RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX

The Judgment of the Court was delivered by D DINESH MAHESHWARI, J. PRELIMINARY WITH BRIEF OUTLINE

1Copy pinpoint1. Leave granted.

2Copy pinpoint2. The short point calling for determination in these appeals against the 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 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, 19611, as applicable during the respective assessment years from 1993-94 to 1997-98.

3Copy pinpoint3. Put in a nutshell, the question involved in these appeals has arisen in the 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 year/s. In both these cases, the respective Assessing Officer/s2 denied such claim for deduction essentially with the finding that the services 1 Hereinafter also referred to as ‘the Act of 1961’ or ‘the Act’ 2 ‘AO’ for short H

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A 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. After different orders from the respective Appellate Authorities, the Income Tax Appellate Tribunal3, Cochin Bench B accepted the claim for such deduction under Section 80-O of the Act with the finding in case of the assessee Ramnath & Co. 4 for the assessment year 1993-94 that as per the agreements with the referred foreign enterprises, the assessee had passed on the necessary information which were utilised by the foreign enterprises concerned to make a C decision either to purchase or not to purchase; and hence, it were a service rendered from India. The same decision was followed by ITAT in the case of this assessee for other assessment years under consideration as also in the case of other assessee M/s Laxmi Agencies5. 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. These appeals have been considered together by the High Court of Kerala; and similar questions regarding eligibility for deduction under Section 80-O of the Act in relation to the similarly circumstanced assessees have been decided by the impugned common judgment dated 09.06.2016. 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 Act of 1961. Therefore, the High Court has allowed the appeals of revenue while setting aside the respective orders of ITAT. F Aggrieved, the assessees have preferred these appeals6.

4Copy pinpoint4. The basic factual and background aspects relating to the two assessees in appeal before us are more or less similar in nature but,

G 3 ‘ITAT’ for short 4 Related with the appeal arising out of SLP (Civil) Nos. 23535-23538 of 2016. 5 Related with the appeal arising out of SLP(Civil) No. 23699 of 2016. 6 The appeals herein relate to ITA Nos. 132 of 2002, 11 of 2003, 761 of 2009 and 294 of 2009 as also ITA No. 771 of 2009, decided by High Court in the common impugned judgment dated 09.06.2016, rendered in the batch of appeals led by ITA No. 131 of H 2002.

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having regard to the position that ITAT had decided all other appeals based on its order dated 19.11.2001 for the assessment year 1993-94 in relation to the assessee-appellant Ramnath & Co. and the High Court has also rendered common judgment essentially with reference to the facts relating to this assessee (with other assessees having adopted the same contentions), it appears appropriate to elucidate the same facts and background aspects for dealing with the questions raised in these appeals. RELEVANT FACTUAL AND BACKGROUND ASPECTS:

5Copy pinpoint5. The appellant Ramnath & Co. is a firm engaged in the business of providing services to foreign buyers of Indian marine products. The C appellant filed its return of income for the assessment year 1993-1994 on 29.10.1993 declaring total taxable income at Rs. 6,21,710/- while claiming 50% deduction (amounting to Rs. 22,39,825/-) under Section 80-O of the Act in relation to the amount of Rs. 44,79,649/- received by it as service charges from foreign enterprises7. D 5.1. While asserting its claim for such deduction under Section 80-O of the Act, the appellant submitted that it had rendered myriad services to the foreign enterprises like: (i) locating reliable source of quality and assured supply of frozen seafood for the purpose of import and communicating its expert opinion and advice in that regard; (ii) keeping a close liaison with agencies concerned for bacteriological analysis and communicating the result of inspection together with expert comments and advice; (iii) making available full and detailed analysis of seafood supply situation and prices; (iv) advising and informing about the latest trends in manufacturing and markets; and (v) negotiating and finalising the prices for Indian exporters of frozen marines products and communicating such other related information to the foreign enterprises. The appellant claimed that pursuant to the terms and conditions of the agreements with the foreign enterprises, it had received the said service charges; and its services had directly and indirectly assisted the foreign enterprises to organise, develop, regulate and improve their business. G

7 It was noticed by the Assessing Officer in the assessment order dated 28.03.1996 that the assessee had been in the business of marine products export since a very long time; and until the assessment year 1992-93, the assessee had been claiming deduction under Section 80HHC of the Act of 1961, which provides for deduction in respect of profits derived from export of the specified class of goods or merchandise. H

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A 5.2. In regard to such claim for deduction under Section 80-O of the Act, the AO, by his letter dated 29.01.1996, raised the following queries and sought clarifications from the appellant:- “1. The location of services rendered by the assessee may be mentioned if there are any services rendered outside India.

B 2. Whether the technical/professional services rendered by the assessee were utilized by the foreign enterprises anywhere in India or outside India independently of the assessee.

3. Whether the technical/professional services rendered by the assessee were utilized by the foreign enterprises, in India, C independently and without the assessee.

4. To clarify whether the technical/professional services rendered by the assessee are capable or being made use of by the foreign enterprises independently and without the assessee.”

D 5.3. In response, the appellant justified its claim for deduction under Section 80-O of the Act by way of its letter dated 19.02.1996 while asserting as under: “1. The technical/professional services rendered by us are “from India”.

E 2. Foreign buyers to whom we have rendered these services are located in Japan, U.S.A., U.K. and France. None of these foreign enterprises have utilized our services in any part of India. But the entire benefit of our services were utilized by them in effectively distributing and marketing the Indian sea-foods in their respective countries. F

3. We would like to emphasize that the foreign enterprises have no place of business in India nor do they market any goods or services in India.

4. Without services the import of marine products from India by G the foreign enterprises will not be possible.” 5.4. In his assessment order dated 28.03.1996, the Assessing Officer proceeded to analyse the agreements of the appellant with the two foreign enterprises and reproduced the relevant terms thereof in extenso. This part of the order of the AO, containing material terms of H

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agreements, being relevant for the present purpose, is reproduced as under: - “In the context of the above claim of the assessee, it is necessary to go through the agreements entered into by the assessee with the foreign enterprises to find out the nature of the relationship of the assessee with the foreign enterprises. I have gone through the agreements entered into by the assessee with HOKO Fishingco Ltd. is captioned agreement regarding marine products and that with GELAZURE S.A. is captioned agency agreement regarding marine products. Articles 1 to 4 of the agreement with HOKO fishing Co. Ltd. reads as under:- C Article 1: HOKO desires to avail of the benefit of the commercial and technical knowledge experience and skill of “RC- CN foods/Marine products of good quality and on favourable terms and is willing to remunerate “RC-CN” for use of such commercial and technical knowledge, expert and skill and other related services. D

Article 2: “RC-CN agrees to render to “HOKO” the following services on a continuing basis. a) Locating reliable sources of quality and assured supply of frozen seafood/marine products for the purpose of E import by HOK and communicate its expert opinion and advice to HOKO.” b) In addition to the above services rendered by “RC- CN, it will also keep a close liaison with agencies such as EIA/LLOYDS/SGS especially for organoleptic/ F bacteriological analysis and communicate the results of inspection along with its expert comment and advise. c) Making available full and detailed analysis of the sea food supply situation and prices. d) To advise HOKO and keep them informed of the G latest trends/processes application in manufacturing and of all valuable commercial and economic information about the markets. Government Policies, exchange fluctuations, banking laws which will directly or indirectly assist HOKO to organize, develop control or regulate their import business from India. H

