1998 (3) TMI 100 - HC - Income Tax

Foreign consultancy services paid in foreign currency qualify for Section 80RRA tax deduction, despite no employer-employee contract

Section 80RRA-whether deduction for 'remuneration' in foreign currency requires a strict master-servant employer-employee relationship. The HC held that ... Deduction in respect of remuneration received for services rendered outside India - Employer-employee relationship not a prerequisite for applicability of section 80RRA - Consultant or technician within the scope of 'employee' and 'employer' - Concurrent applicability of section 80-O and section 80RRA - Benefit of the more favourable statutory provision - Presumption against repeal by implicationEmployer-employee relationship not a prerequisite for applicability of section 80RRA - Consultant or technician within the scope of 'employee' and 'employer' - Whether section 80RRA requires a master-and-servant type employer-employee relationship for its applicability - HELD THAT: - The court followed the Supreme Court decision in CBDT v. Aditya V Birla and subsequent authorities to hold that the terms 'employer' and 'employee' in section 80RRA are not to be confined to a technical master servant relationship. The statutory scheme and legislative purpose-to encourage earning and repatriation of foreign exchange and to promote Indian technicians abroad-support an expansive meaning that covers consultants and technicians paid fees for services rendered outside India. Consequently, a retainership or consultancy arrangement where specialised knowledge (including accountancy) is actually utilised falls within the ambit of 'employment' under section 80RRA and attracts the deduction provided therein.A consultant/technician providing services abroad need not be in a conventional employer-employee/master-servant relationship to claim deduction under section 80RRA.Concurrent applicability of section 80-O and section 80RRA - Presumption against repeal by implication - Whether the 1991 amendment to section 80-O operates to exclude or impliedly repeal the applicability of section 80RRA to cases like the present - HELD THAT: - The court rejected the Revenue's contention that the widened scope of section 80-O effected an implied partial repeal of section 80RRA. Applying the presumption against repeal by implication, the court held that Parliament's amendment to enlarge section 80-O did not manifest an intention to repeal or override section 80RRA; the two provisions can be read together and are not so inconsistent as to be irreconcilable. Absent express repeal, the earlier provision retains operation.The amendment to section 80-O does not impliedly repeal or exclude the operation of section 80RRA.Benefit of the more favourable statutory provision - Concurrent applicability of section 80-O and section 80RRA - Which provision governs computation when both section 80-O and section 80RRA attach to the same facts - HELD THAT: - Relying on established Supreme Court authorities favoring application of the more beneficial statutory provision where both provisions are attracted, the court held that an assessee entitled to deduction under both section 80-O (50%) and section 80RRA (75% for amounts brought into India) is entitled to claim the larger deduction. The court treated the two provisions as alternative heads of relief and applied the maxim favouring the application of the more beneficial rule.Where both provisions apply, the assessee is entitled to the deduction computed under the more favourable provision (section 80RRA in the present facts).Deduction in respect of remuneration received for services rendered outside India - Remedial direction following judicial conclusion on statutory interpretation - HELD THAT: - Having found that the petitioner's consultancy fell within section 80RRA and that section 80RRA was not displaced by the amendment to section 80-O, the court quashed the administrative orders refusing approval under section 80RRA and directed the appropriate authority to reconsider and pass orders on the petitioner's application for approval under section 80RRA(2)(ii) in accordance with the view of law expressed in the judgment, within two months of communication of the order.Impugned refusals are quashed and the application for approval under section 80RRA(2)(ii) is to be reconsidered and decided afresh within two months.Final Conclusion: The High Court held that section 80RRA covers consultants/technicians who render services outside India without a traditional master-servant relationship; the 1991 amendment to section 80-O did not impliedly repeal or displace section 80RRA; where both provisions apply the assessee is entitled to the more favourable deduction (section 80RRA here); consequently the administrative refusals to grant approval under section 80RRA were quashed and the matter remitted for reconsideration in conformity with this view. Issues Involved:1. Whether an employment creating a relationship of employer and employee is a prerequisite for the applicability of section 80RRA.2. Whether the petitioner is entitled to the benefit of section 80RRA or section 80-O.3. The impact of amendments in section 80-O on section 80RRA.Summary:1. Employer-Employee Relationship Requirement u/s 80RRA:The primary issue was whether an employment creating a master-servant relationship is essential for section 80RRA. The court referred to the Supreme Court's decision in CBDT v. Aditya V Birla [1988] 170 ITR 137 (SC), which held that the terms 'employee' and 'employer' in section 80RRA cover consultants and technicians. The court emphasized that the object of section 80RRA is to encourage earning and bringing foreign exchange to India, and improving the status of Indian professionals abroad. Therefore, the petitioner, a chartered accountant providing consultancy services, qualifies under section 80RRA even without a traditional employer-employee relationship.2. Entitlement to Benefits u/s 80RRA or 80-O:The petitioner argued for the benefit of section 80RRA, which provides a 75% deduction for remuneration brought into India, as opposed to section 80-O, which offers a 50% deduction. The court noted that if both sections apply, the petitioner is entitled to the higher benefit. The court cited CIT v. Indian Engineering and Commercial Corporation Pvt. Ltd. [1993] 201 ITR 723 (SC) and Collector of Central Excise v. Indian Petro Chemicals [1997] 11 SCC 318, supporting the principle that an assessee should receive the higher benefit when multiple provisions apply.3. Impact of Amendments in Section 80-O on Section 80RRA:The respondents argued that amendments to section 80-O impliedly repealed section 80RRA. The court rejected this, stating that the amendments did not nullify the Supreme Court's interpretation of section 80RRA in Aditya V Birla. The court emphasized that implied repeal is not presumed unless the provisions are irreconcilably inconsistent. Parliament did not expressly repeal section 80RRA, and both sections can coexist, allowing the petitioner to claim the higher benefit under section 80RRA.Conclusion:The court allowed the petition, quashing the impugned orders refusing approval under section 80RRA. It directed the respondents to reconsider the petitioner's application for approval under section 80RRA(2)(ii) in line with the court's interpretation within two months. No order as to costs was made.