whether the income received by the appellants in foreign exchange, for the services provided by them to foreign enterprises, qualifies for deduction under Section 80-O of the Income Tax Act, 19611 , as applicable during the respective assessment years from 1993-94 to 1997-98

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL Nos…2506-2509 OF 2020
(Arising out of SLP (Civil) Nos. 23535 – 23538 of 2016)
RAMNATH & CO. ….Appellant (s)
Vs.
THE COMMISSIONER OF INCOME TAX ….Respondent (s)
With
Civil Appeal No. 2510 of 2020 @ SLP(C) No. 23699 of 2016
JUDGMENT
Dinesh Maheshwari, J.
PRELIMINARY WITH BRIEF OUTLINE
Leave granted.
2. The short point calling for determination in these appeals against the
common judgment dated 09.06.2016 passed by the High Court of Kerala at
Ernakulam in a batch of appeals is as to whether the income received by
the appellants in foreign exchange, for the services provided by them to
foreign enterprises, qualifies for deduction under Section 80-O of the
Income Tax Act, 19611
, as applicable during the respective assessment
years from 1993-94 to 1997-98.
1 Hereinafter also referred to as ‘the Act of 1961’ or ‘the Act’
1
3. Put in a nutshell, the question involved in these appeals has arisen in
the backdrop of facts that the appellants herein, who had been engaged in
providing services to certain foreign buyers of frozen seafood and/or marine
products and had received service charges from such foreign
buyers/enterprises in foreign exchange, claimed deduction under Section
80-O of the Act of 1961, as applicable for the relevant assessment year/s.
In both these cases, the respective Assessing Officer/s2
 denied such claim
for deduction essentially with the finding that the services rendered by
respective assessees were the ‘services rendered in India’ and not the
‘services rendered from India’ and, therefore, the service charges received
by the assessees from the foreign enterprises did not qualify for deduction
in view of clause (iii) of the Explanation to Section 80-O of the Act of 1961.
After different orders from the respective Appellate Authorities, the Income
Tax Appellate Tribunal3
, Cochin Bench accepted the claim for such
deduction under Section 80-O of the Act with the finding in case of the
assessee Ramnath & Co.4
 for the assessment year 1993-94 that as per the
agreements with the referred foreign enterprises, the assessee had passed
on the necessary information which were utilised by the foreign enterprises
concerned to make a decision either to purchase or not to purchase; and
hence, it were a service rendered from India. The same decision was
followed by ITAT in the case of this assessee for other assessment years
under consideration as also in the case of other assessee M/s Laxmi
2 ‘AO’ for short
3 ‘ITAT’ for short
4 Related with the appeal arising out of SLP (Civil) Nos. 23535-23538 of 2016.
2
Agencies5
. The revenue preferred appeals before the High Court against
the orders so passed by ITAT in favour of the present appellants as also a
few other assessees. These appeals have been considered together by the
High Court of Kerala; and similar questions regarding eligibility for
deduction under Section 80-O of the Act in relation to the similarly
circumstanced assessees have been decided by the impugned common
judgment dated 09.06.2016. The High Court has essentially held that the
assessees were merely marine product procuring agents for the foreign
enterprises, without any claim for expertise capable of being used abroad
rather than in India and hence, the services rendered by them do not qualify
as the ‘services rendered from India’, for the purpose of Section 80-O of the
Act of 1961. Therefore, the High Court has allowed the appeals of revenue
while setting aside the respective orders of ITAT. Aggrieved, the assessees
have preferred these appeals6
.
4. The basic factual and background aspects relating to the two
assessees in appeal before us are more or less similar in nature but, having
regard to the position that ITAT had decided all other appeals based on its
order dated 19.11.2001 for the assessment year 1993-94 in relation to the
assessee-appellant Ramnath & Co. and the High Court has also rendered
common judgment essentially with reference to the facts relating to this
assessee (with other assessees having adopted the same contentions), it
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 294 of 2009 as
also ITA No. 771 of 2009, decided by High Court in the common impugned judgment dated
09.06.2016, rendered in the batch of appeals led by ITA No. 131 of 2002.
3
appears appropriate to elucidate the same facts and background aspects
for dealing with the questions raised in these appeals.
RELEVANT FACTUAL AND BACKGROUND ASPECTS:
5. The appellant Ramnath & Co. is a firm engaged in the business of
providing services to foreign buyers of Indian marine products. The
appellant filed its return of income for the assessment year 1993-1994 on
29.10.1993 declaring total taxable income at Rs. 6,21,710/- while claiming
50% deduction (amounting to Rs. 22,39,825/-) under Section 80-O of the
Act in relation to the amount of Rs. 44,79,649/- received by it as service
charges from foreign enterprises7
.
5.1. While asserting its claim for such deduction under Section 80-O of
the Act, the appellant submitted that it had rendered myriad services to the
foreign enterprises like: (i) locating reliable source of quality and assured
supply of frozen seafood for the purpose of import and communicating its
expert opinion and advice in that regard; (ii) keeping a close liaison with
agencies concerned for bacteriological analysis and communicating the
result of inspection together with expert comments and advice; (iii) making
available full and detailed analysis of seafood supply situation and prices;
(iv) advising and informing about the latest trends in manufacturing and
markets; and (v) negotiating and finalising the prices for Indian exporters of
frozen marines products and communicating such other related information
7 It was noticed by the Assessing Officer in the assessment order dated 28.03.1996 that the
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 under Section 80HHC of
the Act of 1961, which provides for deduction in respect of profits derived from export of the
specified class of goods or merchandise.
4
to the foreign enterprises. The appellant claimed that pursuant to the terms
and conditions of the agreements with the foreign enterprises, it had
received the said service charges; and its services had directly and
indirectly assisted the foreign enterprises to organise, develop, regulate and
improve their business.
5.2. In regard to such claim for deduction under Section 80-O of the Act,
the AO, by his letter dated 29.01.1996, raised the following queries and
sought clarifications from the appellant:-
“1.The location of services rendered by the assessee may be
mentioned if there are any services rendered outside India.
2. Whether the technical/professional services rendered by
the assessee were utilized by the foreign enterprises
anywhere in India or outside India independently of the
assessee.
3. Whether the technical/professional services rendered by
the assessee were utilized by the foreign enterprises, in
India, independently and without the assessee.
4. To clarify whether the technical/professional services
rendered by the assessee are capable or being made use of
by the foreign enterprises independently and without the
assessee.”
5.3. In response, the appellant justified its claim for deduction under
Section 80-O of the Act by way of its letter dated 19.02.1996 while asserting
as under:
“1. The technical/professional services rendered by us are
“from India”.
2. Foreign buyers to whom we have rendered these services
are located in Japan, U.S.A., U.K. and France. None of
these foreign enterprises have utilized our services in any
part of India. But the entire benefit of our services were
5
utilized by them in effectively distributing and marketing the
Indian sea-foods in their respective countries.
3. We would like to emphasize that the foreign enterprises
have no place of business in India nor do they market any
goods or services in India.
4. Without services the import of marine products from India
by the foreign enterprises will not be possible.”
5.4. In his assessment order dated 28.03.1996, the Assessing Officer
proceeded to analyse the agreements of the appellant with the two foreign
enterprises and reproduced the relevant terms thereof in extenso. This part
of the order of the AO, containing material terms of agreements, being
relevant for the present purpose, is reproduced as under: -
“In the context of the above claim of the assessee, it is
necessary to go through the agreements entered into by the
assessee with the foreign enterprises to find out the nature of
the relationship of the assessee with the foreign enterprises.
I have gone through the agreements entered into by the
assessee with HOKO Fishingco Ltd. is captioned agreement
regarding marine products and that with GELAZURE S.A. is
captioned agency agreement regarding marine products.
Articles 1 to 4 of the agreement with HOKO fishing Co. Ltd.
reads as under:-
Article 1:HOKO desires to avail of the benefit of the
commercial and technical knowledge experience
and skill of “RC-CN foods/Marine products of good
quality and on favourable 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 following
services on a continuing basis.
a) Locating reliable sources of quality and
assured supply of frozen seafood/marine products
for the purpose of import by HOK and communicate
its expert opinion and advice to HOKO.”
6
b) In addition to the above services rendered by
“RC-CN, it will also keep a close liaison with
agencies such as EIA/LLOYDS/SGS especially for
organoleptic/bacteriological analysis and
communicate the results of inspection along with its
expert comment and advise.
c) Making available full and detailed analysis of
the sea food supply situation and prices.
d) To advise HOKO and keep them informed of
the latest trends/processes application in
manufacturing and of all valuable commercial and
economic information about the markets.
Government Policies, exchange fluctuations,
banking laws which will directly or indirectly assist
HOKO to organize, develop control or regulate their
import business from India.
e) To negotiate and finalize prices for Indian
Exporters of frozen marine products and to
communicate such and other related information to
HOKO.
Article 5 RC-CN” shall also do everything that is required to
ensure highest standards of quality hygiene and
freshness of products including supervision at
various stages.
Article 4: HOKO pays to RC-CN 0.7% of the invoice amount
on the C & F basis and US$ 2,000.00 per month as
commission. When the quality of goods is found to
be unsatisfactory to HOKO after inspection in
Japan, HOKO shall have no responsibility to pay
the agent fee.”
Similarly, articles 1 to 4 of the Agreement with GELAZUR S.A
read as under:-
Article 1:‘GELAZUR appoints RAMNATH” as agent to
operate in priority their purchases in frozen
seafood’s products in India.
Article 2 : RAMNATH’ does the following business as Agent
on behalf of GELAZUR.”
1)To negotiate with the local packers for the purchase of the
frozen seafood products which ‘GELAZUR’ requires:
2)To give “GELAZUR’ all the accurate information in respect
of the standard, quantity, price, quality, time of shipment, etc.
promptly, whenever the purchase of the products is made
7
3)To carry out technical guidance for processing and for
quality control 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
by French competitors, business opportunities, monthly
supplies of seafood-data.
Article 3: After reception of the goods, GELAZURE’ will pay
RAMNATH” commissions calculated on the following
basis:
-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 value
Squids, cuttlefish, Cockies
Mussels and other Fishes: USD O.65/Kg
When the quality and the packaging of the goods
are found to be unsatisfactory to ‘GELAZUR” after
inspection in FRANCE, GELAZURE, shall have no
responsibility regarding the payment of the Agent’s
fee.
Article 4: If any claim arises out of or in relation to the
purchases of products for which ‘GELAZUR’ has no
responsibility, RAMNATH will do their best to settle
the claim through negotiation with manufacturers.
The settlement of the claim will have to be carried
out 60 days after the reception 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 appellant had been
rendering services from India so as to qualify for deduction under
Explanation (iii) to Section 80-O of the Act. The Assessing Officer was
8 Note: In the papers placed on record, the name of this foreign company has been mentioned
both as ‘GELAZUR’ and ‘GELAZURE’. We have retained the particulars in extractions as stated in
the respective papers but in our discussion, have referred it as ‘GELAZUR’.
8
firmly of the view that the appellant had worked only as an agent of the
foreign enterprises in the matter of procurement of marine products from
India; and all the services envisaged in the agreements were incidental to
the carrying out of main function as agent. The Assessing Officer recorded
his observations and findings as follows: -
“….A close study of the articles extracted above, would
establish that the assessee is merely an agent of the foreign
enterprises in India in the matter of procurement of marine
products from India. All the services which are required to be
carried out by the assessee in terms of the agreements are
incidental to the carrying out of the primary function of acting
as an agent. The assessee’s role is to act on behalf of the
foreign principals within the limits allowed by them. In terms
of the agreements, the assessee negotiates with local
packers with regard to quality, quantity and price. On behalf
of the principals, the assessee carries out technical guidance
for processing and for quality control and also inspection of
the products and also keeps close liaison with various
agencies. These are definitely services rendered in India and
cannot be construed as services rendered from India merely
relying on the facts that the foreign principals are advised of
the results and that they are stationed outside India. It is true
that as per agreement, the assessee was to supply certain
information of a general nature regarding markets,
government policies, exchange fluctuations, banking laws,
prices paid by competitors, monthly supplies of seafood data
etc. However, the agreements do not envisage any payment
of separate in commission or service charge for such
information. The commission is payable to the assessee as
a percentage of the C & F value of the imports by the foreign
enterprises through the assessee. However, the payment of
commission is conditional on the foreign enterprises
finding the quality of goods satisfactory. This would
reinforce my earlier observation that the assessee is
only an agent of the foreign enterprises in the matter of
procurement of marine products from India and all the
services envisaged in the agreement are incidental to the
carrying out of the main function as agent. It is also not as if
the foreign enterprises completely stayed away from India.
Though it might be a fact that none of the foreign enterprises
9
had any office or branch anywhere in India, available
information indicates that the representatives of the foreign
enterprises used to visit India in connection with the
procurement of marine products from various packers in India
and it fell upon the assessee to take these persons to the
processing facilities of various suppliers with a view to ensure
quality and hygiene standards. This is evident from the fact
that a sum of Rs.23,122/- has been incurred by the assessee
during the visit of buyers, representatives to various seafood
packers in Calcutta, Bombay vizag, Madras Nandapam,
Cochin, Calicut etc. Expenses for souvenirs, compliments
and samples of the value of Rs.29,411.99 have also been
incurred presumably in connection with the visit of the
representatives of the foreign buyers. By any stretch of
imagination, it cannot be claimed that the services rendered
on the occasions of the visit of the representatives of foreign
enterprises were not rendered in India. The foreign travels
undertaken by the Managing Partner for meeting various
buyers can been seen as only an extension of the assessee’s
role as an agent of the foreign enterprises in India. An agent
of a foreign enterprise in India necessarily acts on behalf of
the foreign enterprise in India, and therefore, the services,
namely carrying out inspections to ensure quality of the
products and packaging, supervision of processing,
negotiating prices in respect of marine products
exported with the assistance of the assessee, could not
have been rendered outside India as the parties to be
contacted, products to be inspected, processing to the
supervised etc. were situated in India only. In my view
services that are incapable of being rendered outside India
will not come under the category of services that can be
rendered from India. Therefore, there is no merit in the
contention of the assessee that these services were rendered
from India but not within India….”
(emphasis in bold supplied)
5.6. The appellant also relied upon Circular No. 700 dated 23.03.1995
issued by the Central Board of Direct Taxes9
 in support of its contentions.
The Assessing Officer distinguished the matter dealt with by the said
Circular from that involved in the present case in the following passage: -
9 ‘CBDT’ for short
10
“…..The assessee also strongly relies on circular No.700
dated 23/3/95 issued by the C.B.D.T. In my view, the reliance
on the above circular by the assessee to buttress its case is
misplaced. Para 3 & 4 of the above circular which are quits
relevant, reads as under : -
“3. A question has been raised as to whether the
benefit of Section 80-O would be available if the
technical and professional services, though
rendered outside India, are used by the foreign
government or enterprise in India.
“4. The matter has been considered by the Board. It
is clarified that as long as the technical and
professional services are rendered from India and
are received by a foreign government or enterprise
outside India deduction under Section 80-O would
be available to the person rendering the services
even if the foreign recipient of the services utilizes
the benefit of such services in India.”
As is clear from the above, the C.B.D.T. was dealing with a
question whether deduction under Section 80-O could be
denied on the ground that the foreign enterprise uses the
services rendered outside India, in India. It has been clarified
that merely because the foreign enterprises utilized the
benefit of services rendered outside 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 where the technical
services were rendered, In the case before me, there is
absolutely no scope for doubt that the services as an agent
were rendered by the assessee in India only. In 132 ITR 637,
the Bombay High Court held that an assessee acting as a
mere employment recruiting bureau was not entitled for
deduction under Section 80-O and the services rendered in
locating prospective candidates and collecting their bio-datas
and conveying names of candidates to foreign employers did
not represent services rendered outside India. Similarly, in
145 ITR 673 in the case of Searls (India) Ltd, the same High
Court ruled that testing of samples in India and giving results
and certificate to foreign company did represent technical
services rendered outside India. In view of the forgoing
discussion, I would hold that the assessee is not entitled for
deduction u/s 80-O as the services made available to the
foreign enterprises were rendered in India.”
11
5.7. In the aforesaid view of the matter, the AO disallowed the claim for
deduction under Section 80-O of the Act.
5.8. In the appeal taken by the appellant, the Appellate Authority did not
agree with the opinion of the Assessing Officer, particularly with reference to
the decision of Delhi High Court in the case E.P.W. Da Costa and Ors. v.
