RAMNATH & CO. versus THE COMMISSIONER OF INCOME TAX on 5 June 2020

[2020] 6 S.C.R. 719

RAMNATH & CO.

v.

THE COMMISSIONER OF INCOME TAX

(Civil Appeal Nos. 2506-2509 of 2020)

JUNE 05, 2020

[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]

Income Tax Act, 1961 – s. 80-O – The appellants-assesseeswere engaged in providing services to certain foreign buyers offrozen seafood and/ or marine products – Appellants claimed thatincome received by them for services provided to foreign enterprisesqualifies for deduction u/s. 80-O of the Income Tax Act, as applicableduring the respective assessment years from 1993-94 to 1997-98 –Appellants contended that they provided technical guidance oradvice or information to the foreign enterprises – Held: All theclauses of the agreements read together make it absolutely clearthat the appellant was merely a procuring agent and it was hisresponsibility to ensure that proper goods are supplied in properpacking to the satisfaction of the principal – Significantly, thepayment to the appellant, whatever label it might have carried, wasonly on the basis of the amount of invoice pertaining to the goods –There had not been any provision for any specific payment referableto the so-called analysis or technical guidance or advice – Servicesprovided by the appellant as agent were rendered in India – Even ifcertain information was sent by the assessee to the principals, theinformation did not fall in the category of such professional servicesor information which could justify its claim for deduction u/s. 80-Oof the Act – Further, default clauses in the agreement made it moreclear that if quality of goods was found to be unsatisfactory toprincipals, then they shall have no responsibility to pay agent’s fees– If at all it had been a matter of the appellant furnishing sometechnical information, the appellant was likely to receive someprofessional charges, however, agreement provided for no paymentin case of dissatisfaction with goods – Besides, the appellants failedto establish as to what was such information of special nature or ofexpertise that was given by it and how the same was utilised, if atall, by the foreign enterprises and how much of the foreign exchange

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Areceipt was attributable to such special service – Hence, the servicesrendered by appellants do not qualify for the purposes of s. 80-Oof the Act.

Interpretation of Statutes – Tax incentive provisions – Held:The principles laid down in Constitution Bench in Dilip Kumar &BCo., when applied to incentive provisions like those for deduction,would be that the burden lies on the assessee to prove its applicabilityto his case; and if there be any ambiguity in the deduction clause,the same is subject to strict interpretation with the result that thebenefit of such ambiguity cannot be claimed by the assessee; ratherit would be interpreted in favour of the revenue.C

Dismissing the appeals, the Court

Conclusion

Dismissing the appeals, the Court

HELD: 1. The principles laid down by the ConstitutionBench, when applied to incentive provisions like those fordeduction, would also be that the burden lies on the assessee toDprove its applicability to his case; and if there be any ambiguity inthe deduction clause, the same is subject to strict interpretationwith the result that the benefit of such ambiguity cannot be claimedby the assessee, rather it would be interpreted in favour of therevenue. In view of the Constitution Bench decision in DilipKumar & Co., the generalised observations in Baby MarineEExports with reference to a few other decisions, that a taxincentive provision must receive liberal interpretation, cannotbe considered to be a sound statement of law; rather theapplicable principles would be those enunciated in Wood PapersLtd., which have been precisely approved by the ConstitutionFBench. Thus, at and until the stage of finding out eligibility toclaim deduction, the ambit and scope of the provision for thepurpose of its applicability cannot be expanded or widened andremains subject to strict interpretation but, once eligibility isdecided in favour of the person claiming such deduction, it couldbe construed liberally in regard to other requirements, whichGmay be formal or directory in nature. [Para 20][775-E-F; 776-A-C]

2. It remains trite that any process of construction of awritten text primarily begins with comprehension of the plainlanguage used. In such process of comprehension of a statutoryH

provision, the meaning of any word or phrase used therein has tobe understood in its natural, ordinary or grammatical meaningunless that leads to some absurdity or unless the object of thestatute suggests to the contrary. In the context of taxing statute,the requirement of looking plainly at the language is morepronounced with no room for intendment or presumption. Inthis process, if natural, ordinary or grammatical meaning of anyword or phrase is available unquestionably and fits in the schemeand object of the statute, the same could be, rather need to be,applied. The other guiding rules of interpretation would be theinternal aides like definition or interpretation clauses in the statuteitself. Yet further, if internal aides do not complete thecomprehension, recourse to external aides like those of judicialdecisions expounding the meaning of the words used in construingthe statutes in pari materia, or effect of usage and practice etc.,is not unknown; and in this very sequence, it is an acceptedprinciple that when a word is not defined in the enactment itself,it is permissible to refer to the dictionaries to find out the generalsense in which the word is understood in common parlance. Infact, for the purpose of gathering ordinary meaning of anyexpression, recourse to its dictionary meaning is rather interlacedin the literal rule of interpretation. [Para 22.1][777-A-E; 778-A]

3. The agreements of the appellant with the foreign entitiesprimarily show that the appellant was essentially to ensure supplyof enough quantity of good quality merchandise in proper packingand at competitive prices to the satisfaction of the principals.This has essentially been the job of a procuring agent. Thoughthe expressions “expert information and advice”, “analysis”,“technical guidance” etc., have been used in the agreements but,these expressions cannot be read out of context and de hors thepurpose of the agreement. All the clauses of the agreements readtogether make it absolutely clear that the appellant was merely aprocuring agent and it was his responsibility to ensure that propergoods are supplied in proper packing to the satisfaction of theprincipal. All other services or activities mentioned in theagreements were only incidental to its main functioning as agent.Significantly, the payment to the appellant, whatever label it might AB

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Ahave carried, was only on the basis of the amount of invoicepertaining to the goods. There had not been any provision forany specific payment referable to the so-called analysis ortechnical guidance or advice. Viewed from any angle, the servicesof the appellant were nothing but of an agent, who was procuringthe merchandise for its principals; and such services by theBappellant, as agent, were rendered in India. Even if certaininformation was sent by the assessee to the principals, theinformation did not fall in the category of such professionalservices or information which could justify its claim for deductionunder Section 80-O of the Act. In other words, in the holisticCview of the terms of the agreements, this Court does not has aniota of doubt that the appellant was only a procuring agent, asrightly described by the High Court. [Para 32][793-G-H;794-A-D]

4. In both the agreements, the default clauses make it moreDthan clear that if the quality of goods was found to be unsatisfactoryto the principals after inspection in their respective countries,they shall have no responsibility to pay the agent’s fees. If at all ithad been a matter of the appellant furnishing some technical ormaterial information which served the foreign enterprises inmaking the decision for procurement, in the ordinaryEcircumstances, after completion of such service and its utilizationby the foreign enterprises, the appellant was likely to receivethe professional service charges for furnishing such informationbut, contrary and converse to it, the agreements provide for nopayment to the appellant in case of principal being dissatisfiedFwith goods. These default clauses effectively demolish the caseof the appellant and fortify the submissions of the revenue thatthe appellant was merely a procuring agent and nothing more.[Para 33.1][795-A-C]

5. The matter can be viewed from yet another angle, as Gindicated by the High Court in the last paragraph of its judgment.If at all it be assumed that out of various tasks mentioned in theagreements, some of them involved such services which answeredto the requirements of Section 80-O, it was definitely required ofthe appellant to establish as to what had been such information ofspecial nature or of expertise that was given by it and how theH

same was utilised, if at all, by the foreign enterprises; and howmuch of the foreign exchange receipt was attributable to suchspecial service. Obviously, the appellant did not supply suchparticulars. As noticed, the High Court posed a pointed query tothe learned counsel appearing for the appellant as to whether allthe services mentioned in the agreement would come within thepurview of Section 80-O. The cryptic response to this query onbehalf to the appellant had been that ‘if the recipient of servicesis situated outside, all the services rendered by the assessee interms of the agreement come within the sweep of the provision’.It was specifically contended on behalf of the appellant thatestablishing ‘which of its services qualifies for the deduction isof no consequence, rather unnecessary’. In view of this Court,this response was not in conformity with the requirements ofSection 80-O of the Act, as explained and applied by this Court inContinental Construction and in B. L. Passi as also as applied byMadras High Court in Khursheed Anwar. Rather, this stand, inview of this Court, puts the final curtain on the appellant’s casebecause most of the services in the agreements in question werethose of an agent ensuring supply; and if any part of the servicesco-related with Section 80-O, the particulars were of utmostsignificance and were fundamentally necessary which the appellanthad never supplied. Merely for having a contract with a foreignenterprise and mere earning foreign exchange does not ipso factolead to the application of Section 80-O of the Act. [Para 34][795-D-H; 796-A]

Commissioner of Customs (Import), Mumbai v. DilipKumar & Co. and Ors. (2018) 9 SCC 1 : [2018] 7 SCR1191; Commissioner of Wealth-Tax, Andhra Pradesh v.Officer-in-Charge (Court of Wards), Paigah (1976) 105ITR 133 – followed.

M/s Continental Construction Ltd. v. Commissioner ofIncome Tax, Central-I (1992) 195 ITR 81 (SC); UOI v.Wood Papers Ltd. (1990) 4 SCC 256; CCE v. HariChand Shri Gopal (2011) 1 SCC 236; B. L. Passi v.Commissioner of Income-Tax 2018 (404) ITR 19 (SC)– relied on.

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Abhiram Singh v. C.D. Commachen (Dead) by LRs. andOrs. (2017) 2 SCC 629 : [2017] 1 SCR 158; J. B. Boda& Co. Pvt. Ltd v. Central Board of Direct Taxes, NewDelhi (1997) 223 ITR 271 (SC) – distinguished.

Commissioner of Income Tax, Thiruvananthapuram v.Baby Marine Exports, Kollam (2007) 290 ITR 323(SC); Central Board of Direct Taxes, New Delhi & Ors.v. Oberoi Hotels (India) Pvt. Ltd. (1998) 231 ITR 148(SC); Commissioner of Income Tax-IV, Tamil Nadu v. B.Suresh (2009) 313 ITR 149 (SC); K. RavindranathanNair v. Commissioner of Income Tax, Ernakulam (2001)247 ITR 178 (SC); Sea Pearl Industries v. CIT Cochin2001(127) ELT 649 (SC); IPCA Laboratory Ltd. v. Dy.Commissioner of Income Tax, Mumbai (2004) 266 ITR521(SC); Bajaj Tempo Ltd. v. Commissioner of IncomeTax, Bombay (1992) 196 ITR 188 (SC); IPCALaboratory Ltd. v. Dy. Commissioner of Income Tax,Mumbai (2004) 266 ITR 521(SC); Bajaj Tempo Ltd. v.Commissioner of Income Tax, Bombay (1992) 196 ITR188(SC); Sun Export Corpn. v. Collector of Customs(1997) 6 SCC 564; CCE v. Parle Exports (P) Ltd. (1989)1 SCC 345; Liberty India v. CIT (2009) 9 SCC 328 –referred to.

E.P.W. Da Costa and Ors. v. Union of India (1980) 121ITR 751 (Delhi); Capt. K. C. Saigal v. Income TaxOfficer (1995) 54 ITD 488 (Delhi); Godrej & BoyceMfg. Co. Ltd. v. S.B. Potnis, Chief Commissioner (1993)203 ITR 947 (Bom); Commissioner of Income Tax v.Thomas Kurian (Dead) through LR Smt. Primari C.Thomas (2012) 72 DTR (Ker); Commissioner of IncomeTax v. Mittal Corporation (2005) 272 ITR 87 (Delhi);Li & Fung India (P) Ltd. v. Commissioner of IncomeTax (2008) 305 ITR 105 (Delhi); Commissioner ofIncome Tax v. Chakiat Agencies (P) Ltd.: (2009) 314ITR 200 (Mad); Commissioner of Income Tax v.Inchcape India (P) Ltd: (2005) 273 ITR 92 (Delhi);Commissioner of Income Tax v. Khursheed Anwar(2009) 311 ITR 468 (Mad) – referred to.

Crawford v. Spooner (1846) 4 MIA 179 – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2506-2509 of 2020.

From the Judgment and Order dated 09.06.2016 of the High Courtof Kerala at Ernakulam in ITA Nos. 132/2002, 11/2003, ITA Nos. 761/2009 & 294/2009.

With

C.A. No. 2510 of 2020

S. Ganesh, Arijit Prasad, Sr. Advs., Anil D. Nair, Prakash RanjanNayak, Ms. Purnima Bhat, Ms. Shirin Khajuria, and Mrs. Anil Katiyar,Advs. for the appearing parties.

The Judgment of the Court was delivered by DINESH MAHESHWARI, J.

PRELIMINARY WITH BRIEF OUTLINE

1. Leave granted.

2. The short point calling for determination in these appeals againstthe common judgment dated 09.06.2016 passed by the High Court ofKerala at Ernakulam in a batch of appeals is as to whether the incomereceived by the appellants in foreign exchange, for the services providedby them to foreign enterprises, qualifies for deduction under Section 80-O of the Income Tax Act, 1961[1], as applicable during the respectiveassessment years from 1993-94 to 1997-98.

3. Put in a nutshell, the question involved in these appeals hasarisen in the backdrop of facts that the appellants herein, who had beenengaged in providing services to certain foreign buyers of frozen seafoodand/or marine products and had received service charges from suchforeign buyers/enterprises in foreign exchange, claimed deduction underSection 80-O of the Act of 1961, as applicable for the relevant assessmentyear/s. In both these cases, the respective Assessing Officer/s[2] deniedsuch claim for deduction essentially with the finding that the services 1 Hereinafter also referred to as ‘the Act of 1961’ or ‘the Act’

1 Hereinafter also referred to as ‘the Act of 1961’ or ‘the Act’

2 ‘AO’ for short

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Arendered by respective assessees were the ‘services rendered in India’and not the ‘services rendered from India’ and, therefore, the servicecharges received by the assessees from the foreign enterprises did notqualify for deduction in view of clause (iii) of the Explanation to Section80-O of the Act of 1961. After different orders from the respectiveAppellate Authorities, the Income Tax Appellate Tribunal[3], Cochin BenchBaccepted the claim for such deduction under Section 80-O of the Actwith the finding in case of the assessee Ramnath & Co.[4] for theassessment year 1993-94 that as per the agreements with the referredforeign enterprises, the assessee had passed on the necessary informationwhich were utilised by the foreign enterprises concerned to make aCdecision either to purchase or not to purchase; and hence, it were aservice rendered from India. The same decision was followed by ITATin the case of this assessee for other assessment years underconsideration as also in the case of other assessee M/s Laxmi Agencies[5].The revenue preferred appeals before the High Court against the ordersso passed by ITAT in favour of the present appellants as also a fewDother assessees. These appeals have been considered together by theHigh Court of Kerala; and similar questions regarding eligibility fordeduction under Section 80-O of the Act in relation to the similarlycircumstanced assessees have been decided by the impugned commonjudgment dated 09.06.2016. The High Court has essentially held that theEassessees were merely marine product procuring agents for the foreignenterprises, without any claim for expertise capable of being used abroadrather than in India and hence, the services rendered by them do notqualify as the ‘services rendered from India’, for the purpose of Section80-O of the Act of 1961. Therefore, the High Court has allowed theappeals of revenue while setting aside the respective orders of ITAT.FAggrieved, the assessees have preferred these appeals[6].4. The basic factual and background aspects relating to the twoassessees in appeal before us are more or less similar in nature but, G

3 ‘ITAT’ for short

4 Related with the appeal arising out of SLP (Civil) Nos. 23535-23538 of 2016.

5 Related with the appeal arising out of SLP(Civil) No. 23699 of 2016.

6 The appeals herein relate to ITA Nos. 132 of 2002, 11 of 2003, 761 of 2009 and 294of 2009 as also ITA No. 771 of 2009, decided by High Court in the common impugnedjudgment dated 09.06.2016, rendered in the batch of appeals led by ITA No. 131 ofH2002.

having regard to the position that ITAT had decided all other appealsbased on its order dated 19.11.2001 for the assessment year 1993-94 inrelation to the assessee-appellant Ramnath & Co. and the High Courthas also rendered common judgment essentially with reference to thefacts relating to this assessee (with other assessees having adopted thesame contentions), it appears appropriate to elucidate the same factsand background aspects for dealing with the questions raised in theseappeals.

RELEVANT FACTUAL AND BACKGROUND ASPECTS:

5. The appellant Ramnath & Co. is a firm engaged in the businessof providing services to foreign buyers of Indian marine products. Theappellant filed its return of income for the assessment year 1993-1994on 29.10.1993 declaring total taxable income at Rs. 6,21,710/- whileclaiming 50% deduction (amounting to Rs. 22,39,825/-) under Section80-O of the Act in relation to the amount of Rs. 44,79,649/- received byit as service charges from foreign enterprises[7].

5.1. While asserting its claim for such deduction under Section80-O of the Act, the appellant submitted that it had rendered myriadservices to the foreign enterprises like: (i) locating reliable source ofquality and assured supply of frozen seafood for the purpose of importand communicating its expert opinion and advice in that regard; (ii) keepinga close liaison with agencies concerned for bacteriological analysis andcommunicating the result of inspection together with expert commentsand advice; (iii) making available full and detailed analysis of seafoodsupply situation and prices; (iv) advising and informing about the latesttrends in manufacturing and markets; and (v) negotiating and finalisingthe prices for Indian exporters of frozen marines products andcommunicating such other related information to the foreign enterprises.The appellant claimed that pursuant to the terms and conditions of theagreements with the foreign enterprises, it had received the said servicecharges; and its services had directly and indirectly assisted the foreignenterprises to organise, develop, regulate and improve their business.

7 It was noticed by the Assessing Officer in the assessment order dated 28.03.1996 thatthe assessee had been in the business of marine products export since a very long time;and until the assessment year 1992-93, the assessee had been claiming deduction underSection 80HHC of the Act of 1961, which provides for deduction in respect of profitsderived from export of the specified class of goods or merchandise.

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A5.2. In regard to such claim for deduction under Section 80-O ofthe Act, the AO, by his letter dated 29.01.1996, raised the followingqueries and sought clarifications from the appellant:- “1. The location of services rendered by the assessee may bementioned if there are any services rendered outside India.

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2. Whether the technical/professional services rendered by theassessee were utilized by the foreign enterprises anywhere inIndia or outside India independently of the assessee.

3. Whether the technical/professional services rendered by theassessee were utilized by the foreign enterprises, in India,Cindependently and without the assessee.

4. To clarify whether the technical/professional services renderedby the assessee are capable or being made use of by the foreignenterprises independently and without the assessee.”

D5.3. In response, the appellant justified its claim for deductionunder Section 80-O of the Act by way of its letter dated 19.02.1996while asserting as under:

“1. The technical/professional services rendered by us are “fromIndia”.

E2. Foreign buyers to whom we have rendered these services arelocated in Japan, U.S.A., U.K. and France. None of these foreignenterprises have utilized our services in any part of India. But theentire benefit of our services were utilized by them in effectivelydistributing and marketing the Indian sea-foods in their respectivecountries.F3. We would like to emphasize that the foreign enterprises haveno place of business in India nor do they market any goods orservices in India.

