Supplying blue prints can be considered as technical services u/s 80-O but deduction rightly denied as they were not produced before lower authorities-Supreme Court
The instant appeal had been filed against the judgment passed by the High Court of Delhi whereby the Division Bench dismissed the appeal filed by the appellant
ABCAUS Case Law Citation:
ABCAUS 2302 (2018) (04) SC
The Appellant had struck a deal with a foreign Corporation (‘the corporation’) with regard to the information about the market conditions existing in the Indian automobile industry, specific information regarding manufacturers of automobiles in India, about the market position, credibility and the product acceptance of each of those manufacturers, to provide pre-information regarding the proposal to launch any new product by any of the manufacturers in India, to provide suggestions for development of automobile parts/dies for manufacture of automobile body parts conforming to the specific needs of the manufacturers of automobiles in India, to provide services and support as may be reasonably required in connection with the development and manufacture of the products in Japan for sale in India and to advise the Corporation of legal laws and regulations applicable in India relating to the importation and/or sale of its products in India etc.
The services so rendered by the Appellant were required to be used by the Corporation for establishing its business in the Indian automobile industry.
The corporation entered into a contract with the Appellant under which the services of the Appellant and also agreed to pay remuneration at the rate of 5% of the contractual amount between the corporation and its Indian customers on sales of its products so developed. The Appellant claimed to have supplied to the said corporation the industrial and commercial knowledge, information about market conditions and Indian manufacturers of automobiles and also technical assistance as required by the Corporation.
It was claimed that the Corporation bagged an order in respect of as a result of use of specialized, commercial and industrial knowledge and professional services rendered by the appellant.
The Appellant assessee had filed his return claiming deduction u/s 80-O of the Income Tax Act, 1961 (‘Act’) on gross foreign exchange receipt received from a the Corporation.
The case of the appellant was selected for scrutiny. The AO completed the assessment and rejected the claim u/s 80-O.
Being aggrieved, the appellant preferred an appeal before the Commissioner of Income Tax(Appeals) who allowed the appeal and held that the Appellant is entitled to deduction under Section 80-O of the Act.
The Tribunal however allowed the appeal of the Revenue. The Appellant approached the High Court challenging the order of the Tribunal, however the Division Bench of the High Court dismissed the appeal of the assessee.
Thus, the sole point for consideration before the Hon’ble Supreme Court was whether the appellant is entitled to deduction under Section 80-O of the IT Act under the facts and circumstances of the present case?
The Hon’ble Supreme Court observed that the object of the section 80-O was to encourage Indian companies to develop technical know-how and to make it available to foreign companies so as to augment the foreign exchange earnings of this country and establish a reputation of Indian technical know-how for foreign countries. The objective was to secure that the deduction under the section shall be allowed with reference to the 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 the Foreign Exchange Regulations.
It was observed that the major information sent by the Appellant to the Corporation was in the form of blue prints for the manufacture of dies for stamping of doors. However the copy of the blue print which were not produced neither before the Assessing Officer nor before the Appellate authority nor before the Tribunal.
It was observed that the provisions of Section 80-O of the Act mandate the production of document in respect of which relief is sought, therefore, it was to be examined whether services rendered in the form of blue prints and information provided by the appellant fall within the ambit of Section 80-O of the Act or any of the conditions stipulated therein in order to entitled the assessee to claim deduction.
The Hon’ble Supreme Court analysed the term ‘technical assistance’ and opined that the said blue prints can be considered as technical assistance provided by the appellant to the Corporation in the circumstances, however non production of the same before lower authorities, the claim solely relying upon the blue prints creates a doubt and burden of proof was on the appellant to prove that on the basis of those blue prints, the Corporation was able to start up their business in India and he was paid the amount as service charge.
Also, as per the terms, remuneration was payable for the commercial and industrial information supplied only if the business plans prepared by the appellant resulted positively but there was nothing on record to prove that any product was so developed by the Corporation on the basis of the blue prints supplied by the appellant as also that the Corporation was able to sell any product developed by it by using the information supplied by the Appellant. Meaning thereby, there is no material on record to prove the sales effected by Corporation to its customers in India in respect of any product developed with the assistance of Appellant’s information and also on as to how the service charges payable to appellant were computed.
Hence It was held that the services of managing agent, i.e., the appellant, rendered to a foreign company, were not technical services within the meaning of Section 80-O of the Act as the appellant failed to prove that he rendered technical services.
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