# RAMNATH & CO v. THE COMMISSIONER OF INCOME TAX

- **Citation:** [2020] 6 S.C.R. 719
- **Court:** Supreme Court of India
- **Decided:** 2020-06-05
- **Case number:** Civil Appeal Nos. 2506-2509 of 2020
- **Bench:** A. M. Khanwilkar, Dinesh Maheshwari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ramnath-co-v-the-commissioner-of-income-tax-34606
- **Pages:** 82

## Headnote

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
[2020] 6 S.C.R. 719
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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 construe

## Text

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RAMNATH & CO.
v.
THE COMMISSIONER OF INCOME TAX
(Civil Appeal Nos. 2506-2509 of 2020)
JUNE 05, 2020
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
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
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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
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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
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX
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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
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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.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX
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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.
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Case Law Reference
[2018] 7 SCR 1191
followed
Para 17
[2017] 1 SCR 158
distinguished
Para 22
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 25062509 of 2020.
From the Judgment and Order dated 09.06.2016 of the High Court
of Kerala at Ernakulam in ITA Nos. 132/2002, 11/2003, ITA Nos. 761/
2009 & 294/2009.
With
C.A. No. 2510 of 2020
S. Ganesh, Arijit Prasad, Sr. Advs., Anil D. Nair, Prakash Ranjan
Nayak, Ms. Purnima Bhat, Ms. Shirin Khajuria, and Mrs. Anil Katiyar,
Advs. for the appearing parties.
The Judgment of the Court was delivered by
DINESH MAHESHWARI, J.
PRELIMINARY WITH BRIEF OUTLINE
1. Leave granted.
2. The short point calling for determination in these appeals against
the common judgment dated 09.06.2016 passed by the High Court of
Kerala at Ernakulam in a batch of appeals is as to whether the income
received by the appellants in foreign exchange, for the services provided
by them to foreign enterprises, qualifies for deduction under Section 80O of the Income Tax Act, 19611, as applicable during the respective
assessment years from 1993-94 to 1997-98.
3. Put in a nutshell, the question involved in these appeals has
arisen in the backdrop of facts that the appellants herein, who had been
engaged in providing services to certain foreign buyers of frozen seafood
and/or marine products and had received service charges from such
foreign buyers/enterprises in foreign exchange, claimed deduction under
Section 80-O of the Act of 1961, as applicable for the relevant assessment
year/s. In both these cases, the respective Assessing Officer/s2 denied
such claim for deduction essentially with the finding that the services
1 Hereinafter also referred to as 'the Act of 1961' or 'the Act'
2 'AO' for short
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rendered by respective assessees were the 'services rendered in India'
and not the 'services rendered from India' and, therefore, the service
charges received by the assessees from the foreign enterprises did not
qualify for deduction in view of clause (iii) of the Explanation to Section
80-O of the Act of 1961. After different orders from the respective
Appellate Authorities, the Income Tax Appellate Tribunal3, Cochin Bench
accepted the claim for such deduction under Section 80-O of the Act
with the finding in case of the assessee Ramnath & Co.4 for the
assessment year 1993-94 that as per the agreements with the referred
foreign enterprises, the assessee had passed on the necessary information
which were utilised by the foreign enterprises concerned to make a
decision either to purchase or not to purchase; and hence, it were a
service rendered from India. The same decision was followed by ITAT
in the case of this assessee for other assessment years under
consideration as also in the case of other assessee M/s Laxmi Agencies5.
The revenue preferred appeals before the High Court against the orders
so passed by ITAT in favour of the present appellants as also a few
other assessees. These appeals have been considered together by the
High Court of Kerala; and similar questions regarding eligibility for
deduction under Section 80-O of the Act in relation to the similarly
circumstanced assessees have been decided by the impugned common
judgment dated 09.06.2016. The High Court has essentially held that the
assessees were merely marine product procuring agents for the foreign
enterprises, without any claim for expertise capable of being used abroad
rather than in India and hence, the services rendered by them do not
qualify as the 'services rendered from India', for the purpose of Section
80-O of the Act of 1961. Therefore, the High Court has allowed the
appeals of revenue while setting aside the respective orders of ITAT.
Aggrieved, the assessees have preferred these appeals6.
4. The basic factual and background aspects relating to the two
assessees in appeal before us are more or less similar in nature but,
3 'ITAT' for short
4 Related with the appeal arising out of SLP (Civil) Nos. 23535-23538 of 2016.
5 Related with the appeal arising out of SLP(Civil) No. 23699 of 2016.
6 The appeals herein relate to ITA Nos. 132 of 2002, 11 of 2003, 761 of 2009 and 294
of 2009 as also ITA No. 771 of 2009, decided by High Court in the common impugned
judgment dated 09.06.2016, rendered in the batch of appeals led by ITA No. 131 of
2002.