4. Without services the import of marine products from India byGthe foreign enterprises will not be possible.”

5.4. In his assessment order dated 28.03.1996, the AssessingOfficer proceeded to analyse the agreements of the appellant with thetwo foreign enterprises and reproduced the relevant terms thereof inextenso. This part of the order of the AO, containing material terms of H

agreements, being relevant for the present purpose, is reproduced asunder: - “In the context of the above claim of the assessee, it is necessaryto go through the agreements entered into by the assessee withthe foreign enterprises to find out the nature of the relationship ofthe assessee with the foreign enterprises. I have gone throughthe agreements entered into by the assessee with HOKO FishingcoLtd. is captioned agreement regarding marine products and thatwith GELAZURE S.A. is captioned agency agreement regardingmarine products. Articles 1 to 4 of the agreement with HOKOfishing Co. Ltd. reads as under:- Article 1: HOKO desires to avail of the benefit of the commercialand technical knowledge experience and skill of “RC-CN foods/Marine products of good quality and onfavourable terms and is willing to remunerate “RC-CN”for use of such commercial and technical knowledge,expert and skill and other related services.

Article 2: “RC-CN agrees to render to “HOKO” the followingservices on a continuing basis.

a) Locating reliable sources of quality and assured supplyof frozen seafood/marine products for the purpose ofimport by HOK and communicate its expert opinionand advice to HOKO.”

b) In addition to the above services rendered by “RC-CN, it will also keep a close liaison with agencies suchas EIA/LLOYDS/SGS especially for organoleptic/bacteriological analysis and communicate the results ofinspection along with its expert comment and advise.

c) Making available full and detailed analysis of the seafood supply situation and prices.

d) To advise HOKO and keep them informed of thelatest trends/processes application in manufacturing andof all valuable commercial and economic informationabout the markets. Government Policies, exchangefluctuations, banking laws which will directly orindirectly assist HOKO to organize, develop control orregulate their import business from India.

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e) To negotiate and finalize prices for Indian Exportersof frozen marine products and to communicate suchand other related information to HOKO.

Article 5 RC-CN” shall also do everything that is required toensure highest standards of quality hygiene andfreshness of products including supervision at variousstages.

Article 4: HOKO pays to RC-CN 0.7% of the invoice amount onthe C & F basis and US$ 2,000.00 per month ascommission. When the quality of goods is found to beunsatisfactory to HOKO after inspection in Japan,HOKO shall have no responsibility to pay the agentfee.”

Similarly, articles 1 to 4 of the Agreement with GELAZUR S.Aread as under:- Article 1: ‘GELAZUR appoints RAMNATH” as agent to operatein priority their purchases in frozen seafood’s productsin India.

Article 2: RAMNATH’ does the following business as Agent onbehalf of GELAZUR.”

1) To negotiate with the local packers for the purchase of thefrozen seafood products which ‘GELAZUR’ requires:

2) To give “GELAZUR’ all the accurate information in respect ofthe standard, quantity, price, quality, time of shipment, etc. promptly,whenever the purchase of the products is made

3) To carry out technical guidance for processing and for qualitycontrol and inspection of the products and to advise“GELAZURE” of the results.

4) To inform GELAZURE’ regularly about the market situation,i.e. fishing situation, prices paid by other markets, prices paid byFrench competitors, business opportunities, monthly supplies ofseafood-data.

Article 3: After reception of the goods, GELAZURE’ will payRAMNATH” commissions calculated on the followingbasis:

-CHAM ICE/Porbandar-Veraval-Bombay:

Cephalepods or Fishes : 1.5% of the C+F Value Shripps-Lobsters:0.75% of the C+F Value OTHER PACKERS

SHRIMPS & LOBSERS: 1% OF THE C+F valueSquids, cuttlefish, Cockies Mussels and other Fishes:USD O.65/Kg When the quality and the packaging of the goods arefound to be unsatisfactory to ‘GELAZUR” afterinspection in FRANCE, GELAZURE, shall have noresponsibility regarding the payment of the Agent’s fee.

Article 4: If any claim arises out of or in relation to the purchasesof products for which ‘GELAZUR’ has no responsibility,RAMNATH will do their best to settle the claim throughnegotiation with manufacturers. The settlement of theclaim will have to be carried out 60 days after thereception of the goods.”[8]

5.5. Having examined the contents of two agreements, the Assessing Officer did not feel convinced with the claim that the appellanthad been rendering services from India so as to qualify for deductionunder Explanation (iii) to Section 80-O of the Act. The Assessing Officerwas firmly of the view that the appellant had worked only as an agent ofthe foreign enterprises in the matter of procurement of marine productsfrom India; and all the services envisaged in the agreements wereincidental to the carrying out of main function as agent. The AssessingOfficer recorded his observations and findings as follows: - “….A close study of the articles extracted above, would establishthat the assessee is merely an agent of the foreign enterprises inIndia in the matter of procurement of marine products from India.All the services which are required to be carried out by the assesseein terms of the agreements are incidental to the carrying out ofthe primary function of acting as an agent. The assessee’s role is 8 Note: In the papers placed on record, the name of this foreign company has beenmentioned both as ‘GELAZUR’ and ‘GELAZURE’. We have retained the particularsin extractions as stated in the respective papers but in our discussion, have referred itas ‘GELAZUR’.

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to act on behalf of the foreign principals within the limits allowedby them. In terms of the agreements, the assessee negotiateswith local packers with regard to quality, quantity and price. Onbehalf of the principals, the assessee carries out technical guidancefor processing and for quality control and also inspection of theproducts and also keeps close liaison with various agencies. Theseare definitely services rendered in India and cannot be construedas services rendered from India merely relying on the facts thatthe foreign principals are advised of the results and that they arestationed outside India. It is true that as per agreement, theassessee was to supply certain information of a general natureregarding markets, government policies, exchange fluctuations,banking laws, prices paid by competitors, monthly supplies ofseafood data etc. However, the agreements do not envisage anypayment of separate in commission or service charge for suchinformation. The commission is payable to the assessee as apercentage of the C & F value of the imports by the foreignenterprises through the assessee. However, the payment ofcommission is conditional on the foreign enterprises findingthe quality of goods satisfactory. This would reinforce myearlier observation that the assessee is only an agent ofthe foreign enterprises in the matter of procurement ofmarine products from India and all the services envisaged inthe agreement are incidental to the carrying out of the main functionas agent. It is also not as if the foreign enterprises completelystayed away from India. Though it might be a fact that none ofthe foreign enterprises had any office or branch anywhere in India,available information indicates that the representatives of theforeign enterprises used to visit India in connection with theprocurement of marine products from various packers in Indiaand it fell upon the assessee to take these persons to the processingfacilities of various suppliers with a view to ensure quality andhygiene standards. This is evident from the fact that a sum ofRs.23,122/- has been incurred by the assessee during the visit ofbuyers, representatives to various seafood packers in Calcutta,Bombay vizag, Madras Nandapam, Cochin, Calicut etc. Expensesfor souvenirs, compliments and samples of the value ofRs.29,411.99 have also been incurred presumably in connectionwith the visit of the representatives of the foreign buyers. By any stretch of imagination, it cannot be claimed that the servicesrendered on the occasions of the visit of the representatives offoreign enterprises were not rendered in India. The foreign travelsundertaken by the Managing Partner for meeting various buyerscan been seen as only an extension of the assessee’s role as anagent of the foreign enterprises in India. An agent of a foreignenterprise in India necessarily acts on behalf of the foreignenterprise in India, and therefore, the services, namelycarrying out inspections to ensure quality of the productsand packaging, supervision of processing, negotiating pricesin respect of marine products exported with the assistanceof the assessee, could not have been rendered outside Indiaas the parties to be contacted, products to be inspected,processing to the supervised etc. were situated in Indiaonly. In my view services that are incapable of being renderedoutside India will not come under the category of services thatcan be rendered from India. Therefore, there is no merit in thecontention of the assessee that these services were rendered fromIndia but not within India….”

5.6. The appellant also relied upon Circular No. 700 dated23.03.1995 issued by the Central Board of Direct Taxes[9] in support ofits contentions. The Assessing Officer distinguished the matter dealtwith by the said Circular from that involved in the present case in thefollowing passage: - “…..The assessee also strongly relies on circular No.700 dated23/3/95 issued by the C.B.D.T. In my view, the reliance on theabove circular by the assessee to buttress its case is misplaced.Para 3 & 4 of the above circular which are quits relevant, readsas under : - “3. A question has been raised as to whether the benefit ofSection 80-O would be available if the technical and professionalservices, though rendered outside India, are used by the foreigngovernment or enterprise in India.

“4. The matter has been considered by the Board. It is clarifiedthat as long as the technical and professional services are 9 ‘CBDT’ for short A

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rendered from India and are received by a foreign governmentor enterprise outside India deduction under Section 80-O wouldbe available to the person rendering the services even if theforeign recipient of the services utilizes the benefit of suchservices in India.”

As is clear from the above, the C.B.D.T. was dealing with aquestion whether deduction under Section 80-O could be deniedon the ground that the foreign enterprise uses the services renderedoutside India, in India. It has been clarified that merely becausethe foreign enterprises utilized the benefit of services renderedoutside India, the deduction under Section 80-O cannot be denied.In the case before the C.B.D.T, there was not dispute as to wherethe technical services were rendered. In the case before me, thereis absolutely no scope for doubt that the services as an agentwere rendered by the assessee in India only. In 132 ITR 637, theBombay High Court held that an assessee acting as a mereemployment recruiting bureau was not entitled for deduction underSection 80-O and the services rendered in locating prospectivecandidates and collecting their bio-datas and conveying names ofcandidates to foreign employers did not represent services renderedoutside India. Similarly, in 145 ITR 673 in the case of Searls (India)Ltd, the same High Court ruled that testing of samples in India B

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and giving results and certificate to foreign company did representtechnical services rendered outside India. In view of the forgoingdiscussion, I would hold that the assessee is not entitled fordeduction u/s 80-O as the services made available to the foreignenterprises were rendered in India.”

F5.7. In the aforesaid view of the matter, the AO disallowed theclaim for deduction under Section 80-O of the Act.

5.8. In the appeal taken by the appellant, the Appellate Authoritydid not agree with the opinion of the Assessing Officer, particularly withreference to the decision of Delhi High Court in the case E.P.W. DaGCosta and Ors. v. Union of India: (1980) 121 ITR 751 (Delhi) anda decision of ITAT Delhi, D Bench in the case of Capt. K. C. Saigal v.Income Tax Officer: (1995) 54 ITD 488 (Delhi) and hence, allowedthe appeal while observing, inter alia, as under: - “14……In the present case, there is no dispute that the appellantHis supplying information with regard to the markets, government policies, exchange fluctuations, banking laws, data with regard tomonthly supply of sea-food etc. to the foreign enterprises.Secondly, even if the appellant is a mere agent of the foreignenterprises, he is bringing the foreign enterprises in contactwith the manufacturers or processors of shrimps, lobstersetc. and negotiating with the local packers and is locatingsources of frozen sea-foods for the foreign enterprises.Though the various items of activity are rendered in India, theyare done on behalf of the foreign enterprises and the marketand other information had been supplied from India to the foreignenterprises.

15. In section 80-O, Explanation (iii) reads as under : -

15. In section 80-O, Explanation (iii) reads as under : - “Services rendered or agreed to be rendered outside India shallinclude services rendered from India but shall not includeservices rendered in India”.

The word “from” means “out of” or “springing out of”. Thus,‘from India’ necessarily means that some of the activities willspring out of or will be in India because the services are renderedfrom India. In this connection, I am of the view that the decisionof the Delhi High Court in E.P.W. De Costa & Another vs. Unionof India (121 ITR 751) is really applicable to the facts of the case.The services rendered with regard to assessing the radio-listeninghabits of the people were rendered in India i.e. The data had beencollected in India. However, it was held that a mere mass ofinformation without analysis and without being understandablewould not be of use to the B.B.C. The information is not,therefore, mere data but scientific knowledge. In the presentcase, the appellant has located reliable source of quality andassured supply of frozen sea-food products to the various foreignenterprises at Japan, France and other countries and suppliedinformation with regard to sea-food processing, manufacturingdetails and also government policies, exchange fluctuations etc.to the foreign enterprises. The appellant has negotiated andfinalised prices for the Indian exporters of frozen sea-food productsand communicated the same to the foreign enterprises. Thus, theappellant has rendered the services from India to these foreignenterprises. That the appellant’s information and experience havebeen effectively utilised by the foreign enterprises can be seen A

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from the fact that the export effected by the appellant-concernhave risen from 20 crores in the AY 1991-92 to 100 crores by AY1996-97. For the year under consideration, the exports areapproximately 60 crores on which the appellant has earned acommission of Rs. 44.79 lakhs.

B16. The major issue to be decided in this case is whether theservices rendered by the appellant can be said to be ‘from India’.On the facts and circumstances of the case, I am of the opinionthat the services have been rendered from India and hence, theappellant is eligible for deduction u/s 80-O, especially in view ofthe decision of the Delhi High Court in E.P.W. De Costa & AnotherCvs. Union of India (121 ITR 751) and the I.T.A.T. Delhi ’D’ Benchdecision in the case of Capt. K. C. Saigal vs. I.T.O. (54 ITD488).”

D5.9. Aggrieved by the decision aforesaid, the revenue preferredappeal before the ITAT, being ITA No. 84/Coch/1997, that was consideredand decided by ITAT by its order dated 19.11.2001. The ITAT took noteof the history of introduction of Chapter VI-A and Section 80-O to theAct of 1961 by the Finance (No. 2) Act, 1967 as also the fact thatSection 80-O had undergone several amendments over the course ofEtime. The ITAT concurred with the findings of the Appellate Authoritythat the services rendered by the appellant, which helped the foreignparties to import marine products from India, had been specialised andtechnical services and thereby, the appellant was entitled to claimdeduction under Section 80-O of the Act. The ITAT observed and held,Finter alia, as follows: - D

“9. The case of the Revenue is that the assessee has renderedservices only in India and not from India. The services that entitlethe assessee for the benefit under Section 80-O should be of suchnature that it can only be rendered outside India and not servicesGthat are capable of being rendered in India. According to therevenue, the assessee was rendering only a generalised servicesuch as market studies, study of processing, etc. so as to satisfythe quality of the materials exported, like any other general agent.Therefore, the assessee is not entitled to claim the benefit underSection 80-O. Considering the facts and circumstances of the H

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case, we are unable to agree with the above proposition. In CBDTv. Oberoi Hotels (India) (P) Ltd. [1998] 231 ITR 148’ the SupremeCourt has held that the agreement for managing modern hotel,including promotion of business, recruiting and training staff areall such services that entitle the assessee for the benefit of Section80-O….……In circular No.700 issued on 23-3-1995 the Boardclarifies the position. It clarifies that “as long as the technical andprofessional services are rendered from India and are receivedby a foreign Government or enterprise outside India, deductionunder Section 80-O would be available to the person renderingthe services even if the foreign recipient of the services utilisesthe benefit of such services in India”. Now the question is whetherthe assessee rendered any service and communicated the sameto the foreign party. Article 2 (4) of the agency agreementregarding marine products entered into between Gelazur S.A. andRamnath & Co. (assessee) states that the assessee is to inform“GELAZUR” regularly about the market situation, i.e. fishingsituation, prices paid by other markets, prices paid by FrenchCompetitors, business opportunities, monthly supplies of seafooddata. This indicates that the assessee has to communicatethe data it collected, and on the basis of this, the foreignparty acts either to purchase or not to purchase. It is alsotrue that Article 4 of the said agreement states that “if, any claimarises out of or in relation to the purchase of products for which‘GELAZUR’, has no responsibility, ‘RAMNATH’ will do theirbest to settle the claim through negotiation with manufacturers”.This indicates that the party is also doing supply of services.But, this part of the service is only consequential to thefirst. The agreement entered into between Hoko Fishing Co. Ltd.,Tokyo, Japan and the assessee also stipulates that the assesseehas to keep “Hoko” informed of the latest trends/processesapplications in manufacturing and of all valuable commercialand economic information about the market, GovernmentPolicies, exchange fluctuations, banking laws which will directlyor indirectly assist “Hoko” to organise, develop, control or regulatetheir import business from India. In addition to this, theassessee has to render services to ensure higheststandards of quality, hygiene and freshness of productsincluding supervision at various stages. The second A

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Amentioned services may be considered as servicesrendered in India. But, definitely the other servicesrendered and informed to the other party like latest trends/processes applications in manufacturing, commercial andeconomic, information about the markets, GovernmentPolicies, exchange fluctuations, banking laws etc. which helpBthe foreign party to import marine products from India is aspecialised and technical service. That, in our view, qualifiesthe assessee to claim deduction under Section 80-O.”

C5.10. The ITAT also referred to the subtle distinction in the twophrases: ‘the services rendered from India’ and ‘the services renderedin India’; and while referring to a decision of Bombay High Court in thecase of Godrej & Boyce Mfg. Co. Ltd. v. S.B. Potnis, ChiefCommissioner: (1993) 203 ITR 947 (Bom) as also other decisions,observed that if the assessee had not passed on the requisite information,Dthe export would not have materialised. According to ITAT, if the assesseehad done the services like packing, shipping etc., in that case, the assesseewould have been merely an exporter and could not have claimed thebenefit under Section 80-O but, the services rendered by the assesseewere of specialised nature, which had been utilised by the foreign party.EAccordingly, the ITAT dismissed the appeal of revenue while observingas under:-

“10. It is true that the difference between ‘the services renderedfrom India’ and ‘the services rendered in India’ used in theExplanation below the proviso to the section is wafer-thin. ButFstill the difference exists when looked from the point of view theIndian Exporter. The services rendered in India are services tomake the goods eligible for export. On the other hand, the servicesrendered from India can be treated as services rendered, as desiredby the foreign party, which need specialisation. If the foreignparty is interested in details or information or specific detailsGand such details are supplied by the Indian party and suchdetails are utilised either to purchase or not to purchasefrom India, such services can be treated as “servicesrendered from India”. If the foreign party seeks any serviceand it is rendered, it is a service rendered from India,Hwhereas the services rendered in India are not necessarily by virtue of the other party’s request or demand. In Godrej & BoyceMfg. Co. Ltd. vs. S.B. Potnis, Chief Commissioner [1993] 203ITR 947’ the Hon’ble Bombay High Court held that a provisionmade for the giving of all marketing, industrial manufacturing,commercial and scientific knowledge, experience and skill for theefficient working and management of the foreign company couldbe treated as services rendered that make the assessee eligiblefor the benefit under Section 80-O.

11. In Mittal Corporation’s case (supra), the Delhi bench-D of theTribunal held that the object and spirit of Section 80-O was tomainly encourage Indian technical know-how and skill abroad andsince the information was given outside India party and it wasused outside India and payment was received in convertible foreignexchange, the condition required for allowing deduction underSection 80-O could said to have been fulfilled. In the case ofE.P.W. Da Costa (supra) the Delhi High Court has held that if theinformation passed on by the assessee is of practical nature andwas a result of making or manufacturing some concrete thing andsuch information has been utilised by the foreign party, suchinformation is sufficient to claim the benefit under Section 80-O.

12. Before parting with, let us think in a negative way. If theassessee had not passed on the information like marketing,processing, quality control, etc. to the other party, the exportwould not have materialised. Short of this information, ifthe assessee had done services like packing, shipping, etc.and ensured quality and quantity, the assessee is merelyan exporter and cannot claim the benefit contemplatedunder Section 80-O. If we look from this angle also, we are ofthe opinion that the assessee is entitled to succeed.”

