Judgment:
1. This is an appeal by department against the orders of the CIT (Appeals) dated 25-11-1993 relating to assessment year 1992-93. The following ground of appeal has been taken by the department:-- "On the facts and in the circumstances of the case, the Id. CIT (Appeals) erred in directing the Assessing Officer to allow the claim of deduction under section 80-O of the Income-tax Act, 1961." 2. The brief facts of this case are that assesscc had received commission income of Rs. 92,59,066 as buying agent of foreign enterprises, namely, M/s. G.J. Coles (P.) Ltd., Australia and M/s. K.Mart of USA. The assessee has claimed deduction under section 80-O on this commission income. During the assessment proceeding, the assessee was required to explain the reasons that why the deduction under section 80-O be not denied as all the conditions laid down are not fulfilled. It was explained that (1) it is a registered partnership firm and resident in India; (2) commission has been received in convertible foreign exchange and (3) it earns income by way of commission in consideration for the use outside India of information concerning commercial knowledge, experience or skill made available to foreign enterprises. It was further explained that the kind of information supplying to the foreign enterprises is not only commercial, it can also be termed as technical services rendered outside India to foreign enterprises, as the assessee has acquired specialised commercial knowledge, experience anci skill in the field of international/foreign trade. The Assessing Officer was of the view that there are three conditions laid down in the Act for claiming the deduction and the assessee has not fulfilled all the three conditions, as he has fulfilled only first two conditions. The third one is technical services which, in his view, the assessee has not fulfilled.
It was explained to the Deputy Commissioner of Income-tax as under:-- "That the assessee advises foreign enterprises on matters connected with their trading operations, such as latest developments, forecasting of demand and supply position of variety of goods and merchandise being globally traded in, the trend of the industrial policies of the Government of the countries of the region of the assessee, in addition to providing on regular basis these expert commercial business knowledge and expertise. The assessee was also performing other activities like, follow-up actions/rendering of services as desired and mentioned in agreements between the assessee and its foreign principles. The execution of agreement for such industrial activities was necessary for effective use of the foreign parlies, at their own and outside India of all that expert specialised information and consultancy provided to them in improving their business skill and methodology. It was further argued that in the absence of any statutory meaning of the term 'commercial' for the purpose of section 80-O, its dictionary meaning has to be referred to. The simple dictionary meaning of the term 'commercial' as per Web.'s new words dictionary is "of or connected with commerce or trade, made, done, or operating primarily for profits and offering the training in business, skills and methods'.
Thus, any useful specialised knowledge and expertise results in learning of skills and methods of conducting one's commercial operation would be commercial knowledge, expertise and skill. Thus, the information and advice provided by the assessee to its foreign principals has helped them in taking appropriate concrete decisions for gainful trading operations in their own country.
In the alternative, it was argued that the assessee can be said to be rendering teclmical services outside India, there is no meaning given in the Act for the words 'technical services' for the purpose of section 80-O. The assessee's learned AR drew support from section 80-RRA(2) Explanation-C and section 10(6)(vii) and Explanation thereto. As per these sections technical services include services rendered by a person as Technician having specialised knowledge and experience in among others, business management techniques.
According to the assessee the activities performed by the assessee i,e,, rendering of service involve the use of application of techniques, of its business management techniques. The technical services so rendered from India and not in India. In the ultimate results assessee felt and enjoyed by the foreign enterprises, outside India," 2.1 The Deputy Commissioner was not satisfied with the reply. In his view the interpretation of the words 'technical services' is not correct with reference to section 80-O and on the facts of the case. In his view the objects and spirit of this section is mainly to encourage Indian technical know-how and skill abroad, and assessee fails to prove this condition. The Assessing Officer by referring to Circular No. 72, negatived the claim of the assessee.
2.2 Same submissions were made before the CIT (Appeals) and it was further argued that all the three conditions have been fulfilled by the assessee. Reliance was placed on the decision of Eastman Consultants (P.) Ltd v. CBDT [1981]132 ITR 637 (Bom.) and in the case of E.P. W.DA Costa v. Union of India[1980] 121 ITR751 (Delhi). Further reliance was placed on the circular which was referred to by the Assessing Officer and it was argued that this circular helps the assessee, as the conditions as per the circular have already been fulfilled by the assessee. It was further argued before the CIT (Appeals) that assessee has complete records of approximately 200 such manufacturers and regular dealings with 60 to 70 dealers at present. It was further stated that various stages of collecting the information and passing it on to the buyer are described from pages 2 to 4 of the written submissions. After considering the submissions and perusing the order of the Assessing Officer and also the case laws relied upon by the assessee, along with board's Circular No. 72, the CIT (Appeals) was of the view that the Assessing Officer was not correct in disallowing the claim of the assessee, as all the conditions have already been fulfilled by the assessee. Accordingly, he allowed the claim of the assessee. Now the department is in appeal here before us.
2.3 The learned DR simply placed reliance on the order of the Assessing Officer. On the other hand, the learned counsel placed reliance on the order of the CIT (Appeals). He further placed reliance on the decision of the Supreme Court in the case of CBDTv. Oberoi Hotels (India) (P.) Lid. [1998] 231 ITR 1481. It was also submitted that assessee had entered into valid agreement with the foreign buyers and then supplied commercial informations, which were technical in nature, then the orders were placed to Ihe parties to whom samples were sent and commission was received by assessee. It was also argued that if assessee was not commission agent and was not supplying commercial information which was skilled in nature, then the assessee could have supplied the material directly and easily could have availed deduction under section 80HHC at 100 per cent, against. 50 per cent allowable under section 80-O. Therefore, the claim ol the assessee was rightly allowed by the Commissioner of Income-tax (Appeals) as it was found bona fide claim.