Union of India: (1980) 121 ITR 751 (Delhi) and a 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, allowed the appeal while observing, inter alia,
as under: -
“14……In the present case, there is no dispute that the
appellant is supplying information with regard to the markets,
government policies, exchange fluctuations, banking laws,
data with regard to monthly supply of sea-food etc. to the
foreign enterprises. Secondly, even if the appellant is a
mere agent of the foreign enterprises, he is bringing the
foreign enterprises in contact with the manufacturers or
processors of shrimps, lobsters etc. and negotiating with
the local packers and is locating sources of frozen seafoods for the foreign enterprises. Though the various items
of activity are rendered in India, they are done on behalf of
the foreign enterprises and the market and other
information had been supplied from India to the foreign
enterprises.
15. In section 80-O, Explanation (iii) reads as under : -
“Services rendered or agreed to be rendered
outside India shall include services rendered from
India but shall not include services rendered in
India”.
The word “from” means “out of” or “springing out of”. Thus,
‘from India’ necessarily means that some of the activities will
spring out of or will be in India because the services are
rendered from India. In this connection, I am of the view that
the decision of the Delhi High Court in E.P.W. De Costa &
Another vs. Union of India (121 ITR 751) is really applicable
to the facts of the case. The services rendered with regard to
12
assessing the radio-listening habits of the people were
rendered in India i.e. The data had been collected in India.
However, it was held that a mere mass of information without
analysis and without being understandable would not be of
use to the B.B.C. The information is not, therefore, mere
data but scientific knowledge. In the present case, the
appellant has located reliable source of quality and assured
supply of frozen sea-food products to the various foreign
enterprises at Japan, France and other countries and
supplied information with regard to sea-food processing,
manufacturing details and also government policies,
exchange fluctuations etc. to the foreign enterprises. The
appellant has negotiated and finalised prices for the Indian
exporters of frozen sea-food products and communicated the
same to the foreign enterprises. Thus, the appellant has
rendered the services from India to these foreign enterprises.
That the appellant’s information and experience have been
effectively utilised by the foreign enterprises can be seen
from the fact that the export effected by the appellantconcern have risen from 20 crores in the AY 1991-92 to 100
crores by AY 1996-97. For the year under consideration, the
exports are approximately 60 crores on which the appellant
has earned a commission of Rs. 44.79 lakhs.
16. The major issue to be decided in this case is whether the
services rendered by the appellant can be said to be ‘from
India’. On the facts and circumstances of the case, I am of
the opinion that the services have been rendered from India
and hence, the appellant is eligible for deduction u/s 80-O,
especially in view of the decision of the Delhi High Court in
E.P.W. De Costa & Another vs. Union of India (121 ITR 751)
and the I.T.A.T. Delhi ’D’ Bench decision in the case of Capt.
K. C. Saigal vs. I.T.O. (54 ITD 488).”
(emphasis in bold supplied)
5.9. Aggrieved by the decision aforesaid, the revenue preferred appeal
before the ITAT, being ITA No. 84/Coch/1997, that was considered and
decided by ITAT by its order dated 19.11.2001. The ITAT took note of the
history of introduction of Chapter VI-A and Section 80-O to the Act of 1961
by the Finance (No. 2) Act, 1967 as also the fact that Section 80-O had
undergone several amendments over the course of time. The ITAT
13
concurred with the findings of the Appellate Authority that the services
rendered by the appellant, which helped the foreign parties to import marine
products from India, had been specialised and technical services and
thereby, the appellant was entitled to claim deduction under Section 80-O of
the Act. The ITAT observed and held, inter alia, as follows: -
“9. The case of the Revenue is that the assessee has
rendered services only in India and not from India. The
services that entitle the assessee for the benefit under
Section 80-O should be of such nature that it can only be
rendered outside India and not services that are capable of
being rendered in India. According to the revenue, the
assessee was rendering only a generalised service such as
market studies, study of processing, etc. so as to satisfy the
quality of the materials exported, like any other general
agent. Therefore, the assessee is not entitled to claim the
benefit under Section 80-O. Considering the facts and
circumstances of the case, we are unable to agree with the
above proposition. In CBDT v. Oberoi Hotels (India) (P) Ltd.
[1998] 231 ITR 148’ the Supreme Court has held that the
agreement for managing modern hotel, including promotion
of business, recruiting and training staff are all such services
that entitle the assessee for the benefit of Section 80-O….
……In circular No.700 issued on 23-3-1995 the Board
clarifies the position. It clarifies that “as long as the technical
and professional services are rendered from India and are
received by a foreign Government or enterprise outside India,
deduction under Section 80-O would be available to the
person rendering the services even if the foreign recipient of
the services utilises the benefit of such services in India”.
Now the question is whether the assessee rendered any
service and communicated the same to the foreign party.
Article 2 (4) of the agency agreement regarding marine
products entered into between Gelazur S.A. and Ramnath &
Co. (assessee) states that the assessee is to inform
“GELAZUR” regularly about the market situation, i.e. fishing
situation, prices paid by other markets, prices paid by French
Competitors, business opportunities, monthly supplies of
seafood data. This indicates that the assessee has to
communicate the data it collected, and on the basis of
this, the foreign party acts either to purchase or not to
14
purchase. It is also true that Article 4 of the said agreement
states that “if, any claim arises out of or in relation to the
purchase of products for which ‘GELAZUR’, has no
responsibility, ‘RAMNATH’ will do their best 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 the first. The
agreement entered into between Hoko Fishing Co. Ltd.,
Tokyo, Japan and the assessee also stipulates that the
assessee has to keep “Hoko” informed of the latest
trends/processes applications in manufacturing and of
all valuable commercial and economic information about
the market, Government Policies, exchange fluctuations,
banking laws which will directly or indirectly assist “Hoko” to
organise, develop, control or regulate their import business
from India. In addition to this, the assessee has to render
services to ensure highest standards of quality, hygiene
and freshness of products including supervision at
various stages. The second mentioned services may be
considered as services rendered in India. But, definitely
the other services rendered and informed to the other
party like latest trends/processes applications in
manufacturing, commercial and economic, information
about the markets, Government Policies, exchange
fluctuations, banking laws etc. which help the foreign
party to import marine products from India is a
specialised and technical service. That, in our view,
qualifies the assessee to claim deduction under Section 80-
O.”
(emphasis in bold supplied)
5.10. The ITAT also referred to the subtle distinction in the two phrases:
‘the services rendered from India’ and ‘the services rendered in India’; and
while referring to a decision of Bombay High Court in the case of Godrej &
Boyce Mfg. Co. Ltd. v. S.B. Potnis, Chief Commissioner: (1993) 203 ITR
947 (Bom) as also other decisions, observed that if the assessee had not
passed on the requisite information, the export would not have materialised.
According to ITAT, if the assessee had done the services like packing,
shipping etc., in that case, the assessee would have been merely an
15
exporter and could not have claimed the benefit under Section 80-O but,
the services rendered by the assessee were of specialised nature, which
had been utilised by the foreign party. Accordingly, the ITAT dismissed the
appeal of revenue while observing as under:-
“10. It is true that the difference between ‘the services
rendered from India’ and ‘the services rendered in India’ used
in the Explanation below the proviso to the section is waferthin. But still the difference exists when looked from the point
of view the Indian Exporter. The services rendered in India
are services to make the goods eligible for export. On the
other hand, the services rendered from India can be treated
as services rendered, as desired by the foreign party, which
need specialisation. If the foreign party is interested in
details or information or specific details and such details
are supplied by the Indian party and such details are
utilised either to purchase or not to purchase from India,
such services can be treated as “services rendered from
India”. If the foreign party seeks any service and it is
rendered, it is a service rendered from India, whereas the
services rendered in India are not necessarily by virtue of the
other party’s request or demand. In Godrej & Boyce Mfg. Co.
Ltd. vs. S.B. Potnis, Chief Commissioner [1993] 203 ITR 947’
the Hon’ble Bombay High Court held that a provision made
for the giving of all marketing, industrial manufacturing,
commercial and scientific knowledge, experience and skill for
the efficient working and management of the foreign
company could be treated as services rendered that make
the assessee eligible for the benefit under Section 80-O.
11. In Mittal Corporation’s case (supra), the Delhi bench-D of
the Tribunal held that the object and spirit of Section 80-O
was to mainly encourage Indian technical know-how and skill
abroad and since the information was given outside India
party and it was used outside India and payment was
received in convertible foreign exchange, the condition
required for allowing deduction under Section 80-O could
said to have been fulfilled. In the case of E.P.W. Da Costa
(supra) the Delhi High Court has held that if the information
passed on by the assessee is of practical nature and was a
result of making or manufacturing some concrete thing and
such information has been utilised by the foreign party, such
16
information is sufficient to claim the benefit under Section 80-
O.
12. Before parting with, let us think in a negative way. If the
assessee had not passed on the information like
marketing, processing, quality control, etc. to the other
party, the export would not have materialised. Short of
this information, if the assessee had done services like
packing, shipping, etc. and ensured quality and quantity,
the assessee is merely an exporter and cannot claim the
benefit contemplated under Section 80-O. If we look from
this angle also, we are of the opinion that the assessee is
entitled to succeed.”
(emphasis in bold supplied)
6. The facts discernible from the material on record make out that on
the similar pattern, the ITAT also allowed the claim of this appellant in
relation to the assessment years 1994-95, 1995-96 and 1996-97, while
following its earlier orders. As noticed, the appeals against the orders
passed for these assessment years were clubbed together and disposed of
by the High Court by way of the common judgment dated 09.06.2016,
which is in challenge in these appeals.
 The impugned judgment by the High Court
7. In its impugned common judgment dated 09.06.2016, the High
Court of Kerala has disagreed with ITAT and has disallowed the claim for
deduction by the appellant essentially with the finding that the appellant was
merely a marine product procuring agent for the foreign enterprises, without
any claim for expertise capable of being used abroad rather than in India
and hence, the alleged services do not qualify as the ‘services rendered
from India’, for the purpose of Section 80-O of the Act of 1961.
17
8. In view of the submissions made and the subject-matter of these
appeals, we may examine the observations and reasoning in the impugned
judgment that have led the High Court to disagree with ITAT and to reject
the claim of the appellant for deduction under Section 80-O of the Act in
requisite specifics.10
8.1. The main plank of submissions on behalf of revenue, with reference
to the agreements between the assessee on one hand and the two foreign
companies respectively on the other, had been that the assessee was
simply an agent of the foreign enterprises for procuring marine products
from India; that all its services were incidental to its main functioning as a
fish-procuring agent; and that the assessee rendered its services "in India",
contra-distinguished with the expression "from India". It was also contended
on behalf of the revenue that mere communication between the assessee
based in India and the principal based abroad does not bring their
transactions within the purview of Section 80-O. The submissions on behalf
of the revenue were supported with a Division Bench decision of that High
Court in Commissioner of Income 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 principal provision of Section 80-O of the Act with clause (iii)
10 It may, in the passing, be observed that one of the preliminary points raised before the High
Court by the assessees had been on the maintainability of appeals by the revenue in the face of
Circular No. 21/2015 dated 10.12.2015 due to low-tax effect and no likelihood of cascading effect
because the provision having been amended subsequently. The High Court did not agree with the
assessees on this aspect while observing that ITAT has passed all the orders by following its initial
order relating to ITA No. 131 of 2002; and the order impugned has a cascading effect. This aspect
of the matter does not concern us in these appeals and hence, need no further comment.
18
of the Explanation, it was clear that once the service is provided by an
Indian company (or other person who is resident in India) and the same is
'used' by a foreign entity outside India, it made no difference if the advice is
rendered from Indian soil. In relation to the query of the Court as to whether
all the services mentioned in the agreement would come within the purview
of Section 80-O, the response on behalf of the assessee had been that ‘if
the recipient of services is situated outside, all the services rendered by the
assessee in terms of the agreement come within the sweep of the
provision’. It was, therefore, contended on behalf of the assessee that the
assessee's establishing ‘which of its services qualifies for the deduction is
of no consequence, rather unnecessary’. The decision in Thomas Kurian
(supra) was distinguished on behalf of the assessee with reference to the
facts that the assessee therein was engaged only in verification of quality
and fitness of marine products but provided no commercial or technical
information from India to the foreign buyers whereas the assessee in the
present case had been supplying commercial and technical information
and, using the information supplied by the assessee, the foreign companies
had taken decision outside India as regards how they could purchase the
merchandise. The submissions on behalf of the assessee were supported
with reliance on the said Circular No. 700 dated 23.03.1995 and the
decisions in M/s Continental Construction Ltd. v. Commissioner of
Income Tax, Central-I: (1992) 195 ITR 81 (SC); Commissioner of
Income Tax v. Mittal Corporation: (2005) 272 ITR 87 (Delhi); Li & Fung
19
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. Inchcape
India (P) Ltd: (2005) 273 ITR 92 (Delhi); Central Board of Direct Taxes,
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 High Court
proceeded to analyse Section 80-O of the Act with its Explanation (iii). After
reproducing the relevant text of the provisions, the High Court entered into
the lexical semantics of the prepositions ‘from’ and ‘in’ with reference to
their dictionary meanings. Then, reverting to Section 80-O of the Act, the
High Court observed that therein, the constants were the Indian agent, the
foreign principal, and the Indian agent rendering services from India but the
variables were as to ‘how’ and ‘where’ the services were used. Thereafter,
the High Court looked at the intent and purpose behind Section 80–O of the
Act and observed as under: –
“29. Every nation meets any measure more than half way if it
results in the nation's augmenting the foreign reserves. India
is no exception. It encourages and provides incentives to
those who earn foreign exchange. Over and above the
incentive is the facility of deduction from the taxable income
in foreign exchange--that is what Section 80-O is. The
legislative intent behind the provision is not far to seek. The
Government encourages entrepreneurial initiative and
innovation by the Indian companies at the international level.
In a measure, the nation encourages any Indian showcasing
the Indian intellect internationally. That accepted, if Indian
technology, know-how, etc., is used in India itself even by a
foreign company, it is an intellectual enterprise not only from
20
India but also in India. We reckon that use means the end
use of the information or know-how, but not its mere
processing.”
8.3. Proceeding further, the High Court examined the position obtainable
in regard to the interpretation and application of Section 80-O of the Act
from the precedents cited at Bar. The High Court pointed out that in
Thomas Kurian (supra), a case dealt with by the same High Court, the
main service rendered by the assessee was admittedly of examining the
quality and type of fish processed by the exporters in India and certifying
the fitness of the product for shipment; and such a service was rendered
entirely in India. It was further pointed out that in E.P.W. Da Costa (supra),
the assessee had been a consultant engaged in conducting specialised
economic and public opinion research on an all-India basis to assess the
attitudes of political, social and economic subjects and in the given nature
of work, the High Court of Delhi held that BBC, based in London, can be
said to have used the information received from the assessee to formulate
or modify its broadcasting programmes to India; and though the information
was provided by the assessee from India, it was used in another country in
its entirety. As regards the decision in Mittal Corporation (supra), the High
Court observed that the assessee therein received commission as a buying
agent of certain foreign enterprises and it was held that it was not
necessary that the assessee must provide technical services even where it
received consideration for only providing commercial information. The High
Court, however, observed that from the said decision, it could not be
21
gathered as to how the commercial information provided by the assessee
was used by the foreign enterprises outside India which was ‘a crucial
aspect for determining the application of the provision’. As regards the
decision in Oberoi Hotels (supra), the High Court again observed that the
factual background was not explicit, but since the agreement involved the
assessee's training the Nigerian personnel, it was held that the assessee
undoubtedly under the contract must make use of its commercial and
scientific expertise as well as experience and skill, outside India. As regards
the case of Inchcape India (supra), it was pointed out that the assessee
had to work in textile testing, inspection of soft lines, electrical and
electronic products according to the existing standards of European and
American markets, etc. It was also pointed out that the issue arose much
before the insertion of Explanation (iii) to Section 80-O of the Act. In
reference to the decision in Li & Fung (supra), the High Court pointed out
that therein, assessee claimed to have rendered technical services out of
India as a buying agent and the High Court of Delhi held that the services
rendered by the assessee required knowledge, expertise and experience;
and, therefore, the fee it received from foreign enterprises for supply of
commercial information sent from India for use outside India was eligible for
deduction under Section 80-O of the Act. The Court observed that the said
decision gave judicial imprimatur to the Board's clarification to the effect that
if an assessee renders technical or professional services from India to a
foreign Government or enterprise outside India, it can claim deduction even
22
if the foreign recipient utilises the 'benefit of such services in India'. In this
line of consideration, the High Court lastly referred to the decision in the
case of Chakiath Agencies (supra) and pointed out that therein, the
assessee, a shipping agent, was to ensure that the ship owner picks up the
cargo and transports it within time and at the agreed rates; and the
information regarding the availability of cargo to ship owners and its
destinations at frequent intervals enabled the ship owners to program the
ships' travel touching the Indian coasts. In the given facts, it was held that
the assessee had rendered commercial service to the foreign shipping
owner for his use outside India and received a commission in convertible
foreign exchange, entitling it to the benefit of Section 80-O of the Act. After
such discussion in relation to the aforesaid decisions, the High Court
observed that two crucial aspects of Section 80-O of the Act had not fallen
for consideration therein: as to what type of services rendered by an Indian
entity falls within the sweep of the provision and as to what is the true
import of the expression ‘use outside India’. The High Court said thus:
“46 With due regard to the above pronouncements, we,
however, feel it necessary to point out that in none of them,
two crucial aspects of Section 80-O of the Act have not fallen
for consideration : (i) What type of services rendered by an
Indian entity falls within the sweep of the provision; (ii) what is
the true import of the expression ‘use outside India’?”
