices rendered. This, according to us, is receipt of income
\nin convertible foreign exchange. It seems to us that a “two
\nway traffic” is unnecessary. To insist on a formal remittance to
\nthe foreign reinsurers first and thereafter to receive the
\ncommission from the foreign reinsurer, will be an empty
\nformality and a meaningless ritual, on the facts of this case.
\nOn a perusal of the nature of the transaction and in particular
\nthe statement of remittance filed in the Reserve Bank of India
\nregarding the transaction, we are unable to uphold the view
\nof the respondent that the income under the agreement is
\ngenerated in India or that the amount is one not received in
\nconvertible foreign exchange. We are of the view that the
\nincome is received in India in convertible foreign exchange, in
\na lawful and permissible manner through the premier
\ninstitution concerned with the subject-matter–the Reserve
\nBank of India. In this view, we hold that the proceedings of
\nthe Central Board of Direct Taxes dated March 11, 1986,
\ndeclining to approve the agreements of the appellant with
\nSedgwick Offshore Resources Ltd., London, for the purposes
\nof section 80-O of the Income-tax Act, are improper and
\nillegal. We declare so. We direct the respondent to process
\nthe agreements in the light of the principles laid down by us
\nhereinabove. The appeal is allowed. There shall be no order
\nas to costs.\u201d
\n24.3. Though it has been painstakingly contended on behalf of the
\nappellant that the decision in J.B. Boda & Co. should be decisive of the
\nmatter because even the brokerage of a reinsurance broker was held
\neligible for deduction under Section 80-O of the Act but, we are afraid, the
\nsaid decision has no relevance whatsoever to the question at hand. The
\neligibility of the concerned services of reinsurance broker for the purpose of
\nSection 80-O was not even a question involved therein. Needless to
\nobserve that the business of insurance carries its own peculiarities where
\nthe factor of risk involved is of unique significance; and any information and
\nassessment of risk involved is itself a specialised task related with the
\n73
\nbusiness of insurance. In the fact sheet of the case in J.B. Boda & Co., in
\nthe every opening paragraph of judgment, it has been distinctively recorded
\nthat in respect of the insurance risk covered by Indian or foreign insurance
\ncompanies, the appellant had been arranging for the reinsurance of a
\nportion of risk with various reinsurance companies either directly or through
\nforeign brokers. As regards, the services of the appellant with a broker in
\nLondon, the Court noted, inter alia, that the appellant \u2018furnished all the
\ndetails about the risk involved, the premium payable, the period of
\ncoverage and the portion of the risk which is sought to be reinsured\u2019.
\nWithout entering into further details of the activities of the said assessee,
\nsuffice it to say for the present purpose that the submissions on behalf of
\nthe appellant, as if the task of a broker of reinsurance is not technical in
\nnature, could only be rejected as being not in conformity with the
\npeculiarities of insurance business. In any case, as observed hereinbefore,
\nthis aspect does not require further elaboration because of entirely different
\nquestion involved and decided by this Court in J.B. Boda & Co.
\nE.P.W. Da Costa
\n25. Apart from the case of J.B. Boda & Co., much sustenance is sought
\non behalf of the appellant with reference to the decision in E.P.W. Da Costa
\n(supra), which was a decision rendered by the Delhi High Court and was,
\nadmittedly, not appealed against.
\n25.1. Facts of the case of E.P.W. Da Costa (supra) had been that the
\nBritish Broadcasting Corporation (\u2018BBC\u2019) was interested in knowing how its
\n74
\nbroadcasts were received by listeners in India and hence, engaged the
\nservices of petitioner for conducting a public opinion survey so that after
\ngathering information from petitioner, it would make modifications in its
\nprogrammes. An agreement was entered by the petitioner with BBC for
\nconducting specialised economic and public opinion research on all-India
\nbasis to assess the attitudes of a wide range of political, social and
\neconomic subjects etc. Approval of this agreement for the purpose of
\nSection 80-O of the Act was refused by CBDT, essentially on the ground
\nthat the service (of audience research study in Hindi speaking areas to
\nassess the radio listening habits) was rendered in India and information
\nsupplied to the foreign party was not the type contemplated by Section 80-
\nO.
