LEGAL CONSULTATION TO FOREIGN CLIENTS NOT AMOUNTING TO PROFESSION OF AUTHOR

[Mr. M. GOVINDARAJAN]

Sec. 80RR of the Income Tax Act, 1961 allows an author to deduct the professional fees received him in foreign exchange. While introducing this Section, the purpose of the same has been clarified by the Central Board of Direct Taxes in paragraph 48 vide their Circular 22 dated July 17, 1969 which is reproduced below:

"48. The Finance Act, 1969 has inserted a new section 80RR in the Income Tax Act with effect from 01.04.1970 under which a resident individual being an author, playwright, artist, musician or actor who derives income, in exercise of the profession, from foreign sources and receives such income in India or brings it into India in foreign exchange, will be entitled to deduct 25% of the income so received or brought in computing his total income. This provision is designed to encourage successful authors, playwrights, artists, musicians and actors in our country to project their activities outside India with a view to contributing to greater understanding of our country and its culture abroad and also augmenting our foreign exchange resources. Some of the professional activities coming within the scope of this section are publication outside India of a book produced by the author, contribution of articles to foreign journals and magazines, exhibition of paintings, sculptures and other works of art in foreign countries, giving of music concerts to foreign audiences and acting in dramatic performances, cinematograph films and television programmes in foreign countries".

To qualify the benefit of Section 80 RR the following conditions must be fulfilled by the assessee:

He is an individual resident in India;

He is an author, playwright, artist, musician, actor or sportsman;

His gross total income includes any income derived by him in the exercise of his profession;

Such income received from the Government of a foreign State or any person not resident in India;

Such income is received in or brought into India, in accordance with FERA and any rules made there under within a period of six months from the end of the previous year.

In this article the issue taken for discussion is whether the professional services rendered to foreign entities will be eligible for deduction under Section 80RR with reference to decided case law in 'Dilip K. Sheth V. Income Tax Officer' - (2010) 5 ITR (Trib) 581 (Mumbai).

In this case the assessment year is 1998-99. The assessee is a Chartered Accountant specializing in consultancy work in the field of international arbitration, Foreign Exchange Regulation Act, 1973, non resident investment, international taxation and taxation of legal matters in India. The assessee is also an author of various books.  During the year the assessee received professional fees in foreign exchange for rendering his services in the capacity of a Chartered Accountant to M/s Toepfer International Asia Pte. Ltd., Singapore and M/s Mahindra Ashar, Dubai amounting to Rs.4,53,329. The assessee claimed that he was an author, professional fees received by him in foreign exchange is entitled to deduction under Section 80RR since he fulfilled

The Assessing Officer rejected the claim of the assessee that the plain reading of Sec. 80RR indicates that income should be earned in the capacity of professional as an 'author' but the assessee has earned his income as a Chartered Accountant even though he happens to be an author. The relief available under Section 80RR only in respect of fees received in respect of exercise of profession referred to in Sec. 80RR viz., author, playwright etc.,

The assessee, being aggrieved by the order of the Assessing Officer, filed an appeal before the Commissioner of Income Tax (Appeals). The assessee contended before the Commissioner of Income Tax (Appeals) that the provisions of Sec. 80RR may be viewed in the context of the fact that his authorship of various commentaries has a direct nexus with his professional services, and such authorship has directly contributed to his professional income in foreign exchange. He further submitted that in the Act itself, there is a clear indication at more than one place that whatever it was intended to give a different interpretation to similar expressions, it has been so specified in clear words. The Commissioner of Income tax (Appeals) rejected the claim and confirmed the order of the Assessing Officer.

Before the Tribunal, in the appeal filed against the order of Commissioner of Income Tax (Appeals), the assessee contended that the requirement of Section 80RR has been satisfied inasmuch as he is a resident individual and an author; therefore the income from foreign sources, derived in exercise of his profession brought into India in convertible foreign exchange is entitled to relief under Section 80RR.  The crux of the issue is the phrase - "any income derived by him in exercise of his profession' occurring in Sec. 80RR.

The assessee further contended that once the wording of the Section is clear, no other external tool of the interpretation of Section is necessary. He relied on the cases where these aspects have been examined by the Court in the context of similar provision in Section 80RRA:

In 'Aditya V. Birla V. CBDT 2008 -TMI - 27046 - BOMBAY High Court, the Bombay High Court held that the section being clear and unambiguous, it is not permissible to use the external aids for its interpreptation;

In 'CBDT V. Aditya BV. Birla 2008 -TMI - 5249 - SUPREME Court, the Supreme Court has observed that the literal meaning is clear and we need not bother any more about the intention or the purpose;

In 'Cape Brandy Syndicate V. IRC (1921) 1 KB 64, it was held in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax.  There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used;

In 'Taru Jethmal Lalvani V. Secretary, Ministry of Finance, Department of Revenue - 2008 -TMI - 23365 - BOMBAY High Court, it was held that on going through the provisions of Sec. 80RRA carefully it is seen that the section does not requires, inter alia, is that the services must be rendered outside India and the person who render services is a technician. It further held that to qualify for deduction under Section 80RRA the person concerned must be a technician and it was not necessary that services are rendered outside India as a technician.

The Department contended that the words used are 'his profession' and not 'a profession' or 'any profession'. The deduction available only to a full time author, playwright, sportsman etc., Hence the term 'his profession' will mean only the profession of the persons referred to in the Section viz., profession of authorship, playwright, sportsman etc.,

The Tribunal held that it is not in dispute that the income derived by the assessee has been from the exercise of his profession as a Chartered Accountant and not from the exercise of the profession as an author, playwright etc.,. It is very clear that section has been introduced to encourage the successful authors, playwrights, artists to project their activities outside India with a view to contributing to greater understanding of our country and our culture abroad. Some of the professional activities coming within the scope of this section are publication outside India of a book produced by the author, contribution of articles to foreign journals and magazines, exhibitions of paintings, sculptures and other works. It is, therefore, clear that the purpose of introducing Section 80RR is in respect of income derived from exercise of the profession to which the section applies viz., author, playwrights, artists etc., The section cannot be interpreted to mean that in respect of an author who has derived income by exercising profession which has no connection whatsoever with his authorship would be entitled to deduction under Sec. 80RR. The section has been introduced to showcase the successful professionals in the listed fields.

The Tribunal is not acceptable to the contentions of the assessee regarding the interpretation. If this interpretation is to be accepted, then it may lead to unintended results. Merely because a person can sing or play games, and therefore be called a musician or a sportsman, his entire professional income from abroad will be entitled to exemption under Section 80RR. This does not appear to be the legislative intent.  The purpose is to boost the profession of authorship, playwright, acting, sport etc., by granting exemption for income earned from exercising these professions abroad. In the instant case the assessee has showcased his capacity and competence as a Chartered Accountant by authoring the book and not the other way about viz., by providing professional advice his showcasing his capacity as an author.  Further the assessee vide his letter dated 05.09.2000 informed the nature of services rendered to the foreign clients which consists of attending to their legal matters in India and giving advice in connection with certain FERA matters. Therefore the assessee has given only legal consultation to foreign clients, which does not amount to profession of an author.

The Tribunal held that the income earned by the assessee by exercise of his profession as a Chartered Accountant and which  has nothing to do with the exercise of the profession as an author will be entitled to relief under Section 80RR. Accordingly the Tribunal uphold the order of Commissioner of Income Tax (Appeals) in this point and dismissed the appeal of the assessee.