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having regard to the position that ITAT had decided all other appeals
based on its order dated 19.11.2001 for the assessment year 1993-94 in
relation to the assessee-appellant Ramnath & Co. and the High Court
has also rendered common judgment essentially with reference to the
facts relating to this assessee (with other assessees having adopted the
same contentions), it appears appropriate to elucidate the same facts
and background aspects for dealing with the questions raised in these
appeals.
RELEVANT FACTUAL AND BACKGROUND ASPECTS:
5. The appellant Ramnath & Co. is a firm engaged in the business
of providing services to foreign buyers of Indian marine products. The
appellant filed its return of income for the assessment year 1993-1994
on 29.10.1993 declaring total taxable income at Rs. 6,21,710/- while
claiming 50% deduction (amounting to Rs. 22,39,825/-) under Section
80-O of the Act in relation to the amount of Rs. 44,79,649/- received by
it as service charges from foreign enterprises7.
5.1. While asserting its claim for such deduction under Section
80-O of the Act, the appellant submitted that it had rendered myriad
services to the foreign enterprises like: (i) locating reliable source of
quality and assured supply of frozen seafood for the purpose of import
and communicating its expert opinion and advice in that regard; (ii) keeping
a close liaison with agencies concerned for bacteriological analysis and
communicating the result of inspection together with expert comments
and advice; (iii) making available full and detailed analysis of seafood
supply situation and prices; (iv) advising and informing about the latest
trends in manufacturing and markets; and (v) negotiating and finalising
the prices for Indian exporters of frozen marines products and
communicating such other related information to the foreign enterprises.
The appellant claimed that pursuant to the terms and conditions of the
agreements with the foreign enterprises, it had received the said service
charges; and its services had directly and indirectly assisted the foreign
enterprises to organise, develop, regulate and improve their business.
7 It was noticed by the Assessing Officer in the assessment order dated 28.03.1996 that
the assessee had been in the business of marine products export since a very long time;
and until the assessment year 1992-93, the assessee had been claiming deduction under
Section 80HHC of the Act of 1961, which provides for deduction in respect of profits
derived from export of the specified class of goods or merchandise.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX
[DINESH MAHESHWARI, J.]
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5.2. In regard to such claim for deduction under Section 80-O of
the Act, the AO, by his letter dated 29.01.1996, raised the following
queries and sought clarifications from the appellant:-
"1. The location of services rendered by the assessee may be
mentioned if there are any services rendered outside India.
2. Whether the technical/professional services rendered by the
assessee were utilized by the foreign enterprises anywhere in
India or outside India independently of the assessee.
3. Whether the technical/professional services rendered by the
assessee were utilized by the foreign enterprises, in India,
independently and without the assessee.
4. To clarify whether the technical/professional services rendered
by the assessee are capable or being made use of by the foreign
enterprises independently and without the assessee."
5.3. In response, the appellant justified its claim for deduction
under Section 80-O of the Act by way of its letter dated 19.02.1996
while asserting as under:
"1. The technical/professional services rendered by us are "from
India".
2. Foreign buyers to whom we have rendered these services are
located in Japan, U.S.A., U.K. and France. None of these foreign
enterprises have utilized our services in any part of India. But the
entire benefit of our services were utilized by them in effectively
distributing and marketing the Indian sea-foods in their respective
countries.
3. We would like to emphasize that the foreign enterprises have
no place of business in India nor do they market any goods or
services in India.
4. Without services the import of marine products from India by
the foreign enterprises will not be possible."
5.4. In his assessment order dated 28.03.1996, the Assessing
Officer proceeded to analyse the agreements of the appellant with the
two foreign enterprises and reproduced the relevant terms thereof in
extenso. This part of the order of the AO, containing material terms of
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agreements, being relevant for the present purpose, is reproduced as
under: -
"In the context of the above claim of the assessee, it is necessary
to go through the agreements entered into by the assessee with
the foreign enterprises to find out the nature of the relationship of
the assessee with the foreign enterprises. I have gone through
the agreements entered into by the assessee with HOKO Fishingco
Ltd. is captioned agreement regarding marine products and that
with GELAZURE S.A. is captioned agency agreement regarding
marine products. Articles 1 to 4 of the agreement with HOKO
fishing Co. Ltd. reads as under:-
Article 1: HOKO desires to avail of the benefit of the commercial
and technical knowledge experience and skill of "RCCN foods/Marine products of good quality and on
favourable terms and is willing to remunerate "RC-CN"
for use of such commercial and technical knowledge,
expert and skill and other related services.