\n25.2. In the said decision, of course, the question of nature of services for
\nthe purpose of Section 80-O was involved but, the High Court precisely
\nfound the activity of the assessee to be that of imparting scientific
\nknowledge after proper analysis of the voluminous data collected. While
\nrejecting the contention on behalf of the revenue, the Court observed as
\nunder (at p. 755 of ITR):-
\n\u201cMr. Kirpal further contends that the information
\ncommunicated by the petitioner to the BBC is only data and
\nnot scientific or commercial knowledge. Perhaps data may be
\ndistinguished from knowledge inasmuch as data may be
\nmere masses of information which is not properly analysed
\nand made intelligible, while knowledge is analysed and
\npresented for understanding. The information supplied by the
\npetitioner to the BBC must fall in the second category or else
\nthe BBC would not have entered into an agreement with the
\n75
\npetitioner for the supply of the information. A mere mass of
\ninformation without analysis and without being
\nunderstandable would not be of use to the BBC. The
\ninformation is not, therefore, mere data but scientific
\nknowledge.\u201d
\n(emphasis in bold supplied)
\n25.3. Reference to this decision in the case of E.P.W. Da Costa also
\nsuffers from the same shortcomings as we have commented in relation to
\nthe decision in J.B. Boda & Co. The appellant would suggest that the
\nassessee in the case of E.P.W. Da Costa was merely compiling data and
\nforwarding it to BBC. The Court has precisely pointed out that it was not
\nmerely the collection of data but it was analysis thereof that was the root of
\nagreement between the principal and the assessee. Again, statistics and
\nstatistical analysis is a matter of specific branch of science. In an elaborate
\ndiscussion as regards the science of statistics with reference to the activity
\nof the assessee, the Court, inter alia, observed as under (at pp. 754-755 of
\nITR):-
\n\u201cThe petitioner issues questionnaire to the listeners and
\nthe information gathered from the answers to the
\nquestionnaire is compiled in the form of various statistical
\ntables. According to Webster’s New International
\nDictionary, Vol. III, statistics is a science dealing with the
\ncollection, analysis, interpretation and presentation of
\nmasses of numerical data and that it is a branch of
\nmathematics. It would appear, therefore, that the statistical
\ntables compiled by the petitioner after analysing masses of
\nnumerical data are commercial or scientific knowledge which
\nis made available to the BBC. For, the word ” science ” is
\nalso a very general word. Since statistics is a science
\naccording to Webster’s, even in a more particular sense, the
\nstatistical information may be said to be scientific knowledge
\nwithin the meaning of s. 80-O.\u2026\u2026\u2026If commercial or
\nscientific knowledge is confined to mean the abstract
\nexposition of commercial or scientific theories then only a
\n76
\nbook on commercial or scientific subject may be regarded as
\nscientific knowledge. But knowledge may be general or
\nparticular. Such knowledge as was compiled, classified and
\nmade useful for the use of the BBC may also be said to be
\ncommercial or scientific knowledge. BBC is a commercial
\ncorporation. Its function may be to disseminate information,
\nbut in the discharge of this function it requires commercial or
\nscientific knowledge as to the way its broadcasts are
\nreceived in different countries. Such a highly organized
\nconcern as BBC would not be content with the general
\ninformation as to the receipt of its broadcast in India. The
\ninformation would have to be specific, particular and
\nanalysed according to the languages in which the broadcasts
\nare made and according to the classes of the public who
\nlisten to such broadcasts. In view of the trend to give a wider
\nmeaning to the words ” science and scientific knowledge “, it
\nwould not be possible to restrict the connotation of these
\nwords too narrowly. In our view they would include the
\nstatistical tables compiled by the petitioner for the use of
\nthe BBC inasmuch as statistics itself has been
\nrecognised as a science.\u201d
\n(emphasis in bold supplied)
\n25.4 The decision in E.P.W. Da Costa, again, does not make out any
\ncase in favour of the appellant.
\nB. L. Passi
\n26. In counter to the contentions on behalf of appellant, the decision by
\nCoordinate Bench of this Court in the case of B.L. Passi (supra) has been
\nstrongly relied upon by the revenue but is sought to be distinguished on
\nbehalf of the appellant with the submissions that therein, no material at all
\nwas produced by the assessee. We may examine this case also with the
\nnecessary specifics.
\n26.1. The relevant facts of the case in B.L. Passi had been that a
\nJapanese enterprise, Sumitomo Corporation, Japan, was interested in
\nsupplying dies for manufacturing of body parts to Indian automobile
\n77
\nmanufacturers and an agreement was entered with the appellant (who
\nclaimed having vast experience in the Indian automobile industry)
\nwhereunder, the appellant was to provide services which involved passing
\nof industrial and commercial knowledge, information about market
\nconditions and Indian manufacturers of automobiles and also technical
\nassistance as required, so as to assist the principal in establishing its
\nbusiness in the Indian automobile industry. The appellant claimed deduction
\nunder Section 80-O of the Act with reference to remuneration received on
\naccount of such services rendered to the foreign enterprise. The AO
\ndisallowed the claim of the appellant for deduction with the finding that the
\nservices in question do not qualify for deduction. However, the Appellate
\nAuthority ruled in favour of the appellant but ITAT reversed the order of the
\nAppellate Authority and the decision of ITAT was upheld by the High Court.
