TMI Blog2016 (11) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... and gets applied there. The resultant fruits may percolate to India, too, as is the case in E.P.W. Da Costa [1979 (2) TMI 40 - DELHI High Court ] and Continental Construction [1992 (1) TMI 5 - SUPREME Court ], even in which the apex court has held that not all receipts can claim the concession. If we refer back to the analogy employed by the learned senior counsel for the assessees, an advocate in India may render services to a foreign client stationed abroad concerning a case pending in India. It is a service rendered not only from India, but also in India. On the other hand, if that piece of professional advice is used abroad, even involving clients of Indian origin or laws of this nation as it happens in international arbitrations, the remuneration is qualified for the benefit. Once we look at the range of services referred to in section 80-O, we can discern the thread of connectivity in all the intellectual endeavours mentioned therein : 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 av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices to certain foreign enterprises. For the assessment year 1993-94, the Assessing Officer disallowed the assessee's claim for deduction under section 80-O of the Act on the premise that the assessee has not fulfilled the conditions laid down in the said provision. Aggrieved by the denial of deductions, the assessee filed an appeal. We may, however, add that in I. T. A. No. 437 of 2009, the dispute concerns the assessment year 1995-96. 4. Through annexure-B order, the appellate authority upheld the assessee's claim and allowed the appeal declaring that the assessee is eligible for deduction under section 80-O. Then, it was the turn of the Revenue to assail annexure-B appellate order before the Income-tax Appellate Tribunal ( the Tribunal ). As seen, the Tribunal concurred with the appellate authority and rendered annexure-C order dismissing the second appeal. Further aggrieved, the Revenue has filed before this court an appeal in I. T. A. No. 132 of 2002. Similarly, it has filed other appeals involving other assessees under identical circumstances. Submissions : Revenue's : 5. In the above factual background, Mr. P. K. R. Menon, the learned senior cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular and as such, the appeals are not maintainable. The learned senior counsel has further submitted that, on the issue of maintainability, the judgment of the hon'ble Supreme Court in CIT v. Surya Herbal Ltd. [2013] 350 ITR 300 (SC) ; [2011] 243 CTR (SC) 327 is distinguishable. 11. Adverting to the merits, the learned senior counsel, having taken us through section 80-O of the Act once again, has submitted that the provision contemplates two contentions : (i) Services or the information provided by an Indian company being used by a non-resident outside India in its decision-making process ; (ii) An Indian rendering a technical service outside India. 12. According to the learned senior counsel, once the principal provision is read with clause (iii) of the Explanation appended to the section, it lends itself to no other interpretation that what has been stated above. Once the service is used by a foreign entity outside India, contends the learned senior counsel, the fact that the advice is rendered from the Indian soil hardly makes any difference. Illustratively, the learned senior counsel has drawn an analogy from a lawyer's providing professional advice to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned senior counsel's submissions. Issues : 1. Whether the appeals filed by the Revenue are maintainable in the face of Circular No. 21 of 2015, dated December 10, 2015 ? 2. Whether the services rendered by the assessees are from India or in India ? Issue No. 1 17. The Central Board of Direct Taxes, Government of India, has revised its policy of litigation by fixing monetary limits for filing the appeals by the Department before the Income-tax Appellate Tribunal, the High Courts, and the Supreme Court. As seen from paragraph No. 3 of the Circular No. 21 of 2015, the monetary limit of the tax dispute before any High Court shall be ₹ 20,00,000 and above. Admittedly, in none of the appeals before us the dispute crosses ₹ 20,00,000. Further, from paragraph 10 it is explicit that the circular operates retrospectively. 18. In Surya Herbal (supra), the hon'ble Supreme Court has given the liberty to the Department to move the High Court concerned pointing out that any such circular should not be applied ipso facto, particularly when the matter has a cascading effect. The court has also further observed that there can be cases in which a common princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fifty per cent. of the income so received in, or brought into, India, in computing the total income of the assessee : Explanation.-. . . (iii) Services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India. 22. When analysed, section 80-O of the Act stipulates these conditions for any assessee to be entitled to the deductions provided in the provision : (1) the assessee must be an Indian or a person residing in India ; (2) the assessee must receive income by way of commission from a foreign enterprise ; (3) the assessee's receiving the commission must be in consideration of technical or professional services being rendered by it ; (4) the rendering of services shall be outside India ; (5) the income, thus, received must be in convertible foreign exchange in India. By any reckoning, the statutory stipulation is unambiguous, if the provision has ended there. But it has not. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; the prisoner in chains ; a story in a book ; a room in the house ; she clasped the child in her arms. 27. In section 80-O of the Act, the constants are the Indian agent ; the foreign principal, and the Indian agent rendering services from India. The variable is, how and where are the services used ? Indeed, if words are plain and unambiguous, it ill behoves us to put a strained meaning on them in the name of interpretation. Here, the expressions employed in section 80-O are deceptively simple : from India and in India . 28. Every nation meets any measure more than half way if it results in the nation's augmenting the foreign reserves. India is no exception. It encourages and provides incentives to those who earn foreign exchange. Over and above the incentive is the facility of deduction from the taxable income in foreign exchange-that is what section 80-O is. The legislative intent behind the provision is not far to seek : The Government encourages entrepreneurial initiative and innovation by the Indian companies at the international level. In a measure, the nation encourages any Indian showcasing the Indian intellect internationally. That accepted, if Indian techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of using the services of the consultants, especially the technical know-how on survey sampling/ interviewing/ coding tabulation and analysis for use in their country (emphasis supplied). The whole exercise by the BBC is to assess the radio listening habits of the people. 