Commissioner of Income Tax vs. Peters AND Prasad Association

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY

and

THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM

I.T.T.A. No.248 of 2003

% 18.11.2014

Between:

# Commissioner of Income Tax, Visakhapatnam ... APPELLANT Versus

$ Peters & Prasad Association ...RESPONDENT

< Gist:

> Head Note:

! COUNSEL FOR THE APPELLANT :- Sri S.R.Ashok ^COUNSEL FOR RESPONDENT :- Sri Siva Kartikeya

? Cases Referred:

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY

AND

THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM

I.T.T.A. No. 248 of 2003

JUDGMENT: (per the Hon’ble Sri Justice L.Narasimha Reddy)

The order, dated 05.03.2003, passed by the Visakhapatnam Bench of the Income Tax Appellate Tribunal in I.T.A.No.114/Vizag/1997, is challenged in this appeal filed under Section 260A of the Income Tax Act (for short ‘the Act’) by the Revenue.

The facts in brief are that the respondent is an agency undertaking the activity of conducting service for the benefit of foreign companies or agencies. After conducting survey on the assigned subject, the reports are submitted to the foreign agencies. Section 80-O of the Act provides for deduction of profits derived from such activity, up to certain extent.

In the returns submitted by the respondent for the

assessment year 1994-95, it claimed deduction under Section 80- O of the Act. The Assessing Officer denied the deduction on the ground that the survey report was submitted in India and thereby, Section 80-O of the Act is not attracted. Aggrieved by that, the respondent filed an appeal before the Commissioner of Income Tax (Appeals). The appeal was allowed through order, dated 27.08.1997. Challenging the order passed by the Commissioner, the Department filed the appeal before the Tribunal and the same was rejected.

Sri S.R.Ashok, learned Senior Standing Counsel for the appellant, submits that the benefit under Section 80-O of the Act can be claimed only on fulfilling the requirements stipulated therein and that in the instant case, the respondent is not eligible for it. He contends that the alleged survey was conducted and the resultant report was submitted by the respondent within India and as such, Section 80-O of the Act does not get attracted. He submits that the Commissioner and the Tribunal did not appreciate the facts of the case and purport of Section 80-O of the Act from the correct perspective.

Sri Siva Kartikeya, learned counsel for the respondent, on the other hand, submits that by its very nature, the activity covered by Section 80-O of the Act must be performed or undertaken within India and it is only the result thereof that must be made available to a foreign company. He contends that the Legislature has employed the expression “for use outside India” and even if the report is submitted in India, if it is used outside

India, the benefit under Section 80-O of the Act becomes extendible to an assessee.

One of the concessions or benefits in the form of deductions covered by Chapter-VIA of the Act is the one provided for under Section 80-O of the Act. It reads as under as it stood for the assessment year 1992A:

“Section 80-O Year 1992A: Deduction in respect of royalties, etc., from certain foreign enterprises: (1) Where the gross total income of an assessee, being an Indian company or a person (other than a company) who is resident in India, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided for agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to fifty percent of the income so received in, or brought into, India in computing the total income of the assessee: Provided that such income is received in India within a period of six months from the end of the previous year, or where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assess is, for reasons beyond

his control, unable to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf. Explanation: (i) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the law for the time being in force for regulating payments and dealings in foreign exchange; (ii) “foreign enterprise” means a person who is a non- resident’ (iii) Services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India.”

From a perusal of this, it becomes clear that an assessee must comply with certain conditions to qualify for benefit under Section 80-O of the Act. The conditions are (a) industrial, commercial, scientific knowledge, experience or skill must be rendered by a person or agency within India (b) the service so rendered must be for the benefit of foreign State or foreign enterprise; (c) the consideration therefor must be in foreign exchange and (e) the service must be ‘for use outside India’.

In the instant case, there is no controversy as to compliance with the first three conditions. The relevant clauses of the agreement between the respondent and the foreign agency with which it entered into contract, provided for rendering of services and payment of consideration in foreign exchange. The whole controversy is as to whether the services are said to have been rendered within India or outside India. In this context, Explanation (iii) places an important role. It maintains a distinction

between the service rendered ‘from India’ on the one hand, and the service rendered ‘in India’ on the other. Even if the services are rendered from India, the activity comes within the purview of Section 80 of the Act. The distinction is that it must be ‘from’ and not ‘within’. The first part of it i.e. service rendered from India connotes that the agency that is rendering service is within India, but the beneficiary thereof is from outside. The second part, namely service ‘in India’, takes in its fold, a situation where the agency that is rendering of service and the one who avails it are in India. It is only the former that qualifies. It is here that the words ‘outside India’ become relevant.

It is not the case of the appellant that the report of survey submitted by the respondent was utilized within India, though it was received by the foreign agency within India. It is only when it is established that the survey report submitted to a foreign agency was, in fact, used or given effect to, in India, that the respondent becomes ineligible for deduction. The mere fact that the submission of report was within India, does not take away the matter from the purview of Section 80 of the Act. If that is to be accepted, the very purpose of providing explanation becomes redundant.

Reliance is placed upon the judgment of the Hon’ble Supreme Court in Searle (India) Ltd. Vs. Central Board of Direct Taxes and another[1]. On a perusal of the same, we find that the facts of the present case are totally different from those in the said judgment. We do not find any basis to interfere with the order

passed by the Tribunal.

The appeal is accordingly dismissed. There shall be no order as to costs.

The miscellaneous petition filed in this appeal shall also stand disposed of.

_____________________

L.NARASIMHA REDDY,J

_______________________ CHALLA KODANDA RAM,J

Dt:18.11.2014

Note: L.R. copy to be marked. kdl

[1] 145 ITR 673