\n26.2. In further appeal, this Court briefly took note of the background of
\ninsertion of Section 80-O in the Act of 1961 in place of the former Section
\n85-C with the object of giving fiscal encouragement to Indian industries to
\nprovide technical know-how and technical services to newly developing
\ncountries and foreign companies to augment the foreign exchange of our
\ncountry and to establish the reputation of Indian technical know-how for
\nforeign countries. Examining the facts of the case relating to the
\nassessment year 1997-98, this Court found that though the appellant had
\nexchanged several letters with its principal, but the information was in the
\nform of some blueprints and there was nothing on record to show as to how
\n78
\nthe blueprints were obtained and dispatched; and such blueprints were not
\nproduced by the assessee on record. This Court also found that the said
\nassessee was to receive service charges at the rate of five per cent. of the
\ncontributable amount from sale of the principal\u2019s products to its customers
\nin India but again, there was nothing on record to prove that any product
\nwas developed on the basis of the blueprints supplied by the assessee or
\nthat the principal was able to sell any product developed by it by using the
\ninformation supplied by the assessee. Thus, this Court found that there was
\nno material on record to prove that the sales in question were of any
\nproduct developed with the assistance of the information by the assessee
\nand equally, there was no material on record to show as to how the service
\ncharges payable to the assessee were computed. This Court, inter alia,
\nobserved and found as under (at pp 26-28 of ITR) :-
\n\u201cNow coming to the facts of the case at hand, it is evident
\nfrom record that the major information sent by the appellant
\nto the Sumitomo Corporation was in the form of blueprints for
\nthe manufacture of dies for stamping of doors. Several letters
\nwere exchanged between the parties but there is nothing on
\nrecord as to how this blueprint was obtained and dispatched
\nto the aforesaid company. It is also evident on record that the
\nappellant has not furnished the copy of the blueprint which
\nwas sent to the Sumitomo Corporation neither before the
\nAssessing Officer nor before the appellate authority nor
\nbefore the Tribunal. The provisions of section 80-O of the
\nIncome-tax Act mandate the production of document in
\nrespect of which relief has been sought. We, therefore, have
\nto examine whether the services rendered in the form of
\nblueprints and information provided by the appellant fall
\nwithin the ambit of section 80-O of the Income-tax Act or any
\nof the conditions stipulated therein in order to entitle the
\nassessee to claim deduction.
\n*** *** ***
\n79
\nThe blueprints made available by the appellant to the
\nCorporation can be considered as technical assistance
\nprovided by the appellant to the Corporation in the
\ncircumstances if the description of the blueprints is available
\non record. The said blueprints were not even produced
\nbefore the lower authorities. In such scenario, when the claim
\nof the appellant is solely relying upon the technical
\nassistance rendered to the Corporation in the form of
\nblueprints, its unavailability creates a doubt and burden of
\nproof is on the appellant to prove that on the basis of those
\nblueprints, the Corporation was able to start up their business
\nin India and he was paid the amount as service charge.
\nFurther, with regard to the remuneration to be paid to the
\nappellant for the services rendered, in terms of the letter
\ndated January 25, 1995, it has been specifically referred that
\nthe remuneration would be payable for the commercial and
\nindustrial information supplied only if the business plans
\nprepared by the appellant results positively. Sumitomo
\nCorporation will pay to PASCO International service charges
\nequivalent to 5 per cent. of the contractual amount between
\nSumitomo and its customers in India on sales of its products
\nso developed. From a perusal of the above, it is clear that the
\nappellant was entitled to service charges at the rate of 5 per
\ncent. of the contractual amount between Sumitomo
\nCorporation and its customers in India on sales of its
\nproducts so developed but there is nothing on record to
\nprove that any product was so developed by the
\nSumitomo Corporation on the basis of the blueprints
\nsupplied by the appellant as also that the Sumitomo
\nCorporation was able to sell any product developed by it
\nby using the information supplied by the appellant.
\nMeaning thereby, there is no material on record to prove
\nthe sales effected by Sumitomo Corporation to its
\ncustomers in India in respect of any product developed
\nwith the assistance of the appellant\u2019s information and
\nalso on as to how the service charges payable to
\nappellant were computed.
\nIn view of the foregoing discussion, we are of the considered
\nopinion that in the present facts and circumstances of the
\ncase, the services of managing agent, i.e., the appellant,
\nrendered to a foreign company, are not technical services
\nwithin the meaning of section 80-O of the Income-tax Act.
\nThe appellant failed to prove that he rendered technical
\n80
\nservices to the Sumitomo Corporation and also the
\nrelevant documents to prove the basis for alleged
\npayment by the Corporation to him. The letters exchanged
\nbetween the parties cannot be claimed for getting deduction
\nunder section 80-O of the Income-tax Act.\u201d
\n(emphasis in bold supplied)
\n26.3. The case of B.L. Passi (supra) had not been a matter where
\nnothing at all was on record. Indeed the letters exchanged by the assessee
\nwith the principal were on record, but the core of information that was
\nallegedly supplied by the assessee to the foreign company, was not
\nfurnished, nor it was shown as to how that information was utilized by the
\nforeign company and further, it was also not shown as to how the service
\ncharges payable to the assessee were computed when it was to get the
\npayment on the basis of sale to be made by the foreign company. These
\ncrucial facts and factors directly co-relate with the requirements of Section
\n80-O of the Act; and upon the assessee failing to meet with such
\nrequirements, the claim for deduction under Section 80-O failed.
\nThomas Kurian
\n27. Thomas Kurian (supra) had been another case where, for want of
\nany specific material to connect the activity\/service of the assessee with
\nSection 80-O, the assessee was held to be merely an inspector or a certifier
\nfor the purpose of export as follows:-
\n\u201c6. On a reading of the above provisions what we notice is
\nthat assessees service is certainly professional services
\nwhich are covered by the provisions of the Act. However, two
\nconditions have to be satisfied for eligibility for deduction
\nunder Section 80-O, the first is that the service should be
\nrendered outside India and the second one is that payment
\nfor such services should be received in convertible foreign
\n81
\nexchange in India. In this case only one condition is satisfied,
\nie, receipt of consideration in convertible foreign exchange
\nand so far as rendering of service is concerned, the entire
\nservice is rendered by the assessee in India and no services
\nis rendered outside India. Exporter ships the goods only with
\nassessee\u2019s certificate of fitnesses so that foreign buyer
\ncannot reject the goods. Assessee\u2019s communication with
\nforeign buyers in our view does not amount to rendering of
\nservice outside India.\u201d
\nContinenta l Construction Ltd.