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 of Continental
Construction (supra), wherein the assessee was a civil construction
company that had entered into various contracts for the construction, inter
23
alia, of a dam and irrigation projects in Libya and water supply projects in
Iraq after obtaining the approval of CBDT in terms 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 the benefit under Section 80-O of the Act,
this Court has held that the assessee was undoubtedly rendering services
to the foreign Government and those were technical services indeed, for
they required specialised knowledge, experience and skill. The revenue’s
contention that those services were not covered by Section 80-O of the Act
because there was no privity of contract between the employees of the
assessee and the foreign Government was rejected by this Court while
observing that the assessee was a company and any technical services
rendered by it could only be through the medium of its employees. As
regards the claim for a deduction based on labelling of the receipts, this
Court held that that eligibility of an item to tax or tax deduction could hardly
be made to depend on the label given to it by the parties in that, an
assessee was not entitled to claim deduction under Section 80-O merely
because certain receipts were described in the contract as royalty, fee or
commission and at the same time, absence of a specific label cannot
destroy the right of an assessee to claim deduction if, in fact, the
consideration for the receipts can be attributed to the sources stated in the
section. The High Court also noted the 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 the contract legitimately attributable
24
to such information and services is apportioned, and the assessee is given
the benefit of deduction available under the section to the extent of such
consideration.
8.5. The High Court further took note of a decision of Madras High Court
in the case of Commissioner of Income Tax v. Khursheed Anwar: (2009)
311 ITR 468 (Mad) wherein the assessee had an exclusive agency for
promoting and concluding sales contract in India for machinery and
equipment for an enterprise based in Italy. On the strength of agreement,
the assessee worked with the foreign enterprise but the Court observed that
the benefit under Section 80-O of the Act was not available to the assessee
for mere asking; the records and materials must support the claim and the
benefit of the said Section cannot be claimed as a matter of right, it being a
question of fact, which could be considered by the AO on the basis of the
records. In that case, the Appellate Authority had recorded a specific finding
that the assessee has simply effected the sale of machinery and spares
manufactured by the foreign enterprise; and, therefore, the assessee
received only the sales commission, which was not for any activities relating
to technical or professional services and hence, the assessee was not
entitled to claim deduction under Section 80-O of the Act.
8.6. The High Court summed up the requirements, as emanating from
the ratio of the decisions in Continental Construction and Khursheed
Anwar (supra) as follows: -
25
“53. Both from Continental Construction and Khursheed
Anwar we gather that not every receipt from a foreign
enterprise in convertible foreign exchange does not (sic)
automatically get qualified for deduction under Section 80-O--
the nomenclature notwithstanding. The burden, in fact, is on
the assessee to prove before the Revenue through cogent
material that the commission is for the services it rendered
falling within the scope of the section. Neither of the facts--
the existence of the contract and the receipt of convertible
foreign exchange--leads to a presumption that the
commission 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 position
obtainable from the precedents, the High Court proceeded to examine the
facts and, with reference to the aforesaid agreements of the appellant with
French and Japanese companies respectively, held that some of the
functions said to have been discharged by the assessee cannot qualify for
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 had
rendered to qualify under that provision.
8.8. While referring to Explanation (iii) to Section 80-O of the Act, the
High Court held that mere transferring information abroad would not
establish that the service is rendered from India and not in India; that all
receipts cannot qualify for concession; that the range of services referred to
in Section 80-O of the Act have the thread of connectivity in all the
intellectual endeavours mentioned therein. The High Court summed up its
discussion in the following passages:-
26
“56. To sum up, we wish to conclude that the Tribunal has
erred on two counts in holding that the assessees are entitled
to the benefit of deduction under Section. 80-O of the Act :
First, mere transmission of the information to a foreign
enterprise, evidently, abroad does not go to show that it
is a service rendered from India, but not in India. With an
element of certainty, we can as well say that once there is a
contract, an Indian agent always interacts with and sends
information--even technical know-how--to a foreign enterprise
abroad. If that alone qualifies for deduction without reference
to ‘the services rendered in India’, the very expression in
explanation (iii) becomes otiose. Trite it is to observe that
statutory surplusage is not a settled canon of construction;
rather it is to be avoided.
 57. The purpose of the provision is to provide an
incentive to the indigenous know-how of whatever
nature that reaches the shores of foreign nations and gets
applied there. The resultant fruits may percolate to India, too,
as is the case in E.P.W. Da Costa and Continental
Construction, even in which the Apex Court has held that not
all receipts can claim the concession. If we refer back to
the analogy employed by the learned senior counsel for the
assessees, an advocate in India may render services to a
foreign client stationed abroad concerning a case pending in
India. It is a service rendered not only from India, but also in
India. On the other hand, if that piece of professional advice
is used abroad, even involving clients of Indian origin or laws
of this nation as it happens in international arbitrations, the
remuneration is qualified for the benefit.
58. Once we look at the range of services referred to in
Section 80-O, we can discern the thread of connectivity
in all the intellectual endeavours mentioned therein : any
patent, invention, model, design, secret formula or process,
or similar property right, or information concerning industrial,
commercial or scientific knowledge, experience or skill made
available or provided or agreed to be made available or
provided to such Government or enterprise by the assessee.
It can also be in consideration of technical or professional
services rendered or agreed to be rendered outside India to
such Government or enterprise by the assessee. They
cannot be said to be entirely discrete and disparate. The
services have an air of intellectuality; as such, all and
sundry services rendered to a foreign enterprise cannot
be taken into account, lest it should amount to doing
violence to the explanation (iii).”
27
(emphasis in bold supplied)
8.9. While concluding on the matter, the High Court referred to the
dictionary meaning of the expression “render” and observed that “rendering”
includes both “providing” and “performing”; and that in the context of Section
80-O of the Act, the services may be rendered in India but have to be
performed on the foreign soil. The High Court also observed that, if the
assessees had at all rendered certain services which qualify for deduction,
they had failed to place any material in that regard; and the agreements in
question only point out that the assessees were marine product procuring
agents for the foreign enterprises without any claim for expertise capable of
being used abroad rather than in India. Accordingly, the High Court
answered the question of law in favour of revenue 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 Section 80-
O of the Act to the foreign exchange earned by the appellant in lieu of the
services rendered by it to the foreign enterprises, the learned senior
counsel for the appellant has made wide-ranging emphatic submissions on
the process of interpretation, the scheme and object of Section 80-O and
has also referred to the decisions which, in his contention, cover the
present case on the substance and principles.
28
9.1. The learned senior counsel for the appellant has strenuously argued
that the High Court has approached the entire case from an altogether
wrong angle and with rather linguistic and pedantic approach to
interpretation while ignoring the basic object and purpose of Section 80-O
of the Act, which is meant to give incentive for earning foreign exchange.
With reference to the decision in Abhiram Singh v. C.D. Commachen
(Dead) by LRs. and Ors.: 2017(2) SCC 629, the learned counsel has
submitted that this Court has cautioned against making a ‘fortress out of the
dictionary’ but the High Court has proceeded with excessive reliance on
dictionary and has merely looked at the text without its context and object
and with such approach, has unjustifiably upturned the well-considered
decision of ITAT. Learned counsel has also referred to the decision of this
Court in the case of Commissioner of Income Tax, Thiruvananthapuram
v. Baby Marine Exports, Kollam: (2007) 290 ITR 323 (SC), to submit that
an incentive provision has to be construed purposively, broadly and
liberally; and for the provision like Section 80-O of the Act, when the basic
object is to earn foreign exchange, the incentive is required to be granted if
the object is to be achieved. With reference to the decision in
Commissioner of Income Tax-IV, Tamil Nadu v. B. Suresh: (2009) 313
ITR 149 (SC), the learned counsel has pointed out that therein, even five
years’ licence to exhibit an Indian film abroad was held to be that of export
of goods and merchandise, covered by Section 80HHC of the Act; and
Section 80-O of the Act, being equally a provision for incentives to earn
29
foreign exchange, ought to receive the same liberal approach. According to
the learned counsel, the approach of High Court in the present case had
been too narrow and rather unrealistic.
9.2. The learned senior counsel would contend that on a plain reading of
Section 80-O, it is clear that it applies to the income by way of royalty,
commission, fees or any similar payment received by the assessee from a
foreign enterprise in consideration for the use outside India, inter alia, of
“information concerning industrial, commercial or scientific knowledge,
experience or skill” made available to foreign enterprises, provided that the
income is received in convertible foreign exchange in India; and
Explanation (iii) to Section 80-O makes it clear that this Section would apply
even to the services rendered from India, which are to be treated for the
purpose of this Section as services rendered outside India. Learned
counsel has argued that Section 80-O is by no means confined to grant of
user of intellectual property rights or intellectual activities, as contended by
the revenue and as observed by the High Court. In this regard, the learned
counsel has again referred to the words “information concerning industrial,
commercial or scientific knowledge, experience or skill” in the latter part of
Section 80-O and has argued that these words are distinct from the initial
part of this Section, dealing with the use of intellectual property rights. The
learned counsel has further argued that even ‘commission’, which could
relate to ordinary commercial activities, is also covered by Section 80-O.
30
9.3. While strongly relying upon the decision of this Court in the case of
J. B. Boda & Co. Pvt. Ltd v. Central Board of Direct Taxes, New Delhi:
(1997) 223 ITR 271 (SC), the learned senior counsel has argued that
therein, even a commission received by the reinsurance broker, who only
sent information to the foreign reinsurance company regarding the risk
involved and other related data, was held entitled to the benefit of Section
80-O of the Act in respect of the entire commission. The learned counsel
has argued that the activity of reinsurance broker cannot possibly be
described as an intellectual activity or as a technical or professional service;
and in that case of J.B. Boda & Co., the activity only consisted of sending
commercial information from India about a proposed reinsurance contract
on the basis of which, the reinsurance company took a commercial decision
to enter into the contract. The learned counsel has pointed out that in that
case, this Court had referred to the Circular issued by CBDT specifically
directing that the deduction under Section 80-O should be allowed on the
commission received by an Indian reinsurance broker even though it was
only deducted from the remittance made to the company abroad and there
was no actual inward remittance of foreign exchange. According to the
learned counsel, this judgment decisively negatives the stand of the
revenue that Section 80-O applies only to a payment for use of intellectual
property rights or for intellectual activities. The learned counsel would argue
that the broad, liberal and purposive interpretation of Section 80-O in J. B.
31
Boda & Co. is of crucial importance and the analogy thereof applies to the
appellant.
9.4. The learned senior counsel for the appellant has further relied upon
the decision of Delhi High Court in E.P.W. Da Costa (supra) with the
submissions that therein, the Indian assessee only carried out market
survey of radio listeners in India and communicated the information to BBC
in London; and BBC utilized that information to frame Hindi language
broadcasts to India. However, the payments made towards such services
by BBC to the assessee were also taken to be covered by Section 80-O of
the Act.
9.5. As regards the services and activities of the appellant, the learned
senior counsel has referred to the findings of the Appellate Authority as also
of ITAT and has submitted that the said findings are to the effect that the
appellant rendered services from India to its foreign customers by making
over to them the information regarding seafood available in various Indian
markets, their quality, price ranges etc.; and, on the basis of this
information, the foreign customers took decisions on whether or not to
import seafood from India, what to import and from which market and
supplier. Further, the other basic requirement of Section 80-O, i.e.,
remittance of the amount in convertible foreign exchange to India has also
been fulfilled. According to the learned counsel, the clear and unequivocal
findings of the Appellate Authority and ITAT are findings of fact and they
fully establish that the appellant furnished information from India to its
32
customers abroad regarding its industrial and commercial knowledge and
skill, and such information was utilized abroad by the said foreign
customers and the appellant’s commission was remitted to India in
convertible foreign exchange. The learned counsel would argue that
nothing of perversity was shown in regard to such findings of fact so as to
call for interference but the High Court has proceeded on a basis which is
totally inconsistent with those findings. With reference to the decision of this
Court in the case of K. Ravindranathan Nair v. Commissioner of Income
Tax, Ernakulam: (2001) 247 ITR 178 (SC), the learned counsel has argued
that there was no scope of interference 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 High Court
that unless services were rendered abroad, the amount received would not
qualify for the benefit of Section 80-O is directly contrary to the plain
provision contained in Explanation (iii) to Section 80-O and is also contrary
to Circular No. 700 dated 23.09.1995 which had clarified that Section 80-O
covered not only the services rendered outside India but also the services
rendered from India to a party outside India; and it does not matter if the
service is subsequently utilized by the foreign customer in India. In regard
to the case of the appellant, the learned counsel would submit that in fact,
the foreign enterprises related with the appellant do not have any operation
or place of business in India and in such a situation, there was no question
of the appellant rendering service to the customers in India. Thus, according
33
to the learned senior counsel, the activities in question are squarely
covered by Section 80-O of 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 to the
object and purpose behind the provisions contained in Section 80-O of the
Act; the rules of interpretation, which, in his contention, ought to be applied
to these provisions; and, while seeking to distinguish the decisions cited on
behalf of the appellant, has relied upon other decisions, which, according to
him, apply to the present case and which duly support the view taken by the
High Court in the impugned judgment.
10.1. The learned senior counsel for the revenue has pointed out that the
provisions similar to Section 80-O were originally available in the former
Section 85-C of the Income Tax Act, 1961, which was introduced with the
purpose to encourage Indian industries to develop technical know-how and
services and make it available to foreign companies so as to augment the
foreign exchange earning of our country and to establish a reputation of
Indian technical know-how in foreign countries. Reverting to the contents of
Section 80-O of the Act, as applicable to the case at hand, the learned
counsel has submitted that its purpose is indicated in the heading itself that
the same is for providing deduction in respect of royalties etc., received
from certain foreign enterprises. Dissecting the relevant parts of this
provision, the learned counsel would submit that some of the essential
34
requirements for its applicability are that the assessee must receive income
by way of royalty, commission, fees or similar payment from a foreign
enterprise; the consideration must be for technical or professional services,
of patents, inventions or similar intellectual property or information
concerning industrial, commercial or scientific knowledge; and the services
must be rendered outside India. While reiterating and emphatically
underscoring the observations in impugned judgment, the learned counsel
would submit that the intention of legislature behind introducing Section 80-
O was to provide deductions for only that income which is received through
intellectual activity/intellectual endeavours; and simple trading activity,
though may require certain commercial or industrial information, cannot be
said to be covered by this provision. With reference to Explanation (iii) to
Section 80-O, the learned counsel would argue that the principal provision
specifically states that it covers the services rendered “outside India” and
the explanation clarifies that the services rendered or agreed to be
rendered outside India shall include services rendered from India but shall
not include services rendered in India; and therefore, services rendered by
the assessee to a foreign entity must be rendered outside India, in foreign
soil, and not in India, though they may be rendered from India.
10.2. As regards the principles of interpretation, the learned senior
counsel for revenue has strongly relied upon the Constitution Bench
decision in Commissioner of Customs (Import), Mumbai v. Dilip Kumar
& Co. and Ors: (2018) 9 SCC 1 to submit that it is now settled beyond
35
doubt that taxing statutes are subject to the rule of strict interpretation,
leaving no room for any intendment; and the benefit of ambiguity in case of
an exemption notification or an exemption clause must go in favour of the
revenue, as exemptions from taxation have a tendency to increase the
burden on the unexempted class of tax payers. The same principles,
according to the learned counsel, shall apply to Section 80-O of the Act
and, for the law declared by the Constitution Bench, the decision relied
upon by the learned counsel for the appellant in Baby 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 would submit that
the activities alleged to be rendered by the appellant to foreign entities as
per the respective agreements were not of technical or professional
services so as to be covered by the main part of the provision; and further,
they are excluded by virtue of Explanation (iii) to Section 80-O, for having
been rendered “in India” and not “from India”. The learned counsel would
elaborate on the submissions that as per the agreements, the appellant was
only to locate reliable and assured suppliers of marine products, to finalise
pricing and before exporting, to check the quality of goods to be exported
from India to the foreign entity and to communicate the same to the foreign
entity. Moreover, the payment was made on the basis of invoice amount;
and not on basis of any specialised commercial or technical knowledge
given to the foreign entity. The learned counsel has particularly referred to
36
Article 3 of the above-referred agreement with GELAZUR to point out that if
the quality or packaging of the goods was found to be unsatisfactory after
inspection in France, the foreign company had no liability to pay the agent’s
fee. Thus, according to the learned counsel, the activities in respect of
which the agreements were entered into by the appellant were only that of a
‘buying or procuring agent’ and do not fall within the ambit of Section 80-O
of the Act; and the primary activity being of certification, which is done 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 the observations of High
Court, that if one were to assume that the appellant had rendered certain
services which qualify for deduction, no material in that regard has been
placed on record.