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A e) To negotiate and finalize prices for Indian Exporters of frozen marine products and to communicate such and other related information to HOKO. Article 5 RC-CN” shall also do everything that is required to ensure highest standards of quality hygiene and freshness of products including supervision at various stages. Article 4: HOKO pays to RC-CN 0.7% of the invoice amount on the C & F basis and US$ 2,000.00 per month as commission. When the quality of goods is found to be unsatisfactory to HOKO after inspection in Japan, HOKO shall have no responsibility to pay the agent fee.” Similarly, articles 1 to 4 of the Agreement with GELAZUR S.A read as under:- D Article 1: ‘GELAZUR appoints RAMNATH” as agent to operate in priority their purchases in frozen seafood’s products in India. Article 2: RAMNATH’ does the following business as Agent on behalf of GELAZUR.” E 1) To negotiate with the local packers for the purchase of the frozen seafood products which ‘GELAZUR’ requires: 2) To give “GELAZUR’ all the accurate information in respect of the standard, quantity, price, quality, time of shipment, etc. promptly, whenever the purchase of the products is made F 3) To carry out technical guidance for processing and for quality control and inspection of the products and to advise “GELAZURE” of the results. 4)To inform GELAZURE’ regularly about the market situation, G i.e. fishing situation, prices paid by other markets, prices paid by French competitors, business opportunities, monthly supplies of seafood-data. Article 3: After reception of the goods, GELAZURE’ will pay RAMNATH” commissions calculated on the following H basis:

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-CHAM ICE/Porbandar-Veraval-Bombay: A Cephalepods or Fishes : 1.5% of the C+F Value Shripps-Lobsters: 0.75% of the C+F Value OTHER PACKERS SHRIMPS & LOBSERS: 1% OF THE C+F value B Squids, cuttlefish, Cockies Mussels and other Fishes: USD O.65/Kg When the quality and the packaging of the goods are found to be unsatisfactory to ‘GELAZUR” after inspection in FRANCE, GELAZURE, shall have no responsibility regarding the payment of the Agent’s fee. Article 4: If any claim arises out of or in relation to the purchases of products for which ‘GELAZUR’ has no responsibility, RAMNATH will do their best to settle the claim through negotiation with manufacturers. The settlement of the claim will have to be carried out 60 days after the reception of the goods.”8 5.5. Having examined the contents of two agreements, the Assessing Officer did not feel convinced with the claim that the appellant had been rendering services from India so as to qualify for deduction under Explanation (iii) to Section 80-O of the Act. The Assessing Officer was firmly of the view that the appellant had worked only as an agent of the foreign enterprises in the matter of procurement of marine products from India; and all the services envisaged in the agreements were incidental to the carrying out of main function as agent. The Assessing F Officer recorded his observations and findings as follows: - “….A close study of the articles extracted above, would establish that the assessee is merely an agent of the foreign enterprises in India in the matter of procurement of marine products from India. All the services which are required to be carried out by the assessee G in terms of the agreements are incidental to the carrying out of the primary function of acting as an agent. The assessee’s role is 8 Note: In the papers placed on record, the name of this foreign company has been mentioned both as ‘GELAZUR’ and ‘GELAZURE’. We have retained the particulars in extractions as stated in the respective papers but in our discussion, have referred it as ‘GELAZUR’. H

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A to act on behalf of the foreign principals within the limits allowed by them. In terms of the agreements, the assessee negotiates with local packers with regard to quality, quantity and price. On behalf of the principals, the assessee carries out technical guidance for processing and for quality control and also inspection of the products and also keeps close liaison with various agencies. These B are definitely services rendered in India and cannot be construed as services rendered from India merely relying on the facts that the foreign principals are advised of the results and that they are stationed outside India. It is true that as per agreement, the assessee was to supply certain information of a general nature regarding markets, government policies, exchange fluctuations, banking laws, prices paid by competitors, monthly supplies of seafood data etc. However, the agreements do not envisage any payment of separate in commission or service charge for such information. The commission is payable to the assessee as a percentage of the C & F value of the imports by the foreign enterprises through the assessee. However, the payment of commission is conditional on the foreign enterprises finding the quality of goods satisfactory. This would reinforce my earlier observation that the assessee is only an agent of the foreign enterprises in the matter of procurement of marine products from India and all the services envisaged in the agreement are incidental to the carrying out of the main function as agent. It is also not as if the foreign enterprises completely stayed away from India. Though it might be a fact that none of the foreign enterprises had any office or branch anywhere in India, available information indicates that the representatives of the foreign enterprises used to visit India in connection with the procurement of marine products from various packers in India and it fell upon the assessee to take these persons to the processing facilities of various suppliers with a view to ensure quality and hygiene standards. This is evident from the fact that a sum of G Rs.23,122/- has been incurred by the assessee during the visit of buyers, representatives to various seafood packers in Calcutta, Bombay vizag, Madras Nandapam, Cochin, Calicut etc. Expenses for souvenirs, compliments and samples of the value of Rs.29,411.99 have also been incurred presumably in connection with the visit of the representatives of the foreign buyers. By any H

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stretch of imagination, it cannot be claimed that the services rendered on the occasions of the visit of the representatives of foreign enterprises were not rendered in India. The foreign travels undertaken by the Managing Partner for meeting various buyers can been seen as only an extension of the assessee’s role as an agent of the foreign enterprises in India. An agent of a foreign enterprise in India necessarily acts on behalf of the foreign enterprise in India, and therefore, the services, namely carrying out inspections to ensure quality of the products and packaging, supervision of processing, negotiating prices in respect of marine products exported with the assistance of the assessee, could not have been rendered outside India C as the parties to be contacted, products to be inspected, processing to the supervised etc. were situated in India only. In my view services that are incapable of being rendered outside India will not come under the category of services that can be rendered from India. Therefore, there is no merit in the contention of the assessee that these services were rendered from India but not within India….” (emphasis in bold supplied) 5.6. The appellant also relied upon Circular No. 700 dated 23.03.1995 issued by the Central Board of Direct Taxes9 in support of its contentions. The Assessing Officer distinguished the matter dealt with by the said Circular from that involved in the present case in the following passage: - “…..The assessee also strongly relies on circular No.700 dated 23/3/95 issued by the C.B.D.T. In my view, the reliance on the above circular by the assessee to buttress its case is misplaced. Para 3 & 4 of the above circular which are quits relevant, reads as under : - “3. A question has been raised as to whether the benefit of Section 80-O would be available if the technical and professional services, though rendered outside India, are used by the foreign government or enterprise in India. “4. The matter has been considered by the Board. It is clarified that as long as the technical and professional services are 9 ‘CBDT’ for short H

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A rendered from India and are received by a foreign government or enterprise outside India deduction under Section 80-O would be available to the person rendering the services even if the foreign recipient of the services utilizes the benefit of such services in India.” B As is clear from the above, the C.B.D.T. was dealing with a question whether deduction under Section 80-O could be denied on the ground that the foreign enterprise uses the services rendered outside India, in India. It has been clarified that merely because the foreign enterprises utilized the benefit of services rendered outside India, the deduction under Section 80-O cannot be denied. C In the case before the C.B.D.T, there was not dispute as to where the technical services were rendered. In the case before me, there is absolutely no scope for doubt that the services as an agent were rendered by the assessee in India only. In 132 ITR 637, the Bombay High Court held that an assessee acting as a mere D employment recruiting bureau was not entitled for deduction under Section 80-O and the services rendered in locating prospective candidates and collecting their bio-datas and conveying names of candidates to foreign employers did not represent services rendered outside India. Similarly, in 145 ITR 673 in the case of Searls (India) Ltd, the same High Court ruled that testing of samples in India E and giving results and certificate to foreign company did represent technical services rendered outside India. In view of the forgoing discussion, I would hold that the assessee is not entitled for deduction u/s 80-O as the services made available to the foreign enterprises were rendered in India.” F 5.7. In the aforesaid view of the matter, the AO disallowed the claim for deduction under Section 80-O of the Act. 5.8. In the appeal taken by the appellant, the Appellate Authority did not agree with the opinion of the Assessing Officer, particularly with reference to the decision of Delhi High Court in the case E.P.W. Da G Costa and Ors. v. Union of India: (1980) 121 ITR 751 (Delhi) and a decision of ITAT Delhi, D Bench in the case of Capt. K. C. Saigal v. Income Tax Officer: (1995) 54 ITD 488 (Delhi) and hence, allowed the appeal while observing, inter alia, as under: - “14……In the present case, there is no dispute that the appellant is supplying information with regard to the markets, government

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policies, exchange fluctuations, banking laws, data with regard to monthly supply of sea-food etc. to the foreign enterprises. Secondly, even if the appellant is a mere agent of the foreign enterprises, he is bringing the foreign enterprises in contact with the manufacturers or processors of shrimps, lobsters etc. and negotiating with the local packers and is locating sources of frozen sea-foods for the foreign enterprises. Though the various items of activity are rendered in India, they are done on behalf of the foreign enterprises and the market and other information had been supplied from India to the foreign enterprises.