6. The facts discernible from the material on record make outthat on the similar pattern, the ITAT also allowed the claim of this appellantin relation to the assessment years 1994-95, 1995-96 and 1996-97, whilefollowing its earlier orders. As noticed, the appeals against the orderspassed for these assessment years were clubbed together and disposedof by the High Court by way of the common judgment dated 09.06.2016,which is in challenge in these appeals.

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7. In its impugned common judgment dated 09.06.2016, the HighCourt of Kerala has disagreed with ITAT and has disallowed the claimfor deduction by the appellant essentially with the finding that the appellantwas merely a marine product procuring agent for the foreign enterprises,Bwithout any claim for expertise capable of being used abroad ratherthan in India and hence, the alleged services do not qualify as the ‘servicesrendered from India’, for the purpose of Section 80-O of the Act of1961.

8. In view of the submissions made and the subject-matter ofCthese appeals, we may examine the observations and reasoning in theimpugned judgment that have led the High Court to disagree with ITATand to reject the claim of the appellant for deduction under Section 80-Oof the Act in requisite specifics.[10]

8.1. The main plank of submissions on behalf of revenue, withDreference to the agreements between the assessee on one hand and thetwo foreign companies respectively on the other, had been that theassessee was simply an agent of the foreign enterprises for procuringmarine products from India; that all its services were incidental to itsmain functioning as a fish-procuring agent; and that the assessee renderedits services “in India”, contra-distinguished with the expression “fromEIndia”. It was also contended on behalf of the revenue that merecommunication between the assessee based in India and the principalbased abroad does not bring their transactions within the purview ofSection 80-O. The submissions on behalf of the revenue were supportedwith a Division Bench decision of that High Court in Commissioner ofFIncome Tax v. Thomas Kurian (Dead) through LR Smt. Primari C.Thomas, since reported as(2012) 72 DTR (Ker). On the other hand,it was contended on behalf of the assessee that on reading the principalprovision of Section 80-O of the Act with clause (iii) of the Explanation,it was clear that once the service is provided by an Indian company (orother person who is resident in India) and the same is ‘used’ by a foreignG10 It may, in the passing, be observed that one of the preliminary points raised beforethe High Court by the assessees had been on the maintainability of appeals by therevenue in the face of Circular No. 21/2015 dated 10.12.2015 due to low-tax effect andno likelihood of cascading effect because the provision having been amendedsubsequently. The High Court did not agree with the assessees on this aspect whileobserving that ITAT has passed all the orders by following its initial order relating toHITA No. 131 of 2002; and the order impugned has a cascading effect. This aspect of thematter does not concern us in these appeals and hence, need no further comment.

entity outside India, it made no difference if the advice is rendered fromIndian soil. In relation to the query of the Court as to whether all theservices mentioned in the agreement would come within the purview ofSection 80-O, the response on behalf of the assessee had been that ‘ifthe recipient of services is situated outside, all the services renderedby the assessee in terms of the agreement come within the sweep ofthe provision’. It was, therefore, contended on behalf of the assesseethatthe assessee’s establishing ‘which of its services qualifies for thededuction is of no consequence, rather unnecessary’. The decisionin Thomas Kurian (supra) was distinguished on behalf of the assesseewith reference to the facts that the assessee therein was engaged onlyin verification of quality and fitness of marine products but provided nocommercial or technical information from India to the foreign buyerswhereas the assessee in the present case had been supplying commercialand technical information and, using the information supplied by theassessee, the foreign companies had taken decision outside India asregards how they could purchase the merchandise. The submissions onbehalf of the assessee were supported with reliance on the said CircularNo. 700 dated 23.03.1995 and the decisions in M/s ContinentalConstruction Ltd. v. Commissioner of Income Tax, Central-I: (1992)195 ITR 81 (SC); Commissioner of Income Tax v. MittalCorporation: (2005) 272 ITR 87 (Delhi); Li & Fung India (P) Ltd.v. Commissioner of Income Tax: (2008) 305 ITR 105 (Delhi);Commissioner of Income Tax v. Chakiat Agencies (P) Ltd.: (2009)314 ITR 200 (Mad); Commissioner of Income Tax v. InchcapeIndia (P) Ltd: (2005) 273 ITR 92 (Delhi); Central Board of DirectTaxes, New Delhi & Ors. v. Oberoi Hotels (India) Pvt. Ltd.: (1998)231 ITR 148 (SC) and E.P.W. Da Costa (supra).

8.2. Having thus taken note of the rival submissions, the HighCourt proceeded to analyse Section 80-O of the Act with its Explanation(iii). After reproducing the relevant text of the provisions, the High Courtentered into the lexical semantics of the prepositions ‘from’ and ‘in’ withreference to their dictionary meanings. Then, reverting to Section 80-Oof the Act, the High Court observed that therein, the constants were theIndian agent, the foreign principal, and the Indian agent rendering servicesfrom India but the variables were as to ‘how’ and ‘where’ the serviceswere used. Thereafter, the High Court looked at the intent and purposebehind Section 80–O of the Act and observed as under: –

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A“29. Every nation meets any measure more than half way if itresults in the nation’s augmenting the foreign reserves. India is noexception. It encourages and provides incentives to those whoearn foreign exchange. Over and above the incentive is the facilityof deduction from the taxable income in foreign exchange—thatis what Section 80-O is. The legislative intent behind the provisionBis not far to seek. The Government encourages entrepreneurialinitiative and innovation by the Indian companies at the internationallevel. In a measure, the nation encourages any Indian showcasingthe Indian intellect internationally. That accepted, if Indiantechnology, know-how, etc., is used in India itself even by a foreignCcompany, it is an intellectual enterprise not only from India butalso in India. We reckon that use means the end use of theinformation or know-how, but not its mere processing.”

8.3. Proceeding further, the High Court examined the positionobtainable in regard to the interpretation and application of Section 80-ODof the Act from the precedents cited at Bar. The High Court pointed outthat in Thomas Kurian(supra), a case dealt with by the same HighCourt, the main service rendered by the assessee was admittedly ofexamining the quality and type of fish processed by the exporters inIndia and certifying the fitness of the product for shipment; and such aservice was rendered entirely in India. It was further pointed out that inEE.P.W. Da Costa(supra), the assessee had been a consultant engagedin conducting specialised economic and public opinion research on anall-India basis to assess the attitudes of political, social and economicsubjects and in the given nature of work, the High Court of Delhi heldthat BBC, based in London, can be said to have used the information Freceived from the assessee to formulate or modify its broadcastingprogrammes to India; and though the information was provided by theassessee from India, it was used in another country in its entirety. Asregards the decision in Mittal Corporation (supra), the High Courtobserved that the assessee therein received commission as a buying agent of certain foreign enterprises and it was held that it was notGnecessary that the assessee must provide technical services even whereit received consideration for only providing commercial information. TheHigh Court, however, observed that from the said decision, it could notbe gathered as to how the commercial information provided by theassessee was used by the foreign enterprises outside India which wasH‘a crucial aspect for determining the application of the provision’.

As regards the decision in Oberoi Hotels(supra), the High Court againobserved that the factual background was not explicit, but since theagreement involved the assessee’s training the Nigerian personnel, itwas held that the assessee undoubtedly under the contract must makeuse of its commercial and scientific expertise as well as experience andskill, outside India. As regards the case of Inchcape India(supra),itwas pointed out that the assessee had to work in textile testing, inspectionof soft lines, electrical and electronic products according to the existingstandards of European and American markets, etc. It was also pointedout that the issue arose much before the insertion of Explanation (iii) toSection 80-O of the Act. In reference to the decision in Li & Fung(supra), the High Court pointed out that therein, assessee claimed tohave rendered technical services out of India as a buying agent and theHigh Court of Delhi held that the services rendered by the assesseerequired knowledge, expertise and experience; and, therefore, the fee itreceived from foreign enterprises for supply of commercial informationsent from India for use outside India was eligible for deduction underSection 80-O of the Act. The Court observed that the said decision gavejudicial imprimatur to the Board’s clarification to the effect that if anassessee renders technical or professional services from India to a foreignGovernment or enterprise outside India, it can claim deduction even ifthe foreign recipient utilises the ‘benefit of such services in India’. Inthis line of consideration, the High Court lastly referred to the decision inthe case of Chakiath Agencies (supra) and pointed out that therein, theassessee, a shipping agent, was to ensure that the ship owner picks upthe cargo and transports it within time and at the agreed rates; and theinformation regarding the availability of cargo to ship owners and itsdestinations at frequent intervals enabled the ship owners to programthe ships’ travel touching the Indian coasts. In the given facts, it washeld that the assessee had rendered commercial service to the foreignshipping owner for his use outside India and received a commission inconvertible foreign exchange, entitling it to the benefit of Section 80-Oof the Act. After such discussion in relation to the aforesaid decisions,the High Court observed that two crucial aspects of Section 80-O of theAct had not fallen for consideration therein: as to what type of servicesrendered by an Indian entity falls within the sweep of the provision andas to what is the true import of the expression ‘use outside India’. TheHigh Court said thus:

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A“46 With due regard to the above pronouncements, we, however,feel it necessary to point out that in none of them, two crucialaspects of Section 80-O of the Act have not fallen for consideration: (i) What type of services rendered by an Indian entity falls withinthe sweep of the provision; (ii) what is the true import of theexpression ‘use outside India’?”B

8.4. Having said so in relation to the aforementioned decisions,the High Court took note of the decision of this Court in the case ofContinental Construction (supra), wherein the assessee was a civilconstruction company that had entered into various contracts for theconstruction, inter alia, of a dam and irrigation projects in Libya andCwater supply projects in Iraq after obtaining the approval of CBDT interms of the then applicable requirements of Section 80-O of the Act.The High Court noticed that in that case, on the assessee’s claim for thebenefit under Section 80-O of the Act, this Court has held that the assesseewas undoubtedly rendering services to the foreign Government and thoseDwere technical services indeed, for they required specialised knowledge,experience and skill. The revenue’s contention that those services werenot covered by Section 80-O of the Act because there was no privity ofcontract between the employees of the assessee and the foreignGovernment was rejected by this Court while observing that the assesseewas a company and any technical services rendered by it could only beEthrough the medium of its employees. As regards the claim for a deductionbased on labelling of the receipts, this Court held that that eligibility of anitem to tax or tax deduction could hardly be made to depend on the labelgiven to it by the parties in that, an assessee was not entitled to claimdeduction under Section 80-O merely because certain receipts were Fdescribed in the contract as royalty, fee or commission and at the sametime, absence of a specific label cannot destroy the right of an assesseeto claim deduction if, in fact, the consideration for the receipts can beattributed to the sources stated in the section. The High Court also notedthe dictum of Continental Construction that it is the duty of the revenue and the right of the assessee to see that the consideration paid under theGcontract legitimately attributable to such information and services isapportioned, and the assessee is given the benefit of deduction availableunder the section to the extent of such consideration.8.5. The High Court further took note of a decision of MadrasHigh Court in the case of Commissioner of Income Tax v. KhursheedH

Anwar: (2009) 311 ITR 468 (Mad) wherein the assessee had anexclusive agency for promoting and concluding sales contract in Indiafor machinery and equipment for an enterprise based in Italy. On thestrength of agreement, the assessee worked with the foreign enterprisebut the Court observed that the benefit under Section 80-O of the Actwas not available to the assessee for mere asking; the records andmaterials must support the claim and the benefit of the said Sectioncannot be claimed as a matter of right, it being a question of fact, whichcould be considered by the AO on the basis of the records. In that case,the Appellate Authority had recorded a specific finding that the assesseehas simply effected the sale of machinery and spares manufactured bythe foreign enterprise; and, therefore, the assessee received only thesales commission, which was not for any activities relating to technicalor professional services and hence, the assessee was not entitled toclaim deduction under Section 80-O of the Act.

8.6. The High Court summed up the requirements, as emanatingfrom the ratio of the decisions in Continental Construction andKhursheed Anwar (supra) as follows: -

“53. Both from Continental Construction and Khursheed Anwarwe gather that not every receipt from a foreign enterprise inconvertible foreign exchange does not (sic) automatically getqualified for deduction under Section 80-O—the nomenclaturenotwithstanding. The burden, in fact, is on the assessee to provebefore the Revenue through cogent material that the commissionis for the services it rendered falling within the scope of the section.Neither of the facts—the existence of the contract and the receiptof convertible foreign exchange—leads to a presumption that thecommission is deductible as provided in Section 80-O of the Act.”

8.7. Having, thus, traversed through the provision of law applicable;the meaning of the expressions occurring in text thereof; and the positionobtainable from the precedents, the High Court proceeded to examinethe facts and, with reference to the aforesaid agreements of the appellantwith French and Japanese companies respectively, held that some of thefunctions said to have been discharged by the assessee cannot qualifyfor deduction under Section 80-O of the Act; and in none of the appeals,the assessees had placed any material as regards the services they hadrendered to qualify under that provision.

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A8.8. While referring to Explanation (iii) to Section 80-O of theAct, the High Court held that mere transferring information abroad wouldnot establish that the service is rendered from India and not in India; thatall receipts cannot qualify for concession; that the range of servicesreferred to in Section 80-O of the Act have the thread of connectivity inall the intellectual endeavours mentioned therein. The High Court summedBup its discussion in the following passages:- “56. To sum up, we wish to conclude that the Tribunal has erredon two counts in holding that the assessees are entitled to thebenefit of deduction under Section. 80-O of the Act : First, meretransmission of the information to a foreign enterprise,Cevidently, abroad does not go to show that it is a servicerendered from India, but not in India. With an element ofcertainty, we can as well say that once there is a contract, anIndian agent always interacts with and sends information—eventechnical know-how—to a foreign enterprise abroad. If that aloneDqualifies for deduction without reference to ‘the services renderedin India’, the very expression in explanation (iii) becomes otiose.Trite it is to observe that statutory surplusage is not a settled canonof construction; rather it is to be avoided.

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57. The purpose of the provision is to provide an incentiveEto the indigenous know-how of whatever nature that reachesthe shores of foreign nations and gets applied there. Theresultant fruits may percolate to India, too, as is the case in E.P.W.Da Costa and Continental Construction, even in which the ApexCourt has held that not all receipts can claim the concession.If we refer back to the analogy employed by the learned seniorFcounsel for the assessees, an advocate in India may render servicesto a foreign client stationed abroad concerning a case pending inIndia. It is a service rendered not only from India, but also inIndia. On the other hand, if that piece of professional advice isused abroad, even involving clients of Indian origin or laws of thisGnation as it happens in international arbitrations, the remunerationis qualified for the benefit.

58. Once we look at the range of services referred to inSection 80-O, we can discern the thread of connectivity inall the intellectual endeavours mentioned therein : anypatent, invention, model, design, secret formula or process, or similar H

property right, or information concerning industrial, commercialor scientific knowledge, experience or skill made available orprovided or agreed to be made available or provided to suchGovernment or enterprise by the assessee. It can also be inconsideration of technical or professional services rendered oragreed to be rendered outside India to such Government orenterprise by the assessee. They cannot be said to be entirelydiscrete and disparate. The services have an air ofintellectuality; as such, all and sundry services renderedto a foreign enterprise cannot be taken into account, lest itshould amount to doing violence to the explanation (iii).”

8.9. While concluding on the matter, the High Court referred tothe dictionary meaning of the expression “render” and observed that“rendering” includes both “providing” and “performing”; and that in thecontext of Section 80-O of the Act, the services may be rendered inIndia but have to be performed on the foreign soil. The High Court alsoobserved that, if the assessees had at all rendered certain services whichqualify for deduction, they had failed to place any material in that regard;and the agreements in question only point out that the assessees weremarine product procuring agents for the foreign enterprises without anyclaim for expertise capable of being used abroad rather than in India.Accordingly, the High Court answered the question of law in favour ofrevenue and set aside the orders passed by ITAT.

RIVAL SUBMISSIONS

Lead arguments on behalf of the appellant

9. On the debate relating to the question of applicability of Section80-O of the Act to the foreign exchange earned by the appellant in lieuof the services rendered by it to the foreign enterprises, the learnedsenior counsel for the appellant has made wide-ranging emphaticsubmissions on the process of interpretation, the scheme and object ofSection 80-O and has also referred to the decisions which, in hiscontention, cover the present case on the substance and principles.

9.1. The learned senior counsel for the appellant has strenuouslyargued that the High Court has approached the entire case from analtogether wrong angle and with rather linguistic and pedantic approach AB

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Ato interpretation while ignoring the basic object and purpose of Section80-O of the Act, which is meant to give incentive for earning foreignexchange. With reference to the decision in Abhiram Singh v. C.D.Commachen (Dead) by LRs. and Ors.: 2017(2) SCC 629, the learnedcounsel has submitted that this Court has cautioned against making a‘fortress out of the dictionary’ but the High Court has proceeded withBexcessive reliance on dictionary and has merely looked at the text withoutits context and object and with such approach, has unjustifiably upturnedthe well-considered decision of ITAT. Learned counsel has also referredto the decision of this Court in the case of Commissioner of IncomeTax, Thiruvananthapuram v. Baby Marine Exports, Kollam: (2007)C290 ITR 323 (SC), to submit that an incentive provision has to beconstrued purposively, broadly and liberally; and for the provision likeSection 80-O of the Act, when the basic object is to earn foreignexchange, the incentive is required to be granted if the object is to beachieved. With reference to the decision in Commissioner of Income

Tax-IV, Tamil Nadu v. B. Suresh: (2009) 313 ITR 149 (SC), theDlearned counsel has pointed out that therein, even five years’ licence toexhibit an Indian film abroad was held to be that of export of goods andmerchandise, covered by Section 80HHC of the Act; and Section 80-Oof the Act, being equally a provision for incentives to earn foreignexchange, ought to receive the same liberal approach. According to theElearned counsel, the approach of High Court in the present case hadbeen too narrow and rather unrealistic.

9.2. The learned senior counsel would contend that on a plainreading of Section 80-O, it is clear that it applies to the income by way ofroyalty, commission, fees or any similar payment received by the assessee Ffrom a foreign enterprise in consideration for the use outside India,inter alia, of “information concerning industrial, commercial or scientificknowledge, experience or skill” made available to foreign enterprises,provided that the income is received in convertible foreign exchange inIndia; and Explanation (iii) to Section 80-O makes it clear that this Section would apply even to the services rendered from India, whichGare to be treated for the purpose of this Section as services renderedoutside India. Learned counsel has argued that Section 80-O is by nomeans confined to grant of user of intellectual property rights orintellectual activities, as contended by the revenue and as observed bythe High Court. In this regard, the learned counsel has again referred toHthe words “information concerning industrial, commercial or scientific knowledge, experience or skill” in the latter part of Section 80-O andhas argued that these words are distinct from the initial part of this Section,dealing with the use of intellectual property rights. The learned counselhas further argued that even ‘commission’, which could relate to ordinarycommercial activities, is also covered by Section 80-O.