10.4. The learned senior counsel for the revenue has drawn support to his
contentions that Section 80-O of the Act does not apply to the appellant by
making reference mainly to two decisions. In the first place, the learned
counsel has relied upon the decision of this Court in B.L. Passi v.
Commissioner of Income-Tax: 2018 (404) ITR 19 (SC) with the
submissions that this decision applies on all fours to the present case.
Therein, the assessee stated that as per the agreement, it was to provide
blueprints for manufacture of dies for stamping of doors of cars, though no
blueprint sent was produced and there was nothing to show that sales were
effected because of information given by assessee. This Court held that the
37
assessee was only a managing agent and was not rendering ‘technical
services’ within the meaning of Section 80-O of the Act. Hence, there was
no basis for grant of deduction. Next, the learned senior counsel has
referred to the decision of Kerala High Court in the case of Thomas Kurian
(supra), where the assessee was only examining the quality and type of fish
processed by the exporters and was certifying fitness for shipment to
foreign buyer, who was bound to accept the goods shipped from India. It
was held that the referred services were rendered “in India” and hence, the
first eligibility condition of Section 80-O, that the services should be
rendered outside India, was not fulfilled and hence, benefit of deduction
under Section 80-O of the Act was held not available even though the
second condition of receiving foreign exchange was fulfilled. The learned
senior counsel would submit that the principles available in the said
decisions directly apply hereto and the appellant is not entitled to claim
deduction under Section 80-O of the Act.
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 of foreign
exchange which would qualify for Section 80-O deduction, which is not in
dispute in the present appeals; and the relied upon Circular of 1995 was
also limited to the point as to what constitutes receipt of foreign exchange.
According to the learned counsel, the nature of activity was not in issue in
that case and hence, there is no such ratio decidendi which could support
38
the case of appellant. The learned counsel has further submitted that the
case of E.W.P. Da Costa (supra) was of entirely different activity inasmuch
as therein, statistical tables were compiled by the assessee after analysing
masses of numerical data, which was collected with audience research
studies in India to assess and analyse the radio listening habits of Indians
for BBC; and such services were held to be highly technical, pertaining to
scientific knowledge and not mere data collection because those services
enabled BBC to broadcast not only in India but other parts of the world. As
regards the decision in B. Suresh (supra), it has been submitted that in that
case, there was admittedly transfer of rights of feature films for exploitation
‘outside India’ 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
present case.
10.5.1. It has also been submitted on behalf of the respondent that, 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 service rendered 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” as per Explanation (iii)
to Section 80-O, did not fall for consideration and hence, those judgments
were of no support to the proposition sought to be advanced by the
appellant. It has also been submitted that in the case of Continental
Construction (supra), the contracts were for carrying out physical
construction of dams and irrigation projects in foreign countries, i.e., ‘not in
39
India’ and besides that, in special circumstances, the benefit of Section 80-
O was only allowed in part rather than on the entire contract, where the
revenue was directed to bifurcate and look at each of the services
rendered. According to the submissions on behalf of 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 of revenue; and if at all the ratio is
applied, at best, the benefit of Section 80-O might have been considered
activity-wise, if the appellant had placed any material as to the actual
services rendered, but no such material had been placed on record by the
appellant.
10.6. In regard to different services by the same assessee, some of which
may not qualify for deduction, apart from relying on the observations in
Continental Construction (supra), reference has also been made on
behalf of revenue to two circulars of CBDT i.e., Circular No. 187 dated
23.12.1975 and Circular No. 253 dated 30.04.1979. It has been pointed out
that Circular dated 23.12.1975 provided, inter alia, that in the case of a
composite agreement which specified a consolidated amount as
consideration for purposes which included matters outside the scope of
Section 80-O, CBDT may not approve such an agreement for the purposes
of Section 80-O if it was not possible to properly ascertain and determine
the amount of consideration relatable to the provision of the know-how or
technical services etc., qualifying for Section 80-O. Thus, the benefit of
Section 80-O could have been denied to the entire amount of royalty,
40
commission, fees etc., receivable under such an agreement. Thereafter, by
Circular dated 30.04.1979, it was decided that in such cases of composite
agreement, approval would be granted by CBDT subject to a suitable
disallowance for the non-qualifying services, after taking into consideration
the totality of agreement, so that the balance of the royalty/fees, etc., which
was for the services covered by Section 80-O, could be exempted. This
Circular also clarified that trade enquires will not qualify for deduction under
Section 80-O as also technical services rendered in India. It has been
contended that if at all the appellant had been rendering some such
services which could qualify for deduction, it had not given any such breakup of services and corresponding receipts and therefore, benefit of Section
80-O of the Act is not available to the appellant.
10.6.1. As regards the circular relied upon by the counsel for the appellant,
i.e., Circular No. 700 dated 23.03.1995, it has been contended on behalf of
revenue that the same is of no assistance to the appellant because, as per
paragraphs 3 and 4 thereof, the services have to be rendered outside India,
and it only clarifies that the foreign recipient of the services may utilise the
benefit of such services in India whereas in the present case, the appellant
merely rendered services in India and only as an agent.
10.7. The learned senior counsel for revenue has also submitted that the
findings of fact arrived at by the ITAT were clearly challenged before the
High Court in ITA No. 131 of 2002 and, in any case, it being a matter of
interpretation of statutory language of Section 80-O and its Explanation (iii),
41
the contention on behalf of the appellant about want of challenge to the
findings is without substance.
Rejoinder submissions on behalf of the appellant
11. The submissions made on behalf of the respondent have been duly
refuted on behalf of the appellant by way of rejoinder submissions.
11.1. As regards the principles of interpretation in the case of Dilip
Kumar & Co. (supra), it has been contended on behalf of the appellant that
reference to the said decision is wholly inapposite because that deals with
interpretation of an exemption notification and not an incentive provision like
Section 80-O, which has been interpreted in J.B. Boda & Co. (supra) or
Section 80HHC, which has been interpreted in B. Suresh and Baby
Marine Exports (supra).
11.2. As regards the decisions relied upon by revenue on application of
Section 80-O of the Act, it has been submitted that reference to the case of
B.L. Passi (supra) is completely misplaced because therein, the assessee
had not placed any material whatsoever to show that it had rendered any
service to the foreign customer; and therefore, 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 were very different from those of the appellant
because the said assessee was only an inspector and certifier; and even
otherwise, the said decision is not of any force because the decision of this
Court in J.B. Boda & Co. (supra) was not considered therein and the
42
decision of Delhi High Court in E.P.W. Da Costa (supra), which was
accepted by revenue and was allowed to become final, was also not
considered. It has also been submitted that there is no cogent or specific
reply by the respondents to the submissions based on the decisions of this
Court in the case of J.B. Boda & Co. (supra); and it has been reiterated
that even the activity of reinsurance broker was taken to be covered for the
benefit of Section 80-O though such activity cannot possibly be described
as an intellectual activity or as a technical or professional service. It has
been contended that 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 utmost importance to the present case. It has further been
contended in rejoinder submissions that there is no material distinction
between the cases of J.B. Boda & Co. and E.P.W. Da Costa on one hand
and that of the appellant on the other; and superficial comments made on
behalf of the respondents in regard to these decisions remain meritless.
11.2.1. Similarly, as regards the Circulars dated 23.12.1975 and
30.04.1979, it has been contended that reference to these circulars is
wholly misplaced because they dealt with the matter of approval by CBDT
of an agreement with foreign customers but such need for approval of
CBDT had been dispensed with by amendment of Section 80-O long ago
and these circulars have nothing to do with the issues involved in the
present case.
43
11.3. With reiteration of the submissions relating to the nature of activity of
the appellant and the findings of ITAT, it has been argued that the
contention of the respondents that the primary activity of the appellant had
merely been of procuring agent remains untenable. It has also been
contended that as per the finding of fact of ITAT, it is but clear that whole of
the services rendered by the appellant and the entire amount received by it
in foreign exchange was covered by Section 80-O of the Act; and that the
attempt on the part of the respondent to suggest as if only a part of the
amount received by the appellant may be eligible for benefit of Section 80-
O remains baseless. In the rejoinder submissions, it has also been
indicated that reference to the decision of this Court in Continental
Construction (supra) by the respondents is irrelevant, as the same has not
been relied upon by the appellant.
12. We have given thoughtful consideration to the rival submissions and
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 contained in
Section 80-O of the Act of 1961 and clause (iii) of the Explanation thereto at
the outset. This Section 80-O has undergone several amendments from
time to time but, for the present purpose, suffice would be to extract the
relevant and pivotal provisions therein, as existing at the relevant time and
as applicable to the present appeal, as under: -
44
“80-O. Deduction in respect of royalties, etc. from certain
foreign enterprises.— 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 or 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, or having been converted
into 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 per cent of the income
so received in, or brought into, India, in computing the total
income of the assessee:
*** *** ***
Explanation.—For the purposes of this section,—
*** *** ***
(iii) “services rendered or agreed to be rendered outside
India” shall include services rendered from India but shall not
include services rendered in India;
*** *** ***”11
14. Worthwhile it would also be to take a little excursion into the relevant
parts of history related with Section 80-O of the Act while putting a glance
over some of the features of developments relating to the provision/s in the
Income Tax, 1961 concerning such deduction in respect of particular class
of income, received by way of royalty, commissions etc., by an assessee in
11 This extraction is after omitting the other parts of Section 80-O of the Act, including its Provisos
and other clauses of Explanation, being not relevant for the question at hand.
45
consideration of imparting specified intellectual property, or extending
specified information, or rendering specified services to foreign State or
foreign enterprise.
14.1. In the early stages of advent of the Act of 1961, Chapters VI-A, VII
and VIII respectively dealt with the deductions to be made in computing the
total income, exempted portion/s of income, and rebates and reliefs but,
several of the provisions in these Chapters as also some of the provisions
of Chapter XII were recast and were put together in the newly framed
Chapter VI-A by the Finance (No.2) Act, 1967 with effect from 01.04.1968
with the result that all such incentives or reliefs were directly provided by
way of deductions from the total income itself. In its framework, while Part A
of this Chapter VI-A contains general provisions including definitions, Part B
thereof provides for deductions in respect of certain payments and Part C
provides for deductions in respect of certain incomes in computation of total
income. Part CA and Part D making provisions for special class of income
or persons were introduced later.
14.2. The aspect germane to the present case is that forerunner to the
provision relating to deduction of tax on royalties etc., received from 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 placed in Chapter VII. The
said Section 85-C and several other provisions of Chapter VII were omitted
by Section 33, read with Third Schedule, item 14, of the Finance (No.2) Act,
1967. The reason for omission of the said Section 85-C was that similar
46
provision, with revised requirements, came to be introduced by way of
Section 80-O in the new Chapter VI-A12
-
13
.
14.3. Section 80-O as introduced in Chapter VI-A got several
modifications/alterations in regard to the entities eligible to claim such
deductions as also the extent (that is percentage) of admissible deduction,
but the core of object remained that of encouraging the export of Indian
technical know-how and augmentation of the foreign exchange reserves of
the country. While the relief was originally admitted in Section 80-O for
12 For the purpose of reference, we are reproducing the said repealed Section 85-C as under:-
“85C. Deduction of tax on royalties, etc., received from certain foreign
companies – Where the total income of an assessee, being an Indian
company, includes any income by way of royalty, commission, fees or any
similar payment received by it from a company which is neither an Indian
company nor a company which has made the prescribed arrangements for the
declaration and payment of dividends within India (hereafter, in this section,
referred to as the foreign company) in consideration for the use 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 or agreed to be made available
or provided to the foreign company by the assessee, or in consideration of
technical services rendered or agreed to be rendered to the foreign company by
the assessee, under an agreement approved by the Central Government in this
behalf before the 1st day of October of the relevant assessment year, the
assessee shall be entitled to a deduction from the income-tax with which it is
chargeable on its total income for the assessment year of so much of the
amount of income-tax calculated at the average rate of income-tax on the
income so included as exceeds the amount of twenty-five per cent. thereof.”
13 For the purpose of reference, we may also reproduce Section 80-O in its original form, as
inserted by the Finance (No.2) Act, 1967 as under:
“80O. Deduction in respect of royalties, etc., received from certain
foreign companies. – Where the gross total income of an assessee being an
Indian company includes any income by way of royalty, commission, fees or any
similar payment received by it from a foreign company in consideration for the
use 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 or agreed to
be made available or provided to the foreign company by the assessee, or in
consideration of technical services rendered or agreed to be rendered to the
foreign company by the assessee, under an agreement approved by the Central
Government in this behalf before the 1st day of October of the relevant
assessment year, there shall be allowed a deduction from such income of an
amount equal to sixty per cent. thereof, in computing the total income of the
assessee.”
47
dealing with a foreign company only, but later on, dealing with a foreign
Government or foreign enterprise was included and thereby, the scope of
coverage and activities was substantially expanded. However, as noticed
from the erstwhile Section 85-C and the originally inserted Section 80-O,
any such agreement with the foreign entity required the approval of Central
Government and this requirement was later on altered to that of the
approval of CBDT. Various other features and aspects related with the
development and operation of Section 80-O, as then existing, were dealt
with by the two circulars referred to on behalf of the revenue that is, Circular
No. 187 dated 23.12.1975 and Circular No. 253 dated 30.04.1979. In fact,
these circulars came up for their fuller exposition by this Court in the case of
Continental Construction (supra), as we shall notice hereafter a little later.
At this juncture, we may usefully reproduce the relevant text of these two
notifications which throw light on the provisions as then existing and as
applied. The relevant parts of the said circulars read as under:-
“Circular No. 187, dated 23rd December, 1975.
Subject : Section 80-O of the Income-tax Act, 1961-
Guidelines for approval of agreements.
“With the twin objectives of encouraging the export of
Indian technical know-how and augmentation of the foreign
exchange resources of the country, section 80-O of the
Income-tax Act, 1961, provides for concessional tax
treatment in respect of income by way of royalty, commission,
fees or any similar payment received from a foreign
Government or a foreign enterprise, subject to the
satisfaction of certain conditions laid down in the said section.
2. One of the conditions for availability of the tax
concession under section 80-O is that the agreement should
be approved by the Central Board of Direct Taxes in this
48
behalf. The application for the approval of the agreement is
required to be made to the Central Board of Direct Taxes
before the 1st day of October of the assessment year in
relation to which the approval is first sought. The form of
application for this purpose has been standardised and a
specimen is given in the Appendix.
3. The object of the provision when it was first introduced
as section 85C in the Income-tax Act, 1961, was stated in
Board’s Circular No.4P (LXXVI-61) of 1966, to be to
encourage Indian companies to export their technical knowhow and skill abroad and augment the foreign exchange
resources of the country. This was reiterated in Board’s
Circular No.72 explaining the changes introduced by the
Finance (No.2) Act, 1971. Keeping in view the purpose
behind this tax incentive and the requirements of the
statutory provisions, the Board have evolved the following
guidelines for the grant of such approval:-…..
*** *** ***
(ix) In the case of a composite agreement specifying a
consolidated amount as consideration for purposes
which include matters outside the scope of Section 80-O
(e.g., use of trade-marks, supply of equipment, etc.) the
amount of the consideration relating to the provision of
technical know-how or technical services, etc., qualifying
for purposes of section 80-O will have to be determined
by the Income-tax Officer separately at the time of
assessment after due appreciation of the relevant facts.
Where, however, in the opinion of the Board, it will not be
possible to properly ascertain and determine the amount
of the consideration relatable to the provision of the
know-how or the technical services, etc., qualifying for
section 80-O, the Board may not approve such an
agreement for the purposes of section 80-O of the Act.”
*** *** ***”
Circular No.253, dated 30th April, 1979.
