Bombay High Court
Hindustan Export And Import Corpn. ... vs The Dy. Cit S.R.4 And Anr on 7 May, 2024
Author: Neela Gokhale
Bench: K. R. Shriram, Neela Gokhale
Digitally
2024:BHC-OS:7459-DB
signed by
SHAMBHAVI
SHAMBHAVI NILESH 1/26 436-ITXA-225-2002.doc
NILESH SHIVGAN
SHIVGAN Date:
2024.05.07
17:40:59
+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.225 OF 2002
Hindustan Export & Import Corporation Private
Limited,
a company registered under the Companies Act,
1956 and having its registered office at 348
Anand Bhavan, Dr. D.Naoroji Road, Mumbai-
400 001 ...Appellant
Versus
1. The Deputy Commissioner of Income-tax,
Special Range 4, having his office at
Aayakar Bhavan, Maharshi Karve Road,
Mumbai-400 020.
2. The Commissioner of Income-tax,
City IV, Mumbai, having his office at
Aayakar Bhavan, Maharshi Karve Road,
Mumbai-400 020. ...Respondents
Mr. J.D.Mistri, Senior Advocate with Mr. Fenil Bhatt and Mr. Prem
Tripathi i/by Mr. Atul K.Jasani, for Appellant.
Mr. P.C.Chhotaray, with Ms. Sangita Choure, for Respondents-
Revenue.
CORAM : K. R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
RESERVED ON : 15th APRIL 2024
PRONOUNCED ON : 7th MAY 2024
JUDGMENT:
(Per Dr. Neela Gokhale, J.)
1. At first blush, the question of law that arises for determination
appears to involve a complex interpretation of Section 80-0 of the
Income Tax Act, 1961 ("the Act") and the effect of an amendment to
that Section. But a closer scrutiny whittles down the provision and
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prevails upon us to dismiss the Appeal on the basis of a
straightforward application of the rules of interpretation. We now
proceed straightaway to give a short narration of circumstances
giving rise to the controversy before us.
2. By an order dated 17th September 2004, this Appeal was
admitted on the following 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 80-0 of the Act?"
In view of the decision of the Supreme Court in the case of
Manasarovar Commercial (P) Ltd. v. CIT 1, 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
1 (453) ITR 661
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desirous of reducing its cost by placing bulk orders on its
subcontractors on the basis of information about launch business
worldwide, collected from their international network of consultants.
It is Appellant's case that it was one such consultant of Arianespace
appointed pursuant to the said agreement. The agreement was
revised and extended on 10th December 1987, 20th February 1990
and 12th March 1993. As per the latest agreement, Appellant was
obliged to provide information to Arianespace regarding current
regulations and market conditions in India. A lumpsum consideration
was agreed and was revised upwards from time to time. The duration
of the last agreement was upto 31 st December 1996. It is also
Appellant's case that the information required to be sent in terms of
the agreement was sent to Arianespace regularly by post and;
assessments and analysis were discussed orally at personal meetings
with representatives of both sides to maintain confidentiality of
information.
4. Appellant received a sum of Rs.75,11,850/- (equivalent to US$
240,000) from Arianespace during the relevant year being AY 1995-
96. After deducting 20% towards expenditure, Appellant claimed
deduction of Rs.30,40,740/- under Section 80-0 of the Act in its
return of income filed for AY 1995-96. The Assessing Officer ("AO")
in his assessment order dated 25th March 1998 refused the deduction
on various grounds including a) the information provided by
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Appellant pursuant to the said agreement comprised only of
newspaper cuttings freely available and hence, cannot be treated as
'information concerning commercial knowledge and experience'; b)
there were no written reports of any analysis; c) Appellant had no
experience in Satellite business; and d) there was nothing to indicate
that the information was utilized outside India. Appellant challenged
the assessment order before the Commissioner of Income Tax
(Appeals) ["CIT(A)"] which appeal was dismissed by an order dated
18th March 1999. Aggrieved Appellant preferred an appeal to the
Income Tax Appellate Tribunal ('ITAT'), which also confirmed the
non-allowance of deduction under Section 80-0 of the Act by its order
dated 8th November 2001. It is this order, which is impugned in the
present Appeal.
