TMI Blog2001 (11) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration on 29-10-1993 declaring total income at Rs. 6,21,710. The return was processed under section 143(1)(a). Subsequently, the case was selected for scrutiny, and notice under section 143(2) was issued. The assessee is a firm engaged in providing commercial services to foreign enterprises. In its return the assessee claimed deduction of a sum of Rs. 22,39,825 under section 80-O for the following services rendered: "(i) Locating reliable source of quality and assured supply of frozen sea-foods for the purpose of import by the foreign enterprises and communicating its expert opinion and advice to the foreign enterprises. (ii) The assessee has to keep a close liaison with agencies such as EIA/LLOYS/SGA for bacteriological analysis and communicate the result of the inspection along with the expert comments and advice. (iii) Making available full and detailed analysis of the sea-foods supply situation and prices. (iv) To advise the foreign enterprises and keep them informed of the latest trends application in manufacturing and information about their markets which would directly affect or indirectly assist the foreign enterprises to organise, develop or regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the functions/activities carried out by the assessee are almost or more or less same as were done prior to the assessment year 1992-93 for which the assessee had claimed deduction under section 80HHC. In order to decide whether the assessee is entitled to claim the benefit under section 80-O, the Assessing Officer asked for the following clarifications: "(1) The location of services rendered by the assessee may be mentioned if there are any services rendered outside India. (2) Whether the technical/professional services rendered by the assessee were utilised by the foreign enterprises anywhere in India or outside India independently of the assessee. (3) Whether the technical/professional services rendered by the assessee were utilised by the foreign enterprises, in India, independently and without the assessee. (4) To clarify whether the technical/professional services rendered by the assessee are capable or being made use of by the foreign enterprises independently and without the assessee." Vide its letter dated 19-2-1996, the assessee replied as follows: "(1) The technical/professional services rendered by us are from India. (2) Foreign buyers to whom we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er se, the Assessing Officer came to the conclusion that the agreements with the other foreign enterprises are such that the assessee acted as an agent of the foreign enterprises in India in the matter of procurement of marine products from India. All the services rendered are incidental to the agreement of carrying out all primary functions of acting as an Agent. On behalf of the foreign principal the assessee carries out technical guidance for processing and for quality control, inspection of the products and also keeps close liaison work with other agencies. These are definitely rendered in India but the Assessing Officer held that such services could not be construed as services rendered from India only on the ground that the foreign principals are advised of the results and that they are stationed outside India. The information passed on by the assessee was of general nature i.e. regarding the materials, markets, govt. policies, exchange fluctuations, banking laws, prices paid by competitors, monthly supplies of sea-food data, etc. Commissions were payable as a percentage of C F value of the imports by the foreign principals. Therefore, he held that 'the assessee is only an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld import from India. These are, according to the learned counsel for the assessee, services rendered from India. The word 'from' itself suggests that same activities will be carried out in India but the services will be made available for use outside India. The learned counsel for the assessee distinguished 'activities' from 'services'. According to him, the activity becomes a service to the foreign buyer when the result of the activity is communicated to him in such a manner that he can formulate his import policy. The difference between 'the services rendered in India' and 'the services rendered from India' should be looked at from the objective point of view. A narrow, superficial and legalistic approach would only defeat the object of the section, he submitted. It was further submitted that whether the assessee could be described as an agent is not relevant for deciding the issue as the use of the word 'Commission' in section 80-O clearly suggests that even agents will be covered by section 80-O. The real issue was the nature of the services and not the capacity in which the services were rendered. In this connection, the assessee relied on the decision of the Delhi High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usively developed by the assessee. The assessee only identifies the processors with whom the assessee enters into agreements for export of sea-food items as per the existing quality control standards. The assessee has not developed any new information that is claimed to have been exported from India. Whatever knowledge of the existing business of seafood items the assessee had has been employed or used in India for procuring sea-food from the processors for export to the principals. There are not services rendered by the assessee outside India. The case relied on by the assessee reported in Continental Construction Ltd. v. CIT [1992] 195 ITR 81 (SC) is distinguishable on facts. In this case the assessee had technical competence, expertise and experience and the assessee made them available to the foreign company for use outside India. In the instant case of the assessee there is no technical competence and no imparting of the knowledge. Even if there is imparting, it is used in India by the assessee, and therefore, it is not a service rendered outside India or from India. The commission receipt as envisaged in section 80-O is different from payment of commission which is conditiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Dunkerley