TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 503
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....lowing substantial questions of law: "1. Whether on the facts and in the circumstances of the case and in law the Tribunal ought to have deleted the levy of interest under Section 234B of the Act ? 2. Whether on the facts and in the circumstances of the case and in law the Tribunal ought to have allowed the deduction under section 80-O of the Act?" In view of the decision of the Supreme Court in the case of Manasarovar Commercial (P) Ltd. v. CIT (453) ITR 661, the first question is answered in favour of the Revenue and is not pressed by Appellant. Hence, the determination is limited to the second question only. 3. Appellant is a private limited company. An agreement was executed on 2nd February 1987 (the said agreement) by and between Appellant and M/s. Arianespace France ("Arianespace"), the shareholders of which, it is stated, are all Government controlled companies belonging to European Space Agencies and totally unconnected with Appellant. The main business of Arianespace was to launch satellites and place them in orbit above the earth. In a bid to gain entry into the global satellite launch market, Arianespace was desirous of reducing its cost by placing bulk orders on....
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....mpletely contrary to the facts of case. According to Mr. Mistri, Appellant has received fees in consideration for furnishing of information concerning commercial knowledge and for rendering technical services and the Tribunal ought to have appreciated the absence of written reports on account of confidentiality of information. Relying on the provision of Section 80-O of the Act existing at the relevant time, Mr. Mistri submitted that the Section only required approval of the Chief Commissioner of Income Tax ('CCIT') to the agreement executed and that the CCIT had granted approval to the agreement for the Assessment Year ("AY") 1991-92 upon specific consideration of the issue regarding furnishing of newspaper cuttings and verbal discussions of reports. 6. During the course of hearing, Mr. Mistry expanded his arguments as follows: (i) In response to a specific request by the CCIT, prior to granting of approval, Appellant had furnished reports sent by it to Arianespace and had clarified that the conclusions/interpretations were done at quarterly personal meetings. Furthermore, most of the information was of confidential nature and hence, not reduced to written reports. (....
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....93) ITR 321 (g) Cummins India Ltd. v. ACIT (153) taxmann.com 223 7. Mr. Chhotaray, learned counsel appears for the Revenue and contests the Appeal on the ground that mere sharing of newspaper cuttings does not amount to information concerning industrial, commercial or scientific knowledge, experience or skill which is a pre-condition to seek deduction under Section 80-O of the Act. Appellant has been unable to provide any analysis, report or assessments purportedly furnished to Arianespace and hence, Appellant is not eligible for deduction under Section 80-O of the Act. Mr. Chhotaray draws our attention to a clarification issued by the Central Board of Direct Tax ('Board') by letter dated 14th September 1985 superseding its earlier letter dated 31st July 1985 which stated that letter F No. 473/644-FTD dated 31st July 1985 was only a recognition of the position that approval under Section 80-O is for the agreement as such and mention of any time limit is redundant except for the starting year. Mr. Chhotaray contends that as noticed from all the approval letters themselves, the Boards' approval to the agreements is subject to the other conditions of the A....
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....ical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, "under an agreement approved in this behalf by the Chief Commissioner or the Director General" 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 percent of the income so received in, or brought into, India, in computing the total income of the assessee. Provided that such income is received in India within a period of six months from the end of the previous year, or where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as a....
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....t appears to have been satisfied with the explanations of Appellant that analysis of articles were being provided in quarterly meetings of the parties. Thus, according to Appellant, upon being satisfied with its explanation, the CCIT was pleased to grant his approval to the agreement. 11. We have perused the application dated 30th September 1991 of Appellant seeking approval of the CCIT. Clause 4 (a) (ii) of the Application specifically refers to the question as to whether the income received in consideration for the use outside India of information concerning industrial, commercial, or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided. The specific response of Appellant to this query was that Income is received in consideration of provision of commercial knowledge. Further on the query in clause 6(a) of the application form, Appellant has specified the arrangements available with it to obtain and impart technical knowhow to Arianespace by means of deputation of personnel/Managing Director for collecting/collating information from User Departments and sending press reports through mail but conclusions and interpretation....
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.... and neither Appellant nor Arianespace maintained any record of any telephonic conversations nor any meetings convened as per its claim. It was in these circumstances that Appellant's claim of deductions under Section 80-O was rejected by the AO. 14. As represented by Appellant to the CCIT, for grant of approval, information was to be collected and collated from various user departments. Admittedly, information shared with Arianespace comprised only of newspaper cuttings appearing in various Indian newspapers. Undoubtedly, newspapers are not information from User Departments. Moreover, mere cut outs of newspapers do not constitute information collected from User Departments. Further, even if Appellant is to be believed regarding sharing of assessments and analysis in private quarterly meetings, Appellant was bound to furnish to the AO some record of the meetings being convened, at the least in the form of minutes or correspondence of setting up of the meetings etc. No such document or information has been furnished to the AO. In fact, it is Appellant's specific case that the CCIT granted approval on the basis of only sharing newspaper cuttings and nothing else. We are unable to ac....