5. Mr. Mistry, learned Senior Counsel appearing for Appellant,
states that the rejection of Appellant's claim under Section 80-0 of the
Act is perverse and completely 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-
0 of the Act existing at the relevant time, Mr. Mistri submitted that
the Section only required approval of the Chief Commissioner of
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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.
(ii) The approval of the CCIT was granted after
referring to the agreements furnished to him and was for
'Assessment Years 1991-92 onwards till income under the
agreement accrues fully subject to dis-allowance of 20% of
the payment as attributable to services rendered in India.'
(iii) Appellant was in possession of a communication
dated 9th March 1998 from Arianespace confirming that
Appellant had furnished valuable information, which was
useful to them in their business and Appellant was paid
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consideration for the same.
(iv) A plain reading of Section 80-0 of the Act indicates
that once an assessee receives consideration from a
foreign enterprise for use outside India of any information
concerning commercial knowledge, experience or skill
and such income received is in convertible foreign
exchange, then assessee is eligible for deduction under
Section 80-0 of the Act. To buttress this argument, Mr.
Mistry points out that firstly, an agreement existed,
secondly, fees have been paid to it by Arianespace for
valuable commercial information which the company used
outside India, thirdly, the fees received by Appellant were
in convertible foreign exchange and lastly and most
importantly, the CCIT granted approval to the agreement
as satisfying the conditions of Section 80-0 of the Act and
the approval was for 'the period until the income accrued
fully', thus, including income received during the current
and relevant AY.
(v) Since the approval was granted for all subsequent
Assessment Years till the existence and continuity of the
agreement, the amendment to Section 80-0 of the Act
deleting the condition of approval by the CCIT and
thereafter by the Central Board of Direct Taxes does not
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affect in any manner the approval already given. Once,
there exists approval by the CCIT for all subsequent years
the AO is bereft of his powers to re-examine and
reconsider the approval while passing assessment order.
(vi) Reliance has been placed on the following
decisions:
(a) Continental Construction Limited v.
Commissioner of Income Tax2
(b) Gestetner Duplicators Pvt Ltd. v. CIT3
(c) CIT v. Bhaichand Amoluk Consultancy (P)
Ltd.4
(d) CIT v. Container Corporation of India
Limited5
(e) Fibre Boards P. Ltd. v. CIT6
(f) Radhasoami Satsang v. CIT7
(g) Cummins India Ltd. v. ACIT 8
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
2 (195) ITR 81
3 (117) ITR 1
4 (208) ITR 1
5 (404) ITR 397
6 (376) ITR 596
7 (193) ITR 321
8 (153) taxmann.com 223
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pre-condition to seek deduction under Section 80-0 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 80-0 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 31 st 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 80-0 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 Act being
satisfied. These must be examined carefully by the AO while making
the assessment. Mere approval does not automatically entitle the
assessee to relief under Section 80-0 of the Act. The quantum, if any,
of the income allowed as deduction under Section 80-0 must be
necessarily determined by the AO on the facts of each case. Mr.
Chhotaray submits that the approval of the CCIT is qualified and
always subject to any amendment to the provision of the Act and
subject to legal conditions. Mr. Chhotaray urges us to dismiss the
Petition as there is no service rendered by Appellant to Arianespace
as contemplated by Section 80-0 of the Act and at best, Appellant has
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only performed liaison work. He draws strength from the contents of
agreement dated 2nd February 1987 indicating the nature of mission
as mentioned in the agreement which is amended from time to time
and the last agreement has no reference to satellite or launch services
and it is completely vague. Mr. Chhotaray relies upon various
decisions of the Supreme Court as follows:
i) B.L.Passi vs CIT 9
ii) Ramnath & Co vs CIT10
iii)CIT v. Khursheed Anwar11
Mr. Chhotaray also places reliance on some portion of the decision of
the Apex Court in the matter of Continental Construction Limited
(Supra) which is discussed later.
