Income Tax Act, 1961 – s. 80-O – The appellants-assessees were engaged in providing services to certain foreign buyers of frozen seafood and/ or marine products – Appellants claimed that income received by them for services provided to foreign enterprises qualifies for deduction u/s. 80-O of the Income Tax Act, as applicable during the respective assessment years from 1993-94 to 1997-98 – Appellants contended that they provided technical guidance or advice or information to the foreign enterprises – Held: All the clauses of the agreements read together make it absolutely clear that the appellant was merely a procuring agent and it was his responsibility to ensure that proper goods are supplied in proper packing to the satisfaction of the principal – Significantly, the payment to the appellant, whatever label it might have carried, was only on the basis of the amount of invoice pertaining to the goods – There had not been any provision for any specific payment referable to the so-called analysis or technical guidance or advice – Services provided by the appellant as agent were rendered in India – Even if certain information was sent by the assessee to the principals, the information did not fall in the category of such professional services or information which could justify its claim for deduction u/s. 80-O of the Act – Further, default clauses in the agreement made it more clear that if quality of goods was found to be unsatisfactory to principals, then they shall have no responsibility to pay agent’s fees – If at all it had been a matter of the appellant furnishing some technical information, the appellant was likely to receive some professional charges, however, agreement provided for no payment in case of dissatisfaction with goods – Besides, the appellants failed to establish as to what was such information of special nature or of expertise that was given by it and how the same was utilised, if at all, by the foreign enterprises and how much of the foreign exchange receipt was attributable to such special service – Hence, the services rendered by appellants do not qualify for the purposes of s. 80-O of the Act.
Interpretation of Statutes – Tax incentive provisions – Held: The principles laid down in Constitution Bench in Dilip Kumar & Co., when applied to incentive provisions like those for deduction, would be that the burden lies on the assessee to prove its applicability to his case; and if there be any ambiguity in the deduction clause, the same is subject to strict interpretation with the result that the benefit of such ambiguity cannot be claimed by the assessee; rather it would be interpreted in favour of the revenue. Dismissing the appeals, the Court
HELD: 1. The principles laid down by the Constitution Bench, when applied to incentive provisions like those for deduction, would also be that the burden lies on the assessee to prove its applicability to his case; and if there be any ambiguity in the deduction clause, the same is subject to strict interpretation with the result that the benefit of such ambiguity cannot be claimed by the assessee, rather it would be interpreted in favour of the revenue. In view of the Constitution Bench decision in Dilip Kumar & Co., the generalised observations in Baby Marine Exports with reference to a few other decisions, that a tax incentive provision must receive liberal interpretation, cannot be considered to be a sound statement of law; rather the applicable principles would be those enunciated in Wood Papers Ltd., which have been precisely approved by the Constitution Bench. Thus, at and until the stage of finding out eligibility to claim deduction, the ambit and scope of the provision for the purpose of its applicability cannot be expanded or widened and remains subject to strict interpretation but, once eligibility is decided in favour of the person claiming such deduction, it could be construed liberally in regard to other requirements, which may be formal or directory in nature. [Para 20][775-E-F; 776-AC]
2. It remains trite that any process of construction of a written text primarily begins with comprehension of the plain language used. In such process of comprehension of a statutory provision, the meaning of any word or phrase used therein has to be understood in its natural, ordinary or grammatical meaning unless that leads to some absurdity or unless the object of the statute suggests to the contrary. In the context of taxing statute, the requirement of looking plainly at the language is more pronounced with no room for intendment or presumption. In this process, if natural, ordinary or grammatical meaning of any word or phrase is available unquestionably and fits in the scheme and object of the statute, the same could be, rather need to be, applied. The other guiding rules of interpretation would be the internal aides like definition or interpretation clauses in the statute itself. Yet further, if internal aides do not complete the comprehension, recourse to external aides like those of judicial decisions expounding the meaning of the words used in construing the statutes in pari materia, or effect of usage and practice etc., is not unknown; and in this very sequence, it is an accepted principle that when a word is not defined in the enactment itself, it is permissible to refer to the dictionaries to find out the general sense in which the word is understood in common parlance. In fact, for the purpose of gathering ordinary meaning of any expression, recourse to its dictionary meaning is rather interlaced in the literal rule of interpretation. [Para 22.1][777-A-E; 778-A]