15. In section 80-O, Explanation (iii) reads as under : - C

“Services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India”. The word “from” means “out of” or “springing out of”. Thus, D ‘from India’ necessarily means that some of the activities will spring out of or will be in India because the services are rendered from India. In this connection, I am of the view that the decision of the Delhi High Court in E.P.W. De Costa & Another vs. Union of India (121 ITR 751) is really applicable to the facts of the case. The services rendered with regard to assessing the radio-listening habits of the people were rendered in India i.e. The data had been collected in India. However, it was held that a mere mass of information without analysis and without being understandable would not be of use to the B.B.C. The information is not, therefore, mere data but scientific knowledge. In the present case, the appellant has located reliable source of quality and assured supply of frozen sea-food products to the various foreign enterprises at Japan, France and other countries and supplied information with regard to sea-food processing, manufacturing details and also government policies, exchange fluctuations etc. to the foreign enterprises. The appellant has negotiated and finalised prices for the Indian exporters of frozen sea-food products and communicated the same to the foreign enterprises. Thus, the appellant has rendered the services from India to these foreign enterprises. That the appellant’s information and experience have been effectively utilised by the foreign enterprises can be seen H

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A from the fact that the export effected by the appellant-concern have risen from 20 crores in the AY 1991-92 to 100 crores by AY 1996-97. For the year under consideration, the exports are approximately 60 crores on which the appellant has earned a commission of Rs. 44.79 lakhs.

B 16. The major issue to be decided in this case is whether the services rendered by the appellant can be said to be ‘from India’. On the facts and circumstances of the case, I am of the opinion that the services have been rendered from India and hence, the appellant is eligible for deduction u/s 80-O, especially in view of the decision of the Delhi High Court in E.P.W. De Costa & Another C vs. Union of India (121 ITR 751) and the I.T.A.T. Delhi ’D’ Bench decision in the case of Capt. K. C. Saigal vs. I.T.O. (54 ITD 488).” (emphasis in bold supplied) D 5.9. Aggrieved by the decision aforesaid, the revenue preferred appeal before the ITAT, being ITA No. 84/Coch/1997, that was considered and decided by ITAT by its order dated 19.11.2001. The ITAT took note of the history of introduction of Chapter VI-A and Section 80-O to the Act of 1961 by the Finance (No. 2) Act, 1967 as also the fact that Section 80-O had undergone several amendments over the course of time. The ITAT concurred with the findings of the Appellate Authority that the services rendered by the appellant, which helped the foreign parties to import marine products from India, had been specialised and technical services and thereby, the appellant was entitled to claim deduction under Section 80-O of the Act. The ITAT observed and held, inter alia, as follows: - “9. The case of the Revenue is that the assessee has rendered services only in India and not from India. The services that entitle the assessee for the benefit under Section 80-O should be of such nature that it can only be rendered outside India and not services that are capable of being rendered in India. According to the revenue, the assessee was rendering only a generalised service such as market studies, study of processing, etc. so as to satisfy the quality of the materials exported, like any other general agent. Therefore, the assessee is not entitled to claim the benefit under Section 80-O. Considering the facts and circumstances of the H

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case, we are unable to agree with the above proposition. In CBDT A v. Oberoi Hotels (India) (P) Ltd. [1998] 231 ITR 148’ the Supreme Court has held that the agreement for managing modern hotel, including promotion of business, recruiting and training staff are all such services that entitle the assessee for the benefit of Section 80-O….……In circular No.700 issued on 23-3-1995 the Board B clarifies the position. It clarifies that “as long as the technical and professional services are rendered from India and are received by a foreign Government or enterprise outside India, deduction under Section 80-O would be available to the person rendering the services even if the foreign recipient of the services utilises the benefit of such services in India”. Now the question is whether the assessee rendered any service and communicated the same to the foreign party. Article 2 (4) of the agency agreement regarding marine products entered into between Gelazur S.A. and Ramnath & Co. (assessee) states that the assessee is to inform “GELAZUR” regularly about the market situation, i.e. fishing situation, prices paid by other markets, prices paid by French Competitors, business opportunities, monthly supplies of seafood data. This indicates that the assessee has to communicate the data it collected, and on the basis of this, the foreign party acts either to purchase or not to purchase. It is also true that Article 4 of the said agreement states that “if, any claim arises out of or in relation to the purchase of products for which ‘GELAZUR’, has no responsibility, ‘RAMNATH’ will do their best to settle the claim through negotiation with manufacturers”. This indicates that the party is also doing supply of services. But, this part of the service is only consequential to the first. The agreement entered into between Hoko Fishing Co. Ltd., Tokyo, Japan and the assessee also stipulates that the assessee has to keep “Hoko” informed of the latest trends/processes applications in manufacturing and of all valuable commercial and economic information about the market, Government Policies, exchange fluctuations, banking laws which will directly or indirectly assist “Hoko” to organise, develop, control or regulate their import business from India. In addition to this, the assessee has to render services to ensure highest standards of quality, hygiene and freshness of products including supervision at various stages. The second H

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A mentioned services may be considered as services rendered in India. But, definitely the other services rendered and informed to the other party like latest trends/ processes applications in manufacturing, commercial and economic, information about the markets, Government Policies, exchange fluctuations, banking laws etc. which help B the foreign party to import marine products from India is a specialised and technical service. That, in our view, qualifies the assessee to claim deduction under Section 80-O.” (emphasis in bold supplied) C 5.10. The ITAT also referred to the subtle distinction in the two phrases: ‘the services rendered from India’ and ‘the services rendered in India’; and while referring to a decision of Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. S.B. Potnis, Chief Commissioner: (1993) 203 ITR 947 (Bom) as also other decisions, observed that if the assessee had not passed on the requisite information, D the export would not have materialised. According to ITAT, if the assessee had done the services like packing, shipping etc., in that case, the assessee would have been merely an exporter and could not have claimed the benefit under Section 80-O but, the services rendered by the assessee were of specialised nature, which had been utilised by the foreign party. E Accordingly, the ITAT dismissed the appeal of revenue while observing as under:- “10. It is true that the difference between ‘the services rendered from India’ and ‘the services rendered in India’ used in the Explanation below the proviso to the section is wafer-thin. But F still the difference exists when looked from the point of view the Indian Exporter. The services rendered in India are services to make the goods eligible for export. On the other hand, the services rendered from India can be treated as services rendered, as desired by the foreign party, which need specialisation. If the foreign party is interested in details or information or specific details G and such details are supplied by the Indian party and such details are utilised either to purchase or not to purchase from India, such services can be treated as “services rendered from India”. If the foreign party seeks any service and it is rendered, it is a service rendered from India, H whereas the services rendered in India are not necessarily by

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virtue of the other party’s request or demand. In Godrej & Boyce A Mfg. Co. Ltd. vs. S.B. Potnis, Chief Commissioner [1993] 203 ITR 947’ the Hon’ble Bombay High Court held that a provision made for the giving of all marketing, industrial manufacturing, commercial and scientific knowledge, experience and skill for the efficient working and management of the foreign company could be treated as services rendered that make the assessee eligible for the benefit under Section 80-O.

11. In Mittal Corporation’s case (supra), the Delhi bench-D of the Tribunal held that the object and spirit of Section 80-O was to mainly encourage Indian technical know-how and skill abroad and since the information was given outside India party and it was used outside India and payment was received in convertible foreign exchange, the condition required for allowing deduction under Section 80-O could said to have been fulfilled. In the case of E.P.W. Da Costa (supra) the Delhi High Court has held that if the information passed on by the assessee is of practical nature and was a result of making or manufacturing some concrete thing and such information has been utilised by the foreign party, such information is sufficient to claim the benefit under Section 80-O.