8. We have analyzed the issues involved in the matter and arrived
at the following conclusion. At the outset, we may advert to the
provision of Section 80-O as it was at the relevant period i.e., at the
time of execution of the initial agreement on 2 nd February 1987.
Section 80-O read as thus:
"Deduction in respect of royalties, etc., from certain foreign
enterprises.- Where the gross total income of an assessee, being
an Indian company or a person other than a company who is
resident in India, 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
9 404 ITR 90 SC
10 425 ITR 337
11 311 ITR 468
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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 industrial,
commercial or scientific knowledge, experience or skill made
available or provided or agreed to be made available or provided
to such Government or enterprise by the assessee, or in
consideration of technical 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 Chief Commissioner may allow
in this behalf:
Explanation for the purposes of this section: -
(i) "Convertible foreign exchange" means foreign exchange
which is for the time being treated by the Reserve Bank of India
as convertible foreign exchange for the purpose of the law for
the time being in force for regulating payments and dealing in
foreign exchange.
(ii) "foreign enterprise" means a person who is nonresident.
(iii) Services rendered or agreed to be rendered outside India
shall include services rendered from India but shall not include
services rendered in India." "
9. The words "under an agreement approved in this behalf by the
Chief Commissioner or Director General" were omitted by the
Finance (No 2) Act, 1991 w.e.f 1 st April 1992 and earlier these words
were substituted for "under an agreement approved in the Board in
this behalf" by the Finance Act, 1988 w.e.f 1 st April 1989. Thus, at the
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time of execution of the agreement between Appellant and
Arianespace, the agreement required approval of the CCIT for seeking
benefits of Section 80-O of the Act.
10. It is Appellant's case that in its application dated 30 th
September 1991 seeking approval of the CCIT, it has (i) specifically
set out the mode and method of provision of information; (ii) press
reports are sent through mail, but conclusions/interpretations are
done at meetings which take place either in India or in France etc.
Further, Appellant has set out the benefit which the foreign enterprise
obtained from the services rendered by it and has also stated that the
approval is desired to be operative for all subsequent AY's from 1991-
1992 till the existence and continuity of the agreement. Appellant
heavily relies upon inquiries made by the CCIT with it requiring
response from Appellant by providing some reports which were sent
to Arianespace and clarified that conclusions and interpretation of
reports were done at quarterly meetings. The CCIT, vide its notice
dated 17th February 1992 sought elaborate explanation as to the
precise commercial assistance being rendered by Appellant and how
such assistance fell within the ambit of Section 80-O of the Act. It is
quite significant to note that the CCIT did harbor some misgivings
and observed that it was not clear as to what further role the
Appellant had to play in interpreting newspaper articles appearing in
various newspapers but appears to have been satisfied with the
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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 30 th 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 know-
how 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
interpretations being done at meetings convened either in India or in
France on an average once in every three months. The manner of
imparting is specified as correspondence or quarterly meetings.
12. While providing additional information as required by the
CCIT, Appellant in its letter dated 11 th February 1992 further clarified
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that the information required by Arianespace has to be collected from
a vast number of user departments and hence, it was necessary for
the Arianespace to appoint a company such as Appellant to collect
this information. Once again in response to a specific doubt raised by
the CCIT in his letter dated 17 th February 1992 regarding Appellant
sending only newspaper cuttings to Arianespace, which failed to
indicate 'precise commercial assistance', Appellant in its response
dated 20th February 1992 reiterated that most of the discussions
regarding interpretations arising from ongoing discussions with user
departments are conveyed and discussed with Arianespace at their
quarterly meetings. In its letter dated 16 th March 1992, Appellant
again reiterated that the agreement requiring approval was solely for
the purpose of providing commercial information to Arianespace. It is
on the basis of this explanation and clarifications that ultimately the
CCIT granted approval dated 27th March 1992 to the agreement.
