B. L. Passi vs Commissioner of Income Tax, Delhi

HELD: 1.1 Provisions similar to Section 80-O of the Act were originally in the former Section 85-C of the 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 the Finance (No. 2) Act, 1967. While moving the bill relevant to the Finance Act No. 2 of 1967, the then Finance Minister highlighted the 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 the object 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. [Para 12] [503-H; 504-A-C]

1.2. In the instant case, it is evident from record that the major information sent by the Appellant to the foreign company was in the form of blue prints for the manufacture of dies for stamping of doors. Several letters were exchanged between the parties but there was nothing on record as to how this blue print was obtained and dispatched to the said company. Also, the Appellant has not furnished the copy of the blue print which was sent to the foreign company before the Assessing Officer nor was it submitted before the Appellate authority and the Tribunal. The provisions of Section 80-O of the IT Act mandate the production of document in respect of which relief has been sought. The blue prints made available by the Appellant to the foreign company can be considered as technical assistance provided by the Appellant to the foreign company in the circumstances if the description of the blue prints is available on record. The said blue prints were not even produced before the lower authorities. In such scenario, when the claim of the Appellant is solely relying upon the technical assistance rendered to the foreign company in the form of blue prints, its unavailability creates a doubt and burden of proof is on the Appellant to prove that on the basis of those blue prints, the foreign company was able to start up their business in India and he was paid the amount as service charge. Further, with regard to the remuneration to be paid to the Appellant for the services rendered, in terms of the letter dated 25.01.1995, it has been specifically referred that the remuneration would be payable for the commercial and industrial information supplied only if the business plans prepared by the Appellant results positively i.e it will pay service charges on sales of its products so developed but there was nothing on record to prove that any product was so developed by the foreign company on the basis of the blue prints supplied by the Appellant as also that the foreign company 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 the foreign company 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. [Paras 13, 16, 17] [504-D-E; 505-E-G; 506-A-B]

2. In the present facts and circumstances of the case, the services of managing agent, i.e., the Appellant, rendered to a foreign company, are not technical services within the meaning of Section 80-O of the IT Act. The Appellant failed to prove that he rendered technical services to the foreign company and also the relevant documents to prove the basis for alleged payment by the foreign company to him. The letters exchanged between the parties cannot be claimed for getting deduction under Section 80-O of the IT Act. It is settled law that the expressions used in a taxing statute would ordinarily be understood in the sense in which it is harmonious with the object of the Statute to effectuate the legislative animation. The Appellant was a managing agent and the High Court was right in holding the principal agent relationship between the parties and there is no basis for grant of deduction to the Appellant under Section 80-O of the IT Act. [Paras 18, 19] [506-D; 506-E]

J. K. (Bombay) Ltd. v. Central Board of Direct Taxes and Another (1979) 118 ITR 312 (Del.) – referred to.