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 - Remuneration In Foreign Currency - chartered accountant engaged in providing professional services to various Indian and foreign clients - whether the existence of an employer-employee relationship in the sense of creating a master and servant relationship is an essential ingredient of section 80RRA - HELD THAT:- It is not disputed that the petitioner shall be entitled to benefit of either section 80-O or 80RRA. According to the petitioner his case is covered by section 80RRA and hence is entitled to deduction equal to 75 per cent. of the remuneration received for service rendered by him to the companies outside India and brought into India by him in accordance with the Foreign Exchange Regulation Act, 1973, and rules made thereunder. According to the respondent, the petitioner is entitled to deduction equal to 50 per cent. only under section 80-O. Section 80RRA was inserted in the Income-tax Act, 1961, by the Finance Act, 1975 with effect from April 1, 1975, and was then substituted by the Finance Act, 1977 with effect from April 1, 1978. There also, the deduction permissible was of an amount equal to 50 per cent. of the remuneration so received without its categorisation into two. The Finance Act, 1987, vide section 37 thereof introduced the two categories in the present form providing for two rates of deduction. Now, while so much part of the remuneration as is brought into India by, or on behalf of, the assessee in accordance with the FERA and any rules made thereunder is entitled to the deduction at 75 per cent., the rest is entitled to deduction at 50 per cent. merely. We find that there is no warrant in the section to restrict the expression 'remuneration' received from a foreign employee only to the salary received by an employee. In our opinion, employment as a technician for the purpose indicated by Shri Palkhiwala could also be an object of the Act and in such a case the fee received by a consultant or a technician would also come within the purview of the section concerned'. We are, therefore, of the opinion that the petitioner's chartered accountant---having agreed to render his consultancy services to foreign companies in lieu of remuneration, and though not employed on full time basis in the sense of creating master-servant relationship, would still be deemed to have been 'employed' so as to attract the applicability of section 80RRA. Petition is allowed. 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.