\n28. As noticed, in the present case, in the very first place, the Assessing
\nOfficer, while dealing with the assessment in question, raised the queries
\nand sought clarifications from the appellant with reference to the
\nenunciations in the decision of this Court in the case of Continental
\nConstruction (supra). Then, the High Court has also noticed in its
\nimpugned judgment that this was one of the decisions relied upon by the
\nlearned counsel for the assessee. A comment has been made in the reply
\nsubmissions on behalf of the revenue before us that the appellant has given
\nup reliance on this decision for the reasons that the ratio essentially
\noperates against the appellant. The response on behalf of the appellant has
\nbeen that reference to this decision by revenue was entirely unnecessary
\nfor the same not being relied upon. Needless to observe that it being a
\ndecision of this Court, the ratio and the principle emanating therefrom
\ncannot be ignored, whether relied upon by the appellant or not. Moreover,
\nthe said decision has been rendered by a 3-Judge Bench of this Court and
\nhas the force of a binding precedent. Having regard to the submissions
\n82
\nmade and the questions raised, reference to the decision of this Court in the
\ncase of Continental Construction (supra) is indispensable.
\n28.1 Briefly put, the relevant factual aspects of the matter in
\nContinental Construction had been that the assessee was a civil
\nconstruction company that had executed a large number of projects
\noverseas and in India. The assessee entered into eight contracts for the
\nconstruction, inter alia, of a dam and irrigation project in Libya, a fibre-board
\nfactory at Abu Sukhair in Iraq and the huge Karkh Water Supply Project in
\nBaghdad. For these contracts, the assessee obtained the approval of CBDT
\nin terms of Section 80-O. In its claim for deduction, various issues related
\nwith different assessment years were raised, which included the
\napplicability of the CBDT\u2019s approval and the nature of activities of the
\nassessee, as also the question as to whether the assessee was entitled to
\nclaim deduction only under Section 80HHB of the Act and not under Section
\n80-O of the Act? A wide range of issues raised in the matter were dealt with
\nby this Court, all of which are not necessary to be dilated upon.
\n28.2. The relevant aspect of the matter is that regarding the eligibility for
\ndeduction under Section 80-O of the Act, in Continental Construction, this
\nCourt said that eligibility of an item to tax or tax deduction could hardly be
\nmade dependent on the label given to it by the parties. Thus, the assessee
\nwas not entitled to claim deduction under Section 80-O regarding certain
\nreceipts merely because they were described as royalty, fees or
\ncommission; and at the same time, absence of any specific label to the item
\n83
\nwas not destructive of the right of the assessee to claim deduction. This
\nCourt pointed out that the contracts of the type envisaged by Section 80-O
\nare usually very complex and cover a multitude of obligations and
\nresponse; and it is not always possible for the parties to dissect the
\nconsideration and apportion it to various ingredients or elements. This
\nCourt, however, pointed out that consolidated receipts and responses were
\nalways apportionable. In the context, as regards the activities of the said
\nassessee and entitlement under Section 80-O of the Act, this Court
\nobserved that the contracts in question obliged the assessee to make
\navailable information and render services to the foreign Government of the
\nnature outlined under Section 80-O and therefore, it was the duty of the
\nrevenue and right of the assessee to see that the consideration legitimately
\nattributable to such information and services is apportioned and the
\nassessee is given the benefit of deduction under Section 80-O to the extent
\nof such consideration. This aspect of the matter, extensively dealt with by
\nthis Court, could be usefully extracted as under (at p. 119 of ITR): –
\n\u201cIn our view, neither of the propositions contended for by
\nSri Ahuja can be accepted as correct. So far as the first
\nproposition is concerned, it is sufficient for us to point out that
\nit is a well-settled principle that eligibility of an item to tax or
\ntax deduction can hardly be made to depend on the label
\ngiven to it by the parties. As assessee cannot claim deduction
\nunder section 80-O in respect of certain receipts merely on
\nthe basis that they are described as royalty, fee or
\ncommission in the contract between the parties. By the same
\ntoken, the absence of a specific label cannot be destructive
\nof the right of an assessee to claim a deduction, if, in fact, the
\nconsideration for the receipts can be attributed to the sources
\nindicated in the section. The second proposition is equally
\nuntenable. Contracts of the type envisaged by section 80-O
\n84
\nare usually very complex ones and cover a multitude of
\nobligations and responsibilities. It is not always possible or
\nworthwhile for the parties to dissect the consideration and
\napportion it to the various ingredients or elements comprised
\nin the contract. The cases referred to by the Tribunal and Sri
\nAhuja as to the indivisibility of a contract arose in an entirely
\ndifferent context. For purposes of income-tax, a principle of
\napportionment has always been applied in different contexts.
