TMI Blog2004 (12) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... acts as a distributor in respect of sales made directly by PE to Indian customers for which it receives commission @21% of the sale price from PE in foreign exchange as per details given below: (a) 11% - for technical support and services (b) 7% - for installation and warranty services (c) 3% - as agency commission Though no claim under section 80-O was made by the assessee in respect of such commission in the original return filed, it made such claim in the revised returns for all the years under consideration. It was noted by the Assessing Officer that assessee was providing following services from India to its foreign principal: (a) Making efforts to locate customers for product of foreign principals; (b) Making known to the foreign principals the overall market conditions; (c) Installing the equipment ordered by the Indian customers at the customers factory or R D center; (d) Maintaining the equipment during the warranty period by periodical servicing. The claim of assessee was made in respect of the commission received by assessee in respect of above services in convertible foreign exchange. Reliance was placed on the Board Circular No. 700 dated 23-3-1995. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, hence the deduction was claimed during the course of assessment proceedings. In section 80-O what is essential is that the use of the technical/professional services must be outside India, although it may be rendered from India, the objective of the section being to encourage export of Indian technical/professional expertise and augmentation of foreign exchange resources. After carefully perusing the facts and documents in the appellant's case it is held that the appellant is eligible for the deduction under section 80-O." In Para 3.10, it was held that assessee was entitled to deduction in respect of 11% commission only and not in respect of 14% commission claimed by assessee. Lastly, it was held that deduction was eligible only in respect of net income included in the gross total income of assessee and not with reference to gross receipt of foreign exchange (Para 3.14). Aggrieved by the finding of CIT(A) in Para 3.9, the revenue is in appeal before the Tribunal. 4. The learned DR, on behalf of the revenue, has vehemently assailed the order of CIT(A) for the reasons given by the Assessing Officer. The first contention raised by him is that the assessee could make its claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688 and judgment of Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351(FB). He also drew our attention to the decision of Tribunal in the case of Dy. CIT v. Sanmukhdas Wadhwani [2003] 85 ITD 734 (Nag.) where the Tribunal was concerned with a case under Block assessment proceedings in Chapter XIV-B. It was argued that under section 158BC, the revised return was not permissible. Despite the same, the claim of assessee was allowed. Another decision of Tribunal of Pune Bench in the case of Flotech Welding Cutting System Ltd. [IT Appeal No. 1430 (Pune) of 1993] was brought to our notice where similar observations are made. 7. On merits, he drew our attention to the nature of services rendered by the assessee. At the direction of the bench, he has furnished all such details in the synopsis to which detailed reference would be made by us in later part of our order. According to him, the analytical instruments manufactured by its foreign principal are so high tech and sophisticated that such instruments are to be manufactured according to specific requiremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly on the ground that such claim was raised by the assessee in the revised return which was filed after the prescribed time but before the completion of assessment. In our humble opinion, the answer to such question is in negative for the reasons given hereafter. It is the true and correct total income of every person which is assessable under section 4 of the Act. Consequently, the tax collector is rather duty bound to collect the legitimate tax due on such total income - neither a penny less nor a penny more. The determination/assessment of total income would depend on the relevant provisions of the Act irrespective of the nature of return filed by any person. An income which is not taxable cannot be taxed merely because the assessee forgot to claim the exemption/deduction under some mistaken belief. For example, assessee's profit and loss account may include agricultural income, exempt under section 10(1) or share of profit from registered firm exempt under section 10(2A) or dividend income exempt under section 10(33) of the Act, but the assessee may forgot to claim such exemption in the return filed by him. Such inadvertent mistake cannot be exploited by tax authorities for rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al ground of appeal to claim any deduction/exemption provided no investigation into facts is required at appellate stage. It was further held that claim of assessee cannot be rejected merely on the ground that assessee himself had offered the receipts to tax in the return filed by him. If any income is not taxable under the Act, the assessee is entitled to claim the same by raising the additional ground of appeal before the appellate authorities. If the claim can be raised before the appellate authorities for the first time then, in our opinion, there is no question of rejecting such claim if made before the Assessing Officer in the course of assessment proceedings. 