TMI Blog2024 (5) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... ilized outside India - HELD THAT:- It is clear that approval was accorded by the CCIT on the basis of specific statements made by Appellant that information to be shared pursuant to the agreement was that collected and collated from User Departments and analysis and assessments were to be done during quarterly meetings. Newspaper cuttings are not precluded from being shared as information but by themselves they do not constitute any commercial expertise. AO is well within his rights to request Appellant to furnish proof of sharing the information with Arianespace for which approval was granted by the CCIT. From the replies of Appellant to the AO, it is quite clear that Appellant has not provided material to Arianespace as represented by it before the CCIT while seeking approval as newspaper cuttings are not information collected or collated from User Departments. The application form for approval specifies providing commercial assistance to Arianespace as contemplated under Section 80-O of the Act based on which approval was procured. Thus, we have no hesitation in accepting the decision of the AO in rejecting this claim of Appellant. AO is well within his jurisdiction to verify wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een Appellant and M/s. Arianespace France ( Arianespace ), the shareholders of which, it is stated, are all Government controlled companies belonging to European Space Agencies and totally unconnected with Appellant. The main business of Arianespace was to launch satellites and place them in orbit above the earth. In a bid to gain entry into the global satellite launch market, Arianespace was desirous of reducing its cost by placing bulk orders on its subcontractors on the basis of information about launch business worldwide, collected from their international network of consultants. It is Appellant's case that it was one such consultant of Arianespace appointed pursuant to the said agreement. The agreement was revised and extended on 10th December 1987, 20th February 1990 and 12th March 1993. As per the latest agreement, Appellant was obliged to provide information to Arianespace regarding current regulations and market conditions in India. A lumpsum consideration was agreed and was revised upwards from time to time. The duration of the last agreement was upto 31st December 1996. It is also Appellant's case that the information required to be sent in terms of the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reports. 6. During the course of hearing, Mr. Mistry expanded his arguments as follows: (i) In response to a specific request by the CCIT, prior to granting of approval, Appellant had furnished reports sent by it to Arianespace and had clarified that the conclusions/interpretations were done at quarterly personal meetings. Furthermore, most of the information was of confidential nature and hence, not reduced to written reports. (ii) The approval of the CCIT was granted after referring to the agreements furnished to him and was for 'Assessment Years 1991-92 onwards till income under the agreement accrues fully subject to dis-allowance of 20% of the payment as attributable to services rendered in India.' (iii) Appellant was in possession of a communication dated 9th March 1998 from Arianespace confirming that Appellant had furnished valuable information, which was useful to them in their business and Appellant was paid consideration for the same. (iv) A plain reading of Section 80-O of the Act indicates that once an assessee receives consideration from a foreign enterprise for use outside India of any information concerning commercial knowledge, experience or skill and such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31st July 1985 was only a recognition of the position that approval under Section 80-O is for the agreement as such and mention of any time limit is redundant except for the starting year. Mr. Chhotaray contends that as noticed from all the approval letters themselves, the Boards' approval to the agreements is subject to the other conditions of the Act being satisfied. These must be examined carefully by the AO while making the assessment. Mere approval does not automatically entitle the assessee to relief under Section 80-O of the Act. The quantum, if any, of the income allowed as deduction under Section 80-O must be necessarily determined by the AO on the facts of each case. Mr. Chhotaray submits that the approval of the CCIT is qualified and always subject to any amendment to the provision of the Act and subject to legal conditions. Mr. Chhotaray urges us to dismiss the Petition as there is no service rendered by Appellant to Arianespace as contemplated by Section 80-O of the Act and at best, Appellant has only performed liaison work. He draws strength from the contents of agreement dated 2nd February 1987 indicating the nature of mission as mentioned in the agreement which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a Chief Commissioner may allow in this behalf: Explanation for the purposes of this section: - (i) Convertible foreign exchange means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purpose of the law for the time being in force for regulating payments and dealing in foreign exchange. (ii) foreign enterprise means a person who is non-resident. (iii) Services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India. 9. The words under an agreement approved in this behalf by the Chief Commissioner or Director General were omitted by the Finance (No 2) Act, 1991 w.e.f 1st April 1992 and earlier these words were substituted for under an agreement approved in the Board in this behalf by the Finance Act, 1988 w.e.f 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant has specified the arrangements available with it to obtain and impart technical knowhow to Arianespace by means of deputation of personnel/Managing Director for collecting/collating information from User Departments and sending press reports through mail but conclusions and interpretations being done at meetings convened either in India or in France on an average once in every three months. The manner of imparting is specified as correspondence or quarterly meetings. 