9.3. While strongly relying upon the decision of this Court in thecase of J. B. Boda & Co. Pvt. Ltd v. Central Board of Direct Taxes,New Delhi: (1997) 223 ITR 271 (SC), the learned senior counsel hasargued that therein, even a commission received by the reinsurancebroker, who only sent information to the foreign reinsurance companyregarding the risk involved and other related data, was held entitled tothe benefit of Section 80-O of the Act in respect of the entire commission.The learned counsel has argued that the activity of reinsurance brokercannot possibly be described as an intellectual activity or as a technicalor professional service; and in that case of J.B. Boda & Co., the activityonly consisted of sending commercial information from India about aproposed reinsurance contract on the basis of which, the reinsurancecompany took a commercial decision to enter into the contract. Thelearned counsel has pointed out that in that case, this Court had referredto the Circular issued by CBDT specifically directing that the deductionunder Section 80-O should be allowed on the commission received byan Indian reinsurance broker even though it was only deducted from theremittance made to the company abroad and there was no actual inwardremittance of foreign exchange. According to the learned counsel, thisjudgment decisively negatives the stand of the revenue that Section 80-O applies only to a payment for use of intellectual property rights or forintellectual activities. The learned counsel would argue that the broad,liberal and purposive interpretation of Section 80-O in J. B. Boda &Co. is of crucial importance and the analogy thereof applies to theappellant.

9.4. The learned senior counsel for the appellant has further reliedupon the decision of Delhi High Court in E.P.W. Da Costa (supra) withthe submissions that therein, the Indian assessee only carried out marketsurvey of radio listeners in India and communicated the information toBBC in London; and BBC utilized that information to frame Hindilanguage broadcasts to India. However, the payments made towardssuch services by BBC to the assessee were also taken to be covered bySection 80-O of the Act.

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A9.5. As regards the services and activities of the appellant, thelearned senior counsel has referred to the findings of the AppellateAuthority as also of ITAT and has submitted that the said findings are tothe effect that the appellant rendered services from India to its foreigncustomers by making over to them the information regarding seafoodavailable in various Indian markets, their quality, price ranges etc.; and,Bon the basis of this information, the foreign customers took decisions onwhether or not to import seafood from India, what to import and fromwhich market and supplier. Further, the other basic requirement of Section80-O, i.e., remittance of the amount in convertible foreign exchange toIndia has also been fulfilled. According to the learned counsel, the clearCand unequivocal findings of the Appellate Authority and ITAT are findingsof fact and they fully establish that the appellant furnished informationfrom India to its customers abroad regarding its industrial and commercialknowledge and skill, and such information was utilized abroad by thesaid foreign customers and the appellant’s commission was remitted toIndia in convertible foreign exchange. The learned counsel would argueDthat nothing of perversity was shown in regard to such findings of factso as to call for interference but the High Court has proceeded on abasis which is totally inconsistent with those findings. With reference tothe decision of this Court in the case of K. Ravindranathan Nair v.Commissioner of Income Tax, Ernakulam: (2001) 247 ITR 178E(SC), the learned counsel has argued that there was no scope ofinterference in the findings of fact in this case.

9.6. Assailing the findings of High Court in the impugned judgment,the learned senior counsel has also argued that the approach of the HighCourt that unless services were rendered abroad, the amount receivedFwould not qualify for the benefit of Section 80-O is directly contrary tothe plain provision contained in Explanation (iii) to Section 80-O and isalso contrary to Circular No. 700 dated 23.09.1995 which had clarifiedthat Section 80-O covered not only the services rendered outside Indiabut also the services rendered from India to a party outside India; and it does not matter if the service is subsequently utilized by the foreignGcustomer in India. In regard to the case of the appellant, the learnedcounsel would submit that in fact, the foreign enterprises related withthe appellant do not have any operation or place of business in India andin such a situation, there was no question of the appellant renderingservice to the customers in India. Thus, according to the learned seniorHcounsel, the activities in question are squarely covered by Section 80-Oof the Act.

The respondent-revenue

10. In counter to the submissions so made on behalf of the appellant,learned senior counsel for the respondent-revenue has also referred tothe object and purpose behind the provisions contained in Section 80-Oof the Act; the rules of interpretation, which, in his contention, ought tobe applied to these provisions; and, while seeking to distinguish thedecisions cited on behalf of the appellant, has relied upon other decisions,which, according to him, apply to the present case and which duly supportthe view taken by the High Court in the impugned judgment.

10.1. The learned senior counsel for the revenue has pointed outthat the provisions similar to Section 80-O were originally available inthe former Section 85-C of the Income Tax Act, 1961, which wasintroduced with the purpose to encourage Indian industries to developtechnical know-how and services and make it available to foreigncompanies so as to augment the foreign exchange earning of our countryand to establish a reputation of Indian technical know-how in foreigncountries. Reverting to the contents of Section 80-O of the Act, asapplicable to the case at hand, the learned counsel has submitted that itspurpose is indicated in the heading itself that the same is for providingdeduction in respect of royalties etc., received from certain foreignenterprises. Dissecting the relevant parts of this provision, the learnedcounsel would submit that some of the essential requirements for itsapplicability are that the assessee must receive income by way of royalty,commission, fees or similar payment from a foreign enterprise; theconsideration must be for technical or professional services, of patents,inventions or similar intellectual property or information concerningindustrial, commercial or scientific knowledge; and the services must berendered outside India. While reiterating and emphatically underscoringthe observations in impugned judgment, the learned counsel would submitthat the intention of legislature behind introducing Section 80-O was toprovide deductions for only that income which is received throughintellectual activity/intellectual endeavours; and simple trading activity,though may require certain commercial or industrial information, cannotbe said to be covered by this provision. With reference to Explanation(iii) to Section 80-O, the learned counsel would argue that the principalprovision specifically states that it covers the services rendered “outsideIndia” and the explanation clarifies that the services rendered or agreedto be rendered outside India shall include services rendered from India A

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Abut shall not include services rendered in India; and therefore, servicesrendered by the assessee to a foreign entity must be rendered outsideIndia, in foreign soil, and not in India, though they may be rendered fromIndia.

10.2. As regards the principles of interpretation, the learned seniorBcounsel for revenue has strongly relied upon the Constitution Benchdecision in Commissioner of Customs (Import), Mumbai v. DilipKumar & Co. and Ors: (2018) 9 SCC 1 to submit that it is now settledbeyond doubt that taxing statutes are subject to the rule of strictinterpretation, leaving no room for any intendment; andthe benefit ofambiguity in case of an exemption notification or an exemption clauseCmust go in favour of the revenue, as exemptions from taxation have atendency to increase the burden on the unexempted class of tax payers.The same principles, according to the learned counsel, shall apply toSection 80-O of the Act and, for the law declared by the ConstitutionBench, the decision relied upon by the learned counsel for the appellant DinBaby Marine Exports (supra), which even otherwise dealt with Section 80HHC of the Act and not Section 80-O, is of no help to the appellant.

10.3. Taking on to the facts, the learned senior counsel wouldsubmit that the activities alleged to be rendered by the appellant to foreignentities as per the respective agreements were not of technical orEprofessional services so as to be covered by the main part of the provision;and further, they are excluded by virtue of Explanation (iii) to Section80-O, for having been rendered “in India” and not “from India”. Thelearned counsel would elaborate on the submissions that as per theagreements, the appellant was only to locate reliable and assured suppliersof marine products, to finalise pricing and before exporting, to check theFquality of goods to be exported from India to the foreign entity and tocommunicate the same to the foreign entity. Moreover, the paymentwas made on the basis of invoice amount; and not on basis of anyspecialised commercial or technical knowledge given to the foreign entity.The learned counsel has particularly referred to Article 3 of the above-Greferred agreement with GELAZUR to point out that if the quality orpackaging of the goods was found to be unsatisfactory after inspectionin France, the foreign company had no liability to pay the agent’s fee.Thus, according to the learned counsel, the activities in respect of whichthe agreements were entered into by the appellant were only that of a‘buying or procuring agent’ and do not fall within the ambit of SectionH

80-O of the Act; and the primary activity being of certification, which isdone in India, and of sourcing the goods, which is also done in India,Section 80-O of the Act is not applicable per the force of its Explanation(iii). The learned counsel has yet further submitted, while supporting theobservations of High Court, that if one were to assume that the appellanthad rendered certain services which qualify for deduction, no material inthat regard has been placed on record.

10.4. The learned senior counsel for the revenue has drawnsupport to his contentions that Section 80-O of the Act does not apply tothe appellant by making reference mainly to two decisions. In the firstplace, the learned counsel has relied uponthe decision of this Court inB.L. Passi v. Commissioner of Income-Tax: 2018 (404) ITR 19(SC) with the submissions that this decision applies on all fours to thepresent case. Therein, the assessee stated that as per the agreement, itwas to provide blueprints for manufacture of dies for stamping of doorsof cars, though no blueprint sent was produced and there was nothing toshow that sales were effected because of information given by assessee.This Court held that the assessee was only a managing agent and wasnot rendering ‘technical services’ within the meaning of Section 80-O ofthe Act. Hence, there was no basis for grant of deduction. Next, thelearned senior counsel has referred to the decision of Kerala High Courtin the case of Thomas Kurian (supra), where the assessee was onlyexamining the quality and type of fish processed by the exporters andwas certifying fitness for shipment to foreign buyer, who was bound toaccept the goods shipped from India. It was held that the referred serviceswere rendered “in India” and hence, the first eligibility condition of Section80-O, that the services should be rendered outside India, was not fulfilledand hence, benefit of deduction under Section 80-O of the Act was heldnot available even though the second condition of receiving foreignexchange was fulfilled. The learned senior counsel would submit thatthe principles available in the said decisions directly apply hereto and theappellant is not entitled to claim deduction under Section 80-O of theAct.

Ratio decidendi

10.5. Seeking to distinguish the decisions cited by the other side,the learned counsel for revenue has submitted that in the case of J.B.Boda & Co.(supra), the issue was only about the method of receipt offoreign exchange which would qualify for Section 80-O deduction, whichis not in dispute in the present appeals; and the relied upon Circular of AB

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A1995 was also limited to the point as to what constitutes receipt of foreignexchange. According to the learned counsel, the nature of activity wasnot in issue in that case and hence, there is no such ratio decidendiwhich could support the case of appellant. The learned counsel has furthersubmitted that the case of E.W.P. Da Costa (supra) was of entirelydifferent activity inasmuch as therein, statistical tables were compiledBby the assessee after analysing masses of numerical data, which wascollected with audience research studies in India to assess and analysethe radio listening habits of Indians for BBC; and such services wereheld to be highly technical, pertaining to scientific knowledge and notmere data collection because those services enabled BBC to broadcastCnot only in India but other parts of the world. As regards the decision inB. Suresh (supra), it has been submitted that in that case, there wasadmittedly transfer of rights of feature films for exploitation ‘outsideIndia’ and the main issue was only whether there could be said to be a‘sale’ within the meaning of Section 80HHC, which is irrelevant to presentcase.D

10.5.1. It has also been submitted on behalf of the respondentthat, in the judgments relied upon by the appellant before the High Court,the crucial twin aspects of Section 80-O, i.e., as to what type of servicerendered by the Indian entity comes within the sweep of this provision;and as to what is the true import of the expression “use outside India” asEper Explanation (iii) to Section 80-O, did not fall for consideration andhence, those judgments were of no support to the proposition sought tobe advanced by the appellant. It has also been submitted that in the caseof Continental Construction (supra),the contracts were for carryingout physical construction of dams and irrigation projects in foreignFcountries, i.e., ‘not in India’ and besides that, in special circumstances,the benefit of Section 80-O was only allowed in part rather than on theentire contract, where the revenue was directed to bifurcate and look ateach of the services rendered. According to the submissions on behalfof the respondent, the appellant relied upon this decision in the High Court but gave it up in this Court realising that the same is in favour ofGrevenue; and if at all the ratio is applied, at best, the benefit of Section80-O might have been considered activity-wise, if the appellant had placedany material as to the actual services rendered, but no such material hadbeen placed on record by the appellant.

10.6. In regard to different services by the same assessee, someHof which may not qualify for deduction, apart from relying on the

observations in Continental Construction (supra), reference has alsobeen made on behalf of revenue to two circulars of CBDT i.e., CircularNo. 187 dated 23.12.1975 and Circular No. 253 dated 30.04.1979. It hasbeen pointed out that Circular dated 23.12.1975 provided, inter alia,that in the case of a composite agreement which specified a consolidatedamount as consideration for purposes which included matters outsidethe scope of Section 80-O, CBDT may not approve such an agreementfor the purposes of Section 80-O if it was not possible to properlyascertain and determine the amount of consideration relatable to theprovision of the know-how or technical services etc., qualifying for Section80-O. Thus, the benefit of Section 80-O could have been denied to theentire amount of royalty, commission, fees etc., receivable under suchan agreement. Thereafter, by Circular dated 30.04.1979, it was decidedthat in such cases of composite agreement, approval would be grantedby CBDT subject to a suitable disallowance for the non-qualifyingservices, after taking into consideration the totality of agreement, so thatthe balance of the royalty/fees, etc., which was for the services coveredby Section 80-O, could be exempted. This Circular also clarified thattrade enquires will not qualify for deduction under Section 80-O as alsotechnical services rendered in India. It has been contended that if at allthe appellant had been rendering some such services which could qualifyfor deduction, it had not given any such break-up of services andcorresponding receipts and therefore, benefit of Section 80-O of the Actis not available to the appellant.

10.6.1. As regards the circular relied upon by the counsel for theappellant, i.e., Circular No. 700 dated 23.03.1995, it has been contendedon behalf of revenue that the same is of no assistance to the appellantbecause, as per paragraphs 3 and 4 thereof, the services have to berendered outside India, and it only clarifies that the foreign recipient ofthe services may utilise the benefit of such services in India whereas inthe present case, the appellant merely rendered services in India andonly as an agent.

10.7. The learned senior counsel for revenue has also submittedthat the findings of fact arrived at by the ITAT were clearly challengedbefore the High Court in ITA No. 131 of 2002 and, in any case, it beinga matter of interpretation of statutory language of Section 80-O and itsExplanation (iii), the contention on behalf of the appellant about wantof challenge to the findings is without substance.

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756SUPREME COURT REPORTS

ARejoinder submissions on behalf of the appellant11. The submissions made on behalf of the respondent have beenduly refuted on behalf of the appellant by way of rejoinder submissions.

11.1. As regards the principles of interpretation in the case ofDilip Kumar& Co. (supra), it has been contended on behalf of theBappellant that reference to the said decision is wholly inapposite becausethat deals with interpretation of an exemption notification and not anincentive provision like Section 80-O, which has been interpreted in J.B.Boda & Co.(supra) or Section 80HHC, which has been interpreted inB. Suresh and Baby Marine Exports (supra).

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11.2. As regards the decisions relied upon by revenue onapplication of Section 80-O of the Act, it has been submitted thatreference to the case of B.L. Passi (supra) is completely misplacedbecause therein, the assessee had not placed any material whatsoeverto show that it had rendered any service to the foreign customer; andDtherefore, the issue regarding the nature of service did not even arise.As regards the decision of Kerala High Court in Thomas Kurian (supra),it has been submitted that the nature of services rendered therein werevery different from those of the appellant because the said assesseewas only an inspector and certifier; and even otherwise, the said decisionis not of any force because the decision of this Court in J.B. Boda &ECo. (supra) was not considered therein and the decision of Delhi HighCourt in E.P.W. Da Costa (supra), which was accepted by revenue andwas allowed to become final, was also not considered. It has also beensubmitted that there is no cogent or specific reply by the respondents tothe submissions based on the decisions of this Court in the case of J.B.FBoda & Co. (supra); and it has been reiterated that even the activity ofreinsurance broker was taken to be covered for the benefit of Section80-O though such activity cannot possibly be described as an intellectualactivity or as a technical or professional service. It has been contendedthat a liberal and purposive approach adopted by this Court in J.B.Boda& Co. for interpreting the incentive provision of Section 80-O is of utmostGimportance to the present case. It has further been contended in rejoindersubmissions that there is no material distinction between the cases ofJ.B. Boda& Co. and E.P.W. Da Costa on one hand and that of theappellant on the other; and superficial comments made on behalf of therespondents in regard to these decisions remain meritless.

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11.2.1. Similarly, as regards the Circulars dated 23.12.1975 and30.04.1979, it has been contended that reference to these circulars iswholly misplaced because they dealt with the matter of approval byCBDT of an agreement with foreign customers but such need forapproval of CBDT had been dispensed with by amendment of Section80-O long ago and these circulars have nothing to do with the issuesinvolved in the present case.

11.3. With reiteration of the submissions relating to the nature ofactivity of the appellant and the findings of ITAT, it has been argued thatthe contention of the respondents that the primary activity of the appellanthad merely been of procuring agent remains untenable. It has also beencontended that as per the finding of fact of ITAT, it is but clear thatwhole of the services rendered by the appellant and the entire amountreceived by it in foreign exchange was covered by Section 80-O of theAct; and that the attempt on the part of the respondent to suggest as ifonly a part of the amount received by the appellant may be eligible forbenefit of Section 80-O remains baseless. In the rejoinder submissions,it has also been indicated that reference to the decision of this Court inContinental Construction (supra) by the respondents is irrelevant, asthe same has not been relied upon by the appellant.

12. We have given thoughtful consideration to the rival submissionsand have examined the records with reference to the law applicable.

SECTION 80-O OF THE INCOME TAX ACT, 1961

13. Having regard to the subject-matter and the questions involved,appropriate it would be to take note of the relevant provisions containedin Section 80-O of the Act of 1961 and clause (iii) of the Explanationthereto at the outset. This Section 80-O has undergone severalamendments from time to time but, for the present purpose, suffice wouldbe to extract the relevant and pivotal provisions therein, as existing atthe relevant time and as applicable to the present appeal, as under: - “80-O. Deduction in respect of royalties, etc. from certainforeign enterprises.— Where the gross total income of anassessee, being an Indian company or a person (other than acompany) who is resident in India, includes any income by way ofroyalty, commission, fees or any similar payment received by theassessee from the Government of a foreign State or a foreignenterprise in consideration for the use outside India of any patent, A

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758SUPREME COURT REPORTS

Ainvention, model, design, secret formula or process, or similarproperty right, or information concerning industrial, commercialor scientific knowledge, experience or skill made available orprovided or agreed to be made available or provided to suchGovernment or enterprise by the assessee, or in consideration oftechnical or professional services rendered or agreed to beBrendered outside India to such Government or enterprise by theassessee, and such income is received in convertible foreignexchange in India, or having been received in convertible foreignexchange outside India, or having been converted into convertibleforeign exchange outside India, is brought into India, by or onCbehalf of the assessee in accordance with any law for the timebeing in force for regulating payments and dealings in foreignexchange, there shall be allowed, in accordance with and subjectto the provisions of this section, a deduction of an amount equal tofifty per cent of the income so received in, or brought into, India,in computing the total income of the assessee:

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E(iii) “services rendered or agreed to be rendered outside India”shall include services rendered from India but shall not includeservices rendered in India; *********”[11]

14. Worthwhile it would also be to take a little excursion into theFrelevant parts of history related with Section 80-O of the Act whileputting a glance over some of the features of developments relating tothe provision/s in the Income Tax, 1961 concerning such deduction inrespect of particular class of income, received by way of royalty,commissions etc., by an assessee in consideration of imparting specified intellectual property, or extending specified information, or renderingGspecified services to foreign State or foreign enterprise.

