1. Claim for deduction under Section 80-O of the Income Tax Act regarding income received from a foreign enterprise for providing industrial and commercial knowledge. (Para 2 , 10 )
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2018 Supreme(SC) 406
SUPREME COURT OF INDIA
R.K. AGRAWAL, ABHAY MANOHAR SAPRE, JJ.
B.L. Passi – Appellant
Versus
Commissioner of Income Tax, Delhi – Respondent
Civil Appeal No. 3892 of 2007
Decided On : 24-04-2018
Important Points
IMPORTANT POINT
Section 80-O would not be applicable unless supplying technical assistance is established and product developed on such assistance is sold in the market.
Section 80-O would not be applicable unless supplying technical assistance is established and product developed on such assistance is sold in the market.
Subject
Taxation Law - Income Tax
Act Referred
Headnote
(a) Income Tax Act, 1961 – Section 80-O – Appellant claiming deduction u/s 80-O for providing technical assistance and industrial knowledge to Sumitomo Corp. – Document in respect of which relief is sought u/s 80-O has to be produced – Appellant not producing the blue print in question nor disclosing how he obtained it – Further payment to appellant being subject to sale of product by Sumitomo developed on basis of assistance provided by appellant – Nothing on record shows development of any product on the basis of blue print supplied by appellant
(1979) 118 ITR 312 (Del.) – Cited with approval
(b) Income Tax Act, 1961 – Section 80-O – There being a principal-agent relationship between appellant and Sumitomo Corp. – Appellant not entitled to relief u/s 80-O. (Para 19)
Facts of the case:
The Appellant herein filed return disclosing income of Rs. 57,40,360/- for the Assessment Year (AY) 1997-98 while claiming deduction of Rs. 58,87,045/- under Section 80-O of the Income Tax Act, 1961 on a gross foreign exchange receipt of Rs. 1,17,74,090/- received from Sumitomo Corporation, Japan.
The Assessing Officer assessed the total income at Rs. 1,18,43,060/- and determined the sum payable by the assessee to the tune of Rs. 43,25,960/-.
The Appellant preferred an appeal before the Commissioner of Income Tax (Appeals)-XXVI, New Delhi. The Appellate Authority partly allowed the appeal and held that the Appellant is entitled to deduction under Section 80-O of the IT Act.
The Revenue went in appeal before the Tribunal which was allowed.
The Appellant approached the High Court which was dismissed by a Division Bench of the High Court.
Finding of the Court:
There is no infirmity in the impugned judgment.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether the services rendered constitute specialized industrial and commercial knowledge entitling the assessee to deduction under Section 80-O or merely a principal-agent relationship. (Para 5 , 6 , 7 )
3. The assessee failed to produce blueprints or evidence that the foreign enterprise developed products using the provided information, indicating a managing agent relationship. (Para 13 , 16 , 17 , 18 )
4. Managerial services rendered by a managing agent do not constitute technical services or specialized knowledge eligible for deduction under Section 80-O of the Income Tax Act. (Para 15 , 18 , 19 )
5. Appeal dismissed. (Para 20 )
6. What is the objective of Section 80-O of the Income Tax Act?
The objective is to provide fiscal encouragement to Indian industries to provide technical know-how and services to developing countries, thereby augmenting foreign exchange earnings and establishing the reputation of Indian technical expertise globally. (Para 12 )
7. What constitutes technical services for the purpose of Section 80-O?
Technical services involve the use of tools, machinery, and the application of reason to the properties of matter and energy, distinguishing them from managerial services which do not involve such tools or machinery. (Para 15 )
8. What is the evidentiary burden on an assessee claiming deduction under Section 80-O for providing technical assistance?