13. From the contents of the communications of Appellant with the
CCIT, two things are amply clear, firstly, information sought by
Arianespace was to be collected from a vast number of user
departments and secondly that analysis and interpretation of the
information was done at quarterly meetings between the parties. It
was based on these two pivotal clarification statements that the CCIT
granted approval to the agreement. Admittedly, the agreements were
extended from time to time, albeit with a revised scope of work,
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however, Appellant insists that the approval once accorded operated
for all subsequent AY's from 1991-1992 till existence and continuity
of the agreement. During the assessment proceedings of AY 1995-
1996, Appellant in its response dated 12 th March 1988 to a query
posed by the AO stated that while newspaper articles are regularly
sent, the evaluation and assessment projects are orally discussed over
the phone and when they meet officials of Arianespace in India or
France. It informed the AO that no reports were prepared by it 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
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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 accept this contention of Appellant. It is clear
that approval was accorded by the CCIT on the basis of specific
statements made by Appellant that information to be shared pursuant
to the agreement was that collected and collated from User
Departments and analysis and assessments were to be done during
quarterly meetings. Newspaper cuttings are not precluded from being
shared as information but by themselves they do not constitute any
commercial expertise. The AO is well within his rights to request
Appellant to furnish proof of sharing the information with
Arianespace for which approval was granted by the CCIT. From the
replies of Appellant to the AO, it is quite clear that Appellant has not
provided material to Arianespace as represented by it before the CCIT
while seeking approval as newspaper cuttings are not information
collected or collated from User Departments. The application form for
approval specifies providing commercial assistance to Arianespace as
contemplated under Section 80-O of the Act based on which approval
was procured. Thus, we have no hesitation in accepting the decision
of the AO in rejecting this claim of Appellant.
15. Another argument put forth by Mr. Chhotaray is that since
neither approval of the Board nor that of the CCIT is required after
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the 1992 amendment deleting the words " under an agreement
approved in this behalf by the Chief Commissioner of the Director
General", the AO is singularly vested with an authority to examine
the agreement and call upon the Assessee to demonstrate its
implementation. Mr. Mistry hastens to rebut this argument by
contending that the amendment has no effect on the approval already
granted by the CCIT especially in view of the fact that the approval is
granted by the CCIT for the assessment years 1991-92 onward till
"the income under the agreement accrues fully" and the AO is not
jurisdictionally competent to revisit the approval once granted by the
CCIT. This contention raises a further issue - "The effect of an
approval once granted-whether it bars the AO from reviewing the
same or otherwise". This question, however, need not deter us in
answering the question of law arising in the matter since we are
satisfied that the AO is neither revisiting the approval granted by the
CCIT nor is he reviewing the same. All he is doing is examining the
veracity of the claims of Appellant of having acted in aid 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
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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
portion of the income which has been received within the
prescribed time limit 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 within the prescribed time
limit in accordance with law for the time being in force for
regulating payment and dealings in foreign exchange. The
Foreign Inward Remittance Certificates from the bank(s) should
be filed before the Assessing Officer.
4. The grant of deduction from the total income will be subject
to your fulfilling the other conditions laid down in the Act in this
behalf. The amount eligible for deduction will be determined by
the assessing officer at the time of assessment.
5. This approval is subject of any amendments in the provisions
of the Income Tax Act, 1961; from time to time.
6. I am further to add that the approval accorded by this letter is
only for the purpose of Section 80-O of the Income Tax Act,
1961, and should not be construed to convey the approval of the
Central Government of the Chief Commissioner/Director General
of Income Tax or any other statutory authority under the
Government for any other purpose." (emphasis supplied)
XXXXXXX
16. Paragraph 4 of the letter is of some significance. Approval is
always subject to the conditions mentioned therein. The CCIT has
ordained the AO to determine the amount eligible for deduction.