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....of the agreement so executed and which has got the approval on the basis of information provided to the CCIT by Appellant in the application form as well as in the responses to his queries. Mr. Mistry thus, cannot wish away the full import of the approval in its entirety. The letter dated 27th March 1992 according approval reads as thus: "1. Please refer to your application dated - received with your letter No. TH/474/ASD/1424 dated 30/9/1991. The agreement entered into between you and M/s. Arianespace of France on 2/2/1987 and the amendments dated 10/12/1987 and 20/2/1990 are hereby approved for the purpose of Section 80-O of the Income Tax Act, 1961, for the assessment years 1991-92 onward till the income under the agreement accrues fully, subject to a dis-allowance of 20% of the payment as attributable to services rendered in India. The reimbursement of expenses will not qualify for the deduction u/s. 80-O of the I.T. Act, 1961. 2. The income allowable as a deduction for the assessment year 1981-82 and onwards would be the net income computed after accounting for expenses incurred in earning such income. 3. The actual deduction to be allowed will, however, be such portio....
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....AY's subsequent to 1991-92 till such time that the agreement exists, and income accrues in lieu of the same, the AO has no jurisdiction to examine the veracity of its claim for deduction under Section 80-O of the Act nor has the AO any power to reject the same are wholly unacceptable and cannot be sustained. 17. The decisions of the Apex Court and other High Courts as relied upon by Mr. Mistry relate to the interpretation of the effect of an amendment on the original provisions of law. The decision of the Supreme Court in the matter of Continental Construction (supra) was in fact concerned with deduction under Section 80-O of the Act. Section 80-O of the Act, as it stood at the relevant time, mandated approval of the Board on the agreement entered into by assessee with foreign enterprise. The Board's initial approval stated it was for AY 1982-83 and included conditions similar to those in the approval granted by the CCIT in the present matter. The Apex Court on these facts held that: "We shall also proceed on the footing that the assessee is also right in saying that the Board had, after considering its representations, accepted the position that the approval under Section 8....
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....tion (supra), a great deal turns on application of legal principles to the facts in the matter and not solely on the legal propositions expounded by Mr. Mistry drawing support from the various decisions relied upon by him. A close examination of the application of Appellant reveals its intent and purpose in seeking approval. It specifies collection of information from User departments and quarterly meetings to share analysis and assessments. The CCIT approval is accorded based on this representation by Appellant. Appellant simply failed to act in aid of its intent disclosed in the application form, based on which approval was granted. The AO cannot be accused of reviewing or revoking approval granted by the CCIT in the present matter. The AO simply seeks to verify as to whether Appellant has acted in terms of the approval granted by the CCIT. In our view, the AO is well within his rights so to do and has not overstepped his jurisdiction. The other decisions relied upon by Mr. Mistry also deal with similar exposition of the law. However, there exists a clear distinction between the AO reviewing the approval granted by the CCIT and AO seeking to verify whether Appellant has acted in ....
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....mo 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. 19) Before parting with the appeal, it is pertinent to mention here that it is settled law that the expressions used in a taxing statute would ordinarily be understood in the sense in which it is harmonious with the object of the Statute to effectuate the legislative animation." 20. A similar view has been taken by the Supreme Court in the matter of Ramnath & Co (supra) and Khursheed Anwar (supra). The Supreme Court, in the aforesaid decisions, discussed the object of providing incentive to entrepreneurs vide provisions in the Act. Provisions like Section 80-O of the Act were originally in the former Section 85-C of the Income Tax Act, 1961 which was substituted by Finance (No. 2) Act, 1971. Section 80-O was inserted in place of Section 85C which was deleted by the Finance (No. 2) Act, 1967. While moving the bill relevant to the Finance Act No. 2 of 1967, the then Finance Minister highlighted the fact that fiscal encouragement needs to be given to Indi....
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....h & Co (supra) the Apex Court commented on Continental Construction (supra) as under: - "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." 23. Mr. Mistry made a valiant effort to distinguish the facts of the present case from that in the cases of B.L.Passi (supra), Ramnath & Co.(supra) and Khursheed Anwar (supra). On B.L.Passi (supra), Mr. Mistry contends that Appellant in that matter was a managing agent and there was a principal-agent relationship between the parties and the deduction under 80-O of the Act was dependent upon the agent's consideration calculated based on invoice amount received by his principal. On Ramnath & Co (Supra), Mr. Mistry says that the remuneration of the a....