The assessee must produce the actual documents, such as blueprints or technical data, and prove that the foreign enterprise utilized this specific information to develop products or establish business. (Para 13 , 16 , 17 )
9. Does a principal-agent relationship qualify for deduction under Section 80-O?
No, services rendered in the capacity of a managing agent are considered managerial in nature and do not qualify as technical services or specialized industrial/commercial knowledge under Section 80-O. (Para 18 , 19 )
JUDGMENT :
R.K. Agrawal, J.
1. The above appeal has been filed against the judgment and order dated 13.12.2006 passed by the High Court of Delhi in I.T. Appeal No. 1198 of 2006 whereby the Division Bench of the High Court dismissed the appeal filed by the appellant herein against the order dated 10.10.2005 passed by the Income Tax Appellate Tribunal, Delhi Bench (in short ‘the Tribunal’) in ITA No. 1603/D/2002.
2. Brief facts:
(a) The Appellant herein filed return disclosing income of Rs. 57,40,360/- for the Assessment Year (AY) 1997-98 while claiming deduction of Rs. 58,87,045/- under Section 80-O of the Income Tax Act, 1961 (in short ‘the IT Act’) on a gross foreign exchange receipt of Rs. 1,17,74,090/- received from Sumitomo Corporation, Japan. Sumitomo Corporation was interested in supplying dies for manufacturing of body parts to Indian automobile manufacturers and entered into a contract with the Appellant under which the services of the Appellant herein were engaged by using his specialized commercial and industrial knowledge about the Indian automobile industry. Sumitomo Corporation also agreed to pay remuneration at the rate of 5% of the contractual amount between Sumitomo Corporation and its Indian customers on sales of its products so developed. The Appellant claimed to have supplied to Sumitomo Corporation the industrial and commercial knowledge, information about market conditions and Indian manufacturers of automobiles and also technical assistance as required by the Corporation.
(b) The case of the Appellant was selected for scrutiny by the Income Tax Department, Delhi and in response to notice under Section 143(2) of the IT Act, the Appellant along with others attended the assessment proceedings from time to time justifying the claim under Section 80-O of the IT Act. The Assessing Officer, vide order dated 27.03.2000 under Section 143(3) of the IT Act assessed the total income at Rs. 1,18,43,060/- and determined the sum payable by the assessee to the tune of Rs. 43,25,960/-. Being aggrieved by the order dated 27.03.2000, the Appellant preferred an appeal being No. 272/01-02 before the Commissioner of Income Tax (Appeals)-XXVI, New Delhi. The Appellate Authority, vide order dated 20.02.2002, partly allowed the appeal and held that the Appellant is entitled to deduction under Section 80-O of the IT Act. Being aggrieved by the order dated 20.02.2002, the Revenue went in appeal before the Tribunal. The Tribunal, vide order dated 10.10.2005, allowed the appeal filed by the Revenue. The Appellant approached the High Court by filing I.T. Appeal No. 1198 of 2006 challenging the order of the Tribunal dated 10.10.2005 which was dismissed on 13.12.2006 by a Division Bench of the High Court.
(c) Aggrieved by the judgment and order dated 13.12.2006, the Appellant has filed this appeal by way of special leave before this Court.
3. Heard Mr. Lakshmikumaran, learned counsel for the Appellant and Mr. K. Radhakrishnan, learned senior counsel for the Respondent and perused the records.
Point(s) for consideration:-
4. The sole point for consideration before this Court is whether the Appellant is entitled to deduction under Section 80-O of the IT Act under the facts and circumstances of the present case?
Rival contentions:-
5. Learned counsel for the Appellant contended that the Appellant has fulfilled all the conditions as envisaged under Section 80-O of the IT Act inasmuch as he was providing specialized, industrial and commercial knowledge relating to the Indian automobile industry and also detailed information about the industry in India. Learned counsel further contended that the Appellant is enjoying a very good professional reputation amongst manufacturers and traders and having a vast experience of the Indian automobile industry. The services so rendered by the Appellant were in fact rendered and the payment was received for having rendered those services. Learned counsel finally contended that the High Court committed an error in con