12. Before parting with, let us think in a negative way. If the assessee had not passed on the information like marketing, processing, quality control, etc. to the other party, the export would not have materialised. Short of this information, if the assessee had done services like packing, shipping, etc. and ensured quality and quantity, the assessee is merely an exporter and cannot claim the benefit contemplated under Section 80-O. If we look from this angle also, we are of the opinion that the assessee is entitled to succeed.” (emphasis in bold supplied)

6Copy pinpoint6. The facts discernible from the material on record make out that on the similar pattern, the ITAT also allowed the claim of this appellant in relation to the assessment years 1994-95, 1995-96 and 1996-97, while following its earlier orders. As noticed, the appeals against the orders passed for these assessment years were clubbed together and disposed of by the High Court by way of the common judgment dated 09.06.2016, which is in challenge in these appeals. H

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A The impugned judgment by the High Court

7Copy pinpoint7. In its impugned common judgment dated 09.06.2016, the High Court of Kerala has disagreed with ITAT and has disallowed the claim for deduction by the appellant essentially with the finding that the appellant was merely a marine product procuring agent for the foreign enterprises, without any claim for expertise capable of being used abroad rather than in India and hence, the alleged services do not qualify as the ‘services rendered from India’, for the purpose of Section 80-O of the Act of 1961.

8Copy pinpoint8. In view of the submissions made and the subject-matter of these appeals, we may examine the observations and reasoning in the impugned judgment that have led the High Court to disagree with ITAT and to reject the claim of the appellant for deduction under Section 80-O of the Act in requisite specifics.10 8.1. The main plank of submissions on behalf of revenue, with reference to the agreements between the assessee on one hand and the two foreign companies respectively on the other, had been that the assessee was simply an agent of the foreign enterprises for procuring marine products from India; that all its services were incidental to its main functioning as a fish-procuring agent; and that the assessee rendered its services “in India”, contra-distinguished with the expression “from E India”. It was also contended on behalf of the revenue that mere communication between the assessee based in India and the principal based abroad does not bring their transactions within the purview of Section 80-O. The submissions on behalf of the revenue were supported with a Division Bench decision of that High Court in Commissioner of F Income Tax v. Thomas Kurian (Dead) through LR Smt. Primari C. Thomas, since reported as(2012) 72 DTR (Ker). On the other hand, it was contended on behalf of the assessee that on reading the principal provision of Section 80-O of the Act with clause (iii) of the Explanation, it was clear that once the service is provided by an Indian company (or other person who is resident in India) and the same is ‘used’ by a foreign G 10 It may, in the passing, be observed that one of the preliminary points raised before the High Court by the assessees had been on the maintainability of appeals by the revenue in the face of Circular No. 21/2015 dated 10.12.2015 due to low-tax effect and no likelihood of cascading effect because the provision having been amended subsequently. The High Court did not agree with the assessees on this aspect while observing that ITAT has passed all the orders by following its initial order relating to H ITA No. 131 of 2002; and the order impugned has a cascading effect. This aspect of the matter does not concern us in these appeals and hence, need no further comment.

RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 741 [DINESH MAHESHWARI, J.]

entity outside India, it made no difference if the advice is rendered from A Indian soil. In relation to the query of the Court as to whether all the services mentioned in the agreement would come within the purview of Section 80-O, the response on behalf of the assessee had been that ‘if the recipient of services is situated outside, all the services rendered by the assessee in terms of the agreement come within the sweep of the provision’. It was, therefore, contended on behalf of the assessee thatthe assessee’s establishing ‘which of its services qualifies for the deduction is of no consequence, rather unnecessary’. The decision in Thomas Kurian (supra) was distinguished on behalf of the assessee with reference to the facts that the assessee therein was engaged only in verification of quality and fitness of marine products but provided no commercial or technical information from India to the foreign buyers whereas the assessee in the present case had been supplying commercial and technical information and, using the information supplied by the assessee, the foreign companies had taken decision outside India as regards how they could purchase the merchandise. The submissions on behalf of the assessee were supported with reliance on the said Circular No. 700 dated 23.03.1995 and the decisions in M/s Continental Construction Ltd. v. Commissioner of Income Tax, Central-I: (1992) 195 ITR 81 (SC); Commissioner of Income Tax v. Mittal Corporation: (2005) 272 ITR 87 (Delhi); Li & Fung India (P) Ltd. v. Commissioner of Income Tax: (2008) 305 ITR 105 (Delhi); E Commissioner of Income Tax v. Chakiat Agencies (P) Ltd.: (2009) 314 ITR 200 (Mad); Commissioner of Income Tax v. Inchcape India (P) Ltd: (2005) 273 ITR 92 (Delhi); Central Board of Direct Taxes, New Delhi & Ors. v. Oberoi Hotels (India) Pvt. Ltd.: (1998) 231 ITR 148 (SC) and E.P.W. Da Costa (supra). F 8.2. Having thus taken note of the rival submissions, the High Court proceeded to analyse Section 80-O of the Act with its Explanation (iii). After reproducing the relevant text of the provisions, the High Court entered into the lexical semantics of the prepositions ‘from’ and ‘in’ with reference to their dictionary meanings. Then, reverting to Section 80-O of the Act, the High Court observed that therein, the constants were the G Indian agent, the foreign principal, and the Indian agent rendering services from India but the variables were as to ‘how’ and ‘where’ the services were used. Thereafter, the High Court looked at the intent and purpose behind Section 80–O of the Act and observed as under: – H

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A “29. Every nation meets any measure more than half way if it results in the nation’s augmenting the foreign reserves. India is no exception. It encourages and provides incentives to those who earn foreign exchange. Over and above the incentive is the facility of deduction from the taxable income in foreign exchange—that is what Section 80-O is. The legislative intent behind the provision is not far to seek. The Government encourages entrepreneurial initiative and innovation by the Indian companies at the international level. In a measure, the nation encourages any Indian showcasing the Indian intellect internationally. That accepted, if Indian technology, know-how, etc., is used in India itself even by a foreign company, it is an intellectual enterprise not only from India but also in India. We reckon that use means the end use of the information or know-how, but not its mere processing.” 8.3. Proceeding further, the High Court examined the position obtainable in regard to the interpretation and application of Section 80-O D of the Act from the precedents cited at Bar. The High Court pointed out that in Thomas Kurian(supra), a case dealt with by the same High Court, the main service rendered by the assessee was admittedly of examining the quality and type of fish processed by the exporters in India and certifying the fitness of the product for shipment; and such a service was rendered entirely in India. It was further pointed out that in E E.P.W. Da Costa(supra), the assessee had been a consultant engaged in conducting specialised economic and public opinion research on an all-India basis to assess the attitudes of political, social and economic subjects and in the given nature of work, the High Court of Delhi held that BBC, based in London, can be said to have used the information received from the assessee to formulate or modify its broadcasting programmes to India; and though the information was provided by the assessee from India, it was used in another country in its entirety. As regards the decision in Mittal Corporation (supra), the High Court observed that the assessee therein received commission as a buying agent of certain foreign enterprises and it was held that it was not necessary that the assessee must provide technical services even where it received consideration for only providing commercial information. The High Court, however, observed that from the said decision, it could not be gathered as to how the commercial information provided by the assessee was used by the foreign enterprises outside India which was H ‘a crucial aspect for determining the application of the provision’.

RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 743 [DINESH MAHESHWARI, J.]