Co. Ltd. v. CBDT [1986] 159 ITR 162 for the above proposition. Relying upon the Board's Circular No. 700 dated 23-3-1995, the learned representative of the assessee has submitted that it is wrong to say that the services rendered outside India are only to be taken note of to give the benefit of section 80-O. The section also says that the services rendered from India which have been used outside India should also be taken note of. The assessee acts as consultant/ adviser to foreign buyers of Indian Marine Products. Earlier the foreign enterprises used to buy marine products in their country itself or from neighbouring countries. It was because of the tremendous efforts made by the assessee that the foreign enterprises turned to India. The assessee gets the fee or commission for rendering such services. The whole amount is paid in foreign exchange and brought to India. The assessee's representative has emphasised that when the assessee earns 196 fees or commission, the actual exports effected through the assessee are 100%. The assessee's representative relied on the following chart: Assessment year Commission earned (.7%) Approx. exports effected 1991-92 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the same has happened in the instant case of the assessee. The assessee makes available to the foreign party the results obtained through laboratory tests and also through market studies and based on such results the foreign party decides whether to import or not from India. These are services rendered from India and not services rendered in India, according to the learned representative of the assessee. The Assessing Officer merely relied on the opinion expressed by the Addl. Commissioner of Income tax and had not applied his mind while passing his order. The very use of the word 'commission' in section 80-O clearly suggests that even the agents will be covered by section 80-O. The real issue is the nature of services rendered and not the capacity in which they are rendered. The assessee's representative relied on the decision of the Tribunal (Delhi Bench-C) in the case of Capt. K.C Saigal and the decision in CIT v. Parrys (Eastern) (P) Ltd. [1989] 176 ITR 449 (Bom.) for the above proposition. 6. Opposing the above submissions, the learned departmental representative has submitted that the assessee's commission is calculated oil C F value, and therefore, the assessee is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant. It is submitted that the ratio of the above decision squarely applies to the issue under consideration." The assessee's representative also relied on the following decisions (a) Dy. CIT v. Mittal Corpn. [2001] 77 ITD 270 (Delhi) (b) A.S. Mani v. CIT [1997] 94 Taxman 212 (AAR-New Delhi). The assessee's representative has submitted that what the assessee gives is a highly technical advice. Because of the efforts of the assessee, exports in marine products increased. In reply to the above, the learned departmental representative has submitted that the issue is whether the services or advices given by the assessee were anything specialised and whether such advice can be given in India. The assessee is acting only as Agent for and on behalf of the foreign buyer. The assessee itself is purchasing the goods after getting the necessary information. They are not passed on to foreign parties. The learned departmental representative has also submitted that the agreement entered into between the parties will clearly show that M/s. Ramnath Co., the assessee, was only helping the foreign party to purchase the marine products of India and for that purpose they were conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0N and 80-O grant relief in respect of income derived by the assessee by supplying know-how to foreign governments or foreign companies. Section 80-O also requires that the payment must be received in foreign exchange or in convertible foreign exchange that should be brought to India. The technical know how is to be used outside India. The mere supply of data or the like to foreign parties is not sufficient to claim the benefit under section 80-O. This benefit can be claimed by the assessee even if the services are rendered from India. 9. The case of the Revenue is that the assessee has rendered services only in India and not from India. The services that entitle the assessee for the benefit under section 80-O should be of such nature that it can only be rendered outside India and not services that are capable of being rendered in India. According to the revenue, the assessee was rendering only a generalised service such as market studies, study of processing, etc. so as to satisfy the quality of the materials exported, like any other general agent. Therefore, the assessee is not entitled to claim the benefit under section 80-O. Considering the facts and circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his part of the service is only consequential to the first. The agreement entered into between Hoko Fishing Co. Ltd., Tokyo, Japan and the assessee also stipulates that the assessee has to keep "Hoko" informed of the latest trends/processes applications in manufacturing and of all valuable commercial and economic information about the markets, Government Policies, exchange fluctuations, banking laws which will directly or indirectly assist "Hoko" to organise, develop, control or regulate their import business from India. In addition to this, the assessee has to render services to ensure highest standards of quality, hygiene and freshness of products including supervision at various stages. The second mentioned services may be considered as services rendered in India. But, definitely the other services rendered and informed to the other party like latest trends/processes applications in manufacturing, commercial and economic information about the markets, Government Policies, exchange fluctuations, banking laws etc. which help the foreign party to import marine products from India is a specialised and technical service. That, in our view, qualifies the assessee to claim deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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