\nConsolidated receipts and expenses have always been
\nconsidered apportionable in the contexts: (a) of the capital
\nand revenue constituents comprised in them; (b) portions of
\nexpenditure attributable to business and non-business
\npurposes; (c) of places of accrual or arisal; and (d) of
\nagricultural and non-agricultural elements in such receipts or
\npayments. This is a point that does not need much
\nelaboration and it is sufficient to refer to decided cases cited
\nunder the passages on this topic at pp. 47, 137, 264, 621 and
\n677 of Kanga and Palkhivala\u2019s The Law and Practice of
\nIncome Tax (Volumne I, eighth edition). We are, therefore, of
\nthe opinion that, if, as we have held, the contracts in the
\npresent case oblige the assessee to make available
\ninformation and render services to the foreign Government of
\nthe nature outlined in section 80-O, it is the duty of the
\nRevenue and the right of the assessee to see that the
\nconsideration paid under the contract legitimately
\nattributable to such information and services is
\napportioned and the assessee given the benefit of the
\ndeduction available under the section to the extent of
\nsuch consideration.\u201d
\n(emphasis in bold supplied)
\n28.3. It is also significant to notice that in Continental Construction,
\nthis Court took note of the aforesaid circulars of CBDT dated 23.12.1975
\nand 30.04.1979 and delineated the functions of the Assessing Officer with
\nreference to the claim for deductions under Section 80-O even when
\napproval had been granted by the Board in the following passage (at p. 133
\nof ITR) :-
\n\u201cWe should, however, make it clear that our conclusion
\ndoes not mean the deprivation of all functions of the
\nAssessing Officer while making the assessment on the
\n85
\napplicant. The Officer has to satisfy himself (i) that the
\namounts in respect of which the relief is claimed are amounts
\narrived at in accordance with the formula, principle or basis
\nexplained in the assessee’s application and approved by the
\nBoard; (ii) that the deduction claimed in the relevant
\nassessment year relates to the items, and is referable to the
\nbasis, on which the application for exemption was asked for
\nand granted by the Board; (iii) that the receipts (before the
\n1975 amendment) were duly certified by an accountant or
\nthat, thereafter, the amounts have been received in or
\nbrought into India in convertible foreign exchange within the
\nspecified period. The second of these functions is,
\nparticularly, important as the approval for exemption granted
\nin principle has to be translated into concrete figures for the
\npurposes of each assessment. Neither the introduction of the
\nwords “in accordance with and subject to the provisions of
\nthese sections” nor the various “conditions” outlined in the
\nletter of approval add anything to or detract anything from the
\nscope of the approval.\u201d
\n28.4. A few aspects at once emerge from the said decision in Continental
\nConstruction that even under the provisions of Section 80-O of the Act as
\nthen existing, whereunder prior approval of CBDT was required to claim
\ndeduction, this Court underscored that deduction would be available only in
\nrelation to the consideration attributable to the information and services
\nenvisaged by Section 80-O and deduction would be granted to the extent of
\nsuch consideration; and all these aspects were to be examined by the
\nAssessing Officer while making the assessment.
\nKhursheed Anwar
\n29. In the impugned judgment, the decision of High Court of Madras in
\nthe case of Khursheed Anwar (supra) has also been taken note of.
\nTherein too, the claim for deduction under Section 80-O of the Act was
\ndeclined for want of necessary material while observing that the benefit of
\n86
\nSection 80-O cannot be claimed by merely asking for the same; it has to be
\nsubstantiated with the requisite record. In the said case, on the query of the
\nAssessing Officer, the assessee had submitted its reply but could not
\nfurnish the material so as to bring the case within the four corners of
\nSection 80-O of the Act. The High Court, inter alia, observed as under (at p.
\n474 of ITR):
\n\u201cHaving regard to the above discussions, in our view, as
\nthe assessee has not established his claim for deduction by
\nproducing the relevant records, the Tribunal has erred in
\nreversing the finding of the Commissioner of Income-tax
\n(Appeals) rendered on the basis that the assessee was not
\nentitled to the benefit in view of the fact that the commission
\nreceived by the assessee was not for any of the activities
\nmentioned in paragraph 4.1 of the order of the Commissioner
\nof Income-tax (Appeals). There is absolutely no reason
\nadduced by the Tribunal to reverse the said finding. We must
\nalso mention here that during the course of arguments, as we
\nfound that there were no supporting materials for the claim,
\nwe directed the assessee’s counsel to produce the materials,
\nif any, available for our perusal. The learned counsel for the
\nassessee, though had produced the explanation of the
\nassessee dated March 28, 1998, he was unable to produce
\nany materials to sustain any of the contentions made in the
\nsaid letter. In the absence of any materials to show that what
\nwas passed on to the foreign enterprise was the information
\nconcerning with commercial or technical or scientific aid,
\nmerely because an agreement is entered into between the
\nassessee and the foreign enterprise, we are not inclined to
\naccept the claim of deduction under section 80-O of the Act.
\nAccordingly, the second substantial question of law is
\nanswered in favour of the revenue and against the assessee.
\nThe tax case appeal is allowed in part. No costs.\u201d
\n30. From the decisions aforesaid, it could be immediately culled out that
\nfor bringing any particular foreign exchange receipt within the ambit of
\nSection 80-O for deduction, it must be a consideration attributable to
\ninformation and service contemplated by Section 80-O; and in case of a
\n87
\ncontract involving multiple or manifold activities and obligations, every
\nconsideration received therein in foreign exchange will not ipso facto fall
\nwithin the ambit of Section 80-O. It has to be attributable to the information
\nor service contemplated by the provision and only that part of foreign
\nexchange receipt, which is so attributable to the activity contemplated by
\nSection 80-O, would qualify for claiming deduction. Such enquiry is required
\nto be made by the Assessing Officer; and for the purpose of this imperative
\nenquiry, requisite material ought to be placed by the assessee to co-relate
\nthe foreign exchange receipt with information\/service referable to Section
\n80-O. Evidently, such an enquiry by the Assessing Officer could be made
\nonly if concrete material is placed on record to show the requisite corelation.
