2018 (4) TMI 1373 - SC - Income Tax

Appellant's Deduction Claim Dismissed: Services Not Technical

The appellant's claim for a deduction under Section 80-O of the Income Tax Act, 1961 was disallowed as the services provided did not qualify as technical ... Entitled to deduction u/s 80-O - proof of rendering technical services - principal agent relationship - eligibility criteria - Held that:- 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 IT Act. The Appellant failed to prove that he rendered technical 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 IT Act. The Appellant was a managing agent and the High Court was right in holding the principal agent relationship between the parties and there is no basis for grant of deduction to the Appellant under Section 80-O of the IT Act. - Decided against assessee. Issues Involved:1. Entitlement to deduction under Section 80-O of the Income Tax Act, 1961.Detailed Analysis:1. Entitlement to deduction under Section 80-O of the Income Tax Act, 1961:Brief Facts:The appellant filed a return disclosing an income of Rs. 57,40,360 for the Assessment Year 1997-98, claiming a deduction of Rs. 58,87,045 under Section 80-O of the Income Tax Act, 1961, based on gross foreign exchange receipts from Sumitomo Corporation, Japan. The appellant provided specialized commercial and industrial knowledge about the Indian automobile industry to Sumitomo Corporation. The Income Tax Department selected the case for scrutiny, and the Assessing Officer assessed the total income at Rs. 1,18,43,060, disallowing the deduction under Section 80-O. The Commissioner of Income Tax (Appeals) partly allowed the appeal, but the Tribunal reversed this decision. The High Court upheld the Tribunal's decision, leading to the present appeal.Rival Contentions:The appellant contended that they fulfilled all conditions under Section 80-O by providing specialized knowledge and information about the Indian automobile industry to Sumitomo Corporation, arguing that the High Court erred in considering it a principal-agent relationship. The respondent argued that the appellant did not provide sufficient evidence to prove the provision of industrial, commercial, or scientific knowledge, experience, or skill, and the High Court's decision should stand.Discussion:The appellant claimed to have provided substantial expertise and specialized information about the Indian automobile industry to Sumitomo Corporation, receiving Rs. 1,17,73,940 for these services. The appellant's income tax return claimed a deduction under Section 80-O for this amount, but the Assessing Officer disallowed it, stating that the services did not qualify for the deduction.Legal Provisions:Section 80-O (unamended) allows a deduction for income received in convertible foreign exchange for providing industrial, commercial, or scientific knowledge, experience, or skill, or technical or professional services rendered outside India.Facts and Evidence:The appellant provided blueprints and other information to Sumitomo Corporation but failed to furnish copies of these blueprints to the Assessing Officer, Appellate Authority, or Tribunal. The appellant did not provide sufficient documentation to prove that the services rendered fell within the ambit of Section 80-O.Technical Assistance:The term 'technical assistance' involves sending experts to teach skills and solve problems in specific areas. The appellant's blueprints could be considered technical assistance if adequately documented, but the absence of such documentation created doubts.Remuneration and Proof:The appellant was entitled to service charges based on the contractual amount between Sumitomo Corporation and its Indian customers. However, there was no evidence that any product was developed or sold based on the appellant's information, nor was there proof of how the service charges were computed.Conclusion:The services rendered by the appellant did not qualify as technical services under Section 80-O. The appellant failed to provide sufficient evidence to prove the provision of technical services and the basis for the payments received. The High Court correctly identified the principal-agent relationship, and there was no basis for granting the deduction under Section 80-O.Judgment:The appeal was dismissed, with no order as to costs.