REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

                  CIVIL APPEAL NO. 3892 OF 2007

B.L. Passi  .... Appellant(s)

Versus

Commissioner of Income Tax, Delhi       .... Respondent(s)

                  J U D G M E N T

R.K. Agrawal, J.

1) The above  appeal  has  been filed  against  the  judgment

and order dated 13.12.2006 passed by the High Court of Delhi

in I.T. Appeal No. 1198 of 2006 whereby the Division Bench of

the  High Court  dismissed the  appeal  filed  by  the  appellant

herein  against  the  order  dated  10.10.2005  passed  by  the

Income  Tax  Appellate  Tribunal,  Delhi  Bench  (in  short  ‘the

Tribunal’) in ITA No. 1603/D/2002.

1

2) Brief facts:

(a) The Appellant herein filed return disclosing income of Rs.

57,40,360/-  for  the  Assessment  Year  (AY)  1997-98  while

claiming deduction of Rs. 58,87,045/- under Section 80-O of

the Income Tax Act,  1961 (in short ‘the IT Act’)  on a gross

foreign exchange  receipt  of  Rs.  1,17,74,090/-  received from

Sumitomo Corporation,  Japan.   Sumitomo Corporation  was

interested in supplying dies for manufacturing of body parts to

Indian automobile manufacturers and entered into a contract

with the Appellant under which the services of the Appellant

herein were engaged by using his specialized commercial and

industrial  knowledge  about  the  Indian automobile  industry.

Sumitomo Corporation also agreed to pay remuneration at the

rate  of  5%  of  the  contractual  amount  between  Sumitomo

Corporation and its Indian customers on sales of its products

so  developed.   The  Appellant  claimed  to  have  supplied  to

Sumitomo  Corporation  the  industrial  and  commercial

knowledge,  information about market conditions and Indian

manufacturers of automobiles and also technical assistance as

required by the Corporation.

2

(b) The case of the Appellant was selected for scrutiny by the

Income  Tax  Department,  Delhi  and  in  response  to  notice

under Section 143(2) of the IT Act, the Appellant along with

others attended the assessment proceedings from time to time

justifying the claim under Section 80-O of  the IT Act.   The

Assessing Officer, vide order dated 27.03.2000 under Section

143(3)  of  the  IT  Act  assessed  the  total  income  at  Rs.

1,18,43,060/-  and  determined  the  sum  payable  by  the

assessee to the tune of Rs. 43,25,960/-.  Being aggrieved by

the order dated 27.03.2000, the Appellant preferred an appeal

being No. 272/01-02 before the Commissioner of Income Tax

(Appeals)-XXVI,  New  Delhi.   The  Appellate  Authority,  vide

order dated 20.02.2002, partly allowed the appeal  and held

that the Appellant is entitled to deduction under Section 80-O

of the IT Act.  Being aggrieved by the order dated 20.02.2002,

the Revenue went in appeal before the Tribunal. The Tribunal,

vide order dated 10.10.2005, allowed the appeal filed by the

Revenue.  The Appellant approached the High Court by filing

I.T.  Appeal  No.  1198  of  2006  challenging  the  order  of  the

3

Tribunal  dated  10.10.2005  which  was  dismissed  on

13.12.2006 by a Division Bench of the High Court.

(c) Aggrieved by the judgment and order dated 13.12.2006,

the  Appellant  has  filed  this  appeal  by  way  of  special  leave

before this Court.

3) Heard  Mr.  Lakshmikumaran,  learned  counsel  for  the

Appellant and Mr. K. Radhakrishnan, learned senior counsel

for the Respondent and perused the records.

Point(s) for consideration:-

4) The  sole  point  for  consideration  before  this  Court  is

whether the Appellant is entitled to deduction under Section

80-O of the IT Act under the facts and circumstances of the

present case?

Rival contentions:-

5) Learned  counsel  for  the  Appellant  contended  that  the

Appellant  has fulfilled all the conditions as envisaged under

Section  80-O  of  the  IT  Act  inasmuch  as  he  was  providing

specialized, industrial  and commercial knowledge relating to

the Indian automobile industry and also detailed information

about  the  industry  in  India.   Learned  counsel  further

4

contended  that  the  Appellant  is  enjoying  a  very  good

professional  reputation  amongst  manufacturers  and  traders

and  having  a  vast  experience  of  the  Indian  automobile

industry.  The services so rendered by the  Appellant  were in

fact  rendered  and  the  payment  was  received  for  having

rendered those services.   Learned counsel  finally  contended

that  the High Court committed an error in considering it  a

principal-agent relationship and the order passed by the High

Court is liable to be set aside.   

