The ACIT, Baroda Circle-2, Baroda v. Shri Vinodkant A Sanghani, Baroda

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI JM AND D.C.AGRAWAL A M ASSTT. CIT CIR.2 2 ND FLOOR AAYAKAR BHAVAN RACE COURSE BARODA. V/S . SHRI VINODKANT A. SANGHANI 13 AMEE SOCIETY J.P. ROAD DIWALIPURA BARODA. PAN/GIR NO.31-008-PX-0696 (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SMT. NEETA SHAH SR. DR RESPONDENT BY:- SHRI S. N. SOPARKAR SR.ADVOCATE AND SHRI JAIMIN GANDHI O R D E R PER D.C.AGRAWAL ACCOUNTANT MEMBER . THESE ARE TWO APPEALS FILED BY THE REVENUE INVOLVIN G COMMON ISSUES. THEY ARE TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE. ITA NO.2540/AHD/2002 ASST. YEAR 1997-98 2. IN THIS YEAR REVENUE HAS RAISED THE FOLLOWING GR OUND:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN DIRECTING TO ALLOW DEDUCTION U/ S 80-O AT RS.24 17 600/- WITHOUT CONSIDERING THE FACTS THAT T HE ASSESSEE FAILED TO PROVE THAT THE CONDITIONS OF SEC.80-O ARE SATISFIED AND THE SERVICES WERE RENDERED OUTSIDE INDIA. ITA NOS.2540 & 2541/AHD/2002 ASST. YEARS :1997-98 & 1998-99 ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 2 THE FACTS OF THE CASE ARE THAT SHRI VINODKANT SANGH ANI IS AN INDIVIDUAL AND A PROPRIETOR OF M/S INTERNATIONAL FINANCE AND T ECHNICAL CONSULTANCY ENGAGED IN RENDERING TECHNICAL AND PROFESSIONAL SER VICES TO INDIAN AS WELL AS FOREIGN ENTERPRISES OF REPUTE. FOR F.Y. RELEVANT TO ASST. YEAR 1997-98 ASSESSEE CLAIMED DEDUCTION OF RS.24 17 600/- UNDER SECTION 80-O OF THE ACT. THE RETURN WAS PROCESSED AND ACCEPTED UNDER SE CTION 143(3) OF THE ACT. LATER THE ASSESSMENT WAS PICKED UP FOR SCRUTIN Y. THERE THE CLAIM OF DEDUCTION UNDER SECTION 80-O WAS DISALLOWED. THE RE ASONS ADVANCED BY THE AO WHILE DISALLOWING THE CLAIM ARE THAT (I) T HE TERMS AND CONDITIONS OF AGREEMENT WITH TWO FOREIGN ENTERPRISES CONSTITUT ES THE EMPLOYEE AND EMPLOYER RELATIONSHIP. THE ASSESSEE IS SERVING THE FOREIGN ENTERPRISES IN THE CAPACITY OF EMPLOYEE AND NOT IN THE CAPACITY OF INDEPENDENT CONSULTANT. THIS IS BORN FROM THE FACT THAT ASSESSE E IS RECEIVING THE MONTHLY RETAINERSHIP FEE OF DM 2 000 FOR HIS SERVIC ES AND FURTHER DM 1 000 PER MONTH AS REIMBURSEMENT FOR EXPENSES INCUR RED ON SECRETARIAL SERVICES RESPECTIVELY FROM THE TWO ENTERPRISES FOR WHOM HE WORKED; (II) THE ASSESSEE WOULD BE RECEIVING MONTHLY RETAINERSHI P FEE IRRESPECTIVE OF THE FACT WHETHER THE CONSULTANCY SERVICES ARE RENDE RED OR NOT DURING THE MONTH; (III) THE ASSESSEE HAS NEVER TRAVELED ABROAD DURING THE YEAR FOR RENDERING TECHNICAL SERVICES ABROAD TO THE FOREIGN ENTERPRISES. IT WAS EXPLAINED THAT SERVICES HAVE BEEN RENDERED TO THE F OREIGN ENTERPRISES FROM INDIA ON TELEPHONE ONLY. ACCORDING TO THE AO EXPLAN ATION (III) OF SECTION 80-O PROVIDES THAT ASSESSEE CAN RENDER SERV ICES FROM INDIA BUT THIS SHALL NOT INCLUDE SERVICES RENDERED IN INDIA ; & (IV) THE ASSESSEE WOULD RECEIVE PAYMENT FOR ADVISING FOREIGN CLIENTS ON MARKET SITUATION POTENTIAL SUB-CONTRACTOR LICENSEES OR CO-OPERATIO N PARTNERS EXPRESS OPINIONS ON THE FEASIBILITY OF PROJECTS AND ESTABL ISH BUSINESS CONTRACTS. BUT DEDUCTION UNDER SECTION 80-O IS AVAILABLE ON R ECEIPT ON ACCOUNT OF ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 3 ROYALTY COMMISSION FEES IN CONSIDERATION OF USE OUTSIDE INDIA OF ANY PATENT INVENTION DESIGN SECRET FORMULA OR PROCES S OR SIMILAR PROPERTY RIGHT OR INVENTION CONCERNING INTERNATIONAL COMMERC IAL OR SCIENTIFIC RESEARCH ETC. 3. LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER :- 4.