2020 Supreme(SC) 391

SUPREME COURT OF INDIA
A.M.KHANWILKAR, DINESH MAHESHWARI, JJ.
RAMNATH & CO. – Appellant(s)
Vs.
THE COMMISSIONER OF INCOME TAX – Respondent(s)
CIVIL APPEAL Nos…2506-2509 OF 2020 (Arising out of SLP (Civil) Nos. 23535 – 23538 of 2016) With Civil Appeal No. 2510 of 2020 @ SLP(C) No. 23699 of 2016
Decided On : 05-06-2020

IMPORTANT POINTS
(1) For bringing any particular foreign exchange receipt within ambit of Section 80-O for deduction, it must be a consideration attributable to information and service contemplated by Section 80-O of Income Tax Act, 1961.
(2) Interpretation of Statute – In context of taxing statute, requirement of looking plainly at language is more pronounced with no room for intendment or presumption.

Headnote:

(A) Income Tax Act, 1961 – Section 80-O – Assessment – Deductions – Income received in foreign exchange – Tax incentive for imparting technical know-how and akin specialities from our country to foreign countries ultimately took shape in the manner that earning of foreign exchange, by way of imparting intellectual property, or furnishing information concerning industrial, commercial, scientific knowledge, or rendering of technical or professional services to foreign Government or foreign enterprise, was made eligible for deduction in computation of total income, to the tune of 50 per cent of income so received – Services which are rendered in India would not qualify for such a deduction – Exemption notification has to be interpreted strictly; burden of proving its applicability is on assessee; and in case of any ambiguity, benefit thereof cannot be claimed by subject/assessee, rather it would be interpreted in favour of revenue – Deductions, exemptions, rebates are different species of incentives extended by Act of 1961 – Incentive is a generic term and ‘deduction’ is one of its species; ‘exemption’ is another – Section 80-O of Act has a unique purpose and peculiarities of its own. (Paras 5.5, 14.7, 17.4, 18 and 21)

(B) Income Tax Act, 1961 – Section 80-O – CBDT Circular No. 187 dated 23.12.1975, Circular No. 253 dated 30.04.1979 and Circular No.700 dated 23.03.1995 – Assessment – Deductions – Income received in foreign exchange – Appellant is a firm engaged in business of providing services to foreign buyers of Indian marine products – Assessing Officer was firmly of the view that appellant had worked only as an agent of foreign enterprises in the matter of procurement of marine products from India; and all services envisaged in agreements were incidental to carrying out of main function as agent – For bringing any particular foreign exchange receipt within ambit of Section 80-O for deduction, it must be a consideration attributable to information and service contemplated by Section 80-O and in case of a contract involving multiple or manifold activities and obligations, every consideration received therein in foreign exchange will not ipso facto fall within ambit of Section 80-O – It has to be attributable to information or service contemplated by provision and only that part of foreign exchange receipt, which is so attributable to activity contemplated by Section 80-O, would qualify for claiming deduction – Such enquiry is required to be made by Assessing Officer and for the purpose of this imperative enquiry, requisite material ought to be placed by assessee to co-relate foreign exchange receipt with information/service referable to Section 80-O – Evidently, such an enquiry by Assessing Officer could be made only if concrete material is placed on record to show requisite correlation – In present case, agreements of appellant with foreign entities primarily show that appellant was to locate source of supply of referred merchandise and inform principals; to keep liaison with agencies carrying out organoleptic/bacteriological analysis and communicate result of inspection; to make available to foreign principals analysis of seafood supply situation and prices; and to keep foreign principals informed of latest trends in market and also to negotiate and finalise prices – As per agreements, in lieu of such services, appellant was to receive agreed commission on invoice amounts – Appellant was merely a procuring agent and it was his responsibility to ensure that proper goods are supplied in proper packing to satisfaction of principal – All other services or activities mentioned in agreements were only incidental to its main functioning as agent – Merely for having a contract with a foreign enterprise and mere earning foreign exchange does not ipso facto lead to application of Section 80-O of Act – Appellant is not entitled to claim deduction under Section 80-O of Act – Impugned judgment of High Court upheld. (Paras 30, 31, 32, 34, 35 and 37)

(C) Interpretation of Statute – Any process of construction of a written text primarily begins with comprehension of plain language used – In such process of comprehension of a statutory provision, meaning of any word or phrase used therein has to be understood in its natural, ordinary or grammatical meaning unless that leads to some absurdity or unless object of statute suggests to contrary – In context of taxing statute, requirement of looking plainly at language is more pronounced with no room for intendment or presumption – In this process, if natural, ordinary or grammatical meaning of any word or phrase is available unquestionably and fits in scheme and object of statute, same could be, rather need to be, applied – Other guiding rules of interpretation would be internal aides like definition or interpretation clauses in statute itself – If internal aides do not complete comprehension, recourse to external aides like those of judicial decisions expounding meaning of words used in construing statutes in pari materia, or effect of usage and practice etc., is not unknown; and in this very sequence, it is an accepted principle that when a word is not defined in enactment itself, it is permissible to refer to dictionaries to find out general sense in which word is understood in common parlance – For the purpose of gathering ordinary meaning of any expression, recourse to its dictionary meaning is rather interlaced in literal rule of interpretation. (Para 22.1)

Facts of the Case:

Short point calling for determination in these appeals against common judgment dated 09.06.2016 passed by the High Court of Kerala at Ernakulam in a batch of appeals is as to whether the income received by appellants in foreign exchange, for the services provided by them to foreign enterprises, qualifies for deduction under Section 80-O of Income Tax Act, 1961, as applicable during the respective assessment years from 1993-94 to 1997-98. question involved in these appeals has arisen in backdrop of facts that the appellants herein, who had been engaged in providing services to certain foreign buyers of frozen seafood and/or marine products and had received service charges from such foreign buyers/enterprises in foreign exchange, claimed deduction under Section 80-O of the Act of 1961, as applicable for the relevant assessment years.

In both these cases, the respective Assessing Officers denied such claim for deduction essentially with the finding that the services rendered by respective assessees were the ‘services rendered in India’ and not the ‘services rendered from India’ and, therefore, the service charges received by the assessees from the foreign enterprises did not qualify for deduction in view of clause (iii) of the Explanation to Section 80-O of the Act of 1961.

Findings of the Court:

Appellate Authority took note of various activities of the appellant with and for the buyer concerned and, while disallowing 20% of the service charges received from foreign enterprises towards the services rendered in India, allowed deduction under Section 80-O to the extent of the net income arising out of 80% of such charges received from foreign enterprises.

Result : Appeals dismissed.