Article 2: "RC-CN agrees to render to "HOKO" the following
services on a continuing basis.
a) Locating reliable sources of quality and assured supply
of frozen seafood/marine products for the purpose of
import by HOK and communicate its expert opinion
and advice to HOKO."
b) In addition to the above services rendered by "RCCN, it will also keep a close liaison with agencies such
as EIA/LLOYDS/SGS especially for organoleptic/
bacteriological analysis and communicate the results of
inspection along with its expert comment and advise.
c) Making available full and detailed analysis of the sea
food supply situation and prices.
d) To advise HOKO and keep them informed of the
latest trends/processes application in manufacturing and
of all valuable commercial and economic information
about the markets. Government Policies, exchange
fluctuations, banking laws which will directly or
indirectly assist HOKO to organize, develop control or
regulate their import business from India.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX
[DINESH MAHESHWARI, J.]
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e) To negotiate and finalize prices for Indian Exporters
of frozen marine products and to communicate such
and other related information to HOKO.
Article 5 RC-CN" shall also do everything that is required to
ensure highest standards of quality hygiene and
freshness of products including supervision at various
stages.
Article 4: HOKO pays to RC-CN 0.7% of the invoice amount on
the C & F basis and US$ 2,000.00 per month as
commission. When the quality of goods is found to be
unsatisfactory to HOKO after inspection in Japan,
HOKO shall have no responsibility to pay the agent
fee."
Similarly, articles 1 to 4 of the Agreement with GELAZUR S.A
read as under:-
Article 1: 'GELAZUR appoints RAMNATH" as agent to operate
in priority their purchases in frozen seafood's products
in India.
Article 2: RAMNATH' does the following business as Agent on
behalf of GELAZUR."
1) To negotiate with the local packers for the purchase of the
frozen seafood products which 'GELAZUR' requires:
2) To give "GELAZUR' all the accurate information in respect of
the standard, quantity, price, quality, time of shipment, etc. promptly,
whenever the purchase of the products is made
3) To carry out technical guidance for processing and for quality
control and inspection of the products and to advise
"GELAZURE" of the results.
4)To inform GELAZURE' regularly about the market situation,
i.e. fishing situation, prices paid by other markets, prices paid by
French competitors, business opportunities, monthly supplies of
seafood-data.
Article 3: After reception of the goods, GELAZURE' will pay
RAMNATH" commissions calculated on the following
basis:
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-CHAM ICE/Porbandar-Veraval-Bombay:
Cephalepods or Fishes : 1.5% of the C+F Value
Shripps-Lobsters:
0.75% of the C+F Value
OTHER PACKERS
SHRIMPS & LOBSERS: 1% OF THE C+F value
Squids, cuttlefish, Cockies
Mussels and other Fishes:
USD O.65/Kg
When the quality and the packaging of the goods are
found to be unsatisfactory to 'GELAZUR" after
inspection in FRANCE, GELAZURE, shall have no
responsibility regarding the payment of the Agent's fee.
Article 4: If any claim arises out of or in relation to the purchases
of products for which 'GELAZUR' has no responsibility,
RAMNATH will do their best to settle the claim through
negotiation with manufacturers. The settlement of the
claim will have to be carried out 60 days after the
reception of the goods."8
5.5. Having examined the contents of two agreements, the
Assessing Officer did not feel convinced with the claim that the appellant
had been rendering services from India so as to qualify for deduction
under Explanation (iii) to Section 80-O of the Act. The Assessing Officer
was firmly of the view that the appellant had worked only as an agent of
the foreign enterprises in the matter of procurement of marine products
from India; and all the services envisaged in the agreements were
incidental to the carrying out of main function as agent. The Assessing
Officer recorded his observations and findings as follows: -
"....A close study of the articles extracted above, would establish
that the assessee is merely an agent of the foreign enterprises in
India in the matter of procurement of marine products from India.
All the services which are required to be carried out by the assessee
in terms of the agreements are incidental to the carrying out of
the primary function of acting as an agent. The assessee's role is
8 Note: In the papers placed on record, the name of this foreign company has been
mentioned both as 'GELAZUR' and 'GELAZURE'. We have retained the particulars
in extractions as stated in the respective papers but in our discussion, have referred it
as 'GELAZUR'.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX
[DINESH MAHESHWARI, J.]