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE L D. COUNSEL FOR THE APPELLANT. THE MAIN REASONS FOR NOT ALLOWING THE DE DUCTION U/S 80-O BY THE AO ARE THAT SINCE THE SERVICES WERE RENDERED FR OM INDIA AND FURTHER THAT THERE WAS EMPLOYEE/EMPLOYER RELATION. ACCORDIN GLY THE DEDUCTION U/S 80-O IS DENIED BY THE AO DURING THE YEAR. RELYING O N THE CBDT CIRCULAR NO.700 DATED 23 RD MARCH 1995 WHEREIN THE BOARD HAS CLARIFIED THAT I N THE EXPLANATION (III) TO SECTION 80-O THAT SERVICES RENDERED OR AGREED TO BE RENDERED OUTSIDE INDIA SHALL INCLUDE SERVICES RE NDERED FROM INDIA BUT SHALL NOT INCLUDE SERVICES RENDERED IN INDIA. SINCE THE APPELLANT HAS RENDERED SERVICES TO THE FOREIGN CONCERNS IT IS CL EAR THAT THE SERVICES HAVE BEEN RENDERED TO FOREIGN ENTERPRISES BY THE AP PELLANT. FURTHER RELYING ON THE DECISIONS (SUPRA) I HOLD THAT THE A PPELLANT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-O OF THE ACT AND THE AO IS DIRECTED TO ALLOW THE SAME. 4. BEFORE US LD. DR SUBMITTED THAT DEDUCTION UNDER SECTION 80-O CAN BE ALLOWED ONLY IN RESPECT OF PAYMENT RECEIVED BY T HE ASSESSEE AS ROYALTY COMMISSION OR FEES FOR USE OF ANY PATENT INVENTION DESIGN SECRET FORMULA OR PROCESS ETC. SINCE THE ASSESSEE IS ONL Y PROVIDING CONSULTANCY SERVICES IN THE FIELD OF MARKET SITUATION CLIENT D ISCOVERY POTENTIAL SUB- CONTRACTORS LICENSEES OR CO-OPERATION PARTNERS EX PRESS OPINIONS ON THE FEASIBILITY OF PROJECTS THEN HE WILL NOT BE ENTITL ED FOR ANY DEDUCTION UNDER SECTION 80-O. IF IN THE PAST DEDUCTION UNDER SECTI ON 80-O IS ALLOWED BY MISTAKE THEN SUCH MISTAKE SHOULD NOT BE REPEATED. S UCH DEDUCTIONS ARE COVERED ONLY UNDER SECTION 80 RRA. ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 4 5. ON THE OTHER HAND LD. AR SUBMITTED THAT THE DEP ARTMENT SHOULD HAVE FOLLOWED THE CONSISTENCY. ON THE SAME AGREEMEN T IF DEDUCTION U/S 80-O IS ALLOWED IN THE PAST THEN THERE IS NO REASON TO TAKE A DIFFERENT VIEW THIS YEAR. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. THE AO HAS CONSIDERED THE COPY OF THE AG REEMENT BETWEEN ASSESSEE AND (I) LINDE A.G. GERMANY AND (II) M/S. ROHDE & LIESENFELD GMBH & CO. GERMANY. FOR THE SAKE OF CONVENIENCE WE REPRODUCE THE RELEVANT EXTRACT FROM THE TWO AGREEMENTS :- 4.1 THE TERMS AND CONDITIONS WITH BOTH THESE COMPA NIES ARE REPRODUCED AS BELOW : WHEREAS LINDE IS A GERMAN CORPORATION ACTIVE IN THE FIELD O F ENGINEERING AND CONSTRUCTING PETROCHEMICAL GAS AIR SEPARATION AND CRYOGENIC PLANTS AND IN SUPPLYING SPECIAL EQUIPMENT ETC. AND CONSULTANT HAS CONSIDERABLE KNOWLEDGE EXPERIENCE AND BUSINESS CONTACTS IN THE INTERNATIONAL INDUSTRY AND MARKET FOR A.M. PLANTS AND LINDE WISHES TO EMP LOY CONSULTANT TO ASSIST LINDE TO FURTHER DEVELOP ITS POTENTIAL IN