Even sans this qualification, AO under the Act itself is responsible for
ensuring the regularity of Income Tax Returns filed by the tax payers
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in his jurisdiction and has the authority to examine the returns, ask
for supporting documents, recompute the taxable income and issue
assessment orders and tax demands. The AO also has the power to
ask for books of accounts, documents and other evidence from the
taxpayer to verify the accuracy and completeness of the return of
income filed by assessee. The deductions under Section 80-O of the
Act must be shown to be directly relatable to the approval granted by
the CCIT. Representations made by Appellant to the CCIT at the time
of seeking approval clearly indicate sharing of commercial expertise,
which include newspaper cuttings, data collected and collated from
User Departments, etc. The contentions of Appellant that approval
granted by the CCIT is unqualified and for all 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
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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 80-O would enure also for the assessment year 1983-84
onwards. In fact, we think that, irrespective of the Board's
clarification of 1985, the correct position is that, once a contract
stands approved under Section 80-O in relation to the first
assessment year in relation to which the approval is sought, the
approval enures for the entire duration of the contract. This is
the principle enunciated in CIT vs Indian Institute of Public
Opinion Co. P. Ltd. (1982) 134 ITR 23 (Delhi), the correctness
of which cannot be doubted and is, indeed accepted by both
counsel before us. Section 80-O does not envisage an application
for approval of the contract for every assessment year or the
limitation of the approval granted by the Board to any particular
Assessment year., The Board approves of a contract, for having
regard to the nature of the receipts flowing therefrom and once
this approval is granted, the assessee is entitled to seek
deduction under Section 80-O in respect of all the receipts under
the contract the consideration for which is traceable to the three
ingredients discussed earlier irrespective of the assessment year
in which the receipts fall for assessment.
XXXXXXX
The third and perhaps the most important reason is that such
contracts are generally likely to be long term contracts and it is
of the essence of the Applicant to know well beforehand where
he stands in the matter of tax exemption and whether he can
proceed to execute the contract on the basis that he would be
eligible for relief he feels he is eligible for. It would result into
chaos if the assessee's contracts were left to be scrutinised at the
time of assessments several years after they have been
implemented and the availability of an exemption provisions
which the assessee was banking upon and on the basis on which
he has entered into a contract denied to him for one reason or
another. Whereas, duly forewarned by a disapproval, the
assessee could have backed out of a contract if necessary, and
saved his skin."
XXXXXXX
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18. Based on the decision in Continental Construction (supra),
Appellant canvasses that once an approval is granted under Section
80-O of the Act, the Department cannot take a different view on the
same set of facts especially when approval is granted till all income
under the agreement fully accrues. In our view, it appears from the
decision in Continental Construction (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
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granted by the CCIT and AO seeking to verify whether Appellant has
acted in aid of the agreement so approved. It is needless to enter into
a discussion as to whether approval once granted by the CCIT/Board
is amenable to review by AO. The present case clearly demonstrates a
deviation in implementation of the agreement, in total violation of
the representations made by Appellant to the CCIT based on which
the approval was procured.
19. In the decision of the Apex Court relied upon by Mr. Chhotaray
in the matter of B.L.Passi (supra) the assessee therein claimed
deduction under Section 80-O of the Act on the basis that it had
received consideration in convertible foreign exchange in the name of
M/s Pasco International wherein the assessee was the sole proprietor.
This consideration was received for providing specialized industrial
and commercial knowledge relating to the Indian automobile
industry including detailed information about the industry, analyzing
government policies relating to the Indian automobile industry and
also to identify opportunities for supply of products of M/s Sumitomo
Corporation, i.e., the foreign enterprise to various customers in India
etc. Hence the assessee claimed it was entitled to claim deduction
under the said provision. The Assessing Officer had denied the claim.
The major information sent by the assessee to the foreign enterprise
was in the form of blueprints for manufacture of dyes for stamping of
doors and the assessee had failed to furnish the copy of the blueprint
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which it claimed to have sent to the foreign enterprise. While
upholding the order of the Assessing Officer, the Supreme Court held
as under:
"16) The blue prints made available by the Appellant to the
Corporation can be considered as technical assistance provided
by the Appellant to the Corporation in the circumstances if the
description of the blue prints is available on record. The said
blue prints were not even produced before the lower authorities.