\nWhether the appellant is entitled claim deduction under S. 80-O
\n31. Coming to the facts of the present case, the agreements of the
\nappellant with the foreign entities primarily show that the appellant was to
\nlocate the source of supply of the referred merchandise and inform the
\nprincipals; to keep liaison with the agencies carrying out
\norganoleptic\/bacteriological analysis and communicate the result of
\ninspection; to make available to the foreign principals the analysis of
\nseafood supply situation and prices; and to keep the foreign principals
\ninformed of the latest trends in the market and also to negotiate and finalise
\nthe prices. As per the agreements, in lieu of such services, the appellant
\nwas to receive the agreed commission on the invoice amounts.
\n88
\n32. In contrast to what has been observed in the cases of J.B. Boda &
\nCo. (advising on the risk factor related to the proposed
\ninsurance\/reinsurance) and E.P.W. Da Costa (dealing with statistical
\nanalysis of data collected), what turns out as regards the activities\/services
\nof the appellant is that the appellant was essentially to ensure supply of
\nenough quantity of good quality merchandise in proper packing and at
\ncompetitive prices to the satisfaction of the principals. This has essentially
\nbeen the job of a procuring agent. Though the expressions \u201cexpert
\ninformation and advice\u201d, \u201canalysis\u201d, \u201ctechnical guidance\u201d etc., have been
\nused in the agreements but, these expressions cannot be read out of
\ncontext and de hors the purpose of the agreement. All the clauses of the
\nagreements read together make it absolutely clear that the appellant was
\nmerely a procuring agent and it was his responsibility to ensure that proper
\ngoods are supplied in proper packing to the satisfaction of the principal. All
\nother services or activities mentioned in the agreements were only
\nincidental to its main functioning as agent. Significantly, the payment to the
\nappellant, whatever label it might have carried, was only on the basis of the
\namount of invoice pertaining to the goods. There had not been any
\nprovision for any specific payment referable to the so-called analysis or
\ntechnical guidance or advice. Viewed from any angle, the services of the
\nappellant were nothing but of an agent, who was procuring the merchandise
\nfor its principals; and such services by the appellant, as agent, were
\nrendered in India. Even if certain information was sent by the assessee to
\n89
\nthe principals, the information did not fall in the category of such
\nprofessional services or information which could justify its claim for
\ndeduction under Section 80-O of the Act. In other words, in the holistic view
\nof the terms of the agreements, we have not an iota of doubt that the
\nappellant was only a procuring agent, as rightly described by the High
\nCourt.
\n33. If at all any doubt yet remains about the nature of services of the
\nappellant, the same is effectively quelled by the default clauses in the
\nagreements in question. We may recapitulate the default clauses in the
\nreferred agreements, which read as under:-
\nThe agreement with HOKO
\n\u201cArticle 4: HOKO pays to RC-CN 0.7% of the invoice amount
\non the C & F basis and US$ 2,000.00 per month as
\ncommission. When the quality of goods is found to be
\nunsatisfactory to HOKO after inspection in in Japan, HOKO
\nshall have no responsibility to pay the agent fee.\u201d
\nThe agreement with GELAZUR
\n\u201cWhen the quality and the packaging of the goods are found
\nto be unsatisfactory to \u2018GELAZUR\u201d after inspection in
\nFRANCE, GELAZURE, shall have no responsibility regarding
\nthe payment of the Agent\u2019s fee.\u201d
\n33.1. In both the agreements, the default clauses make it more than clear
\nthat if the quality of goods was found to be unsatisfactory to the principals
\nafter inspection in their respective countries, they shall have no
\nresponsibility to pay the agent\u2019s fees. If at all it had been a matter of the
\nappellant furnishing some technical or material information which served
\nthe foreign enterprises in making the decision for procurement, in the
\nordinary circumstances, after completion of such service and its utilization
\n90
\nby the foreign enterprises, the appellant was likely to receive the
\nprofessional service charges for furnishing such information but, contrary
\nand converse to it, the agreements provide for no payment to the appellant
\nin case of principal being dissatisfied with goods. These default clauses
\neffectively demolish the case of the appellant and fortify the submissions of
\nthe revenue that the appellant was merely a procuring agent and nothing
\nmore.