TH E RELEVANT INTERNATIONAL MARKET AND CONSULTANT IS WILLING TO PROVIDE SUCH S ERVICES TO LINDE. NOW THEREFORE IT IS HEREBY AGREED AS FOLLOWS : 1. GENERAL CONSULTANCY SERVICES 1.1 CONSULTANT WILL ACT AS LINDES CONSTANT FOR THE SAL E OF LINDE PROCESSES EQUIPMENT AND SERVICES ON THE INTERNATIO NAL MARKET OUTSIDE INDIA SUCH SERVICES SHALL INCLUDE BUT NOT BE LIMITED TO ADVISING LINDE AS TO THE MARKET SITUATION CLIENTS POTENTIAL SUBCONTRACTORS LICENSEES OR COOPERATION PARTNERS EXPRESS OPINIONS ON THE FEASIBILITY OF PROJECTS ESTABLISH BUSINESS CONTRACTS. ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 5 1.2 IN CONSIDERATION OF CONSULTANTS SERVICES HEREUNDER LINDE SHALL PAY TO CONSULTANT A MONTHLY RETAINER OF DEUTSCHMARK S TWO THOUSAND (DEM 2000.00) PAYABLE MONTHLY IN ARREARS. IN ADDITION LINDE SHALL REIMBURSE TO CONSULTANT MONTH LY LUMP SUM EXPENSES OF DEUTSCHMARKS ONE THOUSAND (DEM 1000 .00) INCURRED WITHIN HIS SERVICES HEREUNDER FOR SECRETAR IAL SERVICES INCLUDING TELEPHONE/FAX. 1.3 CONSULTANT IS EXPECTED TO VISIT LINDES HEADQUARTER S IN MUNICH AT LEAST ONCE A YEAR FOR A PERIOD NOT EXCEEDING 3-4 DAYS TO APPRAISE LINDE MANAGEMENT ABOUT POTENTIAL PROJECTS AND MARKETING STRATEGY AND EXCHANGE INFORMATION WITH VA RIOUS DEPARTMENTAL HEADS IN MUNICH. LINDE SHALL REIMBURSE ALL EXPENSES INCLUDING TRAVEL (BUSINESS CLASS) HOTEL (F IRST CLASS) AND EXPENSES AT ACTUAL COST. CONSULTANT SHALL ISSUE BI-ANNUAL REPORTS TO LINDES MANAGEMENT HIGH-LIGHTING MAJOR E VENTS IN THE RELEVANT GLOBAL MARKETS. 1.4 IN CONSIDERATION OF CONSULTING SERVICES HEREUNDER LINDE SHALL FURTHERMORE PAY TO CONSULTANT AN ANNUAL BONUS RELAT ED TO PERFORMANCE. (II) WHEREAS R & L A GERMAN CORPORATION ACTIVE IN THE FIELD OF SHIP FREIGHTING AND INTERNATIONAL FORWAREING AND CONSULTANT HAS CONSIDERABLE KNOWLEDGE EXPERIENCE AND BUSINESS CON TACTS IN THE INDIAN INDUSTRY. R & L WISHES TO RETAIN CONSULTANTS SERVICES TO AS SIST R & L TO FURTHER DEVELOP ITS POTENTIAL IN THE RELEVANT INDIA N AND NEARBY COUNTRIES MARKETS AND CONSULTANT IS WILLING TO PROV IDE SUCH SERVICES TO R & L. NOW THEREFORE IT IS HEREBY AGREED AS FOLLOWS : 1.0 GENERAL CONSULTANCY SERVICES ; 1.1 CONSULTANT WILL ACT AS R & LS CONSULTANT IN IN DIA. CONSULTANT WILL ASSIST R & L TO MARKET ITS SERVICES IN THE INDIAN AND NEIGHBOURING MARKETS. ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 6 SUCH SERVICES SHALL INCLUDE THE REGULAR INFORMATIO N ON MARKET SITUATIONS INFORMATION ON PLANNED CAPITAL PROJECTS TO ASSIST IN ESTABLISHING BUSINESS CONTACTS AND IN GENERAL PROV IDE R & L WITH ADVISE AND GUIDANCE IN ORDER TO PROMOTE R & LS BUS INESS TO INDIA. 1.2 IN CONSIDERATION OF CONSULTANTS SERVICES R & L S HALL PAY TO CONSULTANT A MONTHLY RETAINER OF DEUTSCHMARKS TWO T HOUSAND (DM 2 000.00) PAYABLE MONTHLY IN ARREAR. 