Section 80-O of the Income-tax Act, 1961 – Guidelines for
approval of agreements – Further clarifications. – Attention is
invited to the Board’s Circular No. 187 (F. No. 473/15/73-
FTD), dated 23rd December, 1975, on the above subject
laying down the guidelines for the grant of approval under
section 80-O. The Board has had occasion to re-examine the
aforesaid guidelines and it has been decided to modify the
guidelines to the extent indicated below : -
49
(i) Para.3(iii) of the Circular dated 23-12-1975 provided
that the agreement should have been genuinely
entered into on and after the date when the tax
concession was announced by the introduction of
the relevant Bill in the Lok Sabha. It has now been
decided that approvals under section 80-O would not
be denied on this ground. In other words, para 3(iii)
of the Circular dated 23-12-1975 may be treated as
deleted.
(ii) In para (ix) of the said circular, it was mentioned that
consideration for use of trade-mark would be outside
the scope of section 80-O. It has now been decided
that payments made for the use of trade-marks, are
of the nature of royalty, and, therefore, fall within the
scope of section 80-O.
(iii) It was also stated in para 3(ix) of circular dated 23-
12-75 that in the case of a composite agreement
which specified a consolidated amount as
consideration for purposes which included matters
outside the scope of section 80-O, the Board may
not approve such an agreement for the purposes of
section 80-O of the Act if it was not possible to
properly ascertain and determine the amount of the
consideration relatable to the provision of the knowhow or technical services, etc., qualifying for section
80-O. Thus, the benefit of section 80-O could be
denied to the entire amount of royalty, commission,
fees, etc., receivable under such an agreement. It
has since been decided that in such cases
approval would be granted by the Board subject
to a suitable disallowance for the non-qualifying
services, after taking into consideration the
totality of the agreement, so the balance of
royalty/fees, etc., which is for the services
covered by section 80-O, can be exempted.”
(emphasis in bold supplied)
14.4 There had been several other modifications of Section 80-O from
time to time. The relevant aspects noticeable for the present purpose are
that the extent of deduction under Section 80-O was also altered from time
50
to time and it even came to be allowed 100 per cent. but, by the Finance
Act, 1984, it was reduced to 50 per cent. of the referred income. Then, the
requirement of approval by CBDT was substituted by Finance Act, 1988 to
the approval by Chief Commissioner or Director General. However, by
Finance (No. 2) Act of 1991, even that requirement was deleted. In fact, the
Finance (No. 2) Act of 1991 brought about a sea of changes in Section 80-
O whereby, first and second provisos were omitted and the abovementioned clause (iii) of Explanation was inserted. The words “or a person
(other than a company) who is resident in India” were also inserted by this
very Finance (No. 2) Act of 1991 expanding the reach of Section 80-O even
to non-corporate tax payers. Moreover, the earlier expressions “technical
services” were also altered to “technical or professional services”. There is
no gainsaying the fact that Finance (No. 2) Act of 1991 led to a
considerable recasting of Section 80-O of the Act of 1961 with substantial
expansion of its ambit and area of coverage. These amendments were
made applicable from the assessment year 1992-93 onwards and
obviously, this had been the reason that the assessees like the appellant,
who had earlier been taking the benefit of deduction under Section 80HHC
with reference to their earning of foreign exchange, attempted to shift, for
the purpose of deduction, to this provision of Section 80-O. The effect of the
amendments to Section 80-O by Finance (No. 2) Act of 1991 was also
explained by the revenue in its Circular No. 621 dated 19.12.1991, the
relevant part whereof could be extracted as under:-
51
“Circular No. 621, dated 19th December, 1991:-
‘Extending the scope of deduction in respect of income from
royalties, commission, technical fee, etc. ---37. Under the
existing provisions of section 80-0 of the Income-tax Act, an
Indian company, deriving income by way of royalties,
commission, fees etc., from a foreign Government or a
foreign enterprise in consideration of the provision of
technical know-how or technical services under an approved
agreement, is entitled to a deduction, in computing its taxable
income, of an amount equal to 50 per cent. of such income
provided such income is received in, or brought into, India in
convertible foreign exchange.
37.1 With a view to bringing this provision on a parity with
other tax concessions for the export sector and also as a
measure of rationalisation, the benefit under section 80-0 has
been extended to a non-corporate tax payers resident in
India. The concession will now also be available in relation to
professional services as well as for services rendered to
foreign enterprise from India. Further, the requirement of
prior approval of the tax authorities in this regard has been
done away with.
37.2 This amendment will take effect from 1st April, 1992
and will, accordingly, apply in relation to the assessment year
1992--93 and subsequent years.
**** **** ****”
14.5 There had been several further clarifications concerning Section 80-
O, as refurbished by the Finance (No. 2) Act of 1991; and one 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 learned senior
counsel for the appellant. The relevant contents of this circular could also
be extracted as follows:-
“Circular No. 700, dated 23rd March, 1995
‘Deduction under section 80-O of the Income-tax Act, 1961 –
Clarification regarding.- Section 80-O of the Income-tax
Act,1961, provides for a deduction of 50% from the income of
an Indian resident by way of royalty, commission, fees or any
similar payment from a foreign Government or enterprise:
52
(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
rendered or agreed to be rendered outside India to
such foreign Government or enterprise.
 In either case, the requirement is that the income should be
in convertible foreign exchange.
2. It has been clarified in the Explanation (iii) to section 80-O
that services rendered or agreed to be rendered outside India
[ i.e., item (b) above] shall include services rendered from
India but shall not include services rendered in India.
3. A question has been raised as to whether the benefit of
section 80-O would be available if the technical and
professional services, though rendered outside India, are
used by the foreign Government or enterprise in India.
4. The matter has been considered by the Board. It is
clarified that as long as the technical and professional
services are rendered from India and are received by a
foreign Government or enterprise outside India, deduction
under section 80-O would be available to the person
rendering the services even if the foreign recipient of the
services utilises the benefit of such services in India.
5. The contents of this circular may be given wide publicity
and brought to the notice of all the subordinate authorities
under your charge for information and necessary action.”
14.6 In summation of what has been noticed hereinabove, it turns out
that with the objectives of giving impetus to the functioning of Indian
industries to provide intellectual property or information concerning
industrial, commercial or scientific knowledge to the foreign countries so as
to augment the foreign exchange earnings of our country and at the same
time, earning a goodwill of the Indian technical know-how in the foreign
countries, the provisions like Section 85-C earlier and Section 80-O later
were inserted to the Act of 1961. Noteworthy it is that from time to time, the
53
ambit and sphere of Section 80-O were expanded and even the dealings
with foreign Government or foreign enterprise were included in place of
“foreign company” as initially provided. The requirement of approval by the
Central Government of any such arrangement was also modified and was
ultimately done away with. Significantly, while initially the benefit of Section
80-O was envisaged only for an Indian company but later on, it was also
extended to a person other than a company, who is resident of India. The
extent of deduction had also varied from time to time.
14.7. Broadly speaking, a few major and important factors related with
Section 80-O of the Act of 1961, with reference to its background and its
development, make it clear that the tax incentive for imparting technical
know-how and akin specialities from our country to the foreign countries
ultimately took the shape in the manner that earning of foreign exchange,
by way of imparting intellectual property, or furnishing the information
concerning industrial, commercial, scientific knowledge, or rendering of
technical or professional services to the foreign Government or foreign
enterprise, was made eligible for deduction in computation of total income,
to the tune of 50 per cent. of the income so received. The finer details like
those occurring in Explanation (iii) of Section 80-O were also taken care of
by providing that the services envisaged by Section 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.
54
The relevant principles for interpretation
15. Having thus taken note of annals and historical perspectives of
development of Section 80-O of the Act and the relevant parts of the
circulars issued by the department from time to time in tune with such
developments, we may now examine the principles for interpretation and
application of this provision. In this regard, as noticed, it has been argued
on behalf of the appellant, with reference to the decisions in Baby Marine
Exports and B. Suresh (supra), that an incentive provision like Section 80-
O of the Act has to be construed purposively, broadly and liberally so as to
achieve its avowed object to earn foreign exchange. Per contra, it has been
contended on behalf of revenue, with reference to the Constitution Bench
decision in Dilip Kumar & Co. (supra), that the taxing statutes are subject
to the rule of strict interpretation, and the benefit of ambiguity in case of an
exemption notification or an exemption clause must go in favour of the
revenue; and the same principles would apply in relation to Section 80-O of
the Act.
15.1. So far the decision in the case of B. Suresh (supra) is concerned, it
does not appear necessary to dilate on the same because the question
involved therein was entirely different that is, as to whether the foreign
exchange earned by transferring the right of exploitation of films outside
India by way of lease was admissible for deduction under Section 80HHC of
the Act, where the department attempted to contend that movies/films were
55
not goods. However, having regard to the submissions made, we may look
at the ratio from the other cited decisions in requisite details.
Baby Marine Exports
16. The question that came up for determination before this Court in the
case of Baby Marine Exports (supra) was as to whether the export house
premium received by assessee was includible in ‘profits of business’ while
computing deduction under Section 80HHC?
16.1. The assessee in the case of Baby Marine Exports was engaged in
the business of selling marine products both in domestic market and was
also exporting it to direct buyers as also through export houses. Contracts
with export houses were entered into where assessee received entire FOB
value of exports plus export house premium of 2.25% of FOB value. While
claiming deduction under Section 80HHC of the Act, this export house
premium was also shown as part of total turnover, as being part of sale
consideration and not commission or service charge; and deduction was
claimed accordingly. The AO rejected such claim for deduction with
reference to clause 12 of the agreement and with the observation that such
premium was clearly a commission or service charge. The Appellate
Authority held that what the assessee received was only reimbursement of
certain expenses or payments towards commission or brokerage, falling
within the ambit of clause 1 of Explanation (baa) to Section 80HHC.
However, the ITAT allowed the appeal of the assessee by accepting the
stand that the export house premium was includible in ‘profits of business’
56
while computing deduction under Section 80HHC and that export house
premium was nothing but an integral part of sale price realised by assessee
and could not have been taken as either commission or brokerage. The
appeal by revenue was dismissed by the High Court while following its
earlier decision on the same point.
16.2. In further appeal by revenue, this Court observed, inter alia, with
reference to other decisions in Sea Pearl Industries v. CIT Cochin:
2001(127) ELT649(SC) and IPCA Laboratory Ltd. v. Dy. Commissioner
of Income Tax, Mumbai: (2004) 266 ITR521(SC) that Section 80HHC was
incorporated with the object of granting incentive to earners of foreign
exchange and this section must receive liberal interpretation. This Court
also observed with reference to the decision in Bajaj Tempo Ltd. v.
Commissioner of Income Tax, Bombay: (1992) 196 ITR188(SC) that we
‘must always keep the object of the Act in view while interpreting the
Section. The legislative intention must 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
under Section 80HHC of the Act not by way of any liberal or extended
meaning to the provision, but only on its plain construction with reference to
the definition of the term “supporting manufacturer” in that provision and its
direct application to the facts of the case as would distinctly appear from the
following passages (at pp. 334-335 of ITR):-
“According to section 80HHC(1), the export house in
computing its total income is entitled to deduction to the
57
extent of the profit derived by the assessee from the export of
the goods or merchandise. Whereas, according to section
80HHC(1A), the supporting manufacturer shall be entitled to
a deduction of profit derived by the assessee from the sale of
goods or merchandise. The term "supporting manufacturer"
has been defined in this section and it reads as under:
“ ‘supporting manufacturer’ means a person being an
Indian company or a person (other than a company)
resident in India, manufacturing (including processing),
goods or merchandise and selling such goods or
merchandise to an Export House or a Trading House for
the purposes of export”: According to the said definition,
the respondent clearly comes within the purview of
supporting manufacturer. On plain construction of
section 80HHC(1A) the assessee being supporting
as manufacturer shall be entitled to a deduction of
the profit derived by the assessee from the sale of
goods or merchandise.
The respondent - a supporting manufacturer sold the
goods or merchandise to the export house and received the
entire FOB value of the goods plus the export house
premium of 2.25 per cent. of the FOB value. The relevant
clause 12 of the agreement has already been extracted in the
earlier part of the judgment and according to the said clause,
the export house is under obligation to pay to the supporting
manufacturer an incentive of 2.25 per cent. on the F.O.B.
value according to the terms of the agreement. The
respondent, a supporting manufacturer, admittedly sold the
goods to the export house in respect of which the export
house has issued a certificate under proviso to sub-section
(1). According to the section, the respondent - assessee, in
computing the total income be allowed a deduction to the
extent of profits referred to in sub-section (1B) derived by the
assessee from the sale of goods to the export house.
The Appellate Tribunal has arrived at the definite
conclusion that the Export House premium is nothing but an
integral part of sale price realized by the assessee - a
supporting manufacturer from the Export House. The Tribunal
further held that the Export House premium cannot possibly
be considered to be either commission or brokerage, as a
person cannot earn commission or brokerage for himself.
The High Court has upheld the findings of the Tribunal. In
our considered view, the order of the Appellate Tribunal is
based on proper construction of section 80HHC(1A) of the
58
Income-tax Act that the Export House premium is an integral
part of the sale price realized by the assessee from the
export house.
*** *** ***
 The submission of the appellant that the premium earned
by the respondent assessee is totally unrelated to export is
fallacious and devoid of any merit. This submission of the
appellant is also contrary to the specific terms of the
agreement between the appellant and the respondent.
On a plain construction of section 80HHC(1A), the
respondent is clearly entitled to claim deduction of the
premium amount received from the export house in
computing the total income. The export house premium
can be included in the business profit because it is an integral
part of business operation of the respondent which consists
of sale of goods by the respondent to the export house.”
(emphasis in bold supplied)
Dilip Kumar & Co.
17. The core question referred for authoritative pronouncement to the
Constitution Bench in the case of Dilip Kumar & Co. (supra) was as to
what interpretative rule should be applied while interpreting a tax exemption
provision/notification when there is an ambiguity as to its applicability with
reference to the entitlement of the assessee or the rate of tax? The
reference to the Constitution Bench was necessitated essentially 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. Collector of Customs: (1997)
6 SCC 564, the proposition came to be stated that any ambiguity in a tax
provision/notification must be interpreted in favour of the assessee who is
claiming benefit thereunder.14
14 In Sun Export Corpn. v. Collector of Customs, (1997) 6 SCC 564 the Court had stated the
law as follows (at page 568) :
“Even assuming that there are two views possible, it is well settled that one
favourable to the assessee in matters of taxation has to be preferred.”
59
17.1. In Dilip Kumar & Co., the Constitution Bench of this Court
examined several of the past decisions including that by another
Constitution Bench in CCE v. Hari Chand Shri Gopal: (2011) 1 SCC 236
as also that by a Division Bench of this Court in the case of UOI v. Wood
Papers Ltd.: (1990) 4 SCC 256 wherein, the principles were stated in clear
terms that the question as to whether a subject falls in the notification or in
the exemption clause has to be strictly construed; and once the ambiguity
or doubt is resolved by interpreting the applicability of exemption clause
strictly, the Court may construe the exemption clause liberally. This Court
found that in Wood Papers Ltd. (supra), some of the observations in an
earlier decision in the case of CCE v. Parle Exports (P) Ltd.: (1989) 1 SCC
345 were also explained with all clarity. This Court noted the enunciations in
Wood Paper Ltd. with total approval as could be noticed in the following:-
“46. In the judgment of the two learned Judges in Union of
India v. Wood Papers Ltd.: (1990) 4 SCC 256 (hereinafter
referred to as “Wood Papers Ltd. case”, for brevity), a
distinction between stage of finding out the eligibility to seek
exemption and stage of applying the nature of exemption was
made. Relying on the decision in CCE v. Parle Exports (P)
Ltd. : (1989) 1 SCC 345, it was held: (Wood Papers Ltd.
case, SCC p. 262, para 6)
“6. … Do not extend or widen the ambit at the stage of
applicability. But once that hurdle is crossed, construe it
liberally.”
The reasoning for arriving at such conclusion is found in para
4 of 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 growing economy. For instance tax holiday to new
units, concessional rate of tax to goods or persons for
limited period or with the specific objective, etc. That is
why its construction, unlike charging provision, has to be
60
tested on different touchstone. In fact, an exemption
provision is like an exception and on normal principle of
construction or interpretation of statutes it is construed
strictly either because of legislative intention or on
economic justification of inequitable burden or
progressive approach of fiscal provisions intended to
augment State revenue. But once exception or
exemption becomes applicable no rule or principle
requires it to be construed strictly. Truly speaking liberal
and strict construction of an exemption provision are to
be invoked at different stages of interpreting it. When
the question is whether a subject falls in the notification
or in the exemption clause then it being in nature of
exception is to be construed strictly and against the
subject, but once ambiguity or doubt about applicability
is lifted and the subject falls in the notification then full
play should be given to it and it calls for a wider and
liberal construction.”
(emphasis supplied)
*** *** ***
58. In the above passage, no doubt this Court observed that:
(Parle Exports case, SCC p. 357, para 17)
“17. when two views of a notification are possible, it
should be construed in favour of the subject as
notification is part of a fiscal enactment.”