14.1. In the early stages of advent of the Act of 1961, ChaptersVI-A, VII and VIII respectively dealt with the deductions to be made in 11 This extraction is after omitting the other parts of Section 80-O of the Act, includingits Provisos and other clauses of Explanation, being not relevant for the question atHhand.

computing the total income, exempted portion/s of income, and rebatesand reliefs but, several of the provisions in these Chapters as also someof the provisions of Chapter XII were recast and were put together inthe newly framed Chapter VI-A by the Finance (No.2) Act, 1967 witheffect from 01.04.1968 with the result that all such incentives or reliefswere directly provided by way of deductions from the total income itself.In its framework, while Part A of this Chapter VI-A contains generalprovisions including definitions, Part B thereof provides for deductionsin respect of certain payments and Part C provides for deductions inrespect of certain incomes in computation of total income. Part CA andPart D making provisions for special class of income or persons wereintroduced later.

14.2. The aspect germane to the present case is that forerunnerto the provision relating to deduction of tax on royalties etc., receivedfrom certain foreign companies, was Section 85-C in the Act of 1961,that was inserted by Act No.13 of 1966 w.e.f. 01.04.1966 and was placedin Chapter VII. The said Section 85-C and several other provisions ofChapter VII were omittedby Section 33, read with Third Schedule, item14, of the Finance (No.2) Act, 1967. The reason for omission of the saidSection 85-C was that similar provision, with revised requirements, cameto be introduced by way of Section 80-O in the new Chapter VI-A[12]-[13].

12 For the purpose of reference, we are reproducing the said repealed Section 85-C asunder:- “85C. Deduction of tax on royalties, etc., received from certain foreigncompanies– Where the total income of an assessee, being an Indian company,includes any income by way of royalty, commission, fees or any similar paymentreceived by it from a company which is neither an Indian company nor acompany which has made the prescribed arrangements for the declaration andpayment of dividends within India (hereafter, in this section, referred to as theforeign company) in consideration for the use of any patent, invention, model,design, secret formula or process, or similar property right, or informationconcerning industrial, commercial or scientific knowledge, experience or skillmade available or provided or agreed to be made available or provided to theforeign company by the assessee, or in consideration of technical servicesrendered or agreed to be rendered to the foreign company by the assessee, underan agreement approved by the Central Government in this behalf before the 1stday of October of the relevant assessment year, the assessee shall be entitled toa deduction from the income e-tax with which it is chargeable on its totalincome for the assessment year of so much of the amount of income-tax calculatedat the average rate of income-tax on the income so included as exceeds theamount of twenty-five per cent. thereof.”

13 For the purpose of reference, we may also reproduce Section 80-O in its originalform, as inserted by the Finance (No.2) Act, 1967 as under:

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A14.3. Section 80-O as introduced in Chapter VI-A got severalmodifications/alterations in regard to the entities eligible to claim suchdeductions as also the extent (that is percentage) of admissible deduction,but the core of object remained that of encouraging the export of Indiantechnical know-how and augmentation of the foreign exchange reservesof the country. While the relief was originally admitted in Section 80-OBfor dealing with a foreign company only, but later on, dealing with aforeign Government or foreign enterprise was included and thereby, thescope of coverage and activities was substantially expanded. However,as noticed from the erstwhile Section 85-C and the originally insertedSection 80-O, any such agreement with the foreign entity required theCapproval of Central Government and this requirement was later on alteredto that of the approval of CBDT. Various other features and aspectsrelated with the development and operation of Section 80-O, as thenexisting, were dealt with by the two circulars referred to on behalf of therevenue that is, Circular No. 187 dated 23.12.1975 and Circular No. 253dated 30.04.1979. In fact, these circulars came up for their fullerDexposition by this Court in the case of Continental Construction (supra),as we shall notice hereafter a little later. At this juncture, we may usefullyreproduce the relevant text of these two notifications which throw lighton the provisions as then existing and as applied. The relevant parts ofthe said circulars read as under:-E“[[rd]]

“Circular No. 187, dated 23[[rd]] December, 1975.

Subject : Section 80-O of the Income-tax Act, 1961-Guidelinesfor approval of agreements.

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“80O. Deduction in respect of royalties, etc., received from certain foreigncompanies. – Where the gross total income of an assessee being an Indiancompany includes any income by way of royalty, commission, fees or anysimilar payment received by it from a foreign company in consideration for theuse of any patent, invention, model, design, secret formula or process, orsimilar property right, or information concerning industrial, commercial orscientific knowledge, experience or skill made available or provided or agreed toGbe made available or provided to the foreign company by the assessee, or inconsideration of technical services rendered or agreed to be rendered to theforeign company by the assessee, under an agreement approved by the CentralGovernment in this behalf before the 1st day of October of the relevantassessment year, there shall be allowed a deduction from such income of anamount equal to sixty per cent. thereof, in computing the total income of theassessee.”H

“With the twin objectives of encouraging the export of Indiantechnical know-how and augmentation of the foreign exchangeresources of the country, section 80-O of the Income-tax Act,1961, provides for concessional tax treatment in respect of incomeby way of royalty, commission, fees or any similar paymentreceived from a foreign Government or a foreign enterprise, subjectto the satisfaction of certain conditions laid down in the said section.

2. One of the conditions for availability of the tax concessionunder section 80-O is that the agreement should be approved bythe Central Board of Direct Taxes in this behalf. The applicationfor the approval of the agreement is required to be made to theCentral Board of Direct Taxes before the 1st day of October ofthe assessment year in relation to which the approval is first sought.The form of application for this purpose has been standardisedand a specimen is given in the Appendix.

3. The object of the provision when it was first introducedas section 85C in the Income-tax Act, 1961, was stated in Board’sCircular No.4P (LXXVI-61) of 1966, to be to encourage Indiancompanies to export their technical know-how and skill abroadand augment the foreign exchange resources of the country. Thiswas reiterated in Board’s Circular No.72 explaining the changesintroduced by the Finance (No.2) Act, 1971. Keeping in view thepurpose behind this tax incentive and the requirements of thestatutory provisions, the Board have evolved the followingguidelines for the grant of such approval:-…..

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(ix) In the case of a composite agreement specifyinga consolidated amount as consideration for purposes whichinclude matters outside the scope of Section 80-O (e.g.,use of trade-marks, supply of equipment, etc.) the amountof the consideration relating to the provision of technicalknow-how or technical services, etc., qualifying for purposesof section 80-O will have to be determined by the Income-tax Officer separately at the time of assessment after dueappreciation of the relevant facts. Where, however, in theopinion of the Board, it will not be possible to properlyascertain and determine the amount of the consideration AB

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relatable to the provision of the know-how or the technicalservices, etc., qualifying for section 80-O, the Board maynot approve such an agreement for the purposes of section80-O of the Act.”

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Circular No.253, dated 30[th] April, 1979.

Section 80-O of the Income-tax Act, 1961 –Guidelines forapproval of agreements – Further clarifications. – Attentionis invited to the Board’s Circular No. 187 (F. No. 473/15/73-FTD),dated 23rd December, 1975, on the above subject laying downthe guidelines for the grant of approval under section 80-O. TheBoard has had occasion to re-examine the aforesaid guidelinesand it has been decided to modify the guidelines to the extentindicated below : - C

(i) Para.3(iii) of the Circular dated 23-12-1975 provided thatthe agreement should have been genuinely entered into onand after the date when the tax concession was announcedby the introduction of the relevant Bill in the Lok Sabha. Ithas now been decided that approvals under section 80-Owould not be denied on this ground. In other words, para3(iii) of the Circular dated 23-12-1975 may be treated asdeleted.

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(ii) In para (ix) of the said circular, it was mentioned thatconsideration for use of trade-mark would be outside thescope of section 80-O. It has now been decided that paymentsmade for the use of trade-marks, are of the nature of royalty,Fand, therefore, fall within the scope of section 80-O.

(iii) It was also stated in para 3(ix) of circular dated 23-12-75that in the case of a composite agreement which specified aconsolidated amount as consideration for purposes whichincluded matters outside the scope of section 80-O, the BoardGmay not approve such an agreement for the purposes ofsection 80-O of the Act if it was not possible to properlyascertain and determine the amount of the considerationrelatable to the provision of the know-how or technicalservices, etc., qualifying for section 80-O. Thus, the benefit H

of section 80-O could be denied to the entire amount ofroyalty, commission, fees, etc., receivable under such anagreement. It has since been decided that in such casesapproval would be granted by the Board subject to asuitable disallowance for the non-qualifying services,after taking into consideration the totality of theagreement, so the balance of royalty/fees, etc., whichis for the services covered by section 80-O, can beexempted.”

14.4. There had been several other modifications of Section 80-Ofrom time to time. The relevant aspects noticeable for the present purposeare that the extent of deduction under Section 80-O was also alteredfrom time to time and it even came to be allowed 100 per cent. but, bythe Finance Act, 1984, it was reduced to 50 per cent. of the referredincome. Then, the requirement of approval by CBDT was substitutedby Finance Act, 1988 to the approval by Chief Commissioner or DirectorGeneral. However, by Finance (No. 2) Act of 1991, even that requirementwas deleted. In fact, the Finance (No. 2) Act of 1991 brought about asea of changes in Section 80-O whereby, first and second provisos wereomitted and the above-mentioned clause (iii) of Explanation wasinserted. The words “or a person (other than a company) who isresident in India” were also inserted by this very Finance (No. 2) Actof 1991 expanding the reach of Section 80-O even to non-corporate taxpayers. Moreover, the earlier expressions “technical services” werealso altered to “technical or professional services”. There is nogainsaying the fact that Finance (No. 2) Act of 1991 led to a considerablerecasting of Section 80-O of the Act of 1961 with substantial expansionof its ambit and area of coverage. These amendments were madeapplicable from the assessment year 1992-93 onwards and obviously,this had been the reason that the assessees like the appellant, who hadearlier been taking the benefit of deduction under Section 80HHC withreference to their earning of foreign exchange, attempted to shift, forthe purpose of deduction, to this provision of Section 80-O. The effectof the amendments to Section 80-O by Finance (No. 2) Act of 1991 wasalso explained by the revenue in its Circular No. 621 dated 19.12.1991,the relevant part whereof could be extracted as under:- A

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“Circular No. 621, dated 19[th] December, 1991:- ‘Extending the scope of deduction in respect of income fromroyalties, commission, technical fee, etc. —-37. Under theexisting provisions of section 80-0 of the Income-tax Act, an Indiancompany, deriving income by way of royalties, commission, feesBetc., from a foreign Government or a foreign enterprise inconsideration of the provision of technical know-how or technicalservices under an approved agreement, is entitled to a deduction,in computing its taxable income, of an amount equal to 50 percent. of such income provided such income is received in, or broughtinto, India in convertible foreign exchange.

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37.1 With a view to bringing this provision on a parity with othertax concessions for the export sector and also as a measure ofrationalisation, the benefit under section 80-0 has been extendedto a non-corporate tax payers resident in India. The concessionwill now also be available in relation to professional services aswell as for services rendered to foreign enterprise from India.Further, the requirement of prior approval of the tax authorities inthis regard has been done away with.

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37.2 This amendment will take effect from 1st April, 1992 andwill, accordingly, apply in relation to the assessment year 1992—93 and subsequent years.

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14.5. There had been several further clarifications concerningSection 80-O, as refurbished by the Finance (No. 2) Act of 1991; andone such clarification by the revenue had been by way of Circular No.700 dated 23.03.1995, which has been strongly relied upon by the learnedsenior counsel for the appellant. The relevant contents of this circularcould also be extracted as follows:-

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“Circular No. 700, dated 23[rd] March, 1995

‘Deduction under section 80-O of the Income-tax Act, 1961– Clarification regarding.- Section 80-O of the Income-taxAct,1961, provides for a deduction of 50% from the income of anIndian resident by way of royalty, commission, fees or any similarpayment from a foreign Government or enterprise:

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(a) in consideration for the use outside India of any patent,invention, model, design, secret formula or process, etc.; or (b) in consideration of technical or professional services renderedor agreed to be rendered outside India to such foreignGovernment or enterprise.

In either case, the requirement is that the income should be inconvertible foreign exchange.

2. It has been clarified in the Explanation (iii) to section 80-Othat services rendered or agreed to be rendered outside India [i.e., item (b) above] shall include services rendered from Indiabut shall not include services rendered in India.

3. A question has been raised as to whether the benefit of section80-O would be available if the technical and professional services,though rendered outside India, are used by the foreign Governmentor enterprise in India.

4. The matter has been considered by the Board. It is clarifiedthat as long as the technical and professional services are renderedfrom India and are received by a foreign Government or enterpriseoutside India, deduction under section 80-O would be available tothe person rendering the services even if the foreign recipient ofthe services utilises the benefit of such services in India.

5. The contents of this circular may be given wide publicity andbrought to the notice of all the subordinate authorities under yourcharge for information and necessary action.”

14.6. In summation of what has been noticed hereinabove, it turnsout that with the objectives of giving impetus to the functioning of Indianindustries to provide intellectual property or information concerningindustrial, commercial or scientific knowledge to the foreign countriesso as to augment the foreign exchange earnings of our country and atthe same time, earning a goodwill of the Indian technical know-how inthe foreign countries, the provisions like Section 85-C earlier and Section80-O later were inserted to the Act of 1961. Noteworthy it is that fromtime to time, the ambit and sphere of Section 80-O were expanded andeven the dealings with foreign Government or foreign enterprise wereincluded in place of “foreign company” as initially provided. Therequirement of approval by the Central Government of any such A

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Aarrangement was also modified and was ultimately done away with.Significantly, while initially the benefit of Section 80-O was envisagedonly for an Indian company but later on, it was also extended to a personother than a company, who is resident of India. The extent of deductionhad also varied from time to time.B14.7. Broadly speaking, a few major and important factors relatedwith Section 80-O of the Act of 1961, with reference to its backgroundand its development, make it clear that the tax incentive for impartingtechnical know-how and akin specialities from our country to the foreigncountries ultimately took the shape in the manner that earning of foreignexchange, by way of imparting intellectual property, or furnishing theCinformation concerning industrial, commercial, scientific knowledge, orrendering of technical or professional services to the foreign Governmentor foreign enterprise, was made eligible for deduction in computation oftotal income, to the tune of 50 per cent. of the income so received. Thefiner details like those occurring in Explanation (iii) of Section 80-ODwere also taken care of by providing that the services envisaged bySection 80-O ought to be rendered outside India but they may be rendered‘from India’, while making it clear that the services which are rendered‘in India’ would not qualify for such a deduction.

The relevant principles for interpretation E

15. Having thus taken note of annals and historical perspectivesof development of Section 80-O of the Act and the relevant parts of thecirculars issued by the department from time to time in tune with suchdevelopments, we may now examine the principles for interpretationand application of this provision. In this regard, as noticed, it has beenFargued on behalf of the appellant, with reference to the decisions inBaby Marine Exports and B. Suresh (supra), that an incentive provisionlike Section 80-O of the Act has to be construed purposively, broadlyand liberally so as to achieve its avowed object to earn foreign exchange.Per contra, it has been contended on behalf of revenue, with referenceto the Constitution Bench decision in Dilip Kumar & Co. (supra), thatGthe taxing statutes are subject to the rule of strict interpretation, and thebenefit of ambiguity in case of an exemption notification or an exemptionclause must go in favour of the revenue; and the same principles wouldapply in relation to Section 80-O of the Act.

15.1. So far the decision in the case of B. Suresh (supra) isHconcerned, it does not appear necessary to dilate on the same because the question involved therein was entirely different that is, as to whetherthe foreign exchange earned by transferring the right of exploitation offilms outside India by way of lease was admissible for deduction underSection 80HHC of the Act, where the department attempted to contendthat movies/films were not goods. However, having regard to thesubmissions made, we may look at the ratio from the other cited decisionsin requisite details.

Baby Marine Exports

16. The question that came up for determination before this Courtin the case of Baby Marine Exports(supra) was as to whether theexport house premium received by assessee was includible in ‘profits ofbusiness’ while computing deduction under Section 80HHC?

16.1. The assessee in the case of Baby Marine Exports wasengaged in the business of selling marine products both in domestic marketand was also exporting it to direct buyers as also through export houses.Contracts with export houses were entered into where assessee receivedentire FOB value of exports plus export house premium of 2.25% ofFOB value. While claiming deduction under Section 80HHC of the Act,this export house premium was also shown as part of total turnover, asbeing part of sale consideration and not commission or service charge;and deduction was claimed accordingly. The AO rejected such claim fordeduction with reference to clause 12 of the agreement and with theobservation that such premium was clearly a commission or servicecharge. The Appellate Authority held that what the assessee receivedwas only reimbursement of certain expenses or payments towardscommission or brokerage, falling within the ambit of clause 1 ofExplanation (baa) to Section 80HHC. However, the ITAT allowed theappeal of the assessee by accepting the stand that the export housepremium was includible in ‘profits of business’ while computing deductionunder Section 80HHC and that export house premium was nothing butan integral part of sale price realised by assessee and could not havebeen taken as either commission or brokerage. The appeal by revenuewas dismissed by the High Court while following its earlier decision onthe same point.

16.2. In further appeal by revenue, this Court observed, interalia, with reference to other decisions in Sea Pearl Industries v. CITCochin: 2001(127) ELT 649 (SC) and IPCA Laboratory Ltd. v. Dy.Commissioner of Income Tax, Mumbai: (2004) 266 ITR 521 (SC)

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Athat Section 80HHC was incorporated with the object of granting incentiveto earners of foreign exchange and this section must receive liberalinterpretation. This Court also observed with reference to the decisionin Bajaj Tempo Ltd. v. Commissioner of Income Tax, Bombay:(1992) 196 ITR 188 (SC) that we ‘must always keep the object ofthe Act in view while interpreting the Section. The legislative intentionBmust be the foundation of the court’s interpretation’.

16.3. However, noticeable it is that in Baby Marine Exports,ultimately this Court upheld the claim of assessee for deduction underSection 80HHC of the Act not by way of any liberal or extended meaningto the provision, but only on its plain construction with reference to theCdefinition of the term “supporting manufacturer” in that provision and itsdirect application to the facts of the case as would distinctly appearfrom the following passages (at pp. 334-335 of ITR):- “According to section 80HHC(1), the export house incomputing its total income is entitled to deduction to the extent ofDthe profit derived by the assessee from the export of the goods ormerchandise. Whereas, according to section 80HHC(1A), thesupporting manufacturer shall be entitled to a deduction of profitderived by the assessee from the sale of goods or merchandise.The term “supporting manufacturer” has been defined in this sectionEand it reads as under:

“ ‘supporting manufacturer’ means a person being an Indiancompany or a person (other than a company) resident in India,manufacturing (including processing), goods or merchandise andselling such goods or merchandise to an Export House or a TradingFHouse for the purposes of export”: According to the said definition,the respondent clearly comes within the purview of supportingmanufacturer. On plain construction of section 80HHC(1A)the assessee being supporting as manufacturer shall beentitled to a deduction of the profit derived by the assesseefrom the sale of goods or merchandise.

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The respondent - a supporting manufacturer sold the goodsor merchandise to the export house and received the entire FOBvalue of the goods plus the export house premium of 2.25 percent. of the FOB value. The relevant clause 12 of the agreementhas already been extracted in the earlier part of the judgment and H

according to the said clause, the export house is under obligationto pay to the supporting manufacturer an incentive of 2.25 percent. on the F.O.B. value according to the terms of the agreement.The respondent, a supporting manufacturer, admittedly sold thegoods to the export house in respect of which the export househas issued a certificate under proviso to sub-section (1). Accordingto the section, the respondent - assessee, in computing the totalincome be allowed a deduction to the extent of profits referred toin sub-section (1B) derived by the assessee from the sale of goodsto the export house.