6) Learned  senior  counsel  for  the  Respondent  submitted

that in order to claim deduction under Section 80-O of the IT

Act,  the  information  must  be  concerning  industrial,

commercial or scientific knowledge, experience or skill, which

is made available to the non-resident party and it is difficult to

hold  from  the  material  on  record  that  the  Appellant  was

having any information concerning industrial, commercial or

scientific  knowledge,  experience  or  skill  or  he  ever  had  in

possession of any blue prints.  Learned senior counsel further

submitted that the manner or circumstances under which the

proposed multipurpose vehicles of Telco under SAFARI project

5

were  finalized  are  not  clear  and  no  documents  have  been

produced  on  record  for  the  same.   Learned  senior  counsel

finally submitted that the decision rendered by the High Court

was right and no interference is sought for by this Court.

7) In rejoinder, learned counsel for the appellant contended

that  the  agreement  between  the  parties  satisfies  the

ingredients of Section 80-O of the IT Act entitling the Appellant

to get the benefit of deduction as the services rendered by the

appellant  were  in  the  nature  of  industrial  and  commercial

knowledge to a foreign enterprise.   

Discussion:-

8) The Appellant has claimed to have vast experience of the

Indian  automobile  industry  and  has  acquired  substantial

expertise  and  experience  and  is  in  a  position  to  supply

specialized commercial and industrial  information about the

automobile  industry  to  any  foreign  enterprise  looking  for

developing its market in India.  The Appellant struck a deal

with  the  Sumitomo  Corporation,  Japan  with  regard  to  the

information about the market conditions existing in the Indian

automobile  industry,  specific  information  regarding

6

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 Sumitomo Corporation of legal

laws  and  regulations  applicable  in  India  relating  to  the

importation and/or sale of its products in India etc.    

9) The services so rendered by the Appellant were required

to  be  used  by  Sumitomo  Corporation  for  establishing  its

business in the Indian automobile industry and he received a

sum  of  Rs.  1,17,73,940/-  on  account  of  technical  and

industrial  knowledge  and  professional  services  rendered  by

him in relation to the SAFARI project of TELCO.  It is his claim

that the Sumitomo Corporation bagged the order from TELCO

7

in respect of SAFARI project as a result of use of specialized,

commercial  and  industrial  knowledge  and  professional

services rendered by him.     

10) The Appellant filed the income tax return declaring an

income of Rs. 57,40,360/- which was selected for scrutiny by

the Income Tax Department.  While computing the income, a

deduction of Rs. 58,87,045/- was claimed under Section 80-O

of the Act on the gross receipts of Rs. 1,17,74,090/- received

from Sumitomo Corporation  of  Japan in  convertible  foreign

exchange in the name of M/s Pasco International wherein the

Appellant  was the sole proprietor.   It  was further explained

that he had received the above amount in convertible foreign

exchange as consideration for providing specialized industrial

and commercial knowledge relating to the Indian automobile

industry including therein the detailed information about the

industry, analyzing the government policies relating to Indian

automobile  industry  and  also  to  identify  opportunities  for

supply of  products of  M/s Sumitomo corporation to various

customers in India and hence he is entitled to claim deduction

under Section 80-O of the IT Act which had been claimed in

8

the return of income filed.  However, the Assessing Officer, by

order dated 27.03.2000, disallowed the claim of deduction of

Rs. 58,87,045/- under Section 80-O of the Act while holding

that  the  Appellant’s  services  do  not  qualify  for  deduction

under the relevant Section.

11) In the above backdrop,  it  is  essential  to  quote Section

80-O (unamended) of the IT Act which reads as under:-

“80-O.Deduction in respect of royalities etc. from 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, includes any income by way  of  royalty,  commission,  fee  or  any  similar  payment received by assessee from the Government of a foreign state or  foreign  enterprise  in  consideration  for  the  use  outside India of any patent, invention, model, design, secret formula or  process  or  similar  property  right,  or  information concerning  industrial,  commercial  or  scientific  knowledge, experience or skill made available of provided or agreed to be made available of provided to such Government or enterprise by  the  assessee,  or  inconsideration  of  technical  or professional  services  rendered  or  agreed  to  be  rendered outside  India  to  such  Government  or  enterprise  by  the assessee,  and  such  income received  in  convertible  foreign exchange  outside  India,  or  having  been  converted  into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings  in  foreign  exchange,  there  shall  be  allowed,  in accordance with and subject to provisions of this section, a deduction of an amount equal to fifty percent of income so received in , or brought into, India, in computing the total income of the assessee: Provided  that  such  income  is  received  in  India  within  a period of six months from the end of the previous year, or where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is,

9

for reasons beyond his control, unable to do so within the said period of six months, within such further period as a Chief Commissioner may allow in this behalf: Explanation for the purposes of this section:- (i)  “Convertible  foreign  exchange”  means  foreign  exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purpose of the law for the time being in force for regulating payments and dealing in foreign exchange. (ii) “foreign enterprise” means a person who is non resident. (iii) Services rendered or agreed to be rendered outside India shall  include  services  rendered  from  India  but  shall  not include services rendered in India.”