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to act on behalf of the foreign principals within the limits allowed
by them. In terms of the agreements, the assessee negotiates
with local packers with regard to quality, quantity and price. On
behalf of the principals, the assessee carries out technical guidance
for processing and for quality control and also inspection of the
products and also keeps close liaison with various agencies. These
are definitely services rendered in India and cannot be construed
as services rendered from India merely relying on the facts that
the foreign principals are advised of the results and that they are
stationed outside India. It is true that as per agreement, the
assessee was to supply certain information of a general nature
regarding markets, government policies, exchange fluctuations,
banking laws, prices paid by competitors, monthly supplies of
seafood data etc. However, the agreements do not envisage any
payment of separate in commission or service charge for such
information. The commission is payable to the assessee as a
percentage of the C & F value of the imports by the foreign
enterprises through the assessee. However, the payment of
commission is conditional on the foreign enterprises finding
the quality of goods satisfactory. This would reinforce my
earlier observation that the assessee is only an agent of
the foreign enterprises in the matter of procurement of
marine products from India and all the services envisaged in
the agreement are incidental to the carrying out of the main function
as agent. It is also not as if the foreign enterprises completely
stayed away from India. Though it might be a fact that none of
the foreign enterprises had any office or branch anywhere in India,
available information indicates that the representatives of the
foreign enterprises used to visit India in connection with the
procurement of marine products from various packers in India
and it fell upon the assessee to take these persons to the processing
facilities of various suppliers with a view to ensure quality and
hygiene standards. This is evident from the fact that a sum of
Rs.23,122/- has been incurred by the assessee during the visit of
buyers, representatives to various seafood packers in Calcutta,
Bombay vizag, Madras Nandapam, Cochin, Calicut etc. Expenses
for souvenirs, compliments and samples of the value of
Rs.29,411.99 have also been incurred presumably in connection
with the visit of the representatives of the foreign buyers. By any
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stretch of imagination, it cannot be claimed that the services
rendered on the occasions of the visit of the representatives of
foreign enterprises were not rendered in India. The foreign travels
undertaken by the Managing Partner for meeting various buyers
can been seen as only an extension of the assessee's role as an
agent of the foreign enterprises in India. An agent of a foreign
enterprise in India necessarily acts on behalf of the foreign
enterprise in India, and therefore, the services, namely
carrying out inspections to ensure quality of the products
and packaging, supervision of processing, negotiating prices
in respect of marine products exported with the assistance
of the assessee, could not have been rendered outside India
as the parties to be contacted, products to be inspected,
processing to the supervised etc. were situated in India
only. In my view services that are incapable of being rendered
outside India will not come under the category of services that
can be rendered from India. Therefore, there is no merit in the
contention of the assessee that these services were rendered from
India but not within India...."
(emphasis in bold supplied)
5.6. The appellant also relied upon Circular No. 700 dated
23.03.1995 issued by the Central Board of Direct Taxes9 in support of
its contentions. The Assessing Officer distinguished the matter dealt
with by the said Circular from that involved in the present case in the
following passage: -
".....The assessee also strongly relies on circular No.700 dated
23/3/95 issued by the C.B.D.T. In my view, the reliance on the
above circular by the assessee to buttress its case is misplaced.
Para 3 & 4 of the above circular which are quits relevant, reads
as under : -
"3. A question has been raised as to whether the benefit of
Section 80-O would be available if the technical and professional
services, though rendered outside India, are used by the foreign
government or enterprise in India.
"4. The matter has been considered by the Board. It is clarified
that as long as the technical and professional services are
9 'CBDT' for short
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX
[DINESH MAHESHWARI, J.]
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rendered from India and are received by a foreign government
or enterprise outside India deduction under Section 80-O would
be available to the person rendering the services even if the
foreign recipient of the services utilizes the benefit of such
services in India."
As is clear from the above, the C.B.D.T. was dealing with a
question whether deduction under Section 80-O could be denied
on the ground that the foreign enterprise uses the services rendered
outside India, in India. It has been clarified that merely because
the foreign enterprises utilized the benefit of services rendered
outside India, the deduction under Section 80-O cannot be denied.
In the case before the C.B.D.T, there was not dispute as to where
the technical services were rendered. In the case before me, there
is absolutely no scope for doubt that the services as an agent
were rendered by the assessee in India only. In 132 ITR 637, the
Bombay High Court held that an assessee acting as a mere
employment recruiting bureau was not entitled for deduction under
Section 80-O and the services rendered in locating prospective
candidates and collecting their bio-datas and conveying names of
candidates to foreign employers did not represent services rendered
outside India. Similarly, in 145 ITR 673 in the case of Searls (India)
Ltd, the same High Court ruled that testing of samples in India
and giving results and certificate to foreign company did represent
technical services rendered outside India. In view of the forgoing
discussion, I would hold that the assessee is not entitled for
deduction u/s 80-O as the services made available to the foreign
enterprises were rendered in India."