As regards the decision in Oberoi Hotels(supra), the High Court again observed that the factual background was not explicit, but since the agreement involved the assessee’s training the Nigerian personnel, it was held that the assessee undoubtedly under the contract must make use of its commercial and scientific expertise as well as experience and skill, outside India. As regards the case of Inchcape India(supra),it was pointed out that the assessee had to work in textile testing, inspection of soft lines, electrical and electronic products according to the existing standards of European and American markets, etc. It was also pointed out that the issue arose much before the insertion of Explanation (iii) to Section 80-O of the Act. In reference to the decision in Li & Fung (supra), the High Court pointed out that therein, assessee claimed to have rendered technical services out of India as a buying agent and the High Court of Delhi held that the services rendered by the assessee required knowledge, expertise and experience; and, therefore, the fee it received from foreign enterprises for supply of commercial information sent from India for use outside India was eligible for deduction under D Section 80-O of the Act. The Court observed that the said decision gave judicial imprimatur to the Board’s clarification to the effect that if an assessee renders technical or professional services from India to a foreign Government or enterprise outside India, it can claim deduction even if the foreign recipient utilises the ‘benefit of such services in India’. In this line of consideration, the High Court lastly referred to the decision in the case of Chakiath Agencies (supra) and pointed out that therein, the assessee, a shipping agent, was to ensure that the ship owner picks up the cargo and transports it within time and at the agreed rates; and the information regarding the availability of cargo to ship owners and its destinations at frequent intervals enabled the ship owners to program the ships’ travel touching the Indian coasts. In the given facts, it was held that the assessee had rendered commercial service to the foreign shipping owner for his use outside India and received a commission in convertible foreign exchange, entitling it to the benefit of Section 80-O of the Act. After such discussion in relation to the aforesaid decisions, the High Court observed that two crucial aspects of Section 80-O of the G Act had not fallen for consideration therein: as to what type of services rendered by an Indian entity falls within the sweep of the provision and as to what is the true import of the expression ‘use outside India’. The High Court said thus: H

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A “46 With due regard to the above pronouncements, we, however, feel it necessary to point out that in none of them, two crucial aspects of Section 80-O of the Act have not fallen for consideration : (i) What type of services rendered by an Indian entity falls within the sweep of the provision; (ii) what is the true import of the expression ‘use outside India’?” B 8.4. Having said so in relation to the aforementioned decisions, the High Court took note of the decision of this Court in the case of Continental Construction (supra), wherein the assessee was a civil construction company that had entered into various contracts for the construction, inter alia, of a dam and irrigation projects in Libya and water supply projects in Iraq after obtaining the approval of CBDT in terms of the then applicable requirements of Section 80-O of the Act. The High Court noticed that in that case, on the assessee’s claim for the benefit under Section 80-O of the Act, this Court has held that the assessee was undoubtedly rendering services to the foreign Government and those were technical services indeed, for they required specialised knowledge, experience and skill. The revenue’s contention that those services were not covered by Section 80-O of the Act because there was no privity of contract between the employees of the assessee and the foreign Government was rejected by this Court while observing that the assessee was a company and any technical services rendered by it could only be through the medium of its employees. As regards the claim for a deduction based on labelling of the receipts, this Court held that that eligibility of an item to tax or tax deduction could hardly be made to depend on the label given to it by the parties in that, an assessee was not entitled to claim deduction under Section 80-O merely because certain receipts were described in the contract as royalty, fee or commission and at the same time, absence of a specific label cannot destroy the right of an assessee to claim deduction if, in fact, the consideration for the receipts can be attributed to the sources stated in the section. The High Court also noted the dictum of Continental Construction that it is the duty of the revenue and the right of the assessee to see that the consideration paid under the contract legitimately attributable to such information and services is apportioned, and the assessee is given the benefit of deduction available under the section to the extent of such consideration. 8.5. The High Court further took note of a decision of Madras High Court in the case of Commissioner of Income Tax v. Khursheed H

RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 745 [DINESH MAHESHWARI, J.]

Anwar: (2009) 311 ITR 468 (Mad) wherein the assessee had an exclusive agency for promoting and concluding sales contract in India for machinery and equipment for an enterprise based in Italy. On the strength of agreement, the assessee worked with the foreign enterprise but the Court observed that the benefit under Section 80-O of the Act was not available to the assessee for mere asking; the records and materials must support the claim and the benefit of the said Section cannot be claimed as a matter of right, it being a question of fact, which could be considered by the AO on the basis of the records. In that case, the Appellate Authority had recorded a specific finding that the assessee has simply effected the sale of machinery and spares manufactured by the foreign enterprise; and, therefore, the assessee received only the sales commission, which was not for any activities relating to technical or professional services and hence, the assessee was not entitled to claim deduction under Section 80-O of the Act. 8.6. The High Court summed up the requirements, as emanating from the ratio of the decisions in Continental Construction and D Khursheed Anwar (supra) as follows: - “53. Both from Continental Construction and Khursheed Anwar we gather that not every receipt from a foreign enterprise in convertible foreign exchange does not (sic) automatically get qualified for deduction under Section 80-O—the nomenclature E notwithstanding. The burden, in fact, is on the assessee to prove before the Revenue through cogent material that the commission is for the services it rendered falling within the scope of the section. Neither of the facts—the existence of the contract and the receipt of convertible foreign exchange—leads to a presumption that the commission is deductible as provided in Section 80-O of the Act.” F

8.7. Having, thus, traversed through the provision of law applicable; the meaning of the expressions occurring in text thereof; and the position obtainable from the precedents, the High Court proceeded to examine the facts and, with reference to the aforesaid agreements of the appellant with French and Japanese companies respectively, held that some of the G functions said to have been discharged by the assessee cannot qualify for deduction under Section 80-O of the Act; and in none of the appeals, the assessees had placed any material as regards the services they had rendered to qualify under that provision. H

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A 8.8. While referring to Explanation (iii) to Section 80-O of the Act, the High Court held that mere transferring information abroad would not establish that the service is rendered from India and not in India; that all receipts cannot qualify for concession; that the range of services referred to in Section 80-O of the Act have the thread of connectivity in all the intellectual endeavours mentioned therein. The High Court summed up its discussion in the following passages:- “56. To sum up, we wish to conclude that the Tribunal has erred on two counts in holding that the assessees are entitled to the benefit of deduction under Section. 80-O of the Act : First, mere transmission of the information to a foreign enterprise, evidently, abroad does not go to show that it is a service rendered from India, but not in India. With an element of certainty, we can as well say that once there is a contract, an Indian agent always interacts with and sends information—even technical know-how—to a foreign enterprise abroad. If that alone qualifies for deduction without reference to ‘the services rendered in India’, the very expression in explanation (iii) becomes otiose. Trite it is to observe that statutory surplusage is not a settled canon of construction; rather it is to be avoided.

57. The purpose of the provision is to provide an incentive to the indigenous know-how of whatever nature that reaches the shores of foreign nations and gets applied there. The resultant fruits may percolate to India, too, as is the case in E.P.W. Da Costa and Continental Construction, even in which the Apex Court has held that not all receipts can claim the concession. If we refer back to the analogy employed by the learned senior counsel for the assessees, an advocate in India may render services to a foreign client stationed abroad concerning a case pending in India. It is a service rendered not only from India, but also in India. On the other hand, if that piece of professional advice is used abroad, even involving clients of Indian origin or laws of this nation as it happens in international arbitrations, the remuneration is qualified for the benefit.

58. Once we look at the range of services referred to in Section 80-O, we can discern the thread of connectivity in all the intellectual endeavours mentioned therein : any patent, invention, model, design, secret formula or process, or similar

RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 747 [DINESH MAHESHWARI, J.]