3. The agreements of the appellant with the foreign entities primarily show that the appellant was essentially to ensure supply of enough quantity of good quality merchandise in proper packing and at competitive prices to the satisfaction of the principals. This has essentially been the job of a procuring agent. Though the expressions “expert information and advice”, “analysis”, “technical guidance” etc., have been used in the agreements but, these expressions cannot be read out of context and de hors the purpose of the agreement. All the clauses of the agreements read together make it absolutely clear that the appellant was merely a procuring agent and it was his responsibility to ensure that proper goods are supplied in proper packing to the satisfaction of the principal. All other services or activities mentioned in the agreements were only incidental to its main functioning as agent. Significantly, the payment to the appellant, whatever label it might have carried, was only on the basis of the amount of invoice pertaining to the goods. There had not been any provision for any specific payment referable to the so-called analysis or technical guidance or advice. Viewed from any angle, the services of the appellant were nothing but of an agent, who was procuring the merchandise for its principals; and such services by the appellant, as agent, were rendered in India. Even if certain information was sent by the assessee to the principals, the information did not fall in the category of such professional services or information which could justify its claim for deduction under Section 80-O of the Act. In other words, in the holistic view of the terms of the agreements, this Court does not has an iota of doubt that the appellant was only a procuring agent, as rightly described by the High Court. [Para 32][793-G-H; 794-A-D]
4. In both the agreements, the default clauses make it more than clear that if the quality of goods was found to be unsatisfactory to the principals after inspection in their respective countries, they shall have no responsibility to pay the agent’s fees. If at all it had been a matter of the appellant furnishing some technical or material information which served the foreign enterprises in making the decision for procurement, in the ordinary circumstances, after completion of such service and its utilization by the foreign enterprises, the appellant was likely to receive the professional service charges for furnishing such information but, contrary and converse to it, the agreements provide for no payment to the appellant in case of principal being dissatisfied with goods. These default clauses effectively demolish the case of the appellant and fortify the submissions of the revenue that the appellant was merely a procuring agent and nothing more. [Para 33.1][795-A-C]
5. The matter can be viewed from yet another angle, as indicated by the High Court in the last paragraph of its judgment. If at all it be assumed that out of various tasks mentioned in the agreements, some of them involved such services which answered to the requirements of Section 80-O, it was definitely required of the appellant to establish as to what had been such information of special nature or of expertise that was given by it and how the same was utilised, if at all, by the foreign enterprises; and how much of the foreign exchange receipt was attributable to such special service. Obviously, the appellant did not supply such particulars. As noticed, the High Court posed a pointed query to the learned counsel appearing for the appellant as to whether all the services mentioned in the agreement would come within the purview of Section 80-O. The cryptic response to this query on behalf to the appellant 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 specifically contended on behalf of the appellant that establishing ‘which of its services qualifies for the deduction is of no consequence, rather unnecessary’. In view of this Court, this response was not in conformity with the requirements of Section 80-O of the Act, as explained and applied by this Court in Continental Construction and in B. L. Passi as also as applied by Madras High Court in Khursheed Anwar. Rather, this stand, in view of this Court, puts the final curtain on the appellant’s case because most of the services in the agreements in question were those of an agent ensuring supply; and if any part of the services co-related with Section 80-O, the particulars were of utmost significance and were fundamentally necessary which the appellant had never supplied. Merely for having a contract with a foreign enterprise and mere earning foreign exchange does not ipso facto lead to the application of Section 80-O of the Act. [Para 34][795D-H; 796-A]
Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co. and Ors. (2018) 9 SCC 1 : [2018] 7 SCR 1191; Commissioner of Wealth-Tax, Andhra Pradesh v. Officer-in-Charge (Court of Wards), Paigah (1976) 105 ITR 133 – followed.
M/s Continental Construction Ltd. v. Commissioner of Income Tax, Central-I (1992) 195 ITR 81 (SC); UOI v. Wood Papers Ltd. (1990) 4 SCC 256; CCE v. Hari Chand Shri Gopal (2011) 1 SCC 236; B. L. Passi v. Commissioner of Income-Tax 2018 (404) ITR 19 (SC) – relied on.
Abhiram Singh v. C.D. Commachen (Dead) by LRs. and Ors. (2017) 2 SCC 629 : [2017] 1 SCR 158; J. B. Boda & Co. Pvt. Ltd v. Central Board of Direct Taxes, New Delhi (1997) 223 ITR 271 (SC) – distinguished. Commissioner of Income Tax, Thiruvananthapuram v. Baby Marine Exports, Kollam (2007) 290 ITR 323 (SC); Central Board of Direct Taxes, New Delhi & Ors. v. Oberoi Hotels (India) Pvt. Ltd. (1998) 231 ITR 148 (SC); Commissioner of Income Tax-IV, Tamil Nadu v. B. Suresh (2009) 313 ITR 149 (SC); K. Ravindranathan Nair v. Commissioner of Income Tax, Ernakulam (2001)
247 ITR 178 (SC); Sea Pearl Industries v. CIT Cochin 2001(127) ELT 649 (SC); IPCA Laboratory Ltd. v. Dy. Commissioner of Income Tax, Mumbai (2004) 266 ITR 521(SC); Bajaj Tempo Ltd. v. Commissioner of Income Tax, Bombay (1992) 196 ITR 188 (SC); IPCA
Laboratory Ltd. v. Dy. Commissioner of Income Tax, Mumbai (2004) 266 ITR 521(SC); Bajaj Tempo Ltd. v. Commissioner of Income Tax, Bombay (1992) 196 ITR 188(SC); Sun Export Corpn. v. Collector of Customs (1997) 6 SCC 564; CCE v. Parle Exports (P) Ltd. (1989)
1 SCC 345; Liberty India v. CIT (2009) 9 SCC 328 – referred to.
E.P.W. Da Costa and Ors. v. Union of India (1980) 121 ITR 751 (Delhi); Capt. K. C. Saigal v. Income Tax Officer (1995) 54 ITD 488 (Delhi); Godrej & Boyce Mfg. Co. Ltd. v. S.B. Potnis, Chief Commissioner (1993)
203 ITR 947 (Bom); Commissioner of Income Tax v. Thomas Kurian (Dead) through LR Smt. Primari C. Thomas (2012) 72 DTR (Ker); 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); 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); Commissioner of Income Tax v. Khursheed Anwar
(2009) 311 ITR 468 (Mad) – referred to.
Crawford v. Spooner (1846) 4 MIA 179 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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