The Appellate Tribunal has arrived at the definite conclusionthat the Export House premium is nothing but an integral part ofsale price realized by the assessee - a supporting manufacturerfrom the Export House. The Tribunal further held that the ExportHouse premium cannot possibly be considered to be eithercommission or brokerage, as a person cannot earn commission orbrokerage for himself.

The High Court has upheld the findings of the Tribunal. Inour considered view, the order of the Appellate Tribunal is basedon proper construction of section 80HHC(1A) of the Income-taxAct that the Export House premium is an integral part of the saleprice realized by the assessee from the export house.

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The submission of the appellant that the premium earnedby the respondent assessee is totally unrelated to export isfallacious and devoid of any merit. This submission of the appellantis also contrary to the specific terms of the agreement betweenthe appellant and the respondent.

On a plain construction of section 80HHC(1A), therespondent is clearly entitled to claim deduction of thepremium amount received from the export house incomputing the total income. The export house premium canbe included in the business profit because it is an integral part ofbusiness operation of the respondent which consists of sale ofgoods by the respondent to the export house.”

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ADilip Kumar & Co.

17. The core question referred for authoritative pronouncementto the Constitution Bench in the case of Dilip Kumar & Co. (supra)wasas to what interpretative rule should be applied while interpreting a taxexemption provision/notification when there is an ambiguity as to itsBapplicability with reference to the entitlement of the assessee or the rateof tax? The reference to the Constitution Bench was necessitatedessentially for the reason that in a few decisions, one of them by a 3-Judge Bench of this Court in the case of Sun Export Corpn. v. Collectorof Customs: (1997) 6 SCC 564, the proposition came to be stated thatany ambiguity in a tax provision/notification must be interpreted in favourCof the assessee who is claiming benefit thereunder.[14]

17.1. In Dilip Kumar & Co., the Constitution Bench of this Courtexamined several of the past decisions including that by anotherConstitution Bench in CCE v. Hari Chand Shri Gopal: (2011) 1 SCC236 as also that by a Division Bench of this Court in the case of UOI v.DWood Papers Ltd.: (1990) 4 SCC 256 wherein, the principles werestated in clear terms that the question as to whether a subject falls in thenotification or in the exemption clause has to be strictly construed; andonce the ambiguity or doubt is resolved by interpreting the applicabilityof exemption clause strictly, the Court may construe the exemption clauseEliberally. This Court found that in Wood Papers Ltd. (supra), some ofthe observations in an earlier decision in the case of CCE v. ParleExports (P) Ltd.: (1989) 1 SCC 345 were also explained with allclarity. This Court noted the enunciations in Wood Paper Ltd. with totalapproval as could be noticed in the following:- F“46. In the judgment of the two learned Judges in Union of Indiav. Wood Papers Ltd.: (1990) 4 SCC 256 (hereinafter referred toas “Wood Papers Ltd. case”, for brevity), a distinction betweenstage of finding out the eligibility to seek exemption and stage ofapplying the nature of exemption was made. Relying on thedecision in CCE v. Parle Exports (P) Ltd. : (1989) 1 SCC 345, itGwas held: (Wood Papers Ltd. case, SCC p. 262, para 6)

14 In Sun Export Corpn. v. Collector of Customs, (1997) 6 SCC 564 the Court hadstated the law as follows (at page 568) :“Even assuming that there are two views possible, it is well settled that oneHfavourable to the assessee in matters of taxation has to be preferred.”

“6. … Do not extend or widen the ambit at the stage ofapplicability. But once that hurdle is crossed, construe itliberally.”

The reasoning for arriving at such conclusion is found in para 4of Wood Papers Ltd. case, which reads: (SCC p. 260)

“4. … Literally exemption is freedom from liability, tax or duty.Fiscally, it may assume varying shapes, specially, in a growingeconomy. For instance tax holiday to new units, concessionalrate of tax to goods or persons for limited period or with thespecific objective, etc. That is why its construction, unlikecharging provision, has to be tested on different touchstone. Infact, an exemption provision is like an exception and on normalprinciple of construction or interpretation of statutes it isconstrued strictly either because of legislative intention or oneconomic justification of inequitable burden or progressiveapproach of fiscal provisions intended to augment State revenue.But once exception or exemption becomes applicable no ruleor principle requires it to be construed strictly. Truly speakingliberal and strict construction of an exemption provisionare to be invoked at different stages of interpreting it. Whenthe question is whether a subject falls in the notificationor in the exemption clause then it being in nature ofexception is to be construed strictly and against the subject,but once ambiguity or doubt about applicability is liftedand the subject falls in the notification then full play shouldbe given to it and it calls for a wider and liberalconstruction.”

(emphasis supplied) *********

58. In the above passage, no doubt this Court observed that: (ParleExports case, SCC p. 357, para 17)

“17. when two views of a notification are possible, it should beconstrued in favour of the subject as notification is part of afiscal enactment.”

This observation may appear to support the view that ambiguityin a notification for exemption must be interpreted to benefit the B

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subject/assessee. A careful reading of the entire para, as extractedhereinabove would, however, suggest that an exception to thegeneral rule of tax has to be construed strictly against those whoinvoke for their benefit. This was explained in a subsequentdecision in Wood Papers Ltd. case. In para 6, it was observed asfollows: (SCC p. 262)

“6. … In CCE v. Parle Exports (P) Ltd., this Court whileaccepting that exemption clause should be construed liberallyapplied rigorous test for determining if expensive items likeGold Spot base or Limca base or Thums Up base were coveredin the expression food products and food preparations used inItem No. 68 of First Schedule of Central Excises and Salt Actand held ‘that it should not be in consonance with spirit and thereason of law to give exemption for non-alcoholic beveragebasis under the notification in question’. Rationale or ratio issame. Do not extend or widen the ambit at stage of applicability.But once that hurdle is crossed construe it liberally. Since therespondent did not fall in the first clause of the notificationthere was no question of giving the clause a liberal constructionand hold that production of goods by respondent mentioned inthe notification were entitled to benefit.”

59. The above decision, which is also a decision of a two-JudgeBench of this Court, for the first time took a view that liberal andstrict construction of exemption provisions are to be invoked atdifferent stages of interpreting it. The question whether asubject falls in the notification or in the exemption clause,has to be strictly construed. When once the ambiguity ordoubt is resolved by interpreting the applicability ofexemption clause strictly, the Court may construe thenotification by giving full play bestowing wider andliberalconstruction. The ratio of Parle Exports case deducedas follows: (Wood Papers Ltd. case, SCC p. 262, para 6)

“6. … Do not extend or widen the ambit at stage of applicability.But once that hurdle is crossed, construe it liberally.”

60. We do not find any strong and compelling reasons to differ,taking a contra view, from this. We respectfully record ourconcurrence to this view which has been subsequently,elaborated by the Constitution Bench in Hari Chand case.”

17.2. The Constitution Bench decision in Hari Chand Shri Gopal(supra) was also taken note of, inter alia, in the following:-

“50. We will now consider another Constitution Bench decisionin CCE v. Hari Chand Shri Gopal(hereinafter referred as “HariChand case”, for brevity). We need not refer to the facts of thecase which gave rise to the questions for consideration before theConstitutional Bench. K.S. Radhakrishnan, J., who wrote theunanimous opinion for the Constitution Bench, framed the questionviz. whether manufacturer of a specified final product falling underthe Schedule to the Central Excise Tariff Act, 1985 is eligible toget the benefit of exemption of remission of excise duty on specifiedintermediate goods as per the Central Government Notificationdated 11-8-1994, if captively consumed for the manufacture offinal product on the ground that the records kept by it at therecipient end would indicate its “intended use” and “substantialcompliance” with procedure set out in Chapter 10 of the CentralExcise Rules, 1994, for consideration? The Constitution Benchanswering the said question concluded that a manufacturerqualified to seek exemption was required to comply with thepreconditions for claiming exemption and therefore is not exemptor absolved from following the statutory requirements as containedin the Rules. The Constitution Bench then considered andreiterated the settled principles qua the test of construction ofexemption clause, the mandatory requirements to be compliedwith and the distinction between the eligibility criteria withreference to the conditions which need to be strictly compliedwith and the conditions which need to be substantially compliedwith. The Constitution Bench followed the ratio in HansrajGordhandas case, to reiterate the law on the aspect ofinterpretation of exemption clause in para 29 as follows: (HariChand case, SCC p. 247)

“29. The law is well settled that a person who claims exemptionor concession has to establish that he is entitled to that exemptionor concession. A provision providing for an exemption,concession or exception, as the case may be, has to beconstrued strictly with certain exceptions depending uponthe settings on which the provision has been placed in thestatute and the object and purpose to be achieved. If A

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Aexemption is available on complying with certain conditions,the conditions have to be complied with. The mandatoryrequirements of those conditions must be obeyed orfulfilled exactly, though at times, some latitude can be shown,if there is failure to comply with some requirements whichare directory in nature, the non-compliance of which would notBaffect the essence or substance of the notification grantingexemption.

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C17.3. In view of above and with reference to several otherdecisions, in Dilip Kumar & Co., the Constitution Bench summed upthe principles as follows:- “66. To sum up, we answer the reference holding as under:

D66.1.Exemption notification should be interpreted strictly;the burden of proving applicability would be on the assessee toshow that his case comes within the parameters of the exemptionclause or exemption notification.

66.2. When there is ambiguity in exemption notificationwhich is subject to strict interpretation, the benefit of suchEambiguity cannot be claimed by the subject/assessee and itmust be interpreted in favour of the Revenue.

66.3. The ratio in Sun Export case is not correct and all thedecisions which took similar view as in Sun Export casestandoverruled.”F

17.4. Obviously, the generalised, rather sweeping, propositionstated in the case of Sun Export Corporation (supra) as also in othercases that in the matters of taxation, when two views are possible, theGone favourable to assessee has to be preferred, stands specificallydisapproved by the Constitution Bench in Dilip Kumar & Co. (supra).It has been laid down by the Constitution Bench in no uncertain termsthat exemption notification has to be interpreted strictly; the burden ofproving its applicability is on the assessee; and in case of any ambiguity,the benefit thereof cannot be claimed by the subject/assessee, rather itHwould be interpreted in favour of the revenue.

18. It has been repeatedly emphasised on behalf of the appellantthat Section 80-O of the Act is essentially an incentive provision and,therefore, needs to be interpreted and applied liberally. In this regard,we may observe that deductions, exemptions, rebates et cetera are thedifferent species of incentives extended by the Act of 1961[15]. In otherwords, incentive is a generic term and ‘deduction’ is one of its species;‘exemption’ is another. Furthermore, Section 80-O is only one of theprovisions in the Act of 1961 dealing with incentive; and even as regardsthe incentive for earning or saving foreign exchange, there are otherprovisions in the Act, including Section 80HHC, whereunder the appellantwas indeed taking benefit before the assessment year 1993–94.

19. Without expanding unnecessarily on variegated provisionsdealing with different incentives, suffice would be to notice that theproposition that incentive provisions must receive “liberalinterpretation” or to say, leaning in favour of grant of relief to theassessee is not an approach countenanced by this Court. The law declaredby the Constitution Bench in relation to exemption notification, propriovigore, would apply to the interpretation and application of any akinproposition in the taxing statutes for exemption, deduction, rebate et al.,which all are essentially the form of tax incentives given by theGovernment to incite or encourage or support any particular activity[16].

20. The principles laid down by the Constitution Bench, whenapplied to incentive provisions like those for deduction, would also bethat the burden lies on the assessee to prove its applicability to his case;and if there be any ambiguity in the deduction clause, the same is subjectto strict interpretation with the result that the benefit of such ambiguitycannot be claimed by the assessee, rather it would be interpreted infavour of the revenue. In view of the Constitution Bench decision inDilip Kumar & Co. (supra), the generalised observations in BabyMarine Exports (supra) with reference to a few other decisions, that a 15 As tersely put by this Court in Liberty India v. CIT: (2009) 9 SCC 328, the Act of 1961 broadly provides for two types of tax incentives, namely, investment-linked incentivesand profit-linked incentives. Chapter VI-A which provides for incentives in the form oftax deductions essentially belong to the category of “profit-linked incentives” (at p.339).

16 Of course, there may be other objectives also like supporting any particular class ofpersons e.g., those contained in Section 80TTB of the Act (for deduction in respect ofinterest on deposits in case of senior citizen) or Section 80U of the Act (for deductionin case of differently abled person).

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Atax incentive provision must receive liberal interpretation, cannot beconsidered to be a sound statement of law; rather the applicable principleswould be those enunciated in Wood Papers Ltd. (supra), which havebeen precisely approved by the Constitution Bench. Thus, at and untilthe stage of finding out eligibility to claim deduction, the ambit and scopeof the provision for the purpose of its applicability cannot be expandedBor widened and remains subject to strict interpretation but, once eligibilityis decided in favour of the person claiming such deduction, it could beconstrued liberally in regard to other requirements, which may be formalor directory in nature.

21. As noticed, Section 80-O of the Act has a unique purpose andChence, peculiarities of its own. Applying the aforesaid principles to anenquiry for the purpose of a claim of deduction under Section 80-O ofthe Act as applicable to the present case, evident it is that for the purposeof eligibility, the service or activity has to precisely conform to what hasbeen envisaged by the provision read with its explanation; and the other Drequirements of receiving convertible foreign exchange etc., are also tobe fulfilled. It is only after that stage is crossed and a particular activityfalls within the ambit of Section 80-O, this provision will apply with fullforce and may be given liberal application. The basic question, therefore,would remain as to whether the suggested activity of appellant had beenof rendering such service from India to its principals in foreign countryEwhich answers to the description provided by the provision. As regardsthis enquiry, nothing of any liberal approach is envisaged. The activitymust strictly conform to the requirements of Section 80-O of the Act.

22. At this juncture, we are impelled to deal with a segment ofsubmissions on behalf of the appellant with reference to the decision inFthe case of Abhiram Singh (supra). It has been argued that this Courthas cautioned against making ‘a fortress out of the dictionary’ but theHigh Court has relied heavily on text and dictionary rather than the objectof the provision. In our view, this part of criticism on behalf of the appellanton the approach of the High Court is entirely inapt and rather unnecessary.GThe referred observations in the majority view in Abhiram Singh’s caseoccurred in relation to the interpretation of Section 123(3) of theRepresentation of People Act, 1951, which is aimed at curbing theunwarranted tendencies of communalism during election campaign andoperates in entirely different fields of social welfare and ethos ofdemocracy.H

22.1. It remains trite that any process of construction of a writtentext primarily begins with comprehension of the plain language used. Insuch process of comprehension of a statutory provision, the meaning ofany word or phrase used therein has to be understood in its natural,ordinary or grammatical meaning unless that leads to some absurdity orunless the object of the statute suggests to the contrary.[17] In the contextof taxing statute, the requirement of looking plainly at the language ismore pronounced with no room for intendment or presumption.[18] In thisprocess, if natural, ordinary or grammatical meaning of any word orphrase is available unquestionably and fits in the scheme and object ofthe statute, the same could be, rather need to be, applied. The otherguiding rules of interpretation would be the internal aides like definitionor interpretation clauses in the statute itself. Yet further, if internal aidesdo not complete the comprehension, recourse to external aides like thoseof judicial decisions expounding the meaning of the words used inconstruing the statutes in pari materia, or effect of usage and practiceetc., is not unknown; and in this very sequence, it is an accepted principlethat when a word is not defined in the enactment itself, it is permissibleto refer to the dictionaries to find out the general sense in which theword is understood in common parlance. In fact, for the purpose ofgathering ordinary meaning of any expression, recourse to its dictionary 17 In Principles of Statutory Interpretation by Justice G.P. Singh (14th edn.at p. 91) thiselementary rule of literal construction has been stated with reference to scores ofdecisions, including that in Crawford v. Spooner : (1846) 4 MIA 179 as follows:

“The words of a statute are first understood in their natural, ordinary or popularsense and phrases and sentences are construed according to their grammaticalmeaning, unless that leads to some absurdity or unless there is something in thecontext, or in the object of the statute to suggest the contrary.”

18 Apart from the principles already noticed hereinbefore, profitable it would be topoint out that the basic principles of interpretation of taxing statutes have been re-condensed by this Court in CIT v. Yokogawa India Ltd.: (2017) 391 ITR 274 (SC) asfollows :

“The cardinal principles of interpretation of taxing statutes centres aroundthe opinion of Rowlatt, J. in Cape Brandy Syndicate v. Inland Revenue Commissionerswhich has virtually become the locus classicus. The above would dispense with thenecessity of any further elaboration of the subject notwithstanding the numerousprecedents available inasmuch as the evolution of all such principles are within the fourcorners of the following opinion of Rowlatt, J.: (Cape Brandy case, KB p. 71)

“… in a taxing Act one has to look merely at what is clearly said. There isno room for any intendment. There is no equity about a tax. There is nopresumption as to a tax. Nothing is to be read in, nothing is to be implied.One can only look fairly at the language used.”

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Ameaning is rather interlaced in the literal rule of interpretation. This aspectwas amply highlighted and expounded by the Constitution Bench of thisCourt in the case of Commissioner of Wealth-Tax, Andhra Pradeshv. Officer-in-Charge (Court of Wards), Paigah: (1976) 105 ITR133 as follows (at p.137 of ITR) :

B“8 . It is true that in Raja Benoy Kumar Sahas Roy’s case: [1957]32 ITR 466(SC) this court pointed out that meanings of wordsused in Acts of Parliament are not necessarily to be gatheredfrom dictionaries which are not authorities on what Parliamentmust have meant. Nevertheless, it was also indicated there thatwhere there is nothing better to rely upon, dictionaries may beCused as an aid to resolve an ambiguity. The ordinary dictionarymeaning cannot be discarded simply because it is given ina dictionary. To do that would be to destroy the literal ruleof interpretation. This is a basic rule relying upon the ordinarydictionary meaning which, in the absence of some overriding orDspecial reasons to justify a departure, must prevail. …….”

22.2. In the setup of the present case, for a proper comprehensionof the contents and text of the relevant provision of Section 80-O andExplanation (iii), which are carrying even the minute distinction of theEexpressions “from India” and “in India”, recourse to lexical semanticshas been inevitable. However, in all fairness, the High Court has notonly discussed semantics and dictionary meanings but, has equally lookedat the object and purpose of Section 80-O of the Act. Hence, withoutfurther expanding on this issue, suffice it to say for the present purposeFthat the submissions against the approach of High Court with referenceto the decision in Abhiram Singh (supra) does not advance the causeof the appellant.

Interpretation and application of Section 80-O of the Act of1961 in the referred decisionsG23. Having thus taken note of the provision applicable as also theprinciples for its interpretation, we may now take note of the relevantdecisions wherein the claim for deduction under Section 80-O of the Acthas been dealt with by the Courts in the given fact situations and in theparticular set of circumstances.HJ.B. Boda & Co.

24. The decision of this Court in J.B. Boda & Co.(supra) hasbeen rather the mainstay of the contentions urged on behalf of theappellant.