This observation may appear to support the view that
ambiguity in a notification for exemption must be interpreted
to benefit the subject/assessee. A careful reading of the
entire para, as extracted hereinabove would, however,
suggest that an exception to the general rule of tax has to be
construed strictly against those who invoke for their benefit.
This was explained in a subsequent decision in Wood
Papers Ltd. case. In para 6, it was observed as follows: (SCC
p. 262)
“6. … In CCE v. Parle Exports (P) Ltd., this Court while
accepting that exemption clause should be construed
liberally applied rigorous test for determining if
expensive items like Gold Spot base or Limca base or
Thums Up base were covered in the expression food
products and food preparations used in Item No. 68 of
First Schedule of Central Excises and Salt Act and held
‘that it should not be in consonance with spirit and the
reason of law to give exemption for non-alcoholic
beverage basis under the notification in question’.
Rationale or ratio is same. Do not extend or widen the
61
ambit at stage of applicability. But once that hurdle is
crossed construe it liberally. Since the respondent did
not fall in the first clause of the notification there was no
question of giving the clause a liberal construction and
hold that production of goods by respondent mentioned
in the notification were entitled to benefit.”
59. The above decision, which is also a decision of a twoJudge Bench of this Court, for the first time took a view that
liberal and strict construction of exemption provisions are to
be invoked at different stages of interpreting it. The question
whether a subject falls in the notification or in the
exemption clause, has to be strictly construed. When
once the ambiguity or doubt is resolved by interpreting
the applicability of exemption clause strictly, the Court
may construe the notification by giving full play
bestowing wider and liberal construction. The ratio of
Parle Exports case deduced as 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
our concurrence to this view which has been
subsequently, elaborated by the Constitution Bench in
Hari Chand case.”
(emphasis in bold supplied)
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
decision in CCE v. Hari Chand Shri Gopal (hereinafter
referred as “Hari Chand case”, for brevity). We need not refer
to the facts of the case which gave rise to the questions for
consideration before the Constitutional Bench. K.S.
Radhakrishnan, J., who wrote the unanimous opinion for the
Constitution Bench, framed the question viz. whether
manufacturer of a specified final product falling under the
Schedule to the Central Excise Tariff Act, 1985 is eligible to
get the benefit of exemption of remission of excise duty on
specified intermediate goods as per the Central Government
Notification dated 11-8-1994, if captively consumed for the
manufacture of final product on the ground that the records
62
kept by it at the recipient end would indicate its “intended
use” and “substantial compliance” with procedure set out in
Chapter 10 of the Central Excise Rules, 1994, for
consideration? The Constitution Bench answering the said
question concluded that a manufacturer qualified to seek
exemption was required to comply with the preconditions for
claiming exemption and therefore is not exempt or absolved
from following the statutory requirements as contained in the
Rules. The Constitution Bench then considered and
reiterated the settled principles qua the test of construction of
exemption clause, the mandatory requirements to be
complied with and the distinction between the eligibility
criteria with reference to the conditions which need to be
strictly complied with and the conditions which need to be
substantially complied with. The Constitution Bench followed
the ratio in Hansraj Gordhandas case, to reiterate the law on
the aspect of interpretation of exemption clause in para 29 as
follows: (Hari Chand case, SCC p. 247)
“29. The law is well settled that a person who claims
exemption or concession has to establish that he is
entitled to that exemption or concession. A provision
providing for an exemption, concession or
exception, as the case may be, has to be construed
strictly with certain exceptions depending upon the
settings on which the provision has been placed in
the statute and the object and purpose to be
achieved. If exemption is available on complying
with certain conditions, the conditions have to be
complied with. The mandatory requirements of
those conditions must be obeyed or fulfilled exactly,
though at times, some latitude can be shown, if
there is failure to comply with some requirements
which are directory in nature, the non-compliance of
which would not affect the essence or substance of the
notification granting exemption.
*** *** ***”
(emphasis in bold supplied)
17.3. In view of above and with reference to several other decisions, in
Dilip Kumar & Co., the Constitution Bench summed up the principles as
follows:-
“66. To sum up, we answer the reference holding as under:
63
66.1. Exemption notification should be interpreted
strictly; the burden of proving applicability would be on the
assessee to show that his case comes within the parameters
of the exemption clause or exemption notification.
66.2. When there is ambiguity in exemption notification
which is subject to strict interpretation, the benefit of
such ambiguity cannot be claimed by the
subject/assessee and it must be interpreted in favour of
the Revenue.
66.3. The ratio in Sun Export case is not correct and all
the decisions which took similar view as in Sun Export
case stand overruled.”
(emphasis in bold supplied)
17.4. Obviously, the generalised, rather sweeping, proposition stated in
the case of Sun Export Corporation (supra) as also in other cases that in
the matters of taxation, when two views are possible, the one favourable to
assessee has to be preferred, stands specifically disapproved by the
Constitution Bench in Dilip Kumar & Co. (supra). It has been laid down by
the Constitution Bench in no uncertain terms that exemption notification has
to be interpreted strictly; the burden of proving its applicability is on the
assessee; and in case of any ambiguity, the benefit thereof cannot be
claimed by the subject/assessee, rather it would be interpreted in favour of
the revenue.
18. It has been repeatedly emphasised on behalf of the appellant that
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 the different species of
incentives extended by the Act of 196115. In other words, incentive is 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 incentives and profit-linked
incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially
64
generic term and ‘deduction’ is one of its species; ‘exemption’ is another.
Furthermore, Section 80-O is only one of the provisions in the Act of 1961
dealing with incentive; and even as regards the incentive for earning or
saving foreign exchange, there are other provisions in the Act, including
Section 80HHC, whereunder the appellant was indeed taking benefit before
the assessment year 1993–94.
19. Without expanding unnecessarily on variegated provisions dealing
with different incentives, suffice would be to notice that the proposition that
incentive provisions must receive “liberal interpretation” or to say, leaning in
favour of grant of relief to the assessee is not an approach countenanced
by this Court. The law declared by the Constitution Bench in relation to
exemption notification, proprio vigore, would apply to the interpretation and
application of any akin proposition in the taxing statutes for exemption,
deduction, rebate et al., which all are essentially the form of tax incentives
given by the Government to incite or encourage or support any particular
activity16
.
20. The principles laid down by the Constitution Bench, when applied to
incentive provisions like those for deduction, would also be that 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 subject to strict interpretation
with the result that the benefit of such ambiguity cannot be claimed by the
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 of persons
e.g., those contained in Section 80TTB of the Act (for deduction in respect of interest on deposits
in case of senior citizen) or Section 80U of the Act (for deduction in case of differently abled
person).
65
assessee, rather it would be interpreted in favour of the revenue. In view of
the Constitution Bench decision in Dilip Kumar & Co. (supra), the
generalised observations in Baby Marine Exports (supra) with reference to
a few other decisions, that a tax incentive provision must receive liberal
interpretation, cannot be considered to be a sound statement of law; rather
the applicable principles would be those enunciated in Wood Papers Ltd.
(supra), which have been precisely approved by the Constitution Bench.
Thus, at and until the stage of finding out eligibility to claim deduction, the
ambit and scope of the provision for the purpose of its applicability cannot
be expanded or widened and remains subject to strict interpretation but,
once eligibility is decided in favour of the person claiming such deduction, it
could be construed liberally in regard to other requirements, which may be
formal or directory in nature.
21. As noticed, Section 80-O of the Act has a unique purpose and
hence, peculiarities of its own. Applying the aforesaid principles to an
enquiry for the purpose of a claim of deduction under Section 80-O of the
Act as applicable to the present case, evident it is that for the purpose of
eligibility, the service or activity has to precisely conform to what has been
envisaged by the provision read with its explanation; and the other
requirements of receiving convertible foreign exchange etc., are also to be
fulfilled. It is only after that stage is crossed and a particular activity falls
within the ambit of Section 80-O, this provision will apply with full force and
may be given liberal application. The basic question, therefore, would
66
remain as to whether the suggested activity of appellant had been of
rendering such service from India to its principals in foreign country which
answers to the description provided by the provision. As regards this
enquiry, nothing of any liberal approach is envisaged. The activity must
strictly conform to the requirements of Section 80-O of the Act.
22. At this juncture, we are impelled to deal with a segment of
submissions on behalf of the appellant with reference to the decision in the
case of Abhiram Singh (supra). It has been argued that this Court has
cautioned against making ‘a fortress out of the dictionary’ but the High Court
has relied heavily on text and dictionary rather than the object of the
provision. In our view, this part of criticism on behalf of the appellant on the
approach of the High Court is entirely inapt and rather unnecessary. The
referred observations in the majority view in Abhiram Singh’s case
occurred in relation to the interpretation of Section 123(3) of the
Representation of People Act, 1951, which is aimed at curbing the
unwarranted tendencies of communalism during election campaign and
operates in entirely different fields of social welfare and ethos of democracy.
22.1. It remains trite that any process of construction of a written text
primarily begins with comprehension of the plain language used. In such
process of comprehension of a statutory provision, the meaning of any word
or phrase used therein has to be understood in its natural, ordinary or
grammatical meaning unless that leads to some absurdity or unless the
67
object of the statute suggests to the contrary.17 In the context of taxing
statute, the requirement of looking plainly at the language is more
pronounced with no room for intendment or presumption.18 In this process,
if natural, ordinary or grammatical meaning of any word or phrase is
available unquestionably and fits in the scheme and object of the statute,
the same could be, rather need to be, applied. The other guiding rules of
interpretation would be the internal aides like definition or interpretation
clauses in the statute itself. Yet further, if internal aides do not complete the
comprehension, recourse to external aides like those of judicial decisions
expounding the meaning of the words used in construing the statutes in
pari materi, or effect of usage and practice etc., is not unknown; and in this
very sequence, it is an accepted principle that when a word is not defined in
the enactment itself, it is permissible to refer to the dictionaries to find out
the general sense in which the word is understood in common parlance. In
17 In Principles of Statutory Interpretation by Justice G.P. Singh (14th edn.at p. 91) this elementary
rule of literal construction has been stated with reference to scores of decisions, 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
popular sense and phrases and sentences are construed according to their
grammatical meaning, unless that leads to some absurdity or unless there is
something in the context, or in the object of the statute to suggest the contrary.”
18 Apart from the principles already noticed hereinbefore, profitable it would be to point 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) as follows :
“The cardinal principles of interpretation of taxing statutes centres around
the opinion of Rowlatt, J. in Cape Brandy Syndicate v. Inland Revenue
Commissioners which has virtually become the locus classicus. The above
would dispense with the necessity of any further elaboration of the subject
notwithstanding the numerous precedents available inasmuch as the evolution
of all such principles are within the four corners 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 is
no room for any intendment. There is no equity about a tax. There is no
presumption as to a tax. Nothing is to be read in, nothing is to be implied.
One can only look fairly at the language used.”
68
fact, for the purpose of gathering ordinary meaning of any expression,
recourse to its dictionary meaning is rather interlaced in the literal rule of
interpretation. This aspect was amply highlighted and expounded by the
Constitution Bench of this Court in the case of Commissioner of WealthTax, Andhra Pradesh v. Officer-in-Charge (Court of Wards), Paigah:
(1976) 105 ITR 133 as follows (at p.137 of ITR) :
“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 words used in Acts of Parliament are not necessarily to be
gathered from dictionaries which are not authorities on what
Parliament must have meant. Nevertheless, it was also
indicated there that where there is nothing better to rely upon,
dictionaries may be used as an aid to resolve an ambiguity.
The ordinary dictionary meaning cannot be discarded
simply because it is given in a dictionary. To do that
would be to destroy the literal rule of interpretation. This
is a basic rule relying upon the ordinary dictionary meaning
which, in the absence of some overriding or special reasons
to justify a departure, must prevail. …….”
(emphasis in bold supplied)
22.2. In the setup of the present case, for a proper comprehension of the
contents and text of the relevant provision of Section 80-O and Explanation
(iii), which are carrying even the minute distinction of the expressions “from
India” and “in India”, recourse to lexical semantics has been inevitable.
However, in all fairness, the High Court has not only discussed semantics
and dictionary meanings but, has equally looked at the object and purpose
of Section 80-O of the Act. Hence, without further expanding on this issue,
suffice it to say for the present purpose that the submissions against the
approach of High Court with reference to the decision in Abhiram Singh
(supra) does not advance the cause of the appellant.
69
Interpretation and application of Section 80-O of the Act of 1961 in the
referred decisions
23. Having thus taken note of the provision applicable as also the
principles for its interpretation, we may now take note of the relevant
decisions wherein the claim for deduction under Section 80-O of the Act has
been dealt with by the Courts in the given fact situations and in the
particular set of circumstances.
J.B. Boda & Co.
24. The decision of this Court in J.B. Boda & Co. (supra) has been
rather the mainstay of the contentions urged on behalf of the appellant.
24.1. In the case of J.B. Boda & Co., the appellant was engaged in
brokerage business as reinsurance broker. The appellant had been
arranging for reinsurance of a portion of risk with various reinsurance
companies either directly or through foreign brokers against which, it was
receiving a percentage of premium received by the foreign companies as its
share of brokerage. With respect to reinsurance business, appellant
contacted M/s Sedgwick Offshore Resources Ltd. (London brokers) and
furnished all details about the risk involved etc., and confirmation about the
assignment was informed to the appellant. Following this, the Indian ceding
company handed over the premium to be paid by it to the foreign
reinsurance company to the appellant for onward transmission. Appellant
approached the RBI showing the amount payable after deducting its
brokerage amount; and this amount of brokerage was claimed to be a
receipt of convertible foreign exchange without a corresponding foreign
70
remittance with reference to the provision contained in Section 9 of the
Foreign Exchange Regulation Act. However, the respondent revenue took
the stand that the agreements of the appellant could not be approved for
the purpose of Section 80-O of the Act, for the income having been
generated in India and not received in foreign currency. This was
unsuccessfully challenged by the assessee before the High Court and
hence, the matter was in appeal before this Court.
24.2. It is at once clear that in J. B. Boda & Co., the question, as to
whether the foreign exchange received by the assessee in lieu of services
to the foreign company was eligible for deduction under Section 80-O of the
Act or not, did not even arise. This was because of the fact that the activity
of assessee was, in fact, accepted by CBDT to be eligible 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 the assessee by the revenue
related to the method of receiving the amount by the assessee. In the said
Circular, it was provided by the revenue that ‘receipt of brokerage by a
reinsurance agent in India from the gross premia before remittance to is
foreign principals will also be entitled to the deduction under Section 80-O
of the Act’. This Court noted the contents of the said Circular dated
20.04.1995; and two paragraphs therein with the emphasis supplied by this
Court could be usefully reproduced as under (at p. 280 of ITR):-
“CIRCULAR NO. 731 DATED 20-12-1995
*** *** ***
71
2. Reinsurance brokers, operating in India on behalf of
principals aboard are required to collect the reinsurance
premia from ceding insurance companies in India and remit
the same to their principals. In such cases, brokerage can be
paid either by allowing the brokers to deduct their brokerage
out of the gross premia collected from Indian insurance
companies and remit the net premia overseas or they could
simply remit the gross premia and get back their brokerage in
the form of remittance through banking channels.
*** *** ***
4. The matter has been examined. The condition for
deduction under section 80-O is that the receipt should be in
convertible foreign exchange. When the commission is
remitted aboard, it should be in a currency that is regarded as
convertible foreign exchange according to FERA. The Board
are of the view that in such cases the receipt of brokerage by
a reinsurance agent in India from the gross premia before
remittance to his foreign principals will also be entitled to the
deduction under section 80-O of the Act.”
(emphasis in italics in original)
24.2.1. This Court found the said Circular binding on revenue and also
found meaningless the insistence of revenue on a formal remittance to
foreign reinsurer and receiving commission from them. This Court observed
that such “two way traffic” was unnecessary because in the end result, the
income was generated in India in foreign exchange in a lawful and
permissible manner. Hence, this Court concluded on the matter while
disapproving the stand of the revenue as follows (at p. 281 of ITR):-
“The facts brought out in this case are clear as to how the
remittance to the foreign reinsurance company is made
through the Reserve Bank of India in conformity with the
agreement between the appellant and the foreign reinsurers,
and that the remittance statement filed along with annexure
“A” which evidences that the amount due to the foreign
reinsurers as also the brokerage due to the appellant and the
balance due to the foreign reinsurers is remitted (and
expressed so) in dollars. It is common ground that the entire
transaction effected through the medium of the Reserve Bank
72
of India is expressed in foreign exchange and in effect the
retention of the fee due to the appellant is in dollars for the
services rendered. This, according to us, is receipt of income
in convertible foreign exchange. It seems to us that a "two
way traffic" is unnecessary. To insist on a formal remittance to
the foreign reinsurers first and thereafter to receive the
commission from the foreign reinsurer, will be an empty
formality and a meaningless ritual, on the facts of this case.