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. It can also be in consideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee. They cannot be said to be entirely discrete and disparate. The services have an air of intellectuality; as such, all and sundry services rendered to a foreign enterprise cannot be taken into account, lest it should amount to doing violence to the explanation (iii).” (emphasis in bold supplied) C

8.9. While concluding on the matter, the High Court referred to the dictionary meaning of the expression “render” and observed that “rendering” includes both “providing” and “performing”; and that in the context of Section 80-O of the Act, the services may be rendered in India but have to be performed on the foreign soil. The High Court also D observed that, if the assessees had at all rendered certain services which qualify for deduction, they had failed to place any material in that regard; and the agreements in question only point out that the assessees were marine product procuring agents for the foreign enterprises without any claim for expertise capable of being used abroad rather than in India. E Accordingly, the High Court answered the question of law in favour of revenue and set aside the orders passed by ITAT. RIVAL SUBMISSIONS Lead arguments on behalf of the appellant F

9Copy pinpoint9. On the debate relating to the question of applicability of Section 80-O of the Act to the foreign exchange earned by the appellant in lieu of the services rendered by it to the foreign enterprises, the learned senior counsel for the appellant has made wide-ranging emphatic submissions on the process of interpretation, the scheme and object of Section 80-O and has also referred to the decisions which, in his G contention, cover the present case on the substance and principles. 9.1. The learned senior counsel for the appellant has strenuously argued that the High Court has approached the entire case from an altogether wrong angle and with rather linguistic and pedantic approach H

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A to interpretation while ignoring the basic object and purpose of Section 80-O of the Act, which is meant to give incentive for earning foreign exchange. With reference to the decision in Abhiram Singh v. C.D. Commachen (Dead) by LRs. and Ors.: 2017(2) SCC 629, the learned counsel has submitted that this Court has cautioned against making a ‘fortress out of the dictionary’ but the High Court has proceeded with B excessive reliance on dictionary and has merely looked at the text without its context and object and with such approach, has unjustifiably upturned the well-considered decision of ITAT. Learned counsel has also referred to the decision of this Court in the case of Commissioner of Income Tax, Thiruvananthapuram v. Baby Marine Exports, Kollam: (2007) C 290 ITR 323 (SC), to submit that an incentive provision has to be construed purposively, broadly and liberally; and for the provision like Section 80-O of the Act, when the basic object is to earn foreign exchange, the incentive is required to be granted if the object is to be achieved. With reference to the decision in Commissioner of Income Tax-IV, Tamil Nadu v. B. Suresh: (2009) 313 ITR 149 (SC), the learned counsel has pointed out that therein, even five years’ licence to exhibit an Indian film abroad was held to be that of export of goods and merchandise, covered by Section 80HHC of the Act; and Section 80-O of the Act, being equally a provision for incentives to earn foreign exchange, ought to receive the same liberal approach. According to the learned counsel, the approach of High Court in the present case had been too narrow and rather unrealistic. 9.2. The learned senior counsel would contend that on a plain reading of Section 80-O, it is clear that it applies to the income by way of royalty, commission, fees or any similar payment received by the assessee from a foreign enterprise in consideration for the use outside India, inter alia, of “information concerning industrial, commercial or scientific knowledge, experience or skill” made available to foreign enterprises, provided that the income is received in convertible foreign exchange in India; and Explanation (iii) to Section 80-O makes it clear that this Section would apply even to the services rendered from India, which are to be treated for the purpose of this Section as services rendered outside India. Learned counsel has argued that Section 80-O is by no means confined to grant of user of intellectual property rights or intellectual activities, as contended by the revenue and as observed by the High Court. In this regard, the learned counsel has again referred to the words “information concerning industrial, commercial or scientific

RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 749 [DINESH MAHESHWARI, J.]

knowledge, experience or skill” in the latter part of Section 80-O and has argued that these words are distinct from the initial part of this Section, dealing with the use of intellectual property rights. The learned counsel has further argued that even ‘commission’, which could relate to ordinary commercial activities, is also covered by Section 80-O. 9.3. While strongly relying upon the decision of this Court in the case of J. B. Boda & Co. Pvt. Ltd v. Central Board of Direct Taxes, New Delhi: (1997) 223 ITR 271 (SC), the learned senior counsel has argued that therein, even a commission received by the reinsurance broker, who only sent information to the foreign reinsurance company regarding the risk involved and other related data, was held entitled to the benefit of Section 80-O of the Act in respect of the entire commission. C The learned counsel has argued that the activity of reinsurance broker cannot possibly be described as an intellectual activity or as a technical or professional service; and in that case of J.B. Boda & Co., the activity only consisted of sending commercial information from India about a proposed reinsurance contract on the basis of which, the reinsurance company took a commercial decision to enter into the contract. The learned counsel has pointed out that in that case, this Court had referred to the Circular issued by CBDT specifically directing that the deduction under Section 80-O should be allowed on the commission received by an Indian reinsurance broker even though it was only deducted from the remittance made to the company abroad and there was no actual inward remittance of foreign exchange. According to the learned counsel, this judgment decisively negatives the stand of the revenue that Section 80- O applies only to a payment for use of intellectual property rights or for intellectual activities. The learned counsel would argue that the broad, liberal and purposive interpretation of Section 80-O in J. B. Boda & F Co. is of crucial importance and the analogy thereof applies to the appellant. 9.4. The learned senior counsel for the appellant has further relied upon the decision of Delhi High Court in E.P.W. Da Costa (supra) with the submissions that therein, the Indian assessee only carried out market G survey of radio listeners in India and communicated the information to BBC in London; and BBC utilized that information to frame Hindi language broadcasts to India. However, the payments made towards such services by BBC to the assessee were also taken to be covered by Section 80-O of the Act. H

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A 9.5. As regards the services and activities of the appellant, the learned senior counsel has referred to the findings of the Appellate Authority as also of ITAT and has submitted that the said findings are to the effect that the appellant rendered services from India to its foreign customers by making over to them the information regarding seafood available in various Indian markets, their quality, price ranges etc.; and, on the basis of this information, the foreign customers took decisions on whether or not to import seafood from India, what to import and from which market and supplier. Further, the other basic requirement of Section 80-O, i.e., remittance of the amount in convertible foreign exchange to India has also been fulfilled. According to the learned counsel, the clear and unequivocal findings of the Appellate Authority and ITAT are findings of fact and they fully establish that the appellant furnished information from India to its customers abroad regarding its industrial and commercial knowledge and skill, and such information was utilized abroad by the said foreign customers and the appellant’s commission was remitted to India in convertible foreign exchange. The learned counsel would argue that nothing of perversity was shown in regard to such findings of fact so as to call for interference but the High Court has proceeded on a basis which is totally inconsistent with those findings. With reference to the decision of this Court in the case of K. Ravindranathan Nair v. Commissioner of Income Tax, Ernakulam: (2001) 247 ITR 178 E (SC), the learned counsel has argued that there was no scope of interference in the findings of fact in this case. 9.6. Assailing the findings of High Court in the impugned judgment, the learned senior counsel has also argued that the approach of the High Court that unless services were rendered abroad, the amount received would not qualify for the benefit of Section 80-O is directly contrary to the plain provision contained in Explanation (iii) to Section 80-O and is also contrary to Circular No. 700 dated 23.09.1995 which had clarified that Section 80-O covered not only the services rendered outside India but also the services rendered from India to a party outside India; and it does not matter if the service is subsequently utilized by the foreign customer in India. In regard to the case of the appellant, the learned counsel would submit that in fact, the foreign enterprises related with the appellant do not have any operation or place of business in India and in such a situation, there was no question of the appellant rendering service to the customers in India. Thus, according to the learned senior counsel, the activities in question are squarely covered by Section 80-O of the Act.

RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 751 [DINESH MAHESHWARI, J.]