1.3 IN CASE CONSULTANCY SERVICES REQUIRE TRAVEL OVERSEA S R & L SHALL REIMBURSE TO CONSULTANT ALL EXPENSES DIRECTLY RELAT ED TO SUCH TRAVEL SUCH AS FREIGHT AND TRAVEL EXPENSES LODGIN G AND RELATED EXPENSES. SUCH OVERSEAS TRAVELING SHALL ALWAYS BE A GREED UPON BETWEEN CONSULTANT AND R & L PRIOR TO SUCH TRAVELIN G TAKING PLACE. ALL OTHER EXPENSES INCURRED BY CONSULTANT I N INDIA AND OR NEARBY COUNTRIES ARE FOR THE ACCOUNT OF CONSULTA NT. 2.0 PROJECT SUPPORT 2.1 IN ADDITION TO GENERAL CONSULTANCY SERVICES HER EUNDER CONSULTANT ESPECIALLY AGREES TO SUPPORT R & LS SAL ES ACTIVITIES IN INDIA IN REGARD TO THE IMPORTATION OF CAPITAL EQUIPMENT FOR INDUSTRIAL PROJECTS IN INDIA. 2.2 IN CASE OF ORDER AWARD TO R & L OR ITS SUBSIDIARIES CONSULTANT SHALL BE PAID A COMMISSION AT THE RATE O F TWENTY PERCENT (20%) OF NET PROFIT ACHIEVED BY R & L SUCH COMMISSION SHALL BE PAYABLE WITHIN 30 DAYS AFTER THE LAST SHIP MENT OF THE SPECIFIC PROJECT HAS BEEN EXECUTED AND AFTER PAYMEN TS FOR THE SERVICES RENDERED ON THE SPECIFIC SHIPMENT HAS IN F ACT BEEN RECEIVED BY R & L. 3.0 THIS AGREEMENT SHALL TAKE EFFECT ON JANUARY 1 ST 1995 AND SHALL CONTINUE FOR A PERIOD OF THREE (3) YEARS UNLESS TE RMINATED IN WRITING BY EITHER PARTY 3 MONTHS PERIOD TO THE END OF ITS SPECIFIC CALENDAR YEAR. FROM READING OF THESE TWO AGREEMENTS IT IS VERY MUC H CLEAR THAT AGREEMENT IS NOT FOR USE OF ANY PATENT INVENTION DESIGN OR REGISTERED TRADE MARK. THE AGREEMENT IS FOR GENERAL CONSULTANC Y AND ASSISTING THE ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 7 PRINCIPALS FOR SEARCHING CLIENTS SUB-CONTRACTORS LICENSEES OR CO-OPERATION PARTNERS OR EXPRESS OPINION ON THE FEASIBILITY OF P ROJECTS HAVING KNOWLEDGE OR EXPERIENCE OF PATENT INVENTION DESIG N AND REGISTERED TRADE MARK. ALL THESE ITEMS ARE REGISTERED WITH THE APPRO PRIATE AUTHORITIES AND COME WITHIN THE DEFINITION OF INTELLECTUAL PROPERTY . ACCORDING TO LD. DR IF ASSESSEE ALLOWS THE USE OF HIS INTELLECTUAL PROPERT Y WHICH IS REGISTERED BY A FOREIGN STATE OR FOREIGN ENTERPRISES AND IN CONSI DERATION THEREOF ASSESSEE RECEIVES CONVERTIBLE FOREIGN EXCHANGE THEN HE IS EN TITLED FOR DEDUCTION UNDER SECTION 80-O. 7. ON THE OTHER HAND LD. AR SUBMITTED THAT HIS CAS E IS COVERED UNDER SECTION 80-O WHICH EXISTED IN THE ASST. YEAR 1997-9 8 WHICH SAYS THAT SERVICES RENDERED OR AGREED TO BE RENDERED OUTSIDE INDIA SHALL INCLUDE SERVICES RENDERED FROM INDIA BUT SHALL NOT INCLUDE SERVICES RENDERED IN INDIA. FOR THE SAKE OF CONVENIENCE WE REPRODUCE SEC TION 80-O AS UNDER: 80-O. DEDUCTION IN RESPECT OF ROYALTIES ETC. FRO M CERTAIN FOREIGN ENTERPRISES.--(1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) WHO IS RESIDENT IN INDIA IN CLUDES ANY INCOME BY WAY OF ROYALTY COMMISSION FEES OR ANY SIMILAR PAYMENT RE CEIVED BY THE ASSESSEE FROM THE GOVERNMENT OF A FOREIGN STATE OR A FOREIGN ENTERPRI SE IN CONSIDERATION FOR THE USE OUTSIDE INDIA OF ANY PATENT INVENTION MODEL DESI GN SECRET FORMULA OR PROCESS OR SIMILAR PROPERTY RIGHT OR INFORMATION CONCERNING I NDUSTRIAL COMMERCIAL OR SCIENTIFIC KNOWLEDGE EXPERIENCE OR SKILL MADE AVAILABLE OR PR OVIDED OR AGREED TO BE MADE AVAILABLE OR PROVIDED TO SUCH GOVERNMENT OR ENTERPR ISE 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 T HE ASSESSEE AND SUCH INCOME IS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE IN INDIA OR HAVING BEEN RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE OUTSIDE INDIA IS BROU GHT INTO INDIA BY OR ON BEHALF OF THE ASSESSEE IN ACCORDANCE WITH ANY LAW FOR THE TIM E BEING IN FORCE FOR REGULATING PAYMENTS AND DEALINGS IN FOREIGN EXCHANGE THERE SH ALL 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 BR OUGHT INTO INDIA IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE: EXPLANATION.