12. While providing additional information as required by the CCIT, Appellant in its letter dated 11th February 1992 further clarified that the information required by Arianespace has to be collected from a vast number of user departments and hence, it was necessary for the Arianespace to appoint a company such as Appellant to collect this information. Once again in response to a specific doubt raised by the CCIT in his letter dated 17th February 1992 regarding Appellant sending only newspaper cuttings to Arianespace, which failed to indicate 'precise commercial assistance', Appellant in its response dated 20th February 1992 reiterated that most of the discussions regarding interpretations arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the form of minutes or correspondence of setting up of the meetings etc. No such document or information has been furnished to the AO. In fact, it is Appellant s specific case that the CCIT granted approval on the basis of only sharing newspaper cuttings and nothing else. We are unable to accept this contention of Appellant. It is clear that approval was accorded by the CCIT on the basis of specific statements made by Appellant that information to be shared pursuant to the agreement was that collected and collated from User Departments and analysis and assessments were to be done during quarterly meetings. Newspaper cuttings are not precluded from being shared as information but by themselves they do not constitute any commercial expertise. The AO is well within his rights to request Appellant to furnish proof of sharing the information with Arianespace for which approval was granted by the CCIT. From the replies of Appellant to the AO, it is quite clear that Appellant has not provided material to Arianespace as represented by it before the CCIT while seeking approval as newspaper cuttings are not information collected or collated from User Departments. The application form for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 80-O of the I.T. Act, 1961. 2. The income allowable as a deduction for the assessment year 1981-82 and onwards would be the net income computed after accounting for expenses incurred in earning such income. 3. The actual deduction to be allowed will, however, be such portion of the income which has been received within the prescribed time limit in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India or having been converted into convertible foreign exchange outside India is brought into India within the prescribed time limit in accordance with law for the time being in force for regulating payment and dealings in foreign exchange. The Foreign Inward Remittance Certificates from the bank(s) should be filed before the Assessing Officer. 4. The grant of deduction from the total income will be subject to your fulfilling the other conditions laid down in the Act in this behalf. The amount eligible for deduction will be determined by the assessing officer at the time of assessment. 5. This approval is subject of any amendments in the provisions of the Income Tax Act, 1961; from time to time. 6. I am further to add that the appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present matter. The Apex Court on these facts held that: We shall also proceed on the footing that the assessee is also right in saying that the Board had, after considering its representations, accepted the position that the approval under Section 80-O would enure also for the assessment year 1983-84 onwards. In fact, we think that, irrespective of the Board s clarification of 1985, the correct position is that, once a contract stands approved under Section 80-O in relation to the first assessment year in relation to which the approval is sought, the approval enures for the entire duration of the contract. This is the principle enunciated in CIT vs Indian Institute of Public Opinion Co. P. Ltd. (1982) 134 ITR 23 (Delhi), the correctness of which cannot be doubted and is, indeed accepted by both counsel before us. Section 80-O does not envisage an application for approval of the contract for every assessment year or the limitation of the approval granted by the Board to any particular Assessment year., The Board approves of a contract, for having regard to the nature of the receipts flowing therefrom and once this approval is granted, the assessee is entitled to seek deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other decisions relied upon by Mr. Mistry also deal with similar exposition of the law. However, there exists a clear distinction between the AO reviewing the approval granted by the CCIT and AO seeking to verify whether Appellant has acted in aid of the agreement so approved. It is needless to enter into a discussion as to whether approval once granted by the CCIT/Board is amenable to review by AO. The present case clearly demonstrates a deviation in implementation of the agreement, in total violation of the representations made by Appellant to the CCIT based on which the approval was procured. 19. In the decision of the Apex Court relied upon by Mr. Chhotaray in the matter of B.L. Passi (supra) the assessee therein claimed deduction under Section 80-O of the Act on the basis that it had received consideration in convertible foreign exchange in the name of M/s Pasco International wherein the assessee was the sole proprietor. This consideration was received for providing specialized industrial and commercial knowledge relating to the Indian automobile industry including detailed information about the industry, analyzing government policies relating to the Indian automobile industry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85C which was deleted by the Finance (No. 2) Act, 1967. While moving the bill relevant to the Finance Act No. 2 of 1967, the then Finance Minister highlighted the fact that fiscal encouragement needs to be given to Indian industries to encourage them to provide technical know-how and technical services to newly developing countries. It is also seen that the object was to encourage Indian companies to develop technical know-how and to make it available to foreign companies so as to augment the foreign exchange earnings of this country and establish a reputation of Indian technical know-how for foreign countries. The objective was to secure that the deduction under the section shall be allowed with reference to the income which is received in convertible foreign exchange in India or having been received in convertible foreign exchange outside India, is brought to India by and on behalf of taxpayers in accordance with the Foreign Exchange Regulations. What the section envisages is a genuine sharing of information relating to industrial, commercial, or scientific knowledge, experience, or skill. 21. It is also significant to note that in Continental Construction (supra) the Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O of the Act was dependent upon the agent s consideration calculated based on invoice amount received by his principal. On Ramnath Co (Supra), Mr. Mistry says that the remuneration of the assessee was dependent upon satisfaction of the principal about the quality of goods supplied. He thus distinguishes the facts in the present case from the others by contending that the agreement entered into by Appellant in the present matter with Arianespace provides for a fixed consideration. Mr. Mistry has pointed out certain other differences in the facts of the present matter and those relied upon by the Revenue. We have gone through the decisions cited by Mr. Chhotaray in the matter of B.L.Passi (supra), Ramnath Co (supra) and Khursheed Anwar (supra). We are satisfied that despite different sets of facts in each of the cases, the ratio in all the decisions of the Apex Court establishes that the AO is well within his jurisdiction to verify whether the information shared is attributable to the information or service contemplated by the provision. The AO is in fact required to make such an enquiry and for that purpose the assessee is required to place on record requisite material supporting it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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