The respondent-revenue A

10Copy pinpoint10. In counter to the submissions so made on behalf of the appellant, learned senior counsel for the respondent-revenue has also referred to the object and purpose behind the provisions contained in Section 80-O of the Act; the rules of interpretation, which, in his contention, ought to be applied to these provisions; and, while seeking to distinguish the decisions cited on behalf of the appellant, has relied upon other decisions, which, according to him, apply to the present case and which duly support the view taken by the High Court in the impugned judgment. 10.1. The learned senior counsel for the revenue has pointed out that the provisions similar to Section 80-O were originally available in the former Section 85-C of the Income Tax Act, 1961, which was introduced with the purpose to encourage Indian industries to develop technical know-how and services and make it available to foreign companies so as to augment the foreign exchange earning of our country and to establish a reputation of Indian technical know-how in foreign countries. Reverting to the contents of Section 80-O of the Act, as applicable to the case at hand, the learned counsel has submitted that its purpose is indicated in the heading itself that the same is for providing deduction in respect of royalties etc., received from certain foreign enterprises. Dissecting the relevant parts of this provision, the learned counsel would submit that some of the essential requirements for its applicability are that the assessee must receive income by way of royalty, commission, fees or similar payment from a foreign enterprise; the consideration must be for technical or professional services, of patents, inventions or similar intellectual property or information concerning industrial, commercial or scientific knowledge; and the services must be rendered outside India. While reiterating and emphatically underscoring the observations in impugned judgment, the learned counsel would submit that the intention of legislature behind introducing Section 80-O was to provide deductions for only that income which is received through intellectual activity/intellectual endeavours; and simple trading activity, though may require certain commercial or industrial information, cannot be said to be covered by this provision. With reference to Explanation (iii) to Section 80-O, the learned counsel would argue that the principal provision specifically states that it covers the services rendered “outside India” and the explanation clarifies that the services rendered or agreed to be rendered outside India shall include services rendered from India H

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A but shall not include services rendered in India; and therefore, services rendered by the assessee to a foreign entity must be rendered outside India, in foreign soil, and not in India, though they may be rendered from India. 10.2. As regards the principles of interpretation, the learned senior counsel for revenue has strongly relied upon the Constitution Bench decision in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co. and Ors: (2018) 9 SCC 1 to submit that it is now settled beyond doubt that taxing statutes are subject to the rule of strict interpretation, leaving no room for any intendment; andthe benefit of ambiguity in case of an exemption notification or an exemption clause must go in favour of the revenue, as exemptions from taxation have a tendency to increase the burden on the unexempted class of tax payers. The same principles, according to the learned counsel, shall apply to Section 80-O of the Act and, for the law declared by the Constitution Bench, the decision relied upon by the learned counsel for the appellant D inBaby Marine Exports (supra), which even otherwise dealt with Section 80HHC of the Act and not Section 80-O, is of no help to the appellant. 10.3. Taking on to the facts, the learned senior counsel would submit that the activities alleged to be rendered by the appellant to foreign entities as per the respective agreements were not of technical or professional services so as to be covered by the main part of the provision; and further, they are excluded by virtue of Explanation (iii) to Section 80-O, for having been rendered “in India” and not “from India”. The learned counsel would elaborate on the submissions that as per the agreements, the appellant was only to locate reliable and assured suppliers of marine products, to finalise pricing and before exporting, to check the quality of goods to be exported from India to the foreign entity and to communicate the same to the foreign entity. Moreover, the payment was made on the basis of invoice amount; and not on basis of any specialised commercial or technical knowledge given to the foreign entity. The learned counsel has particularly referred to Article 3 of the above- G referred agreement with GELAZUR to point out that if the quality or packaging of the goods was found to be unsatisfactory after inspection in France, the foreign company had no liability to pay the agent’s fee. Thus, according to the learned counsel, the activities in respect of which the agreements were entered into by the appellant were only that of a ‘buying or procuring agent’ and do not fall within the ambit of Section H

RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 753 [DINESH MAHESHWARI, J.]

80-O of the Act; and the primary activity being of certification, which is done in India, and of sourcing the goods, which is also done in India, Section 80-O of the Act is not applicable per the force of its Explanation (iii). The learned counsel has yet further submitted, while supporting the observations of High Court, that if one were to assume that the appellant had rendered certain services which qualify for deduction, no material in that regard has been placed on record. 10.4. The learned senior counsel for the revenue has drawn support to his contentions that Section 80-O of the Act does not apply to the appellant by making reference mainly to two decisions. In the first place, the learned counsel has relied uponthe decision of this Court in B.L. Passi v. Commissioner of Income-Tax: 2018 (404) ITR 19 C (SC) with the submissions that this decision applies on all fours to the present case. Therein, the assessee stated that as per the agreement, it was to provide blueprints for manufacture of dies for stamping of doors of cars, though no blueprint sent was produced and there was nothing to show that sales were effected because of information given by assessee. D This Court held that the assessee was only a managing agent and was not rendering ‘technical services’ within the meaning of Section 80-O of the Act. Hence, there was no basis for grant of deduction. Next, the learned senior counsel has referred to the decision of Kerala High Court in the case of Thomas Kurian (supra), where the assessee was only examining the quality and type of fish processed by the exporters and was certifying fitness for shipment to foreign buyer, who was bound to accept the goods shipped from India. It was held that the referred services were rendered “in India” and hence, the first eligibility condition of Section 80-O, that the services should be rendered outside India, was not fulfilled and hence, benefit of deduction under Section 80-O of the Act was held not available even though the second condition of receiving foreign exchange was fulfilled. The learned senior counsel would submit that the principles available in the said decisions directly apply hereto and the appellant is not entitled to claim deduction under Section 80-O of the Act. G 10.5. Seeking to distinguish the decisions cited by the other side, the learned counsel for revenue has submitted that in the case of J.B. Boda & Co.(supra), the issue was only about the method of receipt of foreign exchange which would qualify for Section 80-O deduction, which is not in dispute in the present appeals; and the relied upon Circular of H

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A 1995 was also limited to the point as to what constitutes receipt of foreign exchange. According to the learned counsel, the nature of activity was not in issue in that case and hence, there is no such ratio decidendi which could support the case of appellant. The learned counsel has further submitted that the case of E.W.P. Da Costa (supra) was of entirely different activity inasmuch as therein, statistical tables were compiled by the assessee after analysing masses of numerical data, which was collected with audience research studies in India to assess and analyse the radio listening habits of Indians for BBC; and such services were held to be highly technical, pertaining to scientific knowledge and not mere data collection because those services enabled BBC to broadcast not only in India but other parts of the world. As regards the decision in B. Suresh (supra), it has been submitted that in that case, there was admittedly transfer of rights of feature films for exploitation ‘outside India’ and the main issue was only whether there could be said to be a ‘sale’ within the meaning of Section 80HHC, which is irrelevant to present case. D 10.5.1. It has also been submitted on behalf of the respondent that, in the judgments relied upon by the appellant before the High Court, the crucial twin aspects of Section 80-O, i.e., as to what type of service rendered by the Indian entity comes within the sweep of this provision; and as to what is the true import of the expression “use outside India” as per Explanation (iii) to Section 80-O, did not fall for consideration and hence, those judgments were of no support to the proposition sought to be advanced by the appellant. It has also been submitted that in the case of Continental Construction (supra),the contracts were for carrying out physical construction of dams and irrigation projects in foreign countries, i.e., ‘not in India’ and besides that, in special circumstances, the benefit of Section 80-O was only allowed in part rather than on the entire contract, where the revenue was directed to bifurcate and look at each of the services rendered. According to the submissions on behalf of the respondent, the appellant relied upon this decision in the High Court but gave it up in this Court realising that the same is in favour of revenue; and if at all the ratio is applied, at best, the benefit of Section 80-O might have been considered activity-wise, if the appellant had placed any material as to the actual services rendered, but no such material had been placed on record by the appellant. 10.6. In regard to different services by the same assessee, some of which may not qualify for deduction, apart from relying on the

RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 755 [DINESH MAHESHWARI, J.]