On a perusal of the nature of the transaction and in particular
the statement of remittance filed in the Reserve Bank of India
regarding the transaction, we are unable to uphold the view
of the respondent that the income under the agreement is
generated in India or that the amount is one not received in
convertible foreign exchange. We are of the view that the
income is received in India in convertible foreign exchange, in
a lawful and permissible manner through the premier
institution concerned with the subject-matter--the Reserve
Bank of India. In this view, we hold that the proceedings of
the Central Board of Direct Taxes dated March 11, 1986,
declining to approve the agreements of the appellant with
Sedgwick Offshore Resources Ltd., London, for the purposes
of section 80-O of the Income-tax Act, are improper and
illegal. We declare so. We direct the respondent to process
the agreements in the light of the principles laid down by us
hereinabove. The appeal is allowed. There shall be no order
as to costs.”
24.3. Though it has been painstakingly contended on behalf of the
appellant that the decision in J.B. Boda & Co. should be decisive of the
matter because even the brokerage of a reinsurance broker was held
eligible for deduction under Section 80-O of the Act but, we are afraid, the
said decision has no relevance whatsoever to the question at hand. The
eligibility of the concerned services of reinsurance broker for the purpose of
Section 80-O was not even a question involved therein. Needless to
observe that the business of insurance carries its own peculiarities where
the factor of risk involved is of unique significance; and any information and
assessment of risk involved is itself a specialised task related with the
73
business of insurance. In the fact sheet of the case in J.B. Boda & Co., in
the every opening paragraph of judgment, it has been distinctively recorded
that in respect of the insurance risk covered by Indian or foreign insurance
companies, the appellant had been arranging for the reinsurance of a
portion of risk with various reinsurance companies either directly or through
foreign brokers. As regards, the services of the appellant with a broker in
London, the Court noted, inter alia, that the appellant ‘furnished all the
details about the risk involved, the premium payable, the period of
coverage and the portion of the risk which is sought to be reinsured’.
Without entering into further details of the activities of the said assessee,
suffice it to say for 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, could only be rejected as being not in conformity with the
peculiarities of insurance business. In any case, as observed hereinbefore,
this aspect does not require further elaboration because of entirely different
question involved and decided by this Court in J.B. Boda & Co.
E.P.W. Da Costa
25. Apart from the case of J.B. Boda & Co., much sustenance is sought
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 High Court and was,
admittedly, not appealed against.
25.1. Facts of the case of E.P.W. Da Costa (supra) had been that the
British Broadcasting Corporation (‘BBC’) was interested in knowing how its
74
broadcasts were received by listeners in India and hence, engaged the
services of petitioner for conducting a public opinion survey so that after
gathering information from petitioner, it would make modifications in its
programmes. An agreement was entered by the petitioner with BBC for
conducting specialised economic and public opinion research on all-India
basis to assess the attitudes of a wide range of political, social and
economic subjects etc. Approval of this agreement for the purpose of
Section 80-O of the Act was refused by CBDT, essentially on the ground
that the service (of audience research study in Hindi speaking areas to
assess the radio listening habits) was rendered in India and information
supplied to the foreign party was not the type contemplated by Section 80-
O.
25.2. In the said decision, of course, the question of nature of services for
the purpose of Section 80-O was involved but, the High Court precisely
found the activity of the assessee to be that of imparting scientific
knowledge after proper analysis of the voluminous data collected. While
rejecting the contention on behalf of the revenue, the Court observed as
under (at p. 755 of ITR):-
“Mr. Kirpal further contends that the information
communicated by the petitioner to the BBC is only data and
not scientific or commercial knowledge. Perhaps data may be
distinguished from knowledge inasmuch as data may be
mere masses of information which is not properly analysed
and made intelligible, while knowledge is analysed and
presented for understanding. The information supplied by the
petitioner to the BBC must fall in the second category or else
the BBC would not have entered into an agreement with the
75
petitioner for the supply of the information. A mere mass of
information without analysis and without being
understandable would not be of use to the BBC. The
information is not, therefore, mere data but scientific
knowledge.”
(emphasis in bold supplied)
25.3. Reference to this decision in the case of E.P.W. Da Costa also
suffers from the same shortcomings as we have commented in relation to
the decision in J.B. Boda & Co. The appellant would suggest that the
assessee in the case of E.P.W. Da Costa was merely compiling data and
forwarding it to BBC. The Court has precisely pointed out that it was not
merely the collection of data but it was analysis thereof that was 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 with reference to the activity
of the assessee, the Court, inter alia, observed as under (at pp. 754-755 of
ITR):-
“The petitioner issues questionnaire to the listeners and
the information gathered from the answers to the
questionnaire is compiled in the form of various statistical
tables. According to Webster's New International
Dictionary, Vol. III, statistics is a science dealing with the
collection, analysis, interpretation and presentation of
masses of numerical data and that it is a branch of
mathematics. It would appear, therefore, that the statistical
tables compiled by the petitioner after analysing masses of
numerical data are commercial or scientific knowledge which
is made available to the BBC. For, the word " science " is
also a very general word. Since statistics is a science
according to Webster's, even in a more particular sense, the
statistical information may be said to be scientific knowledge
within the meaning of s. 80-O.………If commercial or
scientific knowledge is confined to mean the abstract
exposition of commercial or scientific theories then only a
76
book on commercial or scientific subject may be regarded as
scientific knowledge. But knowledge may be general or
particular. Such knowledge as was compiled, classified and
made useful for the use of the BBC may also be said to be
commercial or scientific knowledge. BBC is a commercial
corporation. Its function may be to disseminate information,
but in the discharge of this function it requires commercial or
scientific knowledge as to the way its broadcasts are
received in different countries. Such a highly organized
concern as BBC would not be content with the general
information as to the receipt of its broadcast in India. The
information would have to be specific, particular and
analysed according to the languages in which the broadcasts
are made and according to the classes of the public who
listen to such broadcasts. In view of the trend to give a wider
meaning to the words " science and scientific knowledge ", it
would not be possible to restrict the connotation of these
words too narrowly. In our view they would include the
statistical tables compiled by the petitioner for the use of
the BBC inasmuch as statistics itself has been
recognised as a science.”
(emphasis in bold supplied)
25.4 The decision in E.P.W. Da Costa, again, does not make out any
case in favour of the appellant.
B. L. Passi
26. In counter to the contentions on behalf of appellant, the decision by
Coordinate Bench of this Court in the case of B.L. Passi (supra) has been
strongly relied upon by the revenue but is sought to be distinguished on
behalf of the appellant with the submissions that therein, no material at all
was produced by the assessee. We may examine this case also with the
necessary specifics.
26.1. The relevant facts of the case in B.L. Passi had been that a
Japanese enterprise, Sumitomo Corporation, Japan, was interested in
supplying dies for manufacturing of body parts to Indian automobile
77
manufacturers and an agreement was entered with the appellant (who
claimed having vast experience in the Indian automobile industry)
whereunder, the appellant was to provide services which involved passing
of industrial and commercial knowledge, information about market
conditions and Indian manufacturers of automobiles and also technical
assistance as required, so as to assist the principal in establishing its
business in the Indian automobile industry. The appellant claimed deduction
under Section 80-O of the Act with reference to remuneration received on
account of such services rendered to the foreign enterprise. The AO
disallowed the claim of the appellant for deduction with the finding that the
services in question do not qualify for deduction. However, the Appellate
Authority ruled in favour of the appellant but ITAT reversed the order of the
Appellate Authority and the decision of ITAT was upheld by the High Court.
26.2. In further appeal, this Court briefly took note of the background of
insertion of Section 80-O in the Act of 1961 in place of the former Section
85-C with the object of giving fiscal encouragement to Indian industries to
provide technical know-how and technical services to newly developing
countries and foreign companies to augment the foreign exchange of our
country and to establish the reputation of Indian technical know-how for
foreign countries. Examining the facts of the case relating to the
assessment year 1997-98, this Court found that though the appellant had
exchanged several letters with its principal, but the information was in the
form of some blueprints and there was nothing on record to show as to how
78
the blueprints were obtained and dispatched; and such blueprints were not
produced by the assessee on record. This Court also found that the said
assessee was to receive service charges at the rate of five per cent. of the
contributable amount from sale of the principal’s products to its customers
in India but again, there was nothing on record to prove that any product
was developed on the basis of the blueprints supplied by the assessee or
that the principal was able to sell any product developed by it by using the
information supplied by the assessee. Thus, this Court found that there was
no material on record to prove that the sales in question were of any
product developed with the assistance of the information by the assessee
and equally, there was no material on record to show as to how the service
charges payable to the assessee were computed. This Court, inter alia,
observed and found as under (at pp 26-28 of ITR) :-
“Now coming to the facts of the case at hand, it is evident
from record that the major information sent by the appellant
to the Sumitomo Corporation was in the form of blueprints for
the manufacture of dies for stamping of doors. Several letters
were exchanged between the parties but there is nothing on
record as to how this blueprint was obtained and dispatched
to the aforesaid company. It is also evident on record that the
appellant has not furnished the copy of the blueprint which
was sent to the Sumitomo Corporation neither before the
Assessing Officer nor before the appellate authority nor
before the Tribunal. The provisions of section 80-O of the
Income-tax Act mandate the production of document in
respect of which relief has been sought. We, therefore, have
to examine whether the services rendered in the form of
blueprints and information provided by the appellant fall
within the ambit of section 80-O of the Income-tax Act or any
of the conditions stipulated therein in order to entitle the
assessee to claim deduction.
*** *** ***
79
The blueprints made available by the appellant to the
Corporation can be considered as technical assistance
provided by the appellant to the Corporation in the
circumstances if the description of the blueprints is available
on record. The said blueprints were not even produced
before the lower authorities. In such scenario, when the claim
of the appellant is solely relying upon the technical
assistance rendered to the Corporation in the form of
blueprints, its unavailability creates a doubt and burden of
proof is on the appellant to prove that on the basis of those
blueprints, the Corporation was able to start up their business
in India and he was paid the amount as service charge.
Further, with regard to the remuneration to be paid to the
appellant for the services rendered, in terms of the letter
dated January 25, 1995, it has been specifically referred that
the remuneration would be payable for the commercial and
industrial information supplied only if the business plans
prepared by the appellant results positively. Sumitomo
Corporation will pay to PASCO International service charges
equivalent to 5 per cent. of the contractual amount between
Sumitomo and its customers in India on sales of its products
so developed. From a perusal of the above, it is clear that the
appellant was entitled to service charges at the rate of 5 per
cent. of the contractual amount between Sumitomo
Corporation and its customers in India on sales of its
products so developed but there is nothing on record to
prove that any product was so developed by the
Sumitomo Corporation on the basis of the blueprints
supplied by the appellant as also that the Sumitomo
Corporation was able to sell any product developed by it
by using the information supplied by the appellant.
Meaning thereby, there is no material on record to prove
the sales effected by Sumitomo Corporation to its
customers in India in respect of any product developed
with the assistance of the appellant’s information and
also on as to how the service charges payable to
appellant were computed.
In view of the foregoing discussion, we are of the considered
opinion that in the present facts and circumstances of the
case, the services of managing agent, i.e., the appellant,
rendered to a foreign company, are not technical services
within the meaning of section 80-O of the Income-tax Act.
The appellant failed to prove that he rendered technical
80
services to the Sumitomo Corporation and also the
relevant documents to prove the basis for alleged
payment by the Corporation to him. The letters exchanged
between the parties cannot be claimed for getting deduction
under section 80-O of the Income-tax Act.”
(emphasis in bold supplied)
26.3. The case of B.L. Passi (supra) had not been a matter where
nothing at all was on record. Indeed the letters exchanged by the assessee
with the principal were on record, but the core of information that was
allegedly supplied by the assessee to the foreign company, was not
furnished, nor it was shown as to how that information was utilized by the
foreign company and further, it was also not shown as to how the service
charges payable to the assessee were computed when it was to get the
payment on the basis of sale to be made by the foreign company. These
crucial facts and factors directly co-relate with the requirements of Section
80-O of the Act; and upon the assessee failing to meet with such
requirements, the claim for deduction under Section 80-O failed.
Thomas Kurian
27. Thomas Kurian (supra) had been another case where, for want of
any specific material to connect the activity/service of the assessee with
Section 80-O, the assessee was held to be merely an inspector or a certifier
for the purpose of export as follows:-
 “6. On a reading of the above provisions what we notice is
that assessees service is certainly professional services
which are covered by the provisions of the Act. However, two
conditions have to be satisfied for eligibility for deduction
under Section 80-O, the first is that the service should be
rendered outside India and the second one is that payment
for such services should be received in convertible foreign
81
exchange in India. In this case only one condition is satisfied,
ie, receipt of consideration in convertible foreign exchange
and so far as rendering of service is concerned, the entire
service is rendered by the assessee in India and no services
is rendered outside India. Exporter ships the goods only with
assessee’s certificate of fitnesses so that foreign buyer
cannot reject the goods. Assessee’s communication with
foreign buyers in our view does not amount to rendering of
service outside India.”
 Continental Construction Ltd.
28. As noticed, in the present case, in the very first place, the Assessing
Officer, while dealing with the assessment in question, raised the queries
and sought clarifications from the appellant with reference to the
enunciations in the decision of this Court in the case of Continental
Construction (supra). Then, the High Court has also noticed in its
impugned judgment that this was one of the decisions relied upon by the
learned counsel for the assessee. A comment has been made in the reply
submissions on behalf of the revenue before us that the appellant has given
up reliance on this decision for the reasons that the ratio essentially
operates against the appellant. The response on behalf of the appellant has
been that reference to this decision by revenue was entirely unnecessary
for the same not being relied upon. Needless to observe that it being a
decision of this Court, the ratio and the principle emanating therefrom
cannot be ignored, whether relied upon by the appellant or not. Moreover,
the said decision has been rendered by a 3-Judge Bench of this Court and
has the force of a binding precedent. Having regard to the submissions
82
made and the questions raised, reference to the decision of this Court in the
case of Continental Construction (supra) is indispensable.
28.1 Briefly put, the relevant factual aspects of the matter in
Continental Construction had been that the assessee was a civil
construction company that had executed a large number of projects
overseas and in India. The assessee entered into eight contracts for the
construction, inter alia, of a dam and irrigation project in Libya, a fibre-board
factory at Abu Sukhair in Iraq and the huge Karkh Water Supply Project in
Baghdad. For these contracts, the assessee obtained the approval of CBDT
in terms of Section 80-O. In its claim for deduction, various issues related
with different assessment years were raised, which included the
applicability of the CBDT’s approval and the nature of activities of the
assessee, as also the question as to whether the assessee was entitled to
claim deduction only under Section 80HHB of the Act and not under Section
80-O of the Act? A wide range of issues raised in the matter were dealt with
by this Court, all of which are not necessary to be dilated upon.
28.2. The relevant aspect of the matter is that regarding the eligibility for
deduction under Section 80-O of the Act, in Continental Construction, this
Court said that eligibility of an item to tax or tax deduction could hardly be
made dependent on the label given to it by the parties. Thus, the assessee
was not entitled to claim deduction under Section 80-O regarding certain
receipts merely because they were described as royalty, fees or
commission; and at the same time, absence of any specific label to the item
83
was not destructive of the right of the assessee to claim deduction. This
Court pointed out that the contracts of the type envisaged by Section 80-O
are usually very complex and cover a multitude of obligations and
response; and it is not always possible for the parties to dissect the
consideration and apportion it to various ingredients or elements. This
Court, however, pointed out that consolidated receipts and responses were
always apportionable. In the context, as regards the activities of the said
assessee and entitlement under Section 80-O of the Act, this Court
observed that the contracts in question obliged the assessee to make
available information and render services to the foreign Government of the
nature outlined under Section 80-O and therefore, it was the duty of the
revenue and right of the assessee to see that the consideration legitimately
attributable to such information and services is apportioned and the
assessee is given the benefit of deduction under Section 80-O to the extent
of such consideration. This aspect of the matter, extensively dealt with by
this Court, could be usefully extracted as under (at p. 119 of ITR): -
“In our view, neither of the propositions contended for by
Sri Ahuja can be accepted as correct. So far as the first
proposition is 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 deduction can hardly be made to depend on the label
given to it by the parties. As assessee cannot claim deduction
under section 80-O in respect of certain receipts merely on
the basis that they are described as royalty, fee or
commission in the contract between the parties. By the same
token, the absence of a specific label cannot be destructive
of the right of an assessee to claim a deduction, if, in fact, the
consideration for the receipts can be attributed to the sources
indicated in the section. The second proposition is equally
untenable. Contracts of the type envisaged by section 80-O
84
are usually very complex ones and cover a multitude of
obligations and responsibilities. It is not always possible or
worthwhile for the parties to dissect the consideration and
apportion it to the various ingredients or elements comprised
in the contract. The cases referred to by the Tribunal and Sri
Ahuja as to the indivisibility of a contract arose in an entirely
different context. For purposes of income-tax, a principle of
apportionment has always been applied in different contexts.
