TaxTMI 
TaxTMI 
2001 (11) TMI 225
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.... the return of income for the year under consideration on 29-10-1993 declaring total income at Rs. 6,21,710. The return was processed under section 143(1)(a). Subsequently, the case was selected for scrutiny, and notice under section 143(2) was issued. The assessee is a firm engaged in providing commercial services to foreign enterprises. In its return the assessee claimed deduction of a sum of Rs. 22,39,825 under section 80-O for the following services rendered: "(i) Locating reliable source of quality and assured supply of frozen sea-foods for the purpose of import by the foreign enterprises and communicating its expert opinion and advice to the foreign enterprises. (ii) The assessee has to keep a close liaison with agencies such as EIA/LLOYS/SGA for bacteriological analysis and communicate the result of the inspection along with the expert comments and advice. (iii) Making available full and detailed analysis of the sea-foods supply situation and prices. (iv) To advise the foreign enterprises and keep them informed of the latest trends application in manufacturing and information about their markets which would directly affect or indirectly assist the foreign enterpr....
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....ssessee, the Assessing Officer noticed that the functions/activities carried out by the assessee are almost or more or less same as were done prior to the assessment year 1992-93 for which the assessee had claimed deduction under section 80HHC. In order to decide whether the assessee is entitled to claim the benefit under section 80-O, the Assessing Officer asked for the following clarifications: "(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 utilised 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 utilised 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." Vide its letter dated 19-2-1996, the assessee replied as follows: "(1) The technical/professional services rendered by us are from....
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....s to find out the nature of the relationship inter se, the Assessing Officer came to the conclusion that the agreements with the other foreign enterprises are such that the assessee acted as an agent of the foreign enterprises in India in the matter of procurement of marine products from India. All the services rendered are incidental to the agreement of carrying out all primary functions of acting as an Agent. On behalf of the foreign principal the assessee carries out technical guidance for processing and for quality control, inspection of the products and also keeps close liaison work with other agencies. These are definitely rendered in India but the Assessing Officer held that such services could not be construed as services rendered from India only on the ground that the foreign principals are advised of the results and that they are stationed outside India. The information passed on by the assessee was of general nature i.e. regarding the materials, markets, govt. policies, exchange fluctuations, banking laws, prices paid by competitors, monthly supplies of sea-food data, etc. Commissions were payable as a percentage of C&F value of the imports by the foreign principals. The....
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....isions as to when, whether and how much they should import from India. These are, according to the learned counsel for the assessee, services rendered from India. The word 'from' itself suggests that same activities will be carried out in India but the services will be made available for use outside India. The learned counsel for the assessee distinguished 'activities' from 'services'. According to him, the activity becomes a service to the foreign buyer when the result of the activity is communicated to him in such a manner that he can formulate his import policy. The difference between 'the services rendered in India' and 'the services rendered from India' should be looked at from the objective point of view. A narrow, superficial and legalistic approach would only defeat the object of the section, he submitted. It was further submitted that whether the assessee could be described as an agent is not relevant for deciding the issue as the use of the word 'Commission' in section 80-O clearly suggests that even agents will be covered by section 80-O. The real issue was the nature of the services and not the capacity in which the services were rendered. In this connection, the assess....
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....nce or skill. Nothing of this sort has been exclusively developed by the assessee. The assessee only identifies the processors with whom the assessee enters into agreements for export of sea-food items as per the existing quality control standards. The assessee has not developed any new information that is claimed to have been exported from India. Whatever knowledge of the existing business of seafood items the assessee had has been employed or used in India for procuring sea-food from the processors for export to the principals. There are not services rendered by the assessee outside India. The case relied on by the assessee reported in Continental Construction Ltd. v. CIT [1992] 195 ITR 81 (SC) is distinguishable on facts. In this case the assessee had technical competence, expertise and experience and the assessee made them available to the foreign company for use outside India. In the instant case of the assessee there is no technical competence and no imparting of the knowledge. Even if there is imparting, it is used in India by the assessee, and therefore, it is not a service rendered outside India or from India. The commission receipt as envisaged in section 80-O is differen....
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....ion of the Bombay High Court in the case of Gannon Dunkerley & Co. Ltd. v. CBDT [1986] 159 ITR 162 for the above proposition. Relying upon the Board's Circular No. 700 dated 23-3-1995, the learned representative of the assessee has submitted that it is wrong to say that the services rendered outside India are only to be taken note of to give the benefit of section 80-O. The section also says that the services rendered from India which have been used outside India should also be taken note of. The assessee acts as consultant/ adviser to foreign buyers of Indian Marine Products. Earlier the foreign enterprises used to buy marine products in their country itself or from neighbouring countries. It was because of the tremendous efforts made by the assessee that the foreign enterprises turned to India. The assessee gets the fee or commission for rendering such services. The whole amount is paid in foreign exchange and brought to India. The assessee's representative has emphasised that when the assessee earns 196 fees or commission, the actual exports effected through the assessee are 100%. The assessee's representative relied on the following chart: Assessment year Commission ea....
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....ons 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 purposes. (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 or regulate their import business from India. (6) To assist foreign buyers in negotiating and finalising prices for Indian Marine products and advise them of all rules and regulations and other related information for such import. The assessee's representative has submitted that the services essentially consist of imparting and conveying technical and commercial information and benefit of knowledge, experience and skill which enable the foreign buyers to take decisions as to when and how much they should import from India. Therefore, these are services rendered from India. The assessee's representative has submitted that the word 'from' itself suggests that the services are to be carried out in India and such services are to be utilised outside Indi....
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....anation to section 80-O, the assessee's representative has submitted. Relying on the decision in the case of E.P.W Da Costa, the learned representative has submitted that it is an excellent illustration of how section 80-O can be reasonably construed. The learned representative of the assessee concluded his submissions as follows: "In that case the Delhi High Court held that the word 'use' in section 80-O is a very general word. It is not necessary that the use to which the information is to be put must be practical, that is to say it must result in manufacturing or making of some concrete thing. It held that the foreign enterprise (in that case BBC a broadcasting Corporation) can be said to use the information when it formulates or modifies its broadcasting programmes to India according to the guidance given to BBC by the said information. Secondly the High Court held that the word 'science' is also a very general word. Statistical tables complied (in India) after analysing masses of numerical data (again gathered in India) can be said to be commercial or scientific knowledge. In our case the foreign buyer also formulates or modifies his import policy based on analysis provided....
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.... the Board in Circular No. 5P dated 9-10-1967 as under: "Royalty, Commission, fees, etc. received by an Indian company from a foreign company in consideration of supply to the foreign company of technical 'know-how' or technical service.-84. Under section 85C, Indian companies are entitled to a partial rebate of tax on such income in the same manner as provided in section 85A in respect of inter-corporate dividends. After the grant of such rebate of tax, the incidence of tax on such income, in the generality of cases, is 25 per cent thereof. The provision mentioned above is to be replaced with effect from 1-4-1968, by the provision in section 80-O contained in the new Chapter VI-A. Under the new provision, Indian companies will be entitled to a deduction, in the computation of their total income, of 60 per cent of the amount of the income referred to above." 8. Section 80-O was amended from time-to-time, and from assessment year 1992-93 it was amended with a view to provide that the concession will also be made available in relation to professional services rendered or agreed to be rendered to the government of a foreign State or a foreign enterprise, by the assessee. Section....
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....ived 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 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 servic....