observations in Continental Construction (supra), reference has also been made on behalf of revenue to two circulars of CBDT i.e., Circular No. 187 dated 23.12.1975 and Circular No. 253 dated 30.04.1979. It has been pointed out that Circular dated 23.12.1975 provided, inter alia, that in the case of a composite agreement which specified a consolidated amount as consideration for purposes which included matters outside the scope of Section 80-O, CBDT may not approve such an agreement for the purposes of Section 80-O if it was not possible to properly ascertain and determine the amount of consideration relatable to the provision of the know-how or technical services etc., qualifying for Section 80-O. Thus, the benefit of Section 80-O could have been denied to the entire amount of royalty, commission, fees etc., receivable under such an agreement. Thereafter, by Circular dated 30.04.1979, it was decided that in such cases of composite agreement, approval would be granted by CBDT subject to a suitable disallowance for the non-qualifying services, after taking into consideration the totality of agreement, so that the balance of the royalty/fees, etc., which was for the services covered by Section 80-O, could be exempted. This Circular also clarified that trade enquires will not qualify for deduction under Section 80-O as also technical services rendered in India. It has been contended that if at all the appellant had been rendering some such services which could qualify for deduction, it had not given any such break-up of services and corresponding receipts and therefore, benefit of Section 80-O of the Act E is not available to the appellant. 10.6.1. As regards the circular relied upon by the counsel for the appellant, i.e., Circular No. 700 dated 23.03.1995, it has been contended on behalf of revenue that the same is of no assistance to the appellant because, as per paragraphs 3 and 4 thereof, the services have to be rendered outside India, and it only clarifies that the foreign recipient of the services may utilise the benefit of such services in India whereas in the present case, the appellant merely rendered services in India and only as an agent. 10.7. The learned senior counsel for revenue has also submitted that the findings of fact arrived at by the ITAT were clearly challenged before the High Court in ITA No. 131 of 2002 and, in any case, it being a matter of interpretation of statutory language of Section 80-O and its Explanation (iii), the contention on behalf of the appellant about want of challenge to the findings is without substance. H

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A Rejoinder submissions on behalf of the appellant

11Copy pinpoint11. The submissions made on behalf of the respondent have been duly refuted on behalf of the appellant by way of rejoinder submissions. 11.1. As regards the principles of interpretation in the case of Dilip Kumar& Co. (supra), it has been contended on behalf of the B appellant that reference to the said decision is wholly inapposite because that deals with interpretation of an exemption notification and not an incentive provision like Section 80-O, which has been interpreted in J.B. Boda & Co.(supra) or Section 80HHC, which has been interpreted in B. Suresh and Baby Marine Exports (supra). C 11.2. As regards the decisions relied upon by revenue on application of Section 80-O of the Act, it has been submitted that reference to the case of B.L. Passi (supra) is completely misplaced because therein, the assessee had not placed any material whatsoever to show that it had rendered any service to the foreign customer; and D therefore, the issue regarding the nature of service did not even arise. As regards the decision of Kerala High Court in Thomas Kurian (supra), it has been submitted that the nature of services rendered therein were very different from those of the appellant because the said assessee was only an inspector and certifier; and even otherwise, the said decision is not of any force because the decision of this Court in J.B. Boda & E Co. (supra) was not considered therein and the decision of Delhi High Court in E.P.W. Da Costa (supra), which was accepted by revenue and was allowed to become final, was also not considered. It has also been submitted that there is no cogent or specific reply by the respondents to the submissions based on the decisions of this Court in the case of J.B. F Boda & Co. (supra); and it has been reiterated that even the activity of reinsurance broker was taken to be covered for the benefit of Section 80-O though such activity cannot possibly be described as an intellectual activity or as a technical or professional service. It has been contended that a liberal and purposive approach adopted by this Court in J.B.Boda & Co. for interpreting the incentive provision of Section 80-O is of utmost G importance to the present case. It has further been contended in rejoinder submissions that there is no material distinction between the cases of J.B. Boda& Co. and E.P.W. Da Costa on one hand and that of the appellant on the other; and superficial comments made on behalf of the respondents in regard to these decisions remain meritless. H

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11.2.1. Similarly, as regards the Circulars dated 23.12.1975 and A 30.04.1979, it has been contended that reference to these circulars is wholly misplaced because they dealt with the matter of approval by CBDT of an agreement with foreign customers but such need for approval of CBDT had been dispensed with by amendment of Section 80-O long ago and these circulars have nothing to do with the issues involved in the present case. 11.3. With reiteration of the submissions relating to the nature of activity of the appellant and the findings of ITAT, it has been argued that the contention of the respondents that the primary activity of the appellant had merely been of procuring agent remains untenable. It has also been contended that as per the finding of fact of ITAT, it is but clear that whole of the services rendered by the appellant and the entire amount received by it in foreign exchange was covered by Section 80-O of the Act; and that the attempt on the part of the respondent to suggest as if only a part of the amount received by the appellant may be eligible for benefit of Section 80-O remains baseless. In the rejoinder submissions, it has also been indicated that reference to the decision of this Court in Continental Construction (supra) by the respondents is irrelevant, as the same has not been relied upon by the appellant.

12Copy pinpoint12. We have given thoughtful consideration to the rival submissions and have examined the records with reference to the law applicable. E SECTION 80-O OF THE INCOME TAX ACT, 1961

13Copy pinpoint13. Having regard to the subject-matter and the questions involved, appropriate it would be to take note of the relevant provisions contained in Section 80-O of the Act of 1961 and clause (iii) of the Explanation thereto at the outset. This Section 80-O has undergone several amendments from time to time but, for the present purpose, suffice would be to extract the relevant and pivotal provisions therein, as existing at the relevant time and as applicable to the present appeal, as under: - “80-O. 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 enterprise in consideration for the use outside India of any patent, H

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A 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, 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 per cent of the income so received in, or brought into, India, in computing the total income of the assessee: D *** *** *** Explanation.—For the purposes of this section,— *** *** ***

E (iii) “services rendered or agreed to be rendered outside India” shall include services rendered from India but shall not include services rendered in India; *** *** ***”11

14Copy pinpoint14. Worthwhile it would also be to take a little excursion into the relevant parts of history related with Section 80-O of the Act while putting a glance over some of the features of developments relating to the provision/s in the Income Tax, 1961 concerning such deduction in respect of particular class of income, received by way of royalty, commissions etc., by an assessee in consideration of imparting specified intellectual property, or extending specified information, or rendering specified services to foreign State or foreign enterprise. 14.1. In the early stages of advent of the Act of 1961, Chapters VI-A, VII and VIII respectively dealt with the deductions to be made in 11 This extraction is after omitting the other parts of Section 80-O of the Act, including its Provisos and other clauses of Explanation, being not relevant for the question at hand.

RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 759 [DINESH MAHESHWARI, J.]

computing the total income, exempted portion/s of income, and rebates and reliefs but, several of the provisions in these Chapters as also some of the provisions of Chapter XII were recast and were put together in the newly framed Chapter VI-A by the Finance (No.2) Act, 1967 with effect from 01.04.1968 with the result that all such incentives or reliefs were directly provided by way of deductions from the total income itself. B In its framework, while Part A of this Chapter VI-A contains general provisions including definitions, Part B thereof provides for deductions in respect of certain payments and Part C provides for deductions in respect of certain incomes in computation of total income. Part CA and Part D making provisions for special class of income or persons were introduced later. C 14.2. The aspect germane to the present case is that forerunner to the provision relating to deduction of tax on royalties etc., received from certain foreign companies, was Section 85-C in the Act of 1961, that was inserted by Act No.13 of 1966 w.e.f. 01.04.1966 and was placed in Chapter VII. The said Section 85-C and several other provisions of D Chapter VII were omittedby Section 33, read with Third Schedule, item 14, of the Finance (No.2) Act, 1967. The reason for omission of the said Section 85-C was that similar provision, with revised requirements, came to be introduced by way of Section 80-O in the new Chapter VI-A12-13. 12 For the purpose of reference, we are reproducing the said repealed Section 85-C as under:- “85C. Deduction of tax on royalties, etc., received from certain foreign companies– Where the total income of an assessee, being an Indian company, includes any income by way of royalty, commission, fees or any similar payment received by it from a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India (hereafter, in this section, referred to as the foreign company) in consideration for the use 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 the foreign company by the assessee, or in consideration of technical services rendered or agreed to be rendered to the foreign company by the assessee, under an agreement approved by the Central Government in this behalf before the 1st G day of October of the relevant assessment year, the assessee shall be entitled to a deduction from the income e-tax with which it is chargeable on its total income for the assessment year of so much of the amount of income-tax calculated at the average rate of income-tax on the income so included as exceeds the amount of twenty-five per cent. thereof.” 13 For the purpose of reference, we may also reproduce Section 80-O in its original form, as inserted by the Finance (No.2) Act, 1967 as under: H