11. The question before us can also be considered from another angle. The provisions of section 139 are procedural provisions for making the assessment [R. Dalima v. CIT [1999] 236 ITR 480 (SC)]. Therefore, such provisions cannot affect the rights and liabilities of the assessee unless specific provisions are made to that effect. Reference can be made to the provisions of section 80 which disentitles the assessee to claim the carry forward/set off losses under sections 72(1), 73(2), 74(1), 74(3) and section 74A(3) whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, being an Indian company or a person (other than a company) who is resident in India, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government enterprise by the assessee or in consideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to fift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /modifications needed for the system and/or application software is then informed to PE for further processing. The need for the changes/modifications, based on the study made by the technical people, is explained to PE. The technical people sometimes suggest certain accessories which are needed to be included in the system. If this accessory is not available with or not manufactured by PE, the technical people also suggest the source for procuring accessory to PE. (7) The matter is then discussed with customers and/or their consultants either in India or abroad to finalize and/or understand their exact needs and accordingly. Labindia informs PE. (8) PE then submits the quotation on the basis of the configuration suggested by Labindia which is based on (i) Analysis of customers' samples (ii) Technical discussion with the customer (iii) Understanding the exact parameters of customer, needs (iv) Labindia's expertise in the matter (9) After finalisation of the deal, the customer places order on PE. The customer pays PE directly for the instrument and in turn, Labindia gets commission in foreign exchange from PE as per the agreement. The perusal of the above clearly sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80-O also speaks about the second part. Therefore, the contention that services were rendered in India can be raised only with reference to the second part and not with reference to the first part. The only condition to be fulfilled with reference to first part is that information supplied by assessee is for use outside India. In the present case, P.E. the foreign enterprises, is carrying its manufacturing activity outside India and therefore, the information provided by assessee was utilized outside India i.e., for manufacturing analytical instruments. Hence, the assessee was entitled to deduction under section 80-O. 17. The view taken by us is fortified by the judgment of Hon'ble Delhi High Court in the case of E.P.W. Da Costa v. Union of India [1980] 121 ITR 751 wherein the first part was considered by their Lordships and held as under: "The expression "information concerning industrial, commercial or scientific knowledge, experience or skill" is not a very happy one. If we understand that information is something communicated and that the contents of the information concerned scientific knowledge, then the knowledge gathered and analysed by the petitioner from the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if foreign enterprise utilizes the benefit of such services in India. The only condition, as per circular, is that services are rendered from India and are received by a foreign enterprise outside India. In the present case, the assessee gathered the industrial information and sent the same to his constituent outside India who, in turn, had utilized the same for manufacture of analytical instruments. Therefore, the only inference which can be drawn is that such services were rendered from India to P.E. 19. In view of the above discussion, it is held that assessee was entitled to deduction under section 80-O. The orders of CIT(A) are, therefore, upheld on this issue. 20. The next common issue relates to disallowance under section 40A(2)(a) made by Assessing Officer which has been deleted by the CIT(A). 21. Briefly stated, the facts are these: The assessee had claimed deduction of Rs. 8 lakhs on account of commission paid to Lab Tek Engineers (P.) Ltd. (Lab Tek) in assessment year 1994-95. The said company was found to be sister concern of assessee. The Assessing Officer noted that assessee had paid commission at the rate of 5 to 10 per cent to outsiders while payment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the nature of activities/services rendered to P.E. are not comparable with the nature of services rendered for products of other foreign companies. In any case it is for the businessman to decide how best to organize his work/affairs. Then again section 40A(2)(b) does not come into play considering the structure of the shareholding which does not establish the interest of any director or his relative in Labtek in terms of his section. The disallowance is not justified. The addition of Rs. 4 lakhs is deleted." For the similar reasons, the additions made in other years were also deleted. Aggrieved by the orders of CIT(A), the revenue is in appeal before the Tribunal. 24. At the outset, it is mentioned that learned counsel for assessee has fairly conceded that provisions of section 40A(2)(b) are applicable in view of clause (vi) of section 40A(2)(b) and not on the basis of clause (v) relied on by the Assessing Officer. Hence, we proceed on the basis that provisions of section 40A(2)(b) were applicable. 25. The learned DR has simply relied on the order of Assessing Officer while the learned counsel for assessee has reiterated the stand taken before the CIT(A). Therefore, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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