12) 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

10

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.

13) Now coming to the facts of the case at hand, it is evident

from record that the major information sent by the Appellant

to the Sumitomo Corporation 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 is nothing on

record as to how this blue print was obtained and dispatched

to the aforesaid company.  It is also evident on record that the

Appellant has not furnished the copy of the blue print which

was  sent  to  the  Sumitomo  Corporation  neither  before  the

Assessing Officer nor before the Appellate authority nor before

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.  We, therefore, have to examine whether the

11

services rendered in the form of blue prints and information

provided by the Appellant fall within the ambit of Section 80-O

of  the IT Act  or  any of  the conditions  stipulated therein in

order to entitle the assessee to claim deduction.    

14) In  New  Encyclopaedia  Britannica, where  the  term

“technical assistance” had been considered, it has been stated

that technical assistance may involve sending experts into the

field to teach skills and to help solve problems in their areas of

specialisation,  such  as  irrigation,  agriculture,  fisheries,

education,  public  health,  or  forestry.  In  New  Webster’s

Dictionary of the English Language the word “technical” means

what is characteristic of a particular art, science, profession,

or  trade  and  the  word  “technology”  means  the  branch  of

knowledge  that  deals  with the  industrial  arts  and sciences;

utilisation of such knowledge; the knowledge and means used

to produce the material necessities of a society.   

15) In  J.K.  (Bombay)  Ltd. vs.  Central  Board  of  Direct

Taxes  and  Another (1979)  118  ITR  312  (Del.),  the

interpretation of  technical  assistance has been described as

under:-

12

“We have shown above that adopting the wider meaning of the word “technical” would defeat the object of Section 80-O by enabling the remuneration for management or running of a foreign company to be eligible for deduction under Section 80-O.  On the other hand, the narrower meaning of the word “technical” seems to be more in keeping with the object of the  section.   It  has  to  be  remembered  that  the  word “technology” which has affinity with the word “technical” is concerned with the control of material environment by man. This is done by two means.  Firstly, by the use of tools, and, secondly,  by the application of  reason to the properties  of matter  and  secondly,  by  the  application  of  reason  to  the properties of matter and energy.  It would appear, therefore, that it would be reasonable to think that technical services should include the use of tools and machinery in addition to the use of reason.  Managerial services which do not include any  use  of  tools  and machinery  may  not  be  regarded  as technical services.”   

16) The blue prints made available by the  Appellant  to the

Corporation  can  be  considered  as  technical  assistance

provided  by  the  Appellant  to  the  Corporation  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  Corporation  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

13

Corporation was able to start up their business in India and

he was paid the amount as service charge.    

17) 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.   Sumitomo

Corporation will  pay to PASCO International service charges

equivalent to 5% (per cent) of the contractual amount between

Sumitomo and its customers in India on sales of its products

so developed. From a perusal of the above, it is clear that the

Appellant was entitled to service charges at the rate of 5% (per

cent)  of  the  contractual  amount  between  Sumitomo

Corporation and its customers in India on sales of its products

so developed but there is nothing on record to prove that any

product was so developed by the Sumitomo Corporation on the

basis of the blue prints supplied by the Appellant as also that

the  Sumitomo  Corporation  was  able  to  sell  any  product

developed  by  it  by  using  the  information  supplied  by  the

14

Appellant. Meaning thereby, there is no material on record to

prove  the  sales  effected  by  Sumitomo  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.

18) In  view  of  the  foregoing  discussion,  we  are  of  the

considered  opinion  that  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 Sumitomo Corporation and also the relevant

documents  to  prove  the  basis  for  alleged  payment  by  the

Corporation to him.  The letters exchanged between the parties

cannot be claimed for getting deduction under Section 80-O of

the IT Act.

19) Before parting with the appeal, it is pertinent to mention

here that 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

15

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.

20) In view of  the  above,  the  appeal  is  dismissed with no

order as to costs.  

...…………………………………J.                 (R.K. AGRAWAL)

…………….………………………J.            (ABHAY MANOHAR SAPRE)

NEW DELHI; APRIL 24, 2018.  

16