REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 3892 OF 2007 B.L. Passi .... Appellant(s) Versus Commissioner of Income Tax, Delhi .... Respondent(s) JUDGMENT R.K. Agrawal, J. 1) above appeal has been filed against judgment and order dated 13.12.2006 passed by High Court of Delhi in I.T. Appeal No. 1198 of 2006 whereby Division Bench of High Court dismissed appeal filed by appellant herein against order dated 10.10.2005 passed by Income Tax Appellate Tribunal, Delhi Bench (in short Tribunal ) in ITA No. 1603/D/2002. Signature Not Verified Digitally signed by ASHA SUNDRIYAL Date: 2018.04.24 17:40:43 IST Reason: 1 2) Brief facts: (a) Appellant herein filed return disclosing income of Rs. 57,40,360/- for Assessment Year (AY) 1997-98 while claiming deduction of Rs. 58,87,045/- under Section 80-O of Income Tax Act, 1961 (in short IT Act ) on gross foreign exchange receipt of Rs. 1,17,74,090/- received from Sumitomo Corporation, Japan. Sumitomo Corporation was interested in supplying dies for manufacturing of body parts to Indian automobile manufacturers and entered into contract with Appellant under which services of Appellant herein were engaged by using his specialized commercial and industrial knowledge about Indian automobile industry. Sumitomo Corporation also agreed to pay remuneration at rate of 5% of contractual amount between Sumitomo Corporation and its Indian customers on sales of its products so developed. Appellant claimed to have supplied to Sumitomo Corporation industrial and commercial knowledge, information about market conditions and Indian manufacturers of automobiles and also technical assistance as required by Corporation. 2 (b) case of Appellant was selected for scrutiny by Income Tax Department, Delhi and in response to notice under Section 143(2) of IT Act, Appellant along with others attended assessment proceedings from time to time justifying claim under Section 80-O of IT Act. Assessing Officer, vide order dated 27.03.2000 under Section 143(3) of IT Act assessed total income at Rs. 1,18,43,060/- and determined sum payable by assessee to tune of Rs. 43,25,960/-. Being aggrieved by order dated 27.03.2000, Appellant preferred appeal being No. 272/01-02 before Commissioner of Income Tax (Appeals)-XXVI, New Delhi. Appellate Authority, vide order dated 20.02.2002, partly allowed appeal and held that Appellant is entitled to deduction under Section 80-O of IT Act. Being aggrieved by order dated 20.02.2002, Revenue went in appeal before Tribunal. Tribunal, vide order dated 10.10.2005, allowed appeal filed by Revenue. Appellant approached High Court by filing I.T. Appeal No. 1198 of 2006 challenging order of 3 Tribunal dated 10.10.2005 which was dismissed on 13.12.2006 by Division Bench of High Court. (c) Aggrieved by judgment and order dated 13.12.2006, Appellant has filed this appeal by way of special leave before this Court. 3) Heard Mr. Lakshmikumaran, learned counsel for Appellant and Mr. K. Radhakrishnan, learned senior counsel for Respondent and perused records. Point(s) for consideration:- 4) sole point for consideration before this Court is whether Appellant is entitled to deduction under Section 80-O of IT Act under facts and circumstances of present case? Rival contentions:- 5) Learned counsel for Appellant contended that Appellant has fulfilled all conditions as envisaged under Section 80-O of IT Act inasmuch as he was providing specialized, industrial and commercial knowledge relating to Indian automobile industry and also detailed information about industry in India. Learned counsel further 4 contended that Appellant is enjoying very good professional reputation amongst manufacturers and traders and having vast experience of Indian automobile industry. services so rendered by Appellant were in fact rendered and payment was received for having rendered those services. Learned counsel finally contended that High Court committed error in considering it principal-agent relationship and order passed by High Court is liable to be set aside. 6) Learned senior counsel for Respondent submitted that in order to claim deduction under Section 80-O of IT Act, information must be concerning industrial, commercial or scientific knowledge, experience or skill, which is made available to non-resident party and it is difficult to hold from material on record that Appellant was having any information concerning industrial, commercial or scientific knowledge, experience or skill or he ever had in possession of any blue prints. Learned senior counsel further submitted that manner or circumstances under which proposed multipurpose vehicles of Telco under SAFARI project 5 were finalized are not clear and no documents have been produced on record for same. Learned senior counsel finally submitted that decision rendered by High Court was right and no interference is sought for by this Court. 