--FOR THE PURPOSES OF THIS SECTION -- (I) ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 8 (II) . (III) SERVICES RENDERED OR AGREED TO BE RENDERED O UTSIDE INDIA SHALL INCLUDE SERVICES RENDERED FROM INDIA BUT SHALL NOT INCLUDE SERVICES RENDERED IN INDIA. IT CLEARLY PROVIDES THAT ASSESSEE IS ENTITLED FOR D EDUCTION UNDER SECTION 80- O IF IT RENDERS TECHNICAL OR PROFESSIONAL SERVICES OUTSIDE INDIA TO FOREIGN GOVERNMENT OR FOREIGN ENTERPRISE. CLAUSE (III) TO E XPLANATION CLEARLY PROVIDES THAT SERVICES CAN BE RENDERED FROM INDIA. THE VIEW OF THE ASSESSEE IS SUPPORTED BY SEVERAL AUTHORITIES AS SUC H - (I) CONTINENTAL CONSTRUCTION LTD. VS. CIT (1992) 19 5 ITR 81 (SC) (II) CBDT VS. OBEROI HOTELS (INDIA) (P) LTD. (1998) 231 ITR 148 (SC) (III) CIT VS. INCHCAPE INDIA PVT. LTD. (2005) 273/ 292 (DEL) AND (IV) CIRCULAR NO.700 DATED 23.3.1995. 8. THE GIST OF ABOVE AUTHORITIES ARE AS UNDER :- IT HAS BEEN HELD ABOVE THAT TECHNICAL OR PROFESSIO NAL SERVICES CAN BE RENDERED FROM INDIA AND ASSESSEE NEED NOT TRAVEL AB ROAD FOR RENDERING SUCH SERVICES. IT IS INCORRECT ON THE PART OF AO TO INFER THAT THERE WAS EMPLOYER-EMPLOYEE RELATIONSHIP. MERELY RECEIVING MO NTHLY RETAINERSHIP DOES NOT CREATE EMPLOYER-EMPLOYEE RELATIONSHIP. IF FEE FOR REGULARLY RENDERING CONSULTANCY SERVICE IS DECIDED ON MONTHLY BASIS THEN IT WILL NOT MEAN THAT THERE EXISTED EMPLOYER-EMPLOYEE RELATIONS HIP. SOME OTHER TERMS AND CONDITIONS ARE REQUIRED. ASSESSEE HAS TO BE UNDER THE ADMINISTRATIVE CONTROL OF THE EMPLOYER THERE HAS T O BE DISCIPLINARY CONDITION IN TERMS OF EMPLOYMENT. THERE HAS TO BE H IERARCHY AND PROMOTIONAL AVENUES TO THE EMPLOYEE AND THERE HAS T O BE SOME SENIOR/SUBORDINATE RELATIONSHIP ALSO WHICH DOES NOT EXISTS IN THE PRESENT AGREEMENT. ACCORDINGLY WE REJECT THE CONTENTION OF THE LD. DR THAT THERE ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 9 EXISTED EMPLOYER-EMPLOYEE RELATIONSHIP MERELY BECAU SE OF RETAINERSHIP FEES ARE FIXED ON MONTHLY BASIS. THE LD. AO HAS ALS O IGNORED THE PROVISIONS OF SECTION 80-O IN ASST. YEAR 1997-98 WH EREIN DEDUCTION WOULD BE AVAILABLE FOR RENDERING TECHNICAL OR PROFE SSIONAL SERVICES. IT IS ONLY AFTER THE AMENDMENT IN 1998 THAT DEDUCTION UND ER SECTION 80-O WAS CONFINED TO RECEIPT FROM FOREIGN ENTERPRISE/FOREIGN GOVERNMENT IN RESPECT OF USE OF PATENT INVENTION DESIGN SECRET FORMULA . SINCE IN ASST. YEAR 1996-97 AND EARLIER YEARS THE DEPARTMENT HAD ALLOW ED DEDUCTION UNDER SECTION 80-O ON THE SAME TERMS AND CONDITIONS IN AC CORDANCE WITH THE PROVISIONS OF THAT SECTION EXISTING THERE BEING NO CHANGE IN THE FACTS OR IN THE LAW A DIFFERENT DECISION CANNOT BE TAKEN. THE PRINCIPLE OF CONSISTENCY HAS TO BE FOLLOWED. A DIFFERENT VIEW CAN ONLY BE TA KEN WHEN FACTS ARE PRIMA FACIE DIFFERENT OR LAW HAS UNDERGONE CHANGES. IN ABSENCE OF THESE TWO SITUATIONS THE REVENUE IS EXPECTED TO FOLLOW T HE DECISION TAKEN IN EARLIER YEARS. IN VIEW OF PREPONDERANCE OF THE DECI SIONS IN FAVOUR OF THE ASSESSEE AND PRINCIPLES OF CONSISTENCY WE UPHOLD T HE ORDER OF LD. CIT(A) IN ALLOWING THE CLAIM OF ASSESSEE. THE APPEAL OF RE VENUE IS DISMISSED. ITA NO.2541/AHD/2002 ASST. YEAR 1998-99 . 