34. In the above factual background, the High Court of Delhi interpreted section 80-O of the Act to hold that BBC can be said to use the information received from the assessee when it formulates or modifies its broadcasting programmes to India. The court has observed that the term used is a word of general import. 35. Indisputably, the BBC is in London ; it transmits all its programmes from London propagating its waves across the globe through transponders and transmission stations in various countries, India having no transmission station. Further, there may be programmes catering to the specific needs of the Indian audience and viewers, but the programme is accessible, at least, across a part of the globe-to be specific, the South East Asia, for which it has common programming schedule. The transaction involving the assessee and the BBC in Da Costa, as has been held by the High Court of Delhi, fully qual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes, electrical and electronics products according to the existing standards of European and American markets, etc. Of all things, the Delhi High Court has noted that the issue arose much before the insertion of Explanation (iii) to section 80-O of the Act. Li and Fung : 40. In Li and Fung (supra) the assessee claimed to have rendered technical services out of India as a buying agent and thus claimed to be eligible for deduction under section 80-O of the Act. The Assessing Officer, however, concluded that the assessee merely rendered managerial services, not of technical nature. Placing reliance on Mittal Corporation (supra), the High Court of Delhi has held that clearly the services rendered by the assessee required knowledge, expertise, and experience ; and, therefore, the fee it received from foreign enterprises for supply of commercial information sent from India for use outside India was eligible for deduction under section 80-O of the Act. 41. Pertinently, Li and Fung has squarely considered the issue whether the benefit of section 80-O of the Act would be available if the technical and professional services, though rendered outside India, are used by the foreign G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putably the assessee had rendered commercial service to the foreign shipping owner for his use outside India and received a commission in convertible foreign exchange. Hence, the rendering of the commercial service and receiving a commission in foreign exchange by the assessee would entitle the assessee to the benefit of section 80-O. The Twin Aspects : 45. With due regard to the above pronouncements, we, however, feel it necessary to point out that in none of them, two crucial aspects of section 80-O of the Act have not fallen for consideration : (i) What type of services rendered by an Indian entity falls within the sweep of the provision ; (ii) what is the true import of the expression use outside India ? 46. In Continental Construction (supra), the assessee is a civil construction company. It has executed many products overseas and India. It has entered into eight contracts for the construction inter alia, of a dam and irrigation projects in Libya, of Fibre Board Factory and huge water supply projects in Iraq. For these contracts, the assessee obtained the approval of the Central Board of Direct Taxes (CBDT) in terms of section 80-O of the Act. 47. Concerni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and concluding sales contract in the territory of India for machinery and equipment for the leather industry manufactured by M/s. Baggio Technologie s.r.l., Italy. On the strength of the agreement, the assessee worked with the foreign enterprise and also Italy very often. The assessee has produced no materials except the statement. 51. In that context, the court has observed that the benefit under section 80-O of the Act is not available to the assessee for mere asking. Records and materials must support the claim. Absent any materials, the benefit of the said section cannot be claimed as a matter of right, as it is purely a question of fact, which could be considered by the Assessing Officer on the basis of the records. In fact, the Commissioner of Income-tax (Appeals) has rendered a specific finding that the assessee has simply effected the sale of machinery and spares manufactured by the foreign enterprise ; and, therefore, the assessee received only the sales commission. The appellate authority also found that the sales commission received by the assessee is not for any activities relating to technical or professional services to the principals. Absence of any materials to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituation and prices. (d) To advise HOKO and keep them informed of the latest trends/ processes applications in manufacturing and of all valuable commercial and economic information about the markets, Government polices, exchange fluctuations, banking law which will directly or indirectly assist HOKO to organise, develop control or regulate their import business from India. (e) To negotiate and finalise prices for Indian Exporters of frozen marine products and to communicate such and other related information to HOKO 54. As per the ratio of Continental Construction and Khursheed Anwar (supra), some of the above functions said to have been discharged by the assessee cannot qualify for deduction under section 80-O of the Act. In none of the appeals is there any material placed by the assessees as regards which of the services they have rendered to qualify under the provision. 55. To sum up, we wish to conclude that the Tribunal has erred on two counts in holding that the assessees are entitled to the benefit of deduction under section 80-O of the Act : First, mere transmission of the information to a foreign enterprise, evidently, abroad does not go to show that it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . provide or give (a service, help, etc.). Submit for inspection, consideration, or payment. Literary, hand over ; surrender. 2. cause to be or become : the rains rendered his escape impossible. 3. represent or depict artistically. Perform (a piece of music). Translate. 4. covertly send (a foreign criminal or terrorist suspect) for interrogation abroad ; subject to rendition. 5. melt down (fat) in order to clarify it Process (the carcass of an animal) in order to extract proteins, fats, and other usable parts. 6. cover (stone or brick) with a coat of plaster. 7. Computing process (an image) in order to make it appear solid and three-dimensional. Noun : a first coat of plaster applied to a brick or stone surface. 59. As seen, rendering includes both providing and performing. In the context of section 80-O, the services may be rendered from India, but have to be performed on foreign soil. Any other interpretation renders the Explanation (iii), in our view, otiose. 60. In the alternative, if one were to assume-it is unlikely, though-that the assessees had rendered certain services which qualify for a deduction, they have, however, failed to place any materia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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