24.1. In the case of J.B. Boda & Co., the appellant was engagedin brokerage business as reinsurance broker. The appellant had beenarranging for reinsurance of a portion of risk with various reinsurancecompanies either directly or through foreign brokers against which, itwas receiving a percentage of premium received by the foreign companiesas its share of brokerage. With respect to reinsurance business, appellantcontacted M/s Sedgwick Offshore Resources Ltd. (London brokers)and furnished all details about the risk involved etc., and confirmationabout the assignment was informed to the appellant. Following this, theIndian ceding company handed over the premium to be paid by it to theforeign reinsurance company to the appellant for onward transmission.Appellant approached the RBI showing the amount payable afterdeducting its brokerage amount; and this amount of brokerage wasclaimed to be a receipt of convertible foreign exchange without acorresponding foreign remittance with reference to the provisioncontained in Section 9 of the Foreign Exchange Regulation Act.However, the respondent revenue took the stand that the agreements ofthe appellant could not be approved for the purpose of Section 80-O ofthe Act, for the income having been generated in India and not receivedin foreign currency. This was unsuccessfully challenged by the assesseebefore the High Court and hence, the matter was in appeal before thisCourt.

24.2. It is at once clear that in J. B. Boda & Co., the question, asto whether the foreign exchange received by the assessee in lieu ofservices to the foreign company was eligible for deduction under Section80-O of the Act or not, did not even arise. This was because of the factthat the activity of assessee was, in fact, accepted by CBDT to beeligible for deduction under Section 80-O of the Act in its Circular No.731 dated 20.12.1995 and the only issue sought to be raised against theassessee by the revenue related to the method of receiving the amountby the assessee. In the said Circular, it was provided by the revenue that‘receipt of brokerage by a reinsurance agent in India from the grosspremia before remittance to is foreign principals will also be entitledto the deduction under Section 80-O of the Act’. This Court notedthe contents of the said Circular dated 20.04.1995; and two paragraphs A

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Atherein with the emphasis supplied by this Court could be usefullyreproduced as under (at p. 280 of ITR):- “CIRCULAR NO. 731 DATED 20-12-1995

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B2. Reinsurance brokers, operating in India on behalf of principalsaboard are required to collect the reinsurance premia from cedinginsurance companies in India and remit the same to their principals.In such cases, brokerage can be paid either by allowing the brokersto deduct their brokerage out of the gross premia collected fromIndian insurance companies and remit the net premia overseasCor they could simply remit the gross premia and get back theirbrokerage in the form of remittance through banking channels.

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4. The matter has been examined. The condition for deductionDunder section 80-O is that the receipt should be in convertibleforeign exchange. When the commission is remitted aboard, itshould be in a currency that is regarded as convertible foreignexchange according to FERA. The Board are of the view that insuch cases the receipt of brokerage by a reinsurance agent inIndia from the gross premia before remittance to his foreignEprincipals will also be entitled to the deduction under section80-O of the Act.”

(emphasis in italics in original)

24.2.1. This Court found the said Circular binding on revenue andalso found meaningless the insistence of revenue on a formal remittanceFto foreign reinsurer and receiving commission from them. This Courtobserved that such “two way traffic” was unnecessary because in theend result, the income was generated in India in foreign exchange in alawful and permissible manner. Hence, this Court concluded on the matterwhile disapproving the stand of the revenue as follows (at p. 281 ofGITR):- “The facts brought out in this case are clear as to how theremittance to the foreign reinsurance company is made throughthe Reserve Bank of India in conformity with the agreementbetween the appellant and the foreign reinsurers, and that theHremittance statement filed along with annexure “A” which

evidences that the amount due to the foreign reinsurers as alsothe brokerage due to the appellant and the balance due to theforeign reinsurers is remitted (and expressed so) in dollars. It iscommon ground that the entire transaction effected through themedium of the Reserve Bank of India is expressed in foreignexchange and in effect the retention of the fee due to the appellantis in dollars for the services rendered. This, according to us, isreceipt of income in convertible foreign exchange. It seems to usthat a “two way traffic” is unnecessary. To insist on a formalremittance to the foreign reinsurers first and thereafter to receivethe commission from the foreign reinsurer, will be an emptyformality and a meaningless ritual, on the facts of this case. On aperusal of the nature of the transaction and in particular thestatement of remittance filed in the Reserve Bank of Indiaregarding the transaction, we are unable to uphold the view of therespondent that the income under the agreement is generated inIndia or that the amount is one not received in convertible foreignexchange. We are of the view that the income is received in Indiain convertible foreign exchange, in a lawful and permissible mannerthrough the premier institution concerned with the subject-matter—the Reserve Bank of India. In this view, we hold that theproceedings of the Central Board of Direct Taxes dated March11, 1986, declining to approve the agreements of the appellantwith Sedgwick Offshore Resources Ltd., London, for the purposesof section 80-O of the Income-tax Act, are improper and illegal.We declare so. We direct the respondent to process theagreements in the light of the principles laid down by ushereinabove. The appeal is allowed. There shall be no order as tocosts.”

24.3. Though it has been painstakingly contended on behalf ofthe appellant that the decision in J.B. Boda & Co. should be decisive ofthe matter because even the brokerage of a reinsurance broker washeld eligible for deduction under Section 80-O of the Act but, we areafraid, the said decision has no relevance whatsoever to the question athand. The eligibility of the concerned services of reinsurance broker forthe purpose of Section 80-O was not even a question involved therein.Needless to observe that the business of insurance carries its ownpeculiarities where the factor of risk involved is of unique significance;and any information and assessment of risk involved is itself a specialised AB

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Atask related with the business of insurance. In the fact sheet of the casein J.B. Boda & Co., in the every opening paragraph of judgment, it hasbeen distinctively recorded that in respect of the insurance risk coveredby Indian or foreign insurance companies, the appellant had beenarranging for the reinsurance of a portion of risk with various reinsurancecompanies either directly or through foreign brokers. As regards, theBservices of the appellant with a broker in London, the Court noted, interalia, that the appellant ‘furnished all the details about the riskinvolved, the premium payable, the period of coverage and theportion of the risk which is sought to be reinsured’. Without enteringinto further details of the activities of the said assessee, suffice it to sayCfor the present purpose that the submissions on behalf of the appellant,as if the task of a broker of reinsurance is not technical in nature, couldonly be rejected as being not in conformity with the peculiarities ofinsurance business. In any case, as observed hereinbefore, this aspectdoes not require further elaboration because of entirely different questioninvolved and decided by this Court in J.B. Boda & Co.D

E.P.W. Da Costa

E.P.W. Da Costa

25. Apart from the case of J.B. Boda & Co., much sustenance issought on behalf of the appellant with reference to the decision in E.P.W.Da Costa (supra), which was a decision rendered by the Delhi HighECourt and was, admittedly, not appealed against.

25.1. Facts of the case of E.P.W. Da Costa (supra) had beenthat the British Broadcasting Corporation (‘BBC’) was interested inknowing how its broadcasts were received by listeners in India and hence,engaged the services of petitioner for conducting a public opinion surveyFso that after gathering information from petitioner, it would makemodifications in its programmes. An agreement was entered by thepetitioner with BBC for conducting specialised economic and publicopinion research on all-India basis to assess the attitudes of a wide rangeof political, social and economic subjects etc. Approval of this agreementfor the purpose of Section 80-O of the Act was refused by CBDT,Gessentially on the ground that the service (of audience research study inHindi speaking areas to assess the radio listening habits) was renderedin India and information supplied to the foreign party was not the typecontemplated by Section 80-O.

25.2. In the said decision, of course, the question of nature ofHservices for the purpose of Section 80-O was involved but, the High

Court precisely found the activity of the assessee to be that of impartingscientific knowledge after proper analysis of the voluminous datacollected. While rejecting the contention on behalf of the revenue, theCourt observed as under (at p. 755 of ITR):- “Mr. Kirpal further contends that the information communicatedby the petitioner to the BBC is only data and not scientific orcommercial knowledge. Perhaps data may be distinguished fromknowledge inasmuch as data may be mere masses of informationwhich is not properly analysed and made intelligible, whileknowledge is analysed and presented for understanding. Theinformation supplied by the petitioner to the BBC must fall in thesecond category or else the BBC would not have entered into anagreement with the petitioner for the supply of the information. Amere mass of information without analysis and without beingunderstandable would not be of use to the BBC. The informationis not, therefore, mere data but scientific knowledge.”

25.3. Reference to this decision in the case of E.P.W. Da Costaalso suffers from the same shortcomings as we have commented inrelation to the decision in J.B. Boda & Co. The appellant would suggestthat the assessee in the case of E.P.W. Da Costa was merely compilingdata and forwarding it to BBC. The Court has precisely pointed out thatit was not merely the collection of data but it was analysis thereof thatwas the root of agreement between the principal and the assessee. Again,statistics and statistical analysis is a matter of specific branch of science.In an elaborate discussion as regards the science of statistics withreference to the activity of the assessee, the Court, inter alia, observedas under (at pp. 754-755 of ITR):- “The petitioner issues questionnaire to the listeners and theinformation gathered from the answers to the questionnaire iscompiled in the form of various statistical tables. According toWebster’s New International Dictionary, Vol. III, statisticsis a science dealing with the collection, analysis,interpretation and presentation of masses of numerical dataand that it is a branch of mathematics. It would appear,therefore, that the statistical tables compiled by the petitioner afteranalysing masses of numerical data are commercial or scientific A

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Aknowledge which is made available to the BBC. For, the word “science “ is also a very general word. Since statistics is a scienceaccording to Webster’s, even in a more particular sense, thestatistical information may be said to be scientific knowledge withinthe meaning of s. 80-O.………If commercial or scientificknowledge is confined to mean the abstract exposition ofBcommercial or scientific theories then only a book on commercialor scientific subject may be regarded as scientific knowledge.But knowledge may be general or particular. Such knowledge aswas compiled, classified and made useful for the use of the BBCmay also be said to be commercial or scientific knowledge. BBCCis a commercial corporation. Its function may be to disseminateinformation, but in the discharge of this function it requirescommercial or scientific knowledge as to the way its broadcastsare received in different countries. Such a highly organized concernas BBC would not be content with the general information as tothe receipt of its broadcast in India. The information would haveDto be specific, particular and analysed according to the languagesin which the broadcasts are made and according to the classes ofthe public who listen to such broadcasts. In view of the trend togive a wider meaning to the words “ science and scientificknowledge “, it would not be possible to restrict the connotation ofEthese words too narrowly. In our view they would include thestatistical tables compiled by the petitioner for the use ofthe BBC inasmuch as statistics itself has been recognisedas a science.”

F25.4The decision in E.P.W. Da Costa, again, does not make outany case in favour of the appellant.

B. L. Passi

26. In counter to the contentions on behalf of appellant, the decisionGby Coordinate Bench of this Court in the case of B.L. Passi (supra) hasbeen strongly relied upon by the revenue but is sought to be distinguishedon behalf of the appellant with the submissions that therein, no materialat all was produced by the assessee. We may examine this case alsowith the necessary specifics.

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26.1. The relevant facts of the case in B.L. Passi had been thata Japanese enterprise, Sumitomo Corporation, Japan, was interested insupplying dies for manufacturing of body parts to Indian automobilemanufacturers and an agreement was entered with the appellant (whoclaimed having vast experience in the Indian automobile industry)whereunder, the appellant was to provide services which involved passingof industrial and commercial knowledge, information about marketconditions and Indian manufacturers of automobiles and also technicalassistance as required, so as to assist the principal in establishing itsbusiness in the Indian automobile industry. The appellant claimeddeduction under Section 80-O of the Act with reference to remunerationreceived on account of such services rendered to the foreign enterprise.The AO disallowed the claim of the appellant for deduction with thefinding that the services in question do not qualify for deduction. However,the Appellate Authority ruled in favour of the appellant but ITAT reversedthe order of the Appellate Authority and the decision of ITAT was upheldby the High Court.

26.2. In further appeal,this Court briefly took note of thebackground of insertion of Section 80-O in the Act of 1961 in place ofthe former Section 85-C with the object of giving fiscal encouragementto Indian industries to provide technical know-how and technical servicesto newly developing countries and foreign companies to augment theforeign exchange of our country and to establish the reputation of Indiantechnical know-how for foreign countries. Examining the facts of thecase relating to the assessment year 1997-98, this Court found that thoughthe appellant had exchanged several letters with its principal, but theinformation was in the form of some blueprints and there was nothing onrecord to show as to how the blueprints were obtained and dispatched;and such blueprints were not produced by the assessee on record. ThisCourt also found that the said assessee was to receive service chargesat the rate of five per cent. of the contributable amount from sale of theprincipal’s products to its customers in India but again, there was nothingon record to prove that any product was developed on the basis of theblueprints supplied by the assessee or that the principal was able to sellany product developed by it by using the information supplied by theassessee. Thus, this Court found that there was no material on record toprove that the sales in question were of any product developed with theassistance of the information by the assessee and equally, there was nomaterial on record to show as to how the service charges payable to the AB

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Aassessee were computed. This Court, inter alia, observed and found asunder (at pp 26-28 of ITR) :- “Now coming to the facts of the case at hand, it is evident fromrecord that the major information sent by the appellant to theSumitomo Corporation was in the form of blueprints for themanufacture of dies for stamping of doors. Several letters wereexchanged between the parties but there is nothing on record asto how this blueprint was obtained and dispatched to the aforesaidcompany. It is also evident on record that the appellant has notfurnished the copy of the blueprint which was sent to the SumitomoCorporation neither before the Assessing Officer nor before theappellate authority nor before the Tribunal. The provisions ofsection 80-O of the Income-tax Act mandate the production ofdocument in respect of which relief has been sought. We, therefore,have to examine whether the services rendered in the form ofblueprints and information provided by the appellant fall withinthe ambit of section 80-O of the Income-tax Act or any of theconditions stipulated therein in order to entitle the assessee toclaim deduction.

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The blueprints made available by the appellant to the CorporationEcan be considered as technical assistance provided by the appellantto the Corporation in the circumstances if the description of theblueprints is available on record. The said blueprints were noteven produced before the lower authorities. In such scenario, whenthe claim of the appellant is solely relying upon the technicalFassistance rendered to the Corporation in the form of blueprints,its unavailability creates a doubt and burden of proof is on theappellant to prove that on the basis of those blueprints, theCorporation was able to start up their business in India and hewas paid the amount as service charge.

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GFurther, with regard to the remuneration to be paid to the appellantfor the services rendered, in terms of the letter dated January 25,1995, it has been specifically referred that the remuneration wouldbe payable for the commercial and industrial information suppliedonly if the business plans prepared by the appellant resultspositively. Sumitomo Corporation will pay to PASCO InternationalHservice charges equivalent to 5 per cent. of the contractual amount

between Sumitomo and its customers in India on sales of itsproducts so developed. From a perusal of the above, it is clearthat the appellant was entitled to service charges at the rate of 5per cent. of the contractual amount between Sumitomo Corporationand its customers in India on sales of its products so developedbut there is nothing on record to prove that any productwas so developed by the Sumitomo Corporation on the basisof the blueprints supplied by the appellant as also that theSumitomo Corporation was able to sell any productdeveloped by it by using the information supplied by theappellant. Meaning thereby, there is no material on recordto prove the sales effected by Sumitomo Corporation to itscustomers in India in respect of any product developed withthe assistance of the appellant’s information and also on asto how the service charges payable to appellant werecomputed.

In view of the foregoing discussion, we are of the consideredopinion that in the present facts and circumstances of the case,the services of managing agent, i.e., the appellant, rendered to aforeign company, are not technical services within the meaning ofsection 80-O of the Income-tax Act. The appellant failed toprove that he rendered technical services to the SumitomoCorporation and also the relevant documents to prove thebasis for alleged payment by the Corporation to him. Theletters exchanged between the parties cannot be claimed forgetting deduction under section 80-O of the Income-tax Act.”

26.3. The case of B.L. Passi (supra) had not been a matter wherenothing at all was on record. Indeed the letters exchanged by the assesseewith the principal were on record, but the core of information that wasallegedly supplied by the assessee to the foreign company, was notfurnished, nor it was shown as to how that information was utilized bythe foreign company and further, it was also not shown as to how theservice charges payable to the assessee were computed when it was toget the payment on the basis of sale to be made by the foreign company.These crucial facts and factors directly co-relate with the requirementsof Section 80-O of the Act; and upon the assessee failing to meet withsuch requirements, the claim for deduction under Section 80-O failed.

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AThomas Kurian

27. Thomas Kurian (supra) had been another case where, forwant of any specific material to connect the activity/service of theassessee with Section 80-O, the assessee was held to be merely aninspector or a certifier for the purpose of export as follows:- B

“6. On a reading of the above provisions what we notice is thatassessees service is certainly professional services which arecovered by the provisions of the Act. However, two conditionshave to be satisfied for eligibility for deduction under Section 80-O, the first is that the service should be rendered outside IndiaCand the second one is that payment for such services should bereceived in convertible foreign exchange in India. In this caseonly one condition is satisfied, ie, receipt of consideration inconvertible foreign exchange and so far as rendering of service isconcerned, the entire service is rendered by the assessee in Indiaand no services is rendered outside India. Exporter ships the goodsDonly with assessee’s certificate of fitnesses so that foreign buyercannot reject the goods. Assessee’s communication with foreignbuyers in our view does not amount to rendering of service outsideIndia.”

Continental Construction Ltd.E

Continental Construction Ltd.E

28. As noticed, in the present case, in the very first place, theAssessing Officer,while dealing with the assessment in question, raisedthe queries and sought clarifications from the appellant with referenceto the enunciations in the decision of this Court in the case of ContinentalConstruction (supra). Then, the High Court has also noticed in itsFimpugned judgment that this was one of the decisions relied upon by thelearned counsel for the assessee. A comment has been made in thereply submissions on behalf of the revenue before us that the appellanthas given up reliance on this decision for the reasons that the ratioessentially operates against the appellant. The response on behalf of theGappellant has been that reference to this decision by revenue was entirelyunnecessary for the same not being relied upon. Needless to observethat it being a decision of this Court, the ratio and the principle emanatingtherefrom cannot be ignored, whether relied upon by the appellant ornot. Moreover, the said decision has been rendered by a 3-Judge Benchof this Court and has the force of a binding precedent. Having regard to H

the submissions made and the questions raised, reference to the decisionof this Court in the case of Continental Construction (supra) isindispensable.

28.1 Briefly put, the relevant factual aspects of the matter inContinental Construction had been that the assessee was a civilconstruction company that had executed a large number of projectsoverseas and in India. The assessee entered into eight contracts for theconstruction, inter alia, of a dam and irrigation project in Libya, a fibre-board factory at Abu Sukhair in Iraq and the huge Karkh Water SupplyProject in Baghdad. For these contracts, the assessee obtained theapproval of CBDT in terms of Section 80-O. In its claim for deduction,various issues related with different assessment years were raised, whichincluded the applicability of the CBDT’s approval and the nature ofactivities of the assessee, as also the question as to whether the assesseewas entitled to claim deduction only under Section 80HHB of the Actand not under Section 80-O of the Act? A wide range of issues raised inthe matter were dealt with by this Court, all of which are not necessaryto be dilated upon.