9. IN THIS YEAR ASSESSEE HAS CLAIMED DEDUCTION UNDE R SECTION 80RRA IN RESPECT OF AGREEMENT WITH THE SAME TWO PARTIES A S EXISTED IN ASST. YEAR 1997-98. THE AO DISALLOWED THE CLAIM ON THE GROUND THAT (1) FOR CLAIMING DEDUCTION UNDER SECTION 80RRA THERE SHOULD BE EMPLOYER- EMPLOYEE RELATIONSHIP. THE ASSESSEE IS NEITHER AN E MPLOYEE NOR THE CONCERNED PARTIES ARE EMPLOYER; (2) SERVICES ARE RE NDERED BY THE ASSESSEE WITHIN THE GEOGRAPHICAL BOUNDARY OF INDIA AND NO SU CH SERVICES ARE RENDERED OUTSIDE INDIA FOR WHICH PAYMENTS ARE RECEI VED. THE ASSESSEE HAS NEVER TRAVELED BEYOND BOUNDARIES OF INDIA EXCEPT FO R A PERIOD OF 12 DAYS; ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 10 (3) THE BOARD HAS ISSUED CIRCULAR NO.356 DATED 17.0 3.1983 ACCORDING TO WHICH TWO CONDITIONS SHOULD BE SATISFIED NAMELY THE RE SHOULD BE EMPLOYER-EMPLOYEE RELATIONSHIP AND SERVICES TO BE R ENDERED BY THE ASSESSEE AGAINST WHICH REMUNERATION OR PAYMENTS ARE RECEIVED SHOULD BE RENDERED OUTSIDE INDIA. THE AO QUOTED EXTENSIVELY F ROM THE ABOVE CIRCULAR HIGHLIGHTING ABOVE POINTS. ACCORDINGLY HE DISALLOWED THE CLAIM. 10. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSE E BY RELYING ON THE DECISION OF HONBLE SUPREME COURT IN CBDT VS. ADITY A V. BIRLA (1988) 170 ITR 137 (SC) ACCORDING TO WHICH IT IS NOT NECES SARY THAT THERE SHOULD BE EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE ASSES SEE AND THE FOREIGN ENTERPRISE. REGARDING SERVICES RENDERED BY THE ASSE SSEE IT WAS EXPLAINED THAT IN CIRCULAR NO.700 DATED 23.3.1995 IT WAS CLAR IFIED THAT SERVICES SHALL INCLUDE SERVICES RENDERED FROM INDIA BUT SHALL NOT INCLUDE SERVICES RENDERED IN INDIA. THE BENEFIT AVAILABLE UNDER SECT ION 80-O WERE EXTENDED IN CASE OF PERSONS CLAIMING DEDUCTION UNDE R SECTION 80RRA. LD. CIT(A) REFERRED TO THE DECISION IN THE CASE OF A.S. MANI VS. CIT (1997) 227 ITR 380 IN SUPPORT OF THE PROPOSITION T HAT WHEN ASSESSEES SERVICES ARE RENDERED FROM INDIA THEN DEDUCTION UN DER SECTION 80-O WILL BE AVAILABLE. 11. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH T HE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED V IEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDERS OF CIT(A). THE AO HAS MA INLY DENIED THE CLAIM FOR ASST. YEAR 1997-98 ON TWO GROUNDS : (1) THAT THERE SHOULD BE EMPLOYER-EMPLOYEE RELATIONSHIP FOR CLAIM TO BE ALLOWED; AND ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 11 (2) SERVICES SHOULD BE NECESSARILY RENDERED OUTSIDE IND IA BY GOING OUTSIDE INDIA. 13. BOTH THE ISSUES ARE DECIDED BY THE COURTS IN FA VOUR OF THE ASSESSEE. HON. SUPREME COURT IN CBDT VS. ADITYA V BIRLA (SUPR A) HELD AS UNDER (HEAD NOTES) :- IT IS SIGNIFICANT THAT SECTION 80RRA OF THE INCOME -TAX ACT 1961 USES THE EXPRESSION 'REMUNERATION' AND NOT 'SALARY' FOR A CITIZEN OF I NDIA WHO RECEIVES REMUNERATION IN FOREIGN CURRENCY FOR SERVICES RENDERED OUTSIDE INDI A TO BE ENTITLED TO THE DEDUCTION PROVIDED THEREIN. THERE IS NO WARRANT FOR RESTRICTI NG THE MEANING OF THE EXPRESSION 'REMUNERATION' ONLY TO SALARY RECEIVED BY AN EMPLOY EE ABROAD. 