TaxTMI 
TaxTMI 
1996 (10) TMI 70
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....he risk with various reinsurance companies either directly or through foreign brokers. In return for the above services, the appellant-company receives a percentage of the premium received by the foreign companies as its share of brokerage. For a period of 19 months from March 1, 1980, the Oil and Natural Gas Commission insured all their offshore oil and gas exploration and production operations with the United India Insurance Company, Madras. In respect of this insurance risk, the appellant contacted Sedgwick Offshore Resources Ltd., London, who are brokers in London for placement of reinsurance business. The appellant furnished all the details about the risk involved, the premium payable, the period of coverage and the portion of the risk which is sought to be reinsured. The said London brokers contacted various underwriters and after getting confirmation about the portion of the risk the foreign reinsurers were prepared to undertake, informed the appellant about such reinsurance coverage. Thereafter, the Indian ceding company handed over the total premium to be paid by it to the foreign reinsurance company, to the appellant for onward transmission. When this amount was given to ....
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....ance premium of U. S. dollars 1,060,891.68, the appellant remitted a fee of U. S. dollars 989,887.20 on January 11, 1984, to the Union Bank of India, thus retaining the fee of 71,004.48 dollars for the technical services rendered. The appellant, stating that in the assessment years 1982-83 to 1984-85, the reinsurance brokerage determined in foreign exchange is retained in India under the agreement with Messrs. Sedgwick Offshore Resources Ltd., and so it would amount to receipt of income in terms of foreign exchange as per section 80-O of the Income-tax Act, sought the approval of the respondent, the Central Board of Direct Taxes as mentioned in annexure " B ". The remittance statement annexed along with annexure " A " available at pages 25-26 of the paper book, shows the following details : " REMITTANCE STATEMENT FOR THE PERIOD : 1-12-1983 TO 10-1-1984 ' FACULTATIVE SECTION ' (SEDGWICK OFFSHORE RESOURCES LTD.) Balance of account Brokerage Debit Credit Debit Credit Ref. Particulars U. S. $ U. S. $ U. S. $ U. S. $ United India Insurance Co. Ltd. 9-1-84 Facultative reinsurance account Oil and Natural Gas Commission offshore acti vities package polic....
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....h income received in convertible foreign exchange in India '. We are afraid, we do not agree with the submission of learned counsel for the petitioner. To attract this section, the assessee must receive convertible foreign exchange from abroad. By retaining their fees they are not receiving any foreign exchange in India but only retaining the convertible foreign exchange. We find no merit in the petition and the same is accordingly dismissed." (emphasis supplied). It is thereafter the appellant has filed the above appeal from the judgment of the Delhi High Court. The short question that arises for our consideration is the interpretation to be placed on section 80-O of the Income-tax Act : " 80-O. Deduction in respect of royalties, etc., from certain foreign enterprises.--Where the gross total income of an assessee, being an Indian company, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industri....
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....receiving remittance from the said reinsurers the commission due to it, entered into an agreement with the foreign reinsurers, that while remitting the reinsurance premia, the appellant would retain the fee due to it for the technical services rendered and this arrangement is effected only with the concurrence or the permission of the Reserve Bank of India. The question in the instant case is, whether instead of remitting the amount to the foreign reinsurers first and receiving the commission due to the appellant later, the arrangement by which the appellant remitted the reinsurance premia, after retaining the fee due to it for technical services rendered, will satisfy the requirement of section 80-O of the Income-tax Act. The provisions similar to section 80-O of the Act were originally available in the former section 85C of the Income-tax Act, 1961. While moving the Bill relevant to the Finance (No. 2) Act, 1967, the then Finance Minister highlighted the fact that fiscal encouragement needed to be given to Indian industries to encourage them to provide technical know-how and technical services to newly developing countries. It is also seen that the objective was to encourage I....
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...., New Delhi (Circular No. 731, dated December 20, 1995) which has in turn accepted that the receipt of brokerage by a reinsurance company in India from the gross premia before remittance to its foreign principals will also be entitled for deduction under section 80-O of the Act. On the other hand, senior counsel for the Revenue, Sri J. Ramamurthy, laid stress on the literal language of section 80-O of the Act and contended that in order to qualify for the deduction, the amount by way of royalty, commission, etc., should be received by the assessee under an agreement approved in this behalf and such income should be received in convertible foreign exchange in India. Counsel contended that the Central Board of Direct Taxes was justified in declining to approve the agreement submitted by the appellant since the income under the agreement is generated in India and is not received in convertible foreign exchange as required under section 80-O of the Act. Counsel for the Revenue brought to our notice the decision in Petron Engineering Construction P. Ltd. v. CBDT [1989] 175 ITR 523 (SC), and contended that the income must be directly received by the assessee--the Indian company, and i....
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.... In such cases, brokerage can be paid either by allowing the brokers to deduct their brokerage out of the gross premia collected from Indian insurance companies and remit the net premia overseas or they could simply remit the gross prentia and get back their brokerage in the form of remittance through banking channels. 3. The Reserve Bank of India have expressed the view that since the principle underlying both the transactions is the same, there is no difference between the two modes of brokerage payment. In fact, the former method is administratively more convenient and the reinsurance brokers had been following this method till 1987 when they switched over to the second method to avail of deduction under section 80-O of the Act. 4. The matter has been examined. The condition for deduction under section 80-O is that the receipt should be in convertible foreign exchange. When the commission is remitted abroad, it should be in a currency that is regarded as convertible foreign exchange according to FERA. The Board are of the view that in such cases the receipt of brokerage by a reinsurance agent in India front the gross premia before remittance to his foreign principals will ....