28.2. The relevant aspect of the matter is that regarding theeligibility for deduction under Section 80-O of the Act, in ContinentalConstruction, this Court said that eligibility of an item to tax or taxdeduction could hardly be made dependent on the label given to it by theparties. Thus, the assessee was not entitled to claim deduction underSection 80-O regarding certain receipts merely because they weredescribed as royalty, fees or commission; and at the same time, absenceof any specific label to the item was not destructive of the right of theassessee to claim deduction. This Court pointed out that the contracts ofthe type envisaged by Section 80-O are usually very complex and covera multitude of obligations and response; and it is not always possible forthe parties to dissect the consideration and apportion it to variousingredients or elements. This Court, however, pointed out that consolidatedreceipts and responses were always apportionable. In the context, asregards the activities of the said assessee and entitlement under Section80-O of the Act, this Court observed that the contracts in question obligedthe assessee to make available information and render services to theforeign Government of the nature outlined under Section 80-O andtherefore, it was the duty of the revenue and right of the assessee to seethat the consideration legitimately attributable to such information and AB

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Aservices is apportioned and the assessee is given the benefit of deductionunder Section 80-O to the extent of such consideration. This aspect ofthe matter, extensively dealt with by this Court, could be usefully extractedas under (at p. 119 of ITR): -

“In our view, neither of the propositions contended for byBSri Ahuja can be accepted as correct. So far as the first propositionis concerned, it is sufficient for us to point out that it is a well-settled principle that eligibility of an item to tax or tax deductioncan hardly be made to depend on the label given to it by the parties.As assessee cannot claim deduction under section 80-O in respectof certain receipts merely on the basis that they are described asCroyalty, fee or commission in the contract between the parties.By the same token, the absence of a specific label cannot bedestructive of the right of an assessee to claim a deduction, if, infact, the consideration for the receipts can be attributed to thesources indicated in the section. The second proposition is equallyDuntenable. Contracts of the type envisaged by section 80-O are usually very complex ones and cover a multitude of obligationsand responsibilities. It is not always possible or worthwhile for theparties to dissect the consideration and apportion it to the variousingredients or elements comprised in the contract. The casesreferred to by the Tribunal and Sri Ahuja as to the indivisibility ofE

a contract arose in an entirely different context. For purposes ofincome-tax, a principle of apportionment has always been appliedin different contexts. Consolidated receipts and expenses havealways been considered apportionable in the contexts: (a) of thecapital and revenue constituents comprised in them; (b) portions Fof expenditure attributable to business and non-business purposes;(c) of places of accrual or arisal; and (d) of agricultural and non-agricultural elements in such receipts or payments. This is a pointthat does not need much elaboration and it is sufficient to refer todecided cases cited under the passages on this topic at pp. 47,137, 264, 621 and 677 of Kanga and Palkhivala’sThe Law andGPractice of Income Tax (Volumne I, eighth edition). We are,therefore, of the opinion that, if, as we have held, the contracts inthe present case oblige the assessee to make available informationand render services to the foreign Government of the natureoutlined in section 80-O, it is the duty of the Revenue and theHright of the assessee to see that the consideration paid under the contract legitimately attributable to suchinformation and services is apportioned and the assesseegiven the benefit of the deduction available under thesection to the extent of such consideration.”

28.3. It is also significant to notice that in Continental Construction,this Court took note of the aforesaid circulars of CBDT dated 23.12.1975and 30.04.1979 and delineated the functions of the Assessing Officerwith reference to the claim for deductions under Section 80-O evenwhen approval had been granted by the Board in the following passage(at p. 133 of ITR) :-

“We should, however, make it clear that our conclusion doesnot mean the deprivation of all functions of the Assessing Officerwhile making the assessment on the applicant. The Officer has tosatisfy himself (i) that the amounts in respect of which the reliefis claimed are amounts arrived at in accordance with the formula,principle or basis explained in the assessee’s application andapproved by the Board; (ii) that the deduction claimed in therelevant assessment year relates to the items, and is referable tothe basis, on which the application for exemption was asked forand granted by the Board; (iii) that the receipts (before the 1975amendment) were duly certified by an accountant or that,thereafter, the amounts have been received in or brought into Indiain convertible foreign exchange within the specified period. Thesecond of these functions is, particularly, important as the approvalfor exemption granted in principle has to be translated into concretefigures for the purposes of each assessment. Neither theintroduction of the words “in accordance with and subject to theprovisions of these sections” nor the various “conditions” outlinedin the letter of approval add anything to or detract anything fromthe scope of the approval.”

28.4. A few aspects at once emerge from the said decision inContinental Construction that even under the provisions of Section 80-O of the Act as then existing, whereunder prior approval of CBDT wasrequired to claim deduction, this Court underscored that deduction wouldbe available only in relation to the consideration attributable to theinformation and services envisaged by Section 80-O and deduction wouldbe granted to the extent of such consideration; and all these aspects A

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Khursheed Anwar

29. In the impugned judgment, the decision of High Court of Madrasin the case of Khursheed Anwar (supra) has also been taken note of.BTherein too, the claim for deduction under Section 80-O of the Act wasdeclined for want of necessary material while observing that the benefitof Section 80-O cannot be claimed by merely asking for the same; it hasto be substantiated with the requisite record. In the said case, on thequery of the Assessing Officer, the assessee had submitted its reply butCcould not furnish the material so as to bring the case within the fourcorners of Section 80-O of the Act. The High Court, inter alia, observedas under (at p. 474 of ITR):

“Having regard to the above discussions, in our view, asthe assessee has not established his claim for deduction byDproducing the relevant records, the Tribunal has erred in reversingthe finding of the Commissioner of Income-tax (Appeals) renderedon the basis that the assessee was not entitled to the benefit inview of the fact that the commission received by the assesseewas not for any of the activities mentioned in paragraph 4.1 of theorder of the Commissioner of Income-tax (Appeals). There isEabsolutely no reason adduced by the Tribunal to reverse the saidfinding. We must also mention here that during the course ofarguments, as we found that there were no supporting materialsfor the claim, we directed the assessee’s counsel to produce thematerials, if any, available for our perusal. The learned counselFfor the assessee, though had produced the explanation of theassessee dated March 28, 1998, he was unable to produce anymaterials to sustain any of the contentions made in the said letter.In the absence of any materials to show that what was passed onto the foreign enterprise was the information concerning withcommercial or technical or scientific aid, merely because anGagreement is entered into between the assessee and the foreignenterprise, we are not inclined to accept the claim of deductionunder section 80-O of the Act. Accordingly, the second substantialquestion of law is answered in favour of the revenue and againstthe assessee. The tax case appeal is allowed in part. No costs.”30.

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30. From the decisions aforesaid, it could be immediatelyculled out that for bringing any particular foreign exchange receiptwithin the ambit of Section 80-O for deduction, it must be aconsideration attributable to information and service contemplatedby Section 80-O; and in case of a contract involving multiple ormanifold activities and obligations, every consideration receivedtherein in foreign exchange will not ipso facto fall within the ambitof Section 80-O. It has to be attributable to the information orservice contemplated by the provision and only that part of foreignexchange receipt, which is so attributable to the activitycontemplated by Section 80-O, would qualify for claimingdeduction. Such enquiry is required to be made by the AssessingOfficer; and for the purpose of this imperative enquiry, requisitematerial ought to be placed by the assessee to co-relate the foreignexchange receipt with information/service referable to Section80-O. Evidently, such an enquiry by the Assessing Officer couldbe made only if concrete material is placed on record to show therequisite co-relation.

Whether the appellant is entitled claim deduction under S.80-O

31. Coming to the facts of the present case, the agreements ofthe appellant with the foreign entities primarily show that the appellantwas to locate the source of supply of the referred merchandise andinform the principals; to keep liaison with the agencies carrying outorganoleptic/bacteriological analysis and communicate the result ofinspection; to make available to the foreign principals the analysis ofseafood supply situation and prices; and to keep the foreign principalsinformed of the latest trends in the market and also to negotiate andfinalise the prices. As per the agreements, in lieu of such services, theappellant was to receive the agreed commission on the invoice amounts.

32. In contrast to what has been observed in the cases of J.B.Boda & Co. (advising on the risk factor related to the proposed insurance/reinsurance) and E.P.W. Da Costa (dealing with statistical analysis ofdata collected), what turns out as regards the activities/services of theappellant is that the appellant was essentially to ensure supply of enoughquantity of good quality merchandise in proper packing and at competitiveprices to the satisfaction of the principals. This has essentially been thejob of a procuring agent. Though the expressions “expert information AB

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Aand advice”, “analysis”, “technical guidance” etc., have been used inthe agreements but, these expressions cannot be read out of context andde hors the purpose of the agreement. All the clauses of the agreementsread together make it absolutely clear that the appellant was merely aprocuring agent and it was his responsibility to ensure that proper goodsare supplied in proper packing to the satisfaction of the principal. AllBother services or activities mentioned in the agreements were onlyincidental to its main functioning as agent. Significantly, the payment tothe appellant, whatever label it might have carried, was only on the basisof the amount of invoice pertaining to the goods. There had not been anyprovision for any specific payment referable to the so-called analysis orCtechnical guidance or advice. Viewed from any angle, the services ofthe appellant were nothing but of an agent, who was procuring themerchandise for its principals; and such services by the appellant, asagent, were rendered in India. Even if certain information was sent bythe assessee to the principals, the information did not fall in the category of such professional services or information which could justify its claimDfor deduction under Section 80-O of the Act. In other words, in theholistic view of the terms of the agreements, we have not an iota ofdoubt that the appellant was only a procuring agent, as rightly describedby the High Court.

33. If at all any doubt yet remains about the nature of services ofEthe appellant, the same is effectively quelled by the default clauses inthe agreements in question. We may recapitulate the default clauses inthe referred agreements, which read as under:- The agreement with HOKO

F“Article 4: HOKO pays to RC-CN 0.7% of the invoice amounton the C & F basis and US$ 2,000.00 per month as commission.When the quality of goods is found to be unsatisfactory to HOKOafter inspection in in Japan, HOKO shall have no responsibility topay the agent fee.”

The agreement with GELAZUR

G“When the quality and the packaging of the goods are found to beunsatisfactory to ‘GELAZUR” after inspection in FRANCE,GELAZURE, shall have no responsibility regarding the paymentof the Agent’s fee.”

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33.1. In both the agreements, the default clauses make it morethan clear that if the quality of goods was found to be unsatisfactory tothe principals after inspection in their respective countries, they shallhave no responsibility to pay the agent’s fees. If at all it had been amatter of the appellant furnishing some technical or material informationwhich served the foreign enterprises in making the decision forprocurement, in the ordinary circumstances, after completion of suchservice and its utilization by the foreign enterprises, the appellant waslikely to receive the professional service charges for furnishing suchinformation but, contrary and converse to it, the agreements provide forno payment to the appellant in case of principal being dissatisfied withgoods. These default clauses effectively demolish the case of the appellantand fortify the submissions of the revenue that the appellant was merelya procuring agent and nothing more.

34. The matter can be viewed from yet another angle, as indicatedby the High Court in the last paragraph of its judgment. If at all it beassumed that out of various tasks mentioned in the agreements, some ofthem involved such services which answered to the requirements ofSection 80-O, it was definitely required of the appellant to establish as towhat had been such information of special nature or of expertise thatwas given by it and how the same was utilised, if at all, by the foreignenterprises; and how much of the foreign exchange receipt wasattributable to such special service. Obviously, the appellant did not supplysuch particulars. As noticed, the High Court posed a pointed query tothe learned counsel appearing for the appellant as to whether all theservices mentioned in the agreement would come within the purview ofSection 80-O. The cryptic response to this query on behalf to the appellanthad been that ‘if the recipient of services is situated outside, all theservices rendered by the assessee in terms of the agreement comewithin the sweep of the provision’. It was specifically contended onbehalf of the appellant that establishing ‘which of its services qualifiesfor the deduction is of no consequence, rather unnecessary’. In ourview, this response was not in conformity with the requirements of Section80-O of the Act, as explained and applied by this Court in ContinentalConstructionand in B. L. Passi (supra) as also as applied by MadrasHigh Court in Khursheed Anwar(supra). Rather, this stand, in our view,puts the final curtain on the appellant’s case because most of the servicesin the agreements in question were those of an agent ensuring supply;and if any part of the services co-related with Section 80-O, the particulars A

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Awere of utmost significance and were fundamentally necessary whichthe appellant had never supplied. Merely for having a contract with aforeign enterprise and mere earning foreign exchange does not ipsofacto lead to the application of Section 80-O of the Act.

35. The effect of Circular No.700 dated 23.03.1995 is only to theBextent that once the service is rendered ‘from India’, even if its ultimateuse by the foreign enterprise occurs in India, the matter may not go outof Section 80-O of the Act. This clarification is in tune with the nature ofthis provision meant for extending incentive but it does not do awaywiththe basic requirements that to qualify for deduction under Section 80-O,the service must be rendered from India to foreign enterprise and theCnature of service ought to be as delineated in Section 80-O. Ultimateuse of the service could be in India, as illustrated by the case of E.P.W.Da Costa (supra) and by the cases of Li & Fung and Chakiath Agencies(supra) that were cited before the High Court. However, the claim ofthe appellant fails at the threshold for the reasons foregoing. CircularDNo.700 dated 23.03.1995 is neither of any application to this case nor ofany assistance to the appellant. The appellant is not entitled to claimdeduction under Section 80-O of the Act.

36. For what we have discussed hereinabove, it is also apparentthat the Appellate Authority as also the ITAT had viewed the presentEcase from an altogether wrong angle. As noticed, the Appellate Authorityeven did not comprehend the observations in E.P.W. Da Costa (supra)and assumed that every information is scientific knowledge. On facts,the Appellate Authority observed that even if acting as agent of theforeign enterprises, the appellant was locating the sources of frozenseafoods, bringing the foreign enterprises in contact with theFmanufacturers or processors of seafood, and negotiating with the localpackers; and these activities, though carried out in India, had been onbehalf of the foreign enterprises. The ITAT, though took note of differentservices contemplated by the agreements in question and even observedthat the clauses like those requiring the appellant to settle the claim withGmanufacturers might be the services rendered in India but then, proceededto assume, without any cogent material on record, that other serviceswere rendered from India and on that basis, the foreign party took itsdecision. Even in this regard, the questions relevant and germane to theenquiry were not even gone into inasmuch as, it was not examined as towhat and which part of the consideration was attributable to the servicesH

envisaged by Section 80-O of the Act, which were rendered from India.Therefore, the findings of the Appellate Authority and ITAT, being basedon irrelevant considerations while ignoring the relevant aspects, wereneither of binding nature nor could have been decisive of the matter.Hence, neither anything turns upon the submissions made on behalf ofthe appellant with reference to the decision in K. Ravindranathan Nair(supra) nor this aspect requires any further discussion.

37. In our view, the High Court has rightly analysed the entirematter with reference to the relevant questions and has rightly proceededon the law applicable to the case. The impugned judgment calls for nointerference.

-The appellant M/s Laxmi Agencies the appeal arising out ofSLP (Civil) No.23699 of 2016.

38. This appeal involves similar claim of the other assessee firmM/s Laxmi Agencies, said to be engaged in similar business of renderingservices to foreign buyers of Indian marine products. For the assessmentyear 1997-98, this assessee firm, while declaring total income of Rs.31,81,180/-, claimed deduction under Section 80-O to the tune ofRs.21,84,302/-, being 50% of the net income of Rs. 43,68,604/- towardsthe service charges received from such foreign buyers.

38.1. In the assessment order dated 31.01.2000, the AO notedthe explanation of this appellant regarding the services rendered in thefollowing:

“…..As per the detailed letter dated 22.11.1999 filed by theassessee the services rendered by it to the foreign enterprises areby way of :

1. To impact commercial and technical knowledge, experienceand skill in the field of Frozen Food/Marine products to enablethem to formulate their policies and take decision for import thereoffrom India;

2. To locate reliable sources of quality and assured supply ofFrozen Seafood/Marine products and communicate the assessee’sexpert opinion and advise to them to enable them to take decisionsfor import from India;

3. To keep close liaison with agencies such as EIA/Llyods/ SGSespecially for organoleptic/bacteriological analysis and A

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Acommunicate the results of inspection along with assessee’s expertcomments and advice. This also enables the foreign enterprisesto take decisions for import from various sources from severalcountries available to them.

4. Making available full and detailed analysis of the seafoodBsituation and prices for the above purpose.

5. To advise and keep informed the foreign buyers of the latesttrends/process applications in manufacturing and all valuablecommercial and economic information which will directly andindirectly assist them to organize, develop, control on regulate theirCimport business from India.

6. To assist foreign buyers in negotiating and finalizing prices forIndian marine products and advise them of all rules and regulationsand other related information for such import.”

In the case of this appellant, again, the AO was of the view thatDthe services were rendered in India and the service charges receivedfrom the foreign enterprises in respect of such services did not qualifyfor deduction under Section 80-O.

38.2. In the case of this appellant, the Appellate Authorityexamined the terms of agreements with the foreign enterprises in detailEand noted the contents thereof in the following paragraphs:- “2. The appellant had entered into agreement with various foreignenterprises for render the following services. Article 2 of theagreement entered into with Neptune Fisheries Ind. USA readsas under:- F(a) Locating reliable source of quality and assured supply of frozensea-foods/marine products for the purpose of import by“NEPTUNE” and communicate its expert opinion and advice tothe NEPTUNE; (b) In addition to the above services rendered by ‘Laxmi’ it willGalso keep a close liason with agencies such as ELA/LLOYDS/SGS especially for organolotic/acteriological analysis andcommunicate the result of the inspection along with its expertcomments and advice.

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(c) Making available full and detailed analysis of the sea foodsupply situation and prices; (d) To advise NEPTUNE and keep them informed of the latesttrends/processes applications in manufacturing and of all valuablecommercial and economic information about the markets,Government Policies, exchange fluctuations, banking laws whichwill directly or indirectly assist “NEPTUNE” to organize, developcontrol or regulate their import business from India.

e) To negotiate and finalise the prices for India Exporters of frozenmarine products and to communicate such and other relatedinformation to “NEPTUNE”.

Article 4 of the agreement states:

“LAXMI” shall also do everything that is required to ensure higheststandards of quality hygiene and freshness of products includingsupervision at various stages.”

3. The agreement made with other principles (sic- principals)are also on similar lines.”

38.3. In this case, of course, the Appellate Authority took note ofvarious activities of the appellant with and for the buyer concerned and,while disallowing 20% of the service charges received from foreignenterprises towards the services rendered in India, allowed deductionunder Section 80-O to the extent of the net income arising out of 80% ofsuch charges received from foreign enterprises.

38.4. The order so passed by the Appellate Authority waschallenged both by the appellant and by the revenue before ITAT in ITANo. 580/Coch/2004 and ITA No. 618/Coch/2004 respectively. The ITATreferred to its earlier decision in the case of the other assessee Ramnath& Co. (as referred to hereinabove) and following the same, allowed theappeal of the appellant and dismissed that of the revenue and thereby,allowed the claim of appellant for deduction in toto.

38.5. Although, from the fact sheet of this case, it does not appearif the agreements of this appellant also carried the default clauses as wehave noticed in the lead case but, on all other major features, theagreements had been of the same nature and again, this appellant hasalso failed to bring any material on record to show if it had received any A

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Aspecific consideration referable to the activities envisaged by Section80-O of the Act. In the given set of facts and circumstances, this appellantalso turns out to be only a procuring agent and not beyond. Hence, thisappeal also deserves to be dismissed.

ConclusionB

39. For what has been discussed and held hereinabove, theseappeals fail and are, therefore, dismissed. No costs.

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Ankit Gyan

Appeals dismissed.

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