'REMUNERATION' WILL COVER FEES PAID TO A CONSULTANT OR TECHNICIAN. THE WORD 'EMPLOYER' IS USED IN SECTION 80RRA NOT IN ANY TECHNICAL SENSE BUT AS MEANING A PERSON WHO USES OR EMPLOYS THE SERVICES O F ANOTHER PERSON. 'EMPLOYER' MEANS THE USE OF SERVICES OF ANY PERSON: IT COMPREH ENDS WHOLETIME SERVANT OR PART- TIME ENGAGEE. 14. IT WAS FOLLOWED BY HON. DELHI HIGH COURT IN KUN TI VERMAN VS. CIT 220 ITR 120 (DEL). IN THAT CASE IT WAS HELD AS UNDER (HEAD NOTES) :- A CONSULTANT OR A TECHNICIAN EMPLOYED BY A FOREIGN COMPANY AND RECEIVING REMUNERATION FROM THE LATTER IN FOREIGN CURRENCY WO ULD BE ENTITLED TO AVAIL OF THE BENEFIT OF THE PROVISIONS OF SECTION 80RRA OF THE I NCOME-TAX ACT 1961 SUBJECT TO THE FULFILMENT OF THE CONDITIONS MENTIONED THEREIN. IT IS SIGNIFICANT THAT SECTION 80RRA OF THE ACT USES THE EXPRESSION 'REMUNERATION' AND NOT SALARY. THEREFORE IF A PERSON HAS BEEN RETAINED BY A FOREIGN EMPLOYER AND IS PAID A F EE IN FOREIGN CURRENCY THE PAYMENT OF THE FEE WILL BE COVERED UNDER THE TERM ' REMUNERATION' WHICH IS OF A WIDE AMPLITUDE. SIMILARLY WHEN A FOREIGN EMPLOYER AGREE S TO PAY TO A CONSULTANT WHOSE SERVICES ARE BEING UTILISED ON RETAINERSHIP BASIS T HE PAYMENT WOULD STILL BE COVERED UNDER THE TERM 'REMUNERATION'. SECTION 80RRA APPLIE S WHERE AN INDIVIDUAL RECEIVES PAYMENT FROM A FOREIGN EMPLOYER FOR ANY SERVICE REN DERED BY HIM OUTSIDE INDIA. 15. IN THE CASE OF A. S. MANI VS. CIT (1997) 227 IT R 380 THE AUTHORITY ON ADVANCE RULING HELD THAT - HELD _ (I) THAT IT IS WELL SETTLED THAT IN ORDER TO MAINTAIN AN APPLICATION UNDER SECTION 245Q(1) OF THE ACT THE APPLICANT SHOULD HAVE BEEN A NON-RESIDENT IN THE FINANCIAL YEAR PRECEDING THE DATE OF HIS APPLICATION. IT WAS IMMATERIAL WHETHER THE QUESTIONS PERTAINED TO A PERIOD WHEN HE WAS RESIDENT OR NON-R ESIDENT. THEREFORE THERE WAS NO MERIT IN THE ARGUMENT OF THE DEPARTMENT. ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 12 (II) THAT THE APPLICANT WAS ENTITLED TO THE EXEMPTI ON CLAIMED ON THE ASSUMPTION THAT THE SERVICES WERE RENDERED BY HIM TO THE SWISS COMP ANY OUTSIDE INDIA. THE SECTION CONFERRED EXEMPTION IN TWO SITUATIONS: (A) THE REMU NERATION IS PAID BY THE FOREIGN ENTERPRISE IN CONSIDERATION FOR ITS USE OUTSIDE IND IA OF THE INDUSTRIAL OR COMMERCIAL INFORMATION PROVIDED BY THE APPLICANT; OR (B) THE P AYMENT IS RECEIVED IN CONSIDERATION OF TECHNICAL OR PROFESSIONAL SERVICES RENDERED OUTS IDE INDIA. THE APPLICANT DID NOT CLAIM THAT SITUATION (A) PREVAILED IN THE PRESENT C ASE. THE ONLY QUESTION WAS WHETHER SITUATION (B) DID. (III) THAT THE CONTROVERSY WHETHER THE APPLICANT WA S AN INDEPENDENT CONSULTANT OR JUST AN EMPLOYEE OF THE SWISS COMPANY WAS NOT STRIC TLY RELEVANT AS THE SECTION ONLY TALKED OF SERVICES RENDERED OR INFORMATION PROVIDED BY A PERSON TO A FOREIGN ENTERPRISE. IT MIGHT HAVE SOME RELEVANCE IF THE