5.7. In the aforesaid view of the matter, the AO disallowed the
claim for deduction under Section 80-O of the Act.
5.8. In the appeal taken by the appellant, the Appellate Authority
did not agree with the opinion of the Assessing Officer, particularly with
reference to the decision of Delhi High Court in the case E.P.W. Da
Costa and Ors. v. Union of India: (1980) 121 ITR 751 (Delhi) and
a decision of ITAT Delhi, D Bench in the case of Capt. K. C. Saigal v.
Income Tax Officer: (1995) 54 ITD 488 (Delhi) and hence, allowed
the appeal while observing, inter alia, as under: -
"14......In the present case, there is no dispute that the appellant
is supplying information with regard to the markets, government
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policies, exchange fluctuations, banking laws, data with regard to
monthly supply of sea-food etc. to the foreign enterprises.
Secondly, even if the appellant is a mere agent of the foreign
enterprises, he is bringing the foreign enterprises in contact
with the manufacturers or processors of shrimps, lobsters
etc. and negotiating with the local packers and is locating
sources of frozen sea-foods for the foreign enterprises.
Though the various items of activity are rendered in India, they
are done on behalf of the foreign enterprises and the market
and other information had been supplied from India to the foreign
enterprises.
15. In section 80-O, Explanation (iii) reads as under : -
"Services rendered or agreed to be rendered outside India shall
include services rendered from India but shall not include
services rendered in India".
The word "from" means "out of" or "springing out of". Thus,
'from India' necessarily means that some of the activities will
spring out of or will be in India because the services are rendered
from India. In this connection, I am of the view that the decision
of the Delhi High Court in E.P.W. De Costa & Another vs. Union
of India (121 ITR 751) is really applicable to the facts of the case.
The services rendered with regard to assessing the radio-listening
habits of the people were rendered in India i.e. The data had been
collected in India. However, it was held that a mere mass of
information without analysis and without being understandable
would not be of use to the B.B.C. The information is not,
therefore, mere data but scientific knowledge. In the present
case, the appellant has located reliable source of quality and
assured supply of frozen sea-food products to the various foreign
enterprises at Japan, France and other countries and supplied
information with regard to sea-food processing, manufacturing
details and also government policies, exchange fluctuations etc.
to the foreign enterprises. The appellant has negotiated and
finalised prices for the Indian exporters of frozen sea-food products
and communicated the same to the foreign enterprises. Thus, the
appellant has rendered the services from India to these foreign
enterprises. That the appellant's information and experience have
been effectively utilised by the foreign enterprises can be seen
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX
[DINESH MAHESHWARI, J.]
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from the fact that the export effected by the appellant-concern
have risen from 20 crores in the AY 1991-92 to 100 crores by AY
1996-97. For the year under consideration, the exports are
approximately 60 crores on which the appellant has earned a
commission of Rs. 44.79 lakhs.
16. The major issue to be decided in this case is whether the
services rendered by the appellant can be said to be 'from India'.
On the facts and circumstances of the case, I am of the opinion
that the services have been rendered from India and hence, the
appellant is eligible for deduction u/s 80-O, especially in view of
the decision of the Delhi High Court in E.P.W. De Costa & Another
vs. Union of India (121 ITR 751) and the I.T.A.T. Delhi 'D' Bench
decision in the case of Capt. K. C. Saigal vs. I.T.O. (54 ITD
488)."
(emphasis in bold supplied)
5.9. Aggrieved by the decision aforesaid, the revenue preferred
appeal before the ITAT, being ITA No. 84/Coch/1997, that was considered
and decided by ITAT by its order dated 19.11.2001. The ITAT took note
of the history of introduction of Chapter VI-A and Section 80-O to the
Act of 1961 by the Finance (No. 2) Act, 1967 as also the fact that
Section 80-O had undergone several amendments over the course of
time. The ITAT concurred with the findings of the Appellate Authority
that the services rendered by the appellant, which helped the foreign
parties to import marine products from India, had been specialised and
technical services and thereby, the appellant was entitled to claim
deduction under Section 80-O of the Act. The ITAT observed and held,
inter alia, as follows: -
"9. The case of the Revenue is that the assessee has rendered
services only in India and not from India. The services that entitle
the assessee for the benefit under Section 80-O should be of such
nature that it can only be rendered outside India and not services
that are capable of being rendered in India.