Consolidated receipts and expenses have always been
considered apportionable in the contexts: (a) of the capital
and revenue constituents comprised in them; (b) portions of
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 point that does not need much
elaboration and it is sufficient to refer to decided cases cited
under the passages on this topic at pp. 47, 137, 264, 621 and
677 of Kanga and Palkhivala’s The Law and Practice of
Income Tax (Volumne I, eighth edition). We are, therefore, of
the opinion that, if, as we have held, the contracts in the
present case oblige the assessee to make available
information and render services to the foreign Government of
the nature outlined in section 80-O, it is the duty of the
Revenue and the right of the assessee to see that the
consideration paid under the contract legitimately
attributable to such information and services is
apportioned and the assessee given the benefit of the
deduction available under the section to the extent of
such consideration.”
(emphasis in bold supplied)
28.3. It is also significant to notice that in Continental Construction,
this Court took note of the aforesaid circulars of CBDT dated 23.12.1975
and 30.04.1979 and delineated the functions of the Assessing Officer with
reference to the claim for deductions under Section 80-O even when
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
does not mean the deprivation of all functions of the
Assessing Officer while making the assessment on the
85
applicant. The Officer has to satisfy himself (i) that the
amounts in respect of which the relief is claimed are amounts
arrived at in accordance with the formula, principle or basis
explained in the assessee's application and approved by the
Board; (ii) that the deduction claimed in the relevant
assessment year relates to the items, and is referable to the
basis, on which the application for exemption was asked for
and granted by the Board; (iii) that the receipts (before the
1975 amendment) were duly certified by an accountant or
that, thereafter, the amounts have been received in or
brought into India in convertible foreign exchange within the
specified period. The second of these functions is,
particularly, important as the approval for exemption granted
in principle has to be translated into concrete figures for the
purposes of each assessment. Neither the introduction of the
words "in accordance with and subject to the provisions of
these sections" nor the various "conditions" outlined in the
letter of approval add anything to or detract anything from the
scope of the approval.”
28.4. A few aspects at once emerge from the said decision in Continental
Construction that even under the provisions of Section 80-O of the Act as
then existing, whereunder prior approval of CBDT was required to claim
deduction, this Court underscored that deduction would be available only in
relation to the consideration attributable to the information and services
envisaged by Section 80-O and deduction would be granted to the extent of
such consideration; and all these aspects were to be examined by the
Assessing Officer while making the assessment.
Khursheed Anwar
29. In the impugned judgment, the decision of High Court of Madras in
the case of Khursheed Anwar (supra) has also been taken note of.
Therein too, the claim for deduction under Section 80-O of the Act was
declined for want of necessary material while observing that the benefit of
86
Section 80-O cannot be claimed by merely asking for the same; it has to be
substantiated with the requisite record. In the said case, on the query of the
Assessing Officer, the assessee had submitted its reply but could not
furnish the material so as to bring the case within the four corners of
Section 80-O of the Act. The High Court, inter alia, observed as under (at p.
474 of ITR):
“Having regard to the above discussions, in our view, as
the assessee has not established his claim for deduction by
producing the relevant records, the Tribunal has erred in
reversing the finding of the Commissioner of Income-tax
(Appeals) rendered on the basis that the assessee was not
entitled to the benefit in view of the fact that the commission
received by the assessee was not for any of the activities
mentioned in paragraph 4.1 of the order of the Commissioner
of Income-tax (Appeals). There is absolutely no reason
adduced by the Tribunal to reverse the said finding. We must
also mention here that during the course of arguments, as we
found that there were no supporting materials for the claim,
we directed the assessee's counsel to produce the materials,
if any, available for our perusal. The learned counsel for the
assessee, though had produced the explanation of the
assessee dated March 28, 1998, he was unable to produce
any materials to sustain any of the contentions made in the
said letter. In the absence of any materials to show that what
was passed on to the foreign enterprise was the information
concerning with commercial or technical or scientific aid,
merely because an agreement is entered into between the
assessee and the foreign enterprise, we are not inclined to
accept the claim of deduction under section 80-O of the Act.
Accordingly, the second substantial question of law is
answered in favour of the revenue and against the assessee.
The tax case appeal is allowed in part. No costs.”
30. From the decisions aforesaid, it could be immediately culled out that
for bringing any particular foreign exchange receipt within the ambit of
Section 80-O for deduction, it must be a consideration attributable to
information and service contemplated by Section 80-O; and in case of a
87
contract involving multiple or manifold activities and obligations, every
consideration received therein in foreign exchange will not ipso facto fall
within the ambit of Section 80-O. It has to be attributable to the information
or service contemplated by the provision and only that part of foreign
exchange receipt, which is so attributable to the activity contemplated by
Section 80-O, would qualify for claiming deduction. Such enquiry is required
to be made by the Assessing Officer; and for the purpose of this imperative
enquiry, requisite material ought to be placed by the assessee to co-relate
the foreign exchange receipt with information/service referable to Section
80-O. Evidently, such an enquiry by the Assessing Officer could be made
only if concrete material is placed on record to show the requisite corelation.
Whether the appellant is entitled claim deduction under S. 80-O
31. Coming to the facts of the present case, the agreements of the
appellant with the foreign entities primarily show that the appellant was to
locate the source of supply of the referred merchandise and inform the
principals; to keep liaison with the agencies carrying out
organoleptic/bacteriological analysis and communicate the result of
inspection; to make available to the foreign principals the analysis of
seafood supply situation and prices; and to keep the foreign principals
informed of the latest trends in the market and also to negotiate and finalise
the prices. As per the agreements, in lieu of such services, the appellant
was to receive the agreed commission on the invoice amounts.
88
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 of data collected), what turns out as regards the activities/services
of the appellant is that the appellant was essentially to ensure supply of
enough quantity of good quality merchandise in proper packing and at
competitive prices to the satisfaction of the principals. This has essentially
been the job of a procuring agent. Though the 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 the purpose of the agreement. All the clauses of the
agreements read together make it absolutely clear that the appellant was
merely a procuring agent and it was his responsibility to ensure that proper
goods are supplied in proper packing to the satisfaction of the principal. All
other services or activities mentioned in the agreements were only
incidental to its main functioning as agent. Significantly, the payment to the
appellant, whatever label it might have carried, was only on the basis of the
amount of invoice pertaining to the goods. There had not been any
provision for any specific payment referable to the so-called analysis or
technical guidance or advice. Viewed from any angle, the services of the
appellant were nothing but of an agent, who was procuring the merchandise
for its principals; and such services by the appellant, as agent, were
rendered in India. Even if certain information was sent by the assessee to
89
the principals, the information did not fall in the category of such
professional services or information which could justify its claim for
deduction under Section 80-O of the Act. In other words, in the holistic view
of the terms of the agreements, we have not an iota of doubt that the
appellant was only a procuring agent, as rightly described by the High
Court.
33. If at all any doubt yet remains about the nature of services of the
appellant, the same is effectively quelled by the default clauses in the
agreements in question. We may recapitulate the default clauses in the
referred agreements, which read as under:-
The agreement with HOKO
“Article 4: HOKO pays to RC-CN 0.7% of the invoice amount
on the C & F basis and US$ 2,000.00 per month as
commission. When the quality of goods is found to be
unsatisfactory to HOKO after inspection in in Japan, HOKO
shall have no responsibility to pay the agent fee.”
The agreement with GELAZUR
“When the quality and the packaging of the goods are found
to be unsatisfactory to ‘GELAZUR” after inspection in
FRANCE, GELAZURE, shall have no responsibility regarding
the payment of the Agent’s fee.”
33.1. In both the agreements, the default clauses make it more than clear
that if the quality of goods was found to be unsatisfactory to the principals
after inspection in their respective countries, they shall have no
responsibility to pay the agent’s fees. If at all it had been a matter of the
appellant furnishing some technical or material information which served
the foreign enterprises in making the decision for procurement, in the
ordinary circumstances, after completion of such service and its utilization
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by the foreign enterprises, the appellant was likely to receive the
professional service charges for furnishing such information but, contrary
and converse to it, the agreements provide for no payment to the appellant
in case of principal being dissatisfied with goods. These default clauses
effectively demolish the case of the appellant and fortify the submissions of
the revenue that the appellant was merely a procuring agent and nothing
more.
34. The matter can be viewed from yet another angle, as indicated by
the High Court in the last paragraph of its judgment. If at all it be assumed
that out of various tasks mentioned in the agreements, some of them
involved such services which answered to the requirements of Section 80-
O, it was definitely required of the appellant to establish as to what had
been such information of special nature or of expertise that was given by it
and how the same was utilised, if at all, by the foreign enterprises; and how
much of the foreign exchange receipt was attributable to such special
service. Obviously, the appellant did not supply such particulars. As
noticed, the High Court posed a pointed query to the learned counsel
appearing for the appellant as to whether all the services mentioned in the
agreement would come within the purview of Section 80-O. The cryptic
response to this query on behalf to the appellant had been that ‘if the
recipient of services is situated outside, all the services rendered by the
assessee in terms of the agreement come within the sweep of the
provision’. It was specifically contended on behalf of the appellant that
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establishing ‘which of its services qualifies for the deduction is of no
consequence, rather unnecessary’. In our view, this response was not in
conformity with the requirements of Section 80-O of the Act, as explained
and applied by this Court in Continental Construction and in B. L. Passi
(supra) as also as applied by Madras High Court in Khursheed Anwar
(supra). Rather, this stand, in our view, puts the final curtain on the
appellant’s case because most of the services in 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 were of utmost
significance and were fundamentally necessary which the appellant had
never supplied. Merely for having a contract with a foreign enterprise and
mere earning foreign exchange does not ipso facto 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 the extent that
once the service is rendered ‘from India’, even if its ultimate use by the
foreign enterprise occurs in India, the matter may not go out of Section 80-
O of the Act. This clarification is in tune with the nature of this provision
meant for extending incentive but it does not do away with the basic
requirements that to qualify for deduction under Section 80-O, the service
must be rendered from India to foreign enterprise and the nature of service
ought to be as delineated in Section 80-O. Ultimate use 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
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the High Court. However, the claim of the appellant fails at the threshold for
the reasons foregoing. Circular No.700 dated 23.03.1995 is neither of any
application to this case nor of any assistance to the appellant. The appellant
is not entitled to claim deduction under Section 80-O of the Act.
36. For what we have discussed hereinabove, it is also apparent that
the Appellate Authority as also the ITAT had viewed the present case from
an altogether wrong angle. As noticed, the Appellate Authority even 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 the foreign enterprises,
the appellant was locating the sources of frozen seafoods, bringing the
foreign enterprises in contact with the manufacturers or processors of
seafood, and negotiating with the local packers; and these activities, though
carried out in India, had been on behalf of the foreign enterprises. The ITAT,
though took note of different services contemplated by the agreements in
question and even observed that the clauses like those requiring the
appellant to settle the claim with manufacturers might be the services
rendered in India but then, proceeded to assume, without any cogent
material on record, that other services were rendered from India and on that
basis, the foreign party took its decision. Even in this regard, the questions
relevant and germane to the enquiry were not even gone into inasmuch as,
it was not examined as to what and which part of the consideration was
attributable to the services envisaged by Section 80-O of the Act, which
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were rendered from India. Therefore, the findings of the Appellate Authority
and ITAT, being based on irrelevant considerations while ignoring the
relevant aspects, were neither of binding nature nor could have been
decisive of the matter. Hence, neither anything turns upon the submissions
made on behalf of the 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 entire matter
with reference to the relevant questions and has rightly proceeded on the
law applicable to the case. The impugned judgment calls for no
interference.
 The appellant M/s Laxmi Agencies - the appeal arising out of SLP (Civil)
 No.23699 of 2016.
38. This appeal involves similar claim of the other assessee firm M/s
Laxmi Agencies, said to be engaged in similar business of rendering
services to foreign buyers of Indian marine products. For the assessment
year 1997-98, this assessee firm, while declaring total income of Rs.
31,81,180/-, claimed deduction under Section 80-O to the tune of
Rs.21,84,302/-, being 50% of the net income of Rs. 43,68,604/- towards the
service charges received from such foreign buyers.
38.1. In the assessment order dated 31.01.2000, the AO noted the
explanation of this appellant regarding the services rendered in the
following:
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“…..As per the detailed letter dated 22.11.1999 filed by the
assessee the services rendered by it to the foreign
enterprises are by way of :
1. To impact commercial and technical knowledge,
experience and skill in the field of Frozen Food/Marine
products to enable them to formulate their policies and take
decision for import thereof from India;
2. To locate reliable sources of quality and assured supply of
Frozen Seafood/Marine products and communicate the
assessee’s expert opinion and advise to them to enable them
to take decisions for import from India;
3. To keep close liaison with agencies such as EIA/Llyods/
SGS especially for organoleptic/bacteriological analysis and
communicate the results of inspection along with assessee’s
expert comments and advice. This also enables the foreign
enterprises to take decisions for import from various sources
from several countries available to them.
4. Making available full and detailed analysis of the seafood
situation and prices for the above purpose.
5. To advise and keep informed the foreign buyers of the
latest trends/process applications in manufacturing and all
valuable commercial and economic information which will
directly and indirectly assist them to organize, develop,
control on regulate their import business from India.
6. To assist foreign buyers in negotiating and finalizing prices
for Indian marine products and advise them of all rules and
regulations and other related information for such import.”
In the case of this appellant, again, the AO was of the view that the
services were rendered in India and the service charges received from the
foreign enterprises in respect of such services did not qualify for deduction
under Section 80-O.
38.2. In the case of this appellant, the Appellate Authority examined the
terms of agreements with the foreign enterprises in detail and noted the
contents thereof in the following paragraphs:-
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“2.The appellant had entered into agreement with various
foreign enterprises for render the following services. Article 2
of the agreement entered into with Neptune Fisheries Ind.
USA reads as under:-
(a) Locating reliable source of quality and assured
supply of frozen sea-foods/marine products for the purpose
of import by “NEPTUNE” and communicate its expert opinion
and advice to the NEPTUNE;
(b) In addition to the above services rendered by ‘Laxmi’
it will also keep a close liason with agencies such as
ELA/LLOYDS/SGS especially for organolotic/acteriological
analysis and communicate the result of the inspection along
with its expert comments and advice.
(c) Making available full and detailed analysis of the sea
food supply situation and prices;
(d) To advise NEPTUNE and keep them informed of the
latest trends/processes applications in manufacturing and of
all valuable commercial and economic information about the
markets, Government Policies, exchange fluctuations,
banking laws which will directly or indirectly assist
“NEPTUNE” to organize, develop control or regulate their
import business from India.
e) To negotiate and finalise the prices for India
Exporters of frozen marine products and to communicate
such and other related information to “NEPTUNE”.
Article 4 of the agreement states:
“LAXMI” shall also do everything that is required to ensure
highest standards of quality hygiene and freshness of
products including supervision 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 of various
activities of the appellant with and for the buyer concerned and, while
disallowing 20% of the service charges received from foreign enterprises
towards the services rendered in India, allowed deduction under Section
80-O to the extent of the net income arising out of 80% of such charges
received from foreign enterprises.
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38.4. The order so passed by the Appellate Authority was challenged both
by the appellant and by the revenue before ITAT in ITA No. 580/Coch/2004
and ITA No. 618/Coch/2004 respectively. The ITAT referred to its earlier
decision in the case of the other assessee Ramnath & Co. (as referred to
hereinabove) and following the same, allowed the appeal 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 appear if the
agreements of this appellant also carried the default clauses as we have
noticed in the lead case but, on all other major features, the agreements
had been of the same nature and again, this appellant has also failed to
bring any material on record to show if it had received any specific
consideration referable to the activities envisaged by Section 80-O of the
Act. In the given set of facts and circumstances, this appellant also turns
out to be only a procuring agent and not beyond. Hence, this appeal also
deserves to be dismissed.
Conclusion
39. For what has been discussed and held hereinabove, these appeals
fail and are, therefore, dismissed. No costs.
………………………………J.
 (A.M.KHANWILKAR)
………………………………J.
 (DINESH MAHESHWARI)
New Delhi,
Dated: 5th June, 2020.
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