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Ramnath And Co. vs The Commissioner Of Income Tax - (Supreme Court) (05 Jun 2020)

Foreign exchange receipt must be attributable to the information or service contemplated by Section 80-O of Income-tax Act for claiming deduction


Direct Taxation

The short point calling for determination in present appeals is whether the income received by the Appellants in foreign exchange, for the services provided by them to foreign enterprises, qualifies for deduction under Section 80-O of the Income Tax Act, 1961, as applicable during the respective assessment years from 1993-1994 to 1997-1998.

The Appellants 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 year/s. In both these cases, the respective Assessing Officer/s 2 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 1961 Act.

After different orders from the respective Appellate Authorities, the Income Tax Appellate Tribunal, Cochin Bench accepted the claim for such deduction under Section 80-O of the 1961 Act. The revenue preferred appeals before the High Court against the orders so passed by ITAT in favour of the present Appellants as also a few other assessees. The High Court has essentially held that, the assessees were merely marine product procuring agents for the foreign enterprises, without any claim for expertise capable of being used abroad rather than in India and hence, the services rendered by them do not qualify as the ‘services rendered from India’, for the purpose of Section 80-O of the 1961 Act. Therefore, the High Court has allowed the appeals of revenue while setting aside the respective orders of ITAT. Aggrieved, the assessees have preferred present appeals.

For bringing any particular foreign exchange receipt within the ambit of Section 80-O of 1961 Act for deduction, it must be a consideration attributable to information and service contemplated by Section 80-O of 1961 Act; 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 the ambit of Section 80-O of 1961 Act. It has to be attributable to the information or service contemplated by the provision and only that part of foreign exchange receipt, which is so attributable to the activity contemplated by Section 80-O of 1961 Act, would qualify for claiming deduction.

The agreements of the Appellant with the foreign entities primarily show that, the Appellant was to locate the source of supply of the referred merchandise and inform the principals; to keep liaison with the agencies carrying out organoleptic/bacteriological analysis and communicate the result of inspection; to make available to the foreign principals the analysis of seafood supply situation and prices; and to keep the foreign principals informed of the latest trends in the market and also to negotiate and finalise the prices. As per the agreements, in lieu of such services, the Appellant was to receive the agreed commission on the invoice amounts.

All the clauses of the agreements read together make it absolutely clear that the appellant was merely a procuring agent and it was his responsibility to ensure that proper goods are supplied in proper packing to the satisfaction of the principal. All other services or activities mentioned in the agreements were only incidental to its main functioning as agent.

The payment to the Appellant, whatever label it might have carried, was only on the basis of the amount of invoice pertaining to the goods. There had not been any provision for any specific payment referable to the so-called analysis or technical guidance or advice. Viewed from any angle, the services of the Appellant were nothing but of an agent, who was procuring the merchandise for its principals; and such services by the appellant, as agent, were rendered in India. Even if certain information was sent by the assessee to the principals, the information did not fall in the category of such professional services or information which could justify its claim for deduction under Section 80-O of the 1961 Act. In the holistic view of the terms of the agreements, the Appellant was only a procuring agent, as rightly described by the High Court.

Most of the services in the agreements in question were those of an agent ensuring supply; and if any part of the services co-related with Section 80-O of 1961 Act, the particulars were of utmost significance and were fundamentally necessary which the Appellant had never supplied. Merely for having a contract with a foreign enterprise and mere earning foreign exchange does not ipso facto lead to the application of Section 80-O of the 1961 Act.

Therefore, the findings of the Appellate Authority and ITAT, being based on irrelevant considerations while ignoring the relevant aspects, were neither of binding nature nor could have been decisive of the matter. The High Court has rightly analysed the entire matter with reference to the relevant questions and has rightly proceeded on the law applicable to the case. The impugned judgment calls for no interference.


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