In such scenario, when the claim of the Appellant is solely
relying upon the technical assistance rendered to the
Corporation in the form of blue prints, its unavailability creates
a doubt and burden of proof is on the Appellant to prove that on
the basis of those blue prints, the Corporation was able to start
up their business in India and he was paid the amount as service
charge.
xxxxxx
18) ........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.
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.
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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 Indian industries to encourage them to provide
technical know-how and technical services to newly developing
countries. It is also seen that the object was to encourage Indian
companies to develop technical know-how and to make it available to
foreign companies so as to augment the foreign exchange earnings of
this country and establish a reputation of Indian technical know-how
for foreign countries. The objective was to secure that the deduction
under the section shall be allowed with reference to the income
which is received in convertible foreign exchange in India or having
been received in convertible foreign exchange outside India, is
brought to India by and on behalf of taxpayers in accordance with the
Foreign Exchange Regulations. What the section envisages is a
genuine sharing of information relating to industrial, commercial, or
scientific knowledge, experience, or skill.
21. It is also significant to note that in Continental Construction
(supra) the Apex Court took note of various circulars of the CBDT
and delineated the functions of the AO with reference to the claim for
deductions under Section 80-O of the Act even when approval had
been granted by the Board in the following passage :-
"We should, however, make it clear that our conclusion does not
mean the deprivation of all functions of the Assessing Officer
while making the assessment on the applicant. The Officer has
to satisfy himself (i) that the amounts in respect of which the
relief is claimed are amounts arrived at in accordance with the
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formula, principle or basis explained in the assessee's application
and approved by the Board; (ii) that the deduction claimed in
the relevant assessment year relates to the items, and is
referable to the basis on which the application for exemption
was asked for and granted by the Board; (iii) that the receipts
(before the 1975 amendment) were duly certified by an
accountant or that, thereafter, the amounts have been received
in or brought into India in convertible foreign exchange for
exemption granted in principle has to be translated into concrete
figures for the purposes of each assessment. Neither the
introduction of the words " in accordance with and subject to
the provisions of these sections" nor the various "conditions"
outlines in the letter of approval add anything to or detract
anything from the scope of the approval."
22. In Ramnath & 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 assessee was dependent upon satisfaction of the
principal about the quality of goods supplied. He thus distinguishes
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the facts in the present case from the others by contending that the
agreement entered into by Appellant in the present matter with
Arianespace provides for a fixed consideration. Mr. Mistry has
pointed out certain other differences in the facts of the present matter
and those relied upon by the Revenue. We have gone through the
decisions cited by Mr. Chhotaray in the matter of B.L.Passi (supra),
Ramnath & Co (supra) and Khursheed Anwar (supra). We are
satisfied that despite different sets of facts in each of the cases, the
ratio in all the decisions of the Apex Court establishes that the AO is
well within his jurisdiction to verify whether the information shared
is attributable to the information or service contemplated by the
provision. The AO is in fact required to make such an enquiry and for
that purpose the assessee is required to place on record requisite
material supporting its claim for deduction and on the basis of which
approval was procured from the CCIT.
24. The present case displays an obvious attempt on the part of
Appellant in creating an illusion of acting in aid of the agreement, on
the basis of the approval granted by the CCIT, while at the same time
refusing to produce any evidence in respect of which relief is being
sought. Merely brandishing newspaper cuttings does not amount to
proof of sharing commercial expertise with its French counterpart as
mandated by Section 80-O of the Act.
25. Considering the above discussion and at the end of the legal
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tether, we endorse the decision of the ITAT and answer the second
question of law in the negative. The Appeal fails and is accordingly
dismissed. The circumstances warrant the parties be directed to bear
their own costs. We direct accordingly.
(DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
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