7) In rejoinder, learned counsel for appellant contended that agreement between parties satisfies ingredients of Section 80-O of IT Act entitling Appellant to get benefit of deduction as services rendered by appellant were in nature of industrial and commercial knowledge to foreign enterprise. Discussion:- 8) Appellant has claimed to have vast experience of Indian automobile industry and has acquired substantial expertise and experience and is in position to supply specialized commercial and industrial information about automobile industry to any foreign enterprise looking for developing its market in India. Appellant struck deal with Sumitomo Corporation, Japan with regard to information about market conditions existing in Indian automobile industry, specific information regarding 6 manufacturers of automobiles in India, about market position, credibility and product acceptance of each of those manufacturers, to provide pre-information regarding proposal to launch any new product by any of manufacturers in India, to provide suggestions for development of automobile parts/dies for manufacture of automobile body parts conforming to specific needs of manufacturers of automobiles in India, to provide services and support as may be reasonably required in connection with development and manufacture of products in Japan for sale in India and to advise Sumitomo Corporation of legal laws and regulations applicable in India relating to importation and/or sale of its products in India etc. 9) services so rendered by Appellant were required to be used by Sumitomo Corporation for establishing its business in Indian automobile industry and he received sum of Rs. 1,17,73,940/- on account of technical and industrial knowledge and professional services rendered by him in relation to SAFARI project of TELCO. It is his claim that Sumitomo Corporation bagged order from TELCO 7 in respect of SAFARI project as result of use of specialized, commercial and industrial knowledge and professional services rendered by him. 10) Appellant filed income tax return declaring income of Rs. 57,40,360/- which was selected for scrutiny by Income Tax Department. While computing income, deduction of Rs. 58,87,045/- was claimed under Section 80-O of Act on gross receipts of Rs. 1,17,74,090/- received from Sumitomo Corporation of Japan in convertible foreign exchange in name of M/s Pasco International wherein Appellant was sole proprietor. It was further explained that he had received above amount in convertible foreign exchange as consideration for providing specialized industrial and commercial knowledge relating to Indian automobile industry including therein detailed information about industry, analyzing government policies relating to Indian automobile industry and also to identify opportunities for supply of products of M/s Sumitomo corporation to various customers in India and hence he is entitled to claim deduction under Section 80-O of IT Act which had been claimed in 8 return of income filed. However, Assessing Officer, by order dated 27.03.2000, disallowed claim of deduction of Rs. 58,87,045/- under Section 80-O of Act while holding that Appellant s services do not qualify for deduction under relevant Section. 11) In above backdrop, it is essential to quote Section 80-O (unamended) of IT Act which reads as under:- 80-O.Deduction in respect of royalities etc. from certain foreign enterprises.--1) Where gross total income of assessee, being Indian company or person (other than company) who is resident in India, includes any income by way of royalty, commission, fee or any similar payment received by assessee from Government of foreign state or foreign enterprise in consideration for use outside India of any patent, invention, model, design, secret formula or process or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available of provided or agreed to be made available of provided to such Government or enterprise by assessee, or inconsideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by assessee, and such income 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 assessee in accordance with any law for time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to provisions of this section, deduction of amount equal to fifty percent of income so received in , or brought into, India, in computing total income of assessee: Provided that such income is received in India within period of six months from end of previous year, or where Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that assessee is, 9 for reasons beyond his control, unable to do so within said period of six months, within such further period as Chief Commissioner may allow in this behalf: Explanation for purposes of this section:- (i) Convertible foreign exchange means foreign exchange which is for time being treated by Reserve Bank of India as convertible foreign exchange for purpose of law for time being in force for regulating payments and dealing in foreign exchange. (ii) foreign enterprise means person who is non resident. (iii) Services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India. 12) Provisions similar to Section 80-O of Act were originally in former Section 85-C of Income Tax Act, 1961 which was substituted by Finance (No. 2) Act, 1971. Section 80-O was inserted in place of Section 85C which was deleted by Finance (No. 2) Act, 1967. While moving bill relevant to Finance Act No. 2 of 1967, then Finance Minister highlighted fact that fiscal encouragement needs to be given to Indian industries to encourage them to provide technical know-how and technical services to newly developing countries. It is also seen that object was to encourage Indian companies to develop technical know-how and to make it available to foreign companies so as to augment foreign exchange earnings of this country and establish reputation 10 of Indian technical know-how for foreign countries. objective was to secure that deduction under section shall be allowed with reference to income which is received in convertible foreign exchange in India or having been received in convertible foreign exchange outside India, is brought to India by and on behalf of taxpayers in accordance with Foreign Exchange Regulations. 