APP LICANT WANTED TO CLAIM THAT HE WAS RENDERING 'PROFESSIONAL' SERVICES. BUT IT WAS UNNE CESSARY TO GO INTO THE QUESTION WHETHER THE APPLICANT COULD BE SAID TO CARRY ON A P ROFESSION AS THE SERVICES RENDERED BY THE APPLICANT COULD BE CLEARLY DESCRIBED AS 'TEC HNICAL SERVICES'. (IV) THAT THE APPLICANT HAD SPECIAL KNOWLEDGE IN TH E PRODUCTION IMPORTS AND OTHER ASPECTS PERTAINING TO THE OIL INDUSTRY. ALSO A REF ERENCE TO THE TERMS OF SITUATION (A) REFERRED TO ABOVE WOULD ALSO INDICATE THAT SERVICES IN INDUSTRIAL AND COMMERCIAL BRANCHES WERE INTENDED TO BE COVERED BY THE SECTION . (V) THAT THE APPLICANT WAS COLLECTING AND ANALYSING DATA AND INFORMATION PERTAINING TO THE OIL INDUSTRY FROM ALL OVER THE WORLD AND ADV ISING THE SWISS COMPANY IN VARIOUS MATTERS WITH SPECIAL REFERENCE TO INDIA. HIS ADVICE WAS DELIVERED ABROAD. THEREFORE THE CASE OF THE APPLICANT FELL SQUARELY WITHIN THE TERMS OF CLAUSE (III) OF THE EXPLANATION. (VI) THAT THEREFORE THE APPLICANT WAS ENTITLED TO DEDUCTION UNDER SECTION 80-O OF THE ACT IN RESPECT OF CONSIDERATION RECEIVED IN TERMS O F THE CONSULTANCY AGREEMENT ENTERED INTO BETWEEN THE APPLICANT AND THE SWISS CO MPANY SUBJECT TO THE OTHER CONDITIONS IN SECTION 80-O OF THE ACT THAT THE PAY MENT SHOULD BE IN 'CONVERTIBLE FOREIGN EXCHANGE' AND SHOULD BE RECEIVED IN INDIA W ITHIN A PRESCRIBED PERIOD. 16. SIMILAR VIEW HAS BEEN TAKEN BY THE COURTS IN TH E FOLLOWING JUDGMENTS ALSO :- 1. MS. SHEILA ANIL PAUL VS. ACIT (ITAT) (MUM) (2001 ) 90 ITD 605 2. DCIT VS. LAB INDIA INSTRUMENTS (P) LTD. (ITAT) ( MUM) (2005)93 ITD 12 3. D.K. AGGRAWAL VS. GOVT. OF INDIA (2001) 25 0 ITR 28 (DEL) 4. CBDT VS. ADITYA BIRLA (1998) 170 ITR 137( SC) ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 13 THE GIST OF ALL THESE DECISIONS ARE- (1) THAT ASSESSEE NEED NOT BE AN EMPLOYEE OF FOREIGN EM PLOYER. THERE NEED NOT BE ANY RELATIONSHIP OF EMPLOYER AND EMPLOY EE. THE WORD USED IS OF REMUNERATION AND NOT SALARY. THEREFORE FORMAL RELATIONSHIP EMPLOYER-EMPLOYEE IS NOT NECESSARY. (2) ASSESSEE CAN PROVIDE SERVICE FROM INDIA TO A FOREIG N CONCERN BY SITTING IN INDIA STILL HE WILL BE ENTITLED TO DEDU CTION UNDER SECTION 80 RRA. HE NEED NOT PHYSICALLY GO ABROAD. IT IS FOR THE FOREIGN EMPLOYER/ENTERPRISE HOW TO MAKE USE OF THE TECHNICA L INFORMATION RECEIVED BY IT. IT CAN MAKE USE OF THE TECHNICAL IN FORMATION EITHER IN INDIA OR IN ABROAD. 17. IT IS FOR THE REVENUE TO SHOW THAT TECHNICAL IN FORMATION WAS NOT REMITTED FROM INDIA. IT WAS COLLECTED IN INDIA USE D IN INDIA AND THESE SERVICES WERE RENDERED BY THE ASSESSEE ONLY IN INDI A. IN ABSENCE OF ANY MATERIAL IN SUPPORT OF THIS CONTENTION IT CANNOT B E PRESUMED THAT ASSESSEE DID NOT REMIT THE INFORMATION TO THE FOREIGN ENTERP RISE/EMPLOYER. THEREFORE CLAIM OF THE ASSESSEE CANNOT BE DENIED. WE ACCORDINGLY CONFIRM THE ORDER OF LD. CIT(A) AND DISMISS THE APP EAL OF THE REVENUE. 18. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 22/01/2010 MAHATA/- ORDER PRONOUNCED IN OPEN COURT ON 22/01/2010 ITA NOS.2540 & 2541/AHD/2002 ASST. YEAR 1997-98 & 1998-99 14 COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD