TMI Blog2011 (12) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... et aside. - Decided in favor of assessee. Absence of positive income - Held that:- In view of the principles enunciated in the above cited decisions of the Apex Court in the case of COMMISSIOENR OF INCOME TAX V/ SHIRKE CONSTRUCTION EQUIPMENT LTD., [2007 -TMI - 6560 - SUPREME Court], we are of the view that the computation of income has to be made in accordance with the provisions of the Income Tax Act and the income includes not only the "profits", but also the "losses" and therefore, we direct the assessing officer to compute the income in accordance with the provisions of the Income Tax Act. - Decided in favor of assessee by way of remand. - 895 and 1138 of 2005 - - - Dated:- 13-12-2011 - MR.JUSTICE P.JYOTHIMANI, MR.JUSTICE P.P.S.JANARTHANA RAJA, JJ. For appellant : Mr.A.K.Jayasankar,Sr.Counsel For Mr.C.Mohan For M/s.King and Patridge For respondent : Mr.J.Naresh Kumar Sr.Central Govt.Standing Counsel COMMON JUDGEMENT P.JYOTHIMANI, J. The above Tax Case Appeals have been filed under Section 260A of the Income Tax Act, 1961 by the assessee in respect of the assessment years 1993-94 and 1994-95 respectively, challenging the impugned orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, who entered into an agreement with the above said foreign Company to draw the plans and designs for the plant and machinery to be used in USA as per the specifications and terms and conditions under the agreement, in its turn engaged a sub-contractor from Bombay, viz., M/s.Sri Chemtex Engineering India Ltd., Nirlon House, 254-B, Dr.Annie Beasant Road, Worli, Bombay 400 025. It was the stand of the Department that the main condition of the agreement between the assessee and the foreign company was that the assessee will act as an agent of the foreign company by having 40% share in the total contract and will act as a supervisor by having all other benefits in the joint venture. Therefore, according to the Revenue, assessee acted only as a contractor to the foreign company by sending the drawings and designs and plans prepared by its sub-contractor at Bombay and therefore, it cannot claim the design as its own, emanating from Indian sources. In other words, it has been the contention of the Revenue that the assessee has no right over the property as it was acting as an agent for executing the contract on the direction of the foreign company. Relying on the judgement of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Tribunal in the impugned order reported in Continental Construction Ltd., vs. Commissioner of Income Tax [1992 (195) ITR 81], the Apex Court has made it very clear that the benefit to be conferred under Section 80-O cannot be given an unduly narrow interpretation, holding that even in cases where the services have been done through the medium of its employees or other personnel engaged by the assessee that would not deter the assessee to obtain the benefit conferred under Section 80-O of the Act and therefore, according to him, the Tribunal has committed a grave error. 7. He would also rely upon the judgement of this Court reported in Commissioner of Income Tax vs. Chakiat Agencies Pvt., Ltd., [2009 (314) ITR 200 (Mad)], to substantiate his above said contention. 8. He would also submit that the basic purpose of introduction of Section 80-O is to spread by Indian assessees, any patent, invention etc., which includes information for use outside India and in that process, they not only receive income, but also augment foreign exchange for the benefit of the country as opined by the Hon ble Apex Court in the judgement reported in Central Board of Direct Taxes and others ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., Chemtex Engineering of Indian Ltd. in the form of compensation, and the relevant portion is as follows: DU PONT agrees to reimburse CONTRACTOR for all payments properly made by CONTRACTOR to that contract between Chemtex Engineering of India Ltd., and CONTRACTOR dated 1st February,1992, which is incorporated herein by reference. The agreement also contains the terms of payment and the general scope of service to be effected by the contractor as explained in Exhibit A annexed to the said agreement. The general scope of services is as follows: EXHIBIT A GENERAL SCOPE OF SERVICES Contractor is being engaged as a design/engineering contractor to support E.I.Du Pont De Nemours Engineering in providing design for its facilities. Required services include, but are not limited to, economic evaluation, scope development, production engineering, preparation of specifications, drafting, and preparation of lump sum bid packages. The Contractor will be responsible for timing, cost and technical adequacy of all work assigned to assure adequacy. This will not negate the Contractor s responsibility for organizing, managing, and implementing the assigned work so that project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter explaining various facts has also come to a conclusion that the American Company has reimbursed the cost. The portion in that regard is as follows: Here we have to examine whether the assessee has done any services as stated in the early part of the Section viz. selling of patent, invention, design or similar property What the assessee has presently done is that it entered into an agreement with its corporate partner in America to draw out certain designs for the American Company whether the assessee itself does it or a sub-contractor is immaterial. The American Company has reimbursed the cost. In spite of the same, holding that it will not amount to profit for service charged, the assessing officer has disallowed the deduction. 14. The Commissioner, Income Tax (Appeals) has also considered that the assessee was only acting as an agent for executing the works specified and directed by the foreign company and the work was executed by Chemtex Engineering of India Ltd., Bombay and the information of the Bombay company was passed on to the foreign company through the appellant and therefore, the assessee acted only as an agent. It is also relevant to extract the relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible 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 an subject to the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in, or brought into, India, in computing the total income of the assessee. Provided that such income is received in India within a period of six months from the end of the previous year,or where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf. Explanation.- For the purposes of this section,- (i) convertible foreign exchange mans foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the law for the time being in force for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of technical or professional services rendered or agreed to be rendered outside India to such foreign Government or enterprise. In either case, the requirement is that the income should be in convertible foreign exchange. It has been clarified in Explanation (iii) to section 80-O that services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India. A question has been raised as to whether the benefit of section 80-O would be available if the technical and professional services, though rendered outside India, are used by the foreign Government or enterprise in India. The matter has been considered by the Board. It is clarified that as long as the technical and professional services are rendered from India and are received by a foreign Government or enterprise outside India, deduction under section 80-O would be available to the person rendering the services even if the foreign recipient of the services utilizes the benefit of such services in India. The contents of this circular may be given wide publicity and brought to the notice of all the subordinate authorities under your ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A judge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else, laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity. It would certainly save the judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from language of the statute, but also from a consideration of the social conditions which gave rise to it, and of the mischief which it was passed to remedy, and then he must supplement the written word so as to give "force and life" to the intention of the legislature. The above observation of Lord Denning does not, in our opinion, help the appellants. The entire observation is based on a defect appearing in the provision of a statute. In our view, there is no defect in the provision of Section 80-O. It may be that the Legislature has not provided for canalisation, but that cannot be said to be a lacuna or a defect in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was a turnkey project which has succeeded before the High Court, proceeds on an unduly narrow interpretation of the section. In our view, the assessee was undoubtedly rendering services to the foreign Government by executing the water supply project. These services were no doubt technical services, as they required specialised knowledge experience and skill for their proper execution. The argument seems to be that the services in the present case will not be covered by the section because there was no privity of contract between the employees of the assessee who contributed their technical skill and the foreign Government. We think this argument cannot be accepted. The assessee is a company and any technical services rendered by it can only be through the medium of its employees, skilled and unskilled, and, even if the contract had not related to a turnkey project, the assessee's employees would have been answerable only to the assessee and none else though, perhaps, in such an event, the other party to the contract may have retained a larger degree of control and supervision in the execution of the contract Even where the contractor is an individual or firm and not a company, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involving specialised knowledge experience and skill in the field of constructional operations are "technical services". The Board's guidelines, to which reference is made later, specifically say so. Secondly, the question whether "professional services" would be "technical services" or not has no impact on the point we are trying to make viz. that in order to say that a person is rendering such services to another, it is not necessary that the services should be rendered by the former personally and not through the medium of others. For the reasons discussed above, we have come to the conclusion that, under the contracts in question, the assessee had made available technical information to the foreign Government for use outside India and had also rendered technical services to the foreign Government outside India. Therefore, it is clear that the authorities below have failed to consider the issue in its proper prospective and especially, the Tribunal has failed to take note of the second proviso and explanation No.(iii), as mentioned above. Even, theoretically the sub-contractor is entitled for the benefit under Section 80-O of the Act and to that extent the impugned order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rriding effect over all other sections in Chapter VI-A. Section 80-HHC does not provide that its provisions are to prevail over Section 80-AB or over any other provision of the Act. Section 80-HHC would thus be governed by Section 80-AB. Decisions of the Bombay High Court [in CIT v. Shirke Construction Equipments Ltd.] and the Kerala High Court [in CIT v. T.C. Usha] to the contrary cannot be said to be the correct law. Section 80-AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration. 23. Further, the Apex Court in the case of COMMISSIOENR OF INCOME TAX V/ SHIRKE CONSTRUCTION EQUIPMENT LTD., [(2007) 291 ITR 380] considered the earlier judgment reported in (2004) 266 ITR 521 (IPCA LABORATORY LTD. V. DEPURTY CIT) and in paragraph 8, it has held as follows: 9. Para 14 of the said judgment of this Court in IPCA Laboratory Ltd. which answers the questions, is extracted below: (Page 530) Section 80-AB is also in Chapter VI-A. It starts with the words where any deduction is req ..... X X X X Extracts X X X X X X X X Extracts X X X X
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