13) Now coming to facts of case at hand, it is evident from record that major information sent by Appellant to Sumitomo Corporation was in form of blue prints for manufacture of dies for stamping of doors. Several letters were exchanged between parties but there is nothing on record as to how this blue print was obtained and dispatched to aforesaid company. It is also evident on record that Appellant has not furnished copy of blue print which was sent to Sumitomo Corporation neither before Assessing Officer nor before Appellate authority nor before Tribunal. provisions of Section 80-O of IT Act mandate production of document in respect of which relief has been sought. We, therefore, have to examine whether 11 services rendered in form of blue prints and information provided by Appellant fall within ambit of Section 80-O of IT Act or any of conditions stipulated therein in order to entitle assessee to claim deduction. 14) In New Encyclopaedia Britannica, where term technical assistance had been considered, it has been stated that technical assistance may involve sending experts into field to teach skills and to help solve problems in their areas of specialisation, such as irrigation, agriculture, fisheries, education, public health, or forestry. In New Webster s Dictionary of English Language word technical means what is characteristic of particular art, science, profession, or trade and word technology means branch of knowledge that deals with industrial arts and sciences; utilisation of such knowledge; knowledge and means used to produce material necessities of society. 15) In J.K. (Bombay) Ltd. vs. Central Board of Direct Taxes and Another (1979) 118 ITR 312 (Del.), interpretation of technical assistance has been described as under:- 12 We have shown above that adopting wider meaning of word technical would defeat object of Section 80-O by enabling remuneration for management or running of foreign company to be eligible for deduction under Section 80-O. On other hand, narrower meaning of word technical seems to be more in keeping with object of section. It has to be remembered that word technology which has affinity with word technical is concerned with control of material environment by man. This is done by two means. Firstly, by use of tools, and, secondly, by application of reason to properties of matter and secondly, by application of reason to properties of matter and energy. It would appear, therefore, that it would be reasonable to think that technical services should include use of tools and machinery in addition to use of reason. Managerial services which do not include any use of tools and machinery may not be regarded as technical services. 16) blue prints made available by Appellant to Corporation can be considered as technical assistance provided by Appellant to Corporation in circumstances if description of blue prints is available on record. said blue prints were not even produced before lower authorities. In such scenario, when claim of Appellant is solely relying upon technical assistance rendered to Corporation in form of blue prints, its unavailability creates doubt and burden of proof is on Appellant to prove that on basis of those blue prints, 13 Corporation was able to start up their business in India and he was paid amount as service charge. 17) Further, with regard to remuneration to be paid to Appellant for services rendered, in terms of letter dated 25.01.1995, it has been specifically referred that remuneration would be payable for commercial and industrial information supplied only if business plans prepared by Appellant results positively. Sumitomo Corporation will pay to PASCO International service charges equivalent to 5% (per cent) of contractual amount between Sumitomo and its customers in India on sales of its products so developed. From perusal of above, it is clear that Appellant was entitled to service charges at rate of 5% (per cent) of contractual amount between Sumitomo Corporation and its customers in India on sales of its products so developed but there is nothing on record to prove that any product was so developed by Sumitomo Corporation on basis of blue prints supplied by Appellant as also that Sumitomo Corporation was able to sell any product developed by it by using information supplied by 14 Appellant. Meaning thereby, there is no material on record to prove sales effected by Sumitomo Corporation to its customers in India in respect of any product developed with assistance of Appellant s information and also on as to how service charges payable to Appellant were computed. 18) In view of foregoing discussion, we are of considered opinion that in present facts and circumstances of case, services of managing agent, i.e., Appellant, rendered to foreign company, are not technical services within meaning of Section 80-O of IT Act. Appellant failed to prove that he rendered technical services to Sumitomo Corporation and also relevant documents to prove basis for alleged payment by Corporation to him. letters exchanged between parties cannot be claimed for getting deduction under Section 80-O of IT Act. 19) Before parting with appeal, it is pertinent to mention here that it is settled law that expressions used in taxing statute would ordinarily be understood in sense in which it is harmonious with object of Statute to effectuate 15 legislative animation. Appellant was managing agent and High Court was right in holding principal agent relationship between parties and there is no basis for grant of deduction to Appellant under Section 80-O of IT Act. 20) In view of above, appeal is dismissed with no order as to costs. ... J. (R.K. AGRAWAL) . J. (ABHAY MANOHAR SAPRE) NEW DELHI; APRIL 24, 2018. 16 B.L. Passi v. Commissioner of Income-tax, Delhi