\n34. The matter can be viewed from yet another angle, as indicated by
\nthe High Court in the last paragraph of its judgment. If at all it be assumed
\nthat out of various tasks mentioned in the agreements, some of them
\ninvolved such services which answered to the requirements of Section 80-
\nO, it was definitely required of the appellant to establish as to what had
\nbeen such information of special nature or of expertise that was given by it
\nand how the same was utilised, if at all, by the foreign enterprises; and how
\nmuch of the foreign exchange receipt was attributable to such special
\nservice. Obviously, the appellant did not supply such particulars. As
\nnoticed, the High Court posed a pointed query to the learned counsel
\nappearing for the appellant as to whether all the services mentioned in the
\nagreement would come within the purview of Section 80-O. The cryptic
\nresponse to this query on behalf to the appellant had been that \u2018if the
\nrecipient of services is situated outside, all the services rendered by the
\nassessee in terms of the agreement come within the sweep of the
\nprovision\u2019. It was specifically contended on behalf of the appellant that
\n91
\nestablishing \u2018which of its services qualifies for the deduction is of no
\nconsequence, rather unnecessary\u2019. In our view, this response was not in
\nconformity with the requirements of Section 80-O of the Act, as explained
\nand applied by this Court in Continental Construction and in B. L. Passi
\n(supra) as also as applied by Madras High Court in Khursheed Anwar
\n(supra). Rather, this stand, in our view, puts the final curtain on the
\nappellant\u2019s case because most of the services in the agreements in
\nquestion were those of an agent ensuring supply; and if any part of the
\nservices co-related with Section 80-O, the particulars were of utmost
\nsignificance and were fundamentally necessary which the appellant had
\nnever supplied. Merely for having a contract with a foreign enterprise and
\nmere earning foreign exchange does not ipso facto lead to the application
\nof Section 80-O of the Act.
\n35. The effect of Circular No.700 dated 23.03.1995 is only to the extent that
\nonce the service is rendered \u2018from India\u2019, even if its ultimate use by the
\nforeign enterprise occurs in India, the matter may not go out of Section 80-
\nO of the Act. This clarification is in tune with the nature of this provision
\nmeant for extending incentive but it does not do away with the basic
\nrequirements that to qualify for deduction under Section 80-O, the service
\nmust be rendered from India to foreign enterprise and the nature of service
\nought to be as delineated in Section 80-O. Ultimate use of the service could
\nbe in India, as illustrated by the case of E.P.W. Da Costa (supra) and by the
\ncases of Li & Fung and Chakiath Agencies (supra) that were cited before
\n92
\nthe High Court. However, the claim of the appellant fails at the threshold for
\nthe reasons foregoing. Circular No.700 dated 23.03.1995 is neither of any
\napplication to this case nor of any assistance to the appellant. The appellant
\nis not entitled to claim deduction under Section 80-O of the Act.
\n36. For what we have discussed hereinabove, it is also apparent that
\nthe Appellate Authority as also the ITAT had viewed the present case from
\nan altogether wrong angle. As noticed, the Appellate Authority even did not
\ncomprehend the observations in E.P.W. Da Costa (supra) and assumed
\nthat every information is scientific knowledge. On facts, the Appellate
\nAuthority observed that even if acting as agent of the foreign enterprises,
\nthe appellant was locating the sources of frozen seafoods, bringing the
\nforeign enterprises in contact with the manufacturers or processors of
\nseafood, and negotiating with the local packers; and these activities, though
\ncarried out in India, had been on behalf of the foreign enterprises. The ITAT,
\nthough took note of different services contemplated by the agreements in
\nquestion and even observed that the clauses like those requiring the
\nappellant to settle the claim with manufacturers might be the services
\nrendered in India but then, proceeded to assume, without any cogent
\nmaterial on record, that other services were rendered from India and on that
\nbasis, the foreign party took its decision. Even in this regard, the questions
\nrelevant and germane to the enquiry were not even gone into inasmuch as,
\nit was not examined as to what and which part of the consideration was
\nattributable to the services envisaged by Section 80-O of the Act, which
\n93
\nwere rendered from India. Therefore, the findings of the Appellate Authority
\nand ITAT, being based on irrelevant considerations while ignoring the
\nrelevant aspects, were neither of binding nature nor could have been
\ndecisive of the matter. Hence, neither anything turns upon the submissions
\nmade on behalf of the appellant with reference to the decision in K.
\nRavindranathan Nair (supra) nor this aspect requires any further
\ndiscussion.
\n37. In our view, the High Court has rightly analysed the entire matter
\nwith reference to the relevant questions and has rightly proceeded on the
\nlaw applicable to the case. The impugned judgment calls for no
\ninterference.
\nThe appellant M\/s Laxmi Agencies – the appeal arising out of SLP (Civil)
\nNo.23699 of 2016 .
\n38. This appeal involves similar claim of the other assessee firm M\/s
\nLaxmi Agencies, said to be engaged in similar business of rendering
\nservices to foreign buyers of Indian marine products. For the assessment
\nyear 1997-98, this assessee firm, while declaring total income of Rs.
\n31,81,180\/-, claimed deduction under Section 80-O to the tune of
\nRs.21,84,302\/-, being 50% of the net income of Rs. 43,68,604\/- towards the
\nservice charges received from such foreign buyers.
\n38.1. In the assessment order dated 31.01.2000, the AO noted the
\nexplanation of this appellant regarding the services rendered in the
\nfollowing:
\n94
\n\u201c\u2026..As per the detailed letter dated 22.11.1999 filed by the
\nassessee the services rendered by it to the foreign
\nenterprises are by way of :
\n1. To impact commercial and technical knowledge,
\nexperience and skill in the field of Frozen Food\/Marine
\nproducts to enable them to formulate their policies and take
\ndecision for import thereof from India;
\n2. To locate reliable sources of quality and assured supply of
\nFrozen Seafood\/Marine products and communicate the
\nassessee\u2019s expert opinion and advise to them to enable them
\nto take decisions for import from India;
\n3. To keep close liaison with agencies such as EIA\/Llyods\/
\nSGS especially for organoleptic\/bacteriological analysis and
\ncommunicate the results of inspection along with assessee\u2019s
\nexpert comments and advice. This also enables the foreign
\nenterprises to take decisions for import from various sources
\nfrom several countries available to them.
\n4. Making available full and detailed analysis of the seafood
\nsituation and prices for the above purpose.
\n5. To advise and keep informed the foreign buyers of the
\nlatest trends\/process applications in manufacturing and all
\nvaluable commercial and economic information which will
\ndirectly and indirectly assist them to organize, develop,
\ncontrol on regulate their import business from India.
\n6. To assist foreign buyers in negotiating and finalizing prices
\nfor Indian marine products and advise them of all rules and
\nregulations and other related information for such import.\u201d
\nIn the case of this appellant, again, the AO was of the view that the
\nservices were rendered in India and the service charges received from the
\nforeign enterprises in respect of such services did not qualify for deduction
\nunder Section 80-O.
\n38.2. In the case of this appellant, the Appellate Authority examined the
\nterms of agreements with the foreign enterprises in detail and noted the
\ncontents thereof in the following paragraphs:-
\n95
\n\u201c2.The appellant had entered into agreement with various
\nforeign enterprises for render the following services. Article 2
\nof the agreement entered into with Neptune Fisheries Ind.
\nUSA reads as under:-
\n(a) Locating reliable source of quality and assured
\nsupply of frozen sea-foods\/marine products for the purpose
\nof import by \u201cNEPTUNE\u201d and communicate its expert opinion
\nand advice to the NEPTUNE;
\n(b) In addition to the above services rendered by \u2018Laxmi\u2019
\nit will also keep a close liason with agencies such as
\nELA\/LLOYDS\/SGS especially for organolotic\/acteriological
\nanalysis and communicate the result of the inspection along
\nwith its expert comments and advice.
\n(c) Making available full and detailed analysis of the sea
\nfood supply situation and prices;
\n(d) To advise NEPTUNE and keep them informed of the
\nlatest trends\/processes applications in manufacturing and of
\nall valuable commercial and economic information about the
\nmarkets, Government Policies, exchange fluctuations,
\nbanking laws which will directly or indirectly assist
\n\u201cNEPTUNE\u201d to organize, develop control or regulate their
\nimport business from India.
\ne) To negotiate and finalise the prices for India
\nExporters of frozen marine products and to communicate
\nsuch and other related information to \u201cNEPTUNE\u201d.
\nArticle 4 of the agreement states:
\n\u201cLAXMI\u201d shall also do everything that is required to ensure
\nhighest standards of quality hygiene and freshness of
\nproducts including supervision at various stages.\u201d
\n3. The agreement made with other principles (sic- principals)
\nare also on similar lines.\u201d
\n38.3. In this case, of course, the Appellate Authority took note of various
\nactivities of the appellant with and for the buyer concerned and, while
\ndisallowing 20% of the service charges received from foreign enterprises
\ntowards the services rendered in India, allowed deduction under Section
\n80-O to the extent of the net income arising out of 80% of such charges
\nreceived from foreign enterprises.
\n96
\n38.4. The order so passed by the Appellate Authority was challenged both
\nby the appellant and by the revenue before ITAT in ITA No. 580\/Coch\/2004
\nand ITA No. 618\/Coch\/2004 respectively. The ITAT referred to its earlier
\ndecision in the case of the other assessee Ramnath & Co. (as referred to
\nhereinabove) and following the same, allowed the appeal of the appellant
\nand dismissed that of the revenue and thereby, allowed the claim of
\nappellant for deduction in toto.
\n38.5. Although, from the fact sheet of this case, it does not appear if the
\nagreements of this appellant also carried the default clauses as we have
\nnoticed in the lead case but, on all other major features, the agreements
\nhad been of the same nature and again, this appellant has also failed to
\nbring any material on record to show if it had received any specific
\nconsideration referable to the activities envisaged by Section 80-O of the
\nAct. In the given set of facts and circumstances, this appellant also turns
\nout to be only a procuring agent and not beyond. Hence, this appeal also
\ndeserves to be dismissed.
\nConclusion
\n39. For what has been discussed and held hereinabove, these appeals
\nfail and are, therefore, dismissed. No costs.
\n\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026J.
\n(A.M.KHANWILKAR)
\n\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026J.
\n(DINESH MAHESHWARI)
\nNew Delhi,
\nDated: 5th June, 2020.
\n97<\/p>\n","protected":false},"excerpt":{"rendered":"
The principles laid down by the Constitution Bench in Dilip Kumar (2018) 9 SCC 1, 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 the benefit of such ambiguity cannot be claimed by the assessee, rather it would be interpreted in favour of the revenue. In view of the Constitution Bench decision in Dilip Kumar & Co. (supra), the generalised observations in Baby Marine Exports 290 ITR 323 (SC) with reference to a few other decisions, that a tax incentive provision must receive liberal interpretation, cannot be considered to be a sound statement of law; rather the applicable principles would be those enunciated in Wood Papers Ltd. (1990) 4 SCC 256, which have been precisely approved by the Constitution Bench<\/p>\n