3. We have heard the rival submissions and considered them carefully.
We have also perused the material on which our attentions were drawn.
After considering the material and case laws we found that the CIT (Appeals) has dealt with the issue with proper application of mind. The issue was discussed in details. The CIT (Appeals) has also controverted all the objections of the Assessing Officer in a very nice manner. He has properly understood the interpretation of law, then only the appeal of the assessee was allowed by the first appellate authority. Firstly the CIT (Appeals) noted that the informations, which were given by the assessee, ' were technical in nature, for example, the assessee had supplied a hand painted design (colour) for making cotton rug. This was informed by the assessee vide letter dated 14-8-1991. Then he made his bills for his professional charges. Likewise vide letter dated 22-8-1991 a telex was received from K. Mart for some design selected giving the size and weight required. The information was given on 26-8-1991 that sample will be made as per specification. Again through a letter dated 17-9-1991, the 12 numbers of rug samples as required were couriered by paying Rs. 8,000 as freight charges on 11 -9-1991.
Videletter dated 18-9-1991 actual samples were approved. Then assessee filed a working sheet prepared by it indicating landed cost in USA and also informing that a 40 container will carry 10,000 pieces. These informations are placed at pages 5,6,7 to 17 and 18 to 25 of the paper book filed by the assessee. After considering these informations the CIT (Appeals) was of the view that these working done by the assessee are commercially technical in nature. Therefore, the condition as laid down under section 80-O are fulfilled. The conditions laid down under section 80-O at the relevant period arc reproduced here as under:-- "Deduction in respect of royalties, etc. front certain foreign enterprises- 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, fees or any similar payment received by the assessee from the Government of a foreign State or a 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 or provided or agreed to be made available, or provided to such Government or enterprise by the assessee, or in consideration of technical [or professional] services rendered or agreed to be rendered outside India to such Government or enterprises by the assessee, [and such income is received in convertible foreign exchange in India, or having been 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 the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in, or brought into, India, in computing the total income of the assessee]".
3.1 By simple reading of the provisions of section 80-O, it is clear that commission received in lieu of information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided as agreed to be made available or provide to such Government or enterprises by the assessee, is eligible for the deduction under section 80-O of the Income-lax Act. This is not in dispute that this is a commercial information which the assessee has provided to the foreign buyers and in lieu of providing these informations, assessee had received commission which was in convertible foreign exchange and then assessee claimed deduction under section 80-O. In our considered view the word 'commercial' itself is a very important word. The information supplied by the assessee arc commercial in nature. There is no dispute regarding this. Then it is not understandable that why the Assessing Officer has not allowed the deduction. Therefore, we are of the view that the CIT (Appeals) was very much correct in allowing the appeal of the assessee. Further we have noted that assessee entered into agreements regarding supply of information concerning commercial experience regarding the products available in India, Pakistan, Sri Lanka and Bangladesh and the sources from which the same could be obtained. On the basis of commercial informations supplied by the assessee the foreign principal decides the quantity of the items to be purchased and all steps which are connected with the supply of goods are subsidiary because if the dominant purpose is not fulfilled, the subsidiary activity will not come into operation at all. i.e., if the foreign principal does not decide to purchase, then there is no rendering of any subsidiary service mentioned in the agreement as duties of the assessee.
3.2 The meaning of word "commerce" as per Chambers 20th Century Dictionary is "interchange of merchandise on a large scale between nations or individuals". The explanation referred by the learned counsel that primarily the exchange of commodities is conducted on a wide scale and involves transportation over considerable distances. As per this definition the assessee has experience to facilitate such interchange, then commission earned falls within the scope of section 80-O.3.3 The baste reason for denial of the claim of the assessee by the Assessing Officer was that he is an ordinary exporter or agent and not an agency which earns convertible foreign exchange by virtue of its commercial knowledge, skill and experience. The CIT (Appeals) has dealt with this situation very nicely and he has observed in his order as under :-- "An exporter manufactures or buys goods, puts them on board ship or aeroplane after completing all the formalities of customs clearance, maintaining quality control, paying for the freight and then sells it abroad (or may be the orders were produced before hand). All along he is the owner of the goods and is responsible from the point of lifting of goods to the point these are received by the importer.
He has the sole interest and ownership of goods. He never loses control over them. It is not merely providing information which is used by the outside party for importing goods from India." 3.4 Commercial meaning for the purpose of section 80-O has also dealt with in second and third paras at pages 13 and 14 of the order of the CIT (Appeals). The observations of the CIT (Appeals) are reproduced here as under:-- "One plank of the D.C's argument is that assessee's services cannot be termed as technical services (page 8, para 2). The assessee is not claiming it as technical services being rendered by it. The term used is commercial knowledge, experience or skill made available or provided to outside enterprise by the assessee. This is the basis of assessee's claim to deduction under section 80-O. Can the department say that assessee is not providing the commercial knowledge acquired and developed by it? The sole basis of the claim of the assessee is that is providing "information concerning commercial knowledge, experience and skill" to "outside parties' for its use "outside" India. The DC is concentrating her entire attention on the first part of the section which speaks of "patent, invention, mode, design, secret formula or process or similar property right". The result is that she is mentally conditioned not to consider the 2nd part of the section which extends the benefits to a much wider range of activities e.g. information concerning industrial, commercial or scientific knowledge, experience or skill and encompasses a much wider range of assessce's them envisaged in "patent, invention, model, design etc.' This part of the section is separated from the second part with a comma and the word 'or' which by themselves give equal importance to both the parts independently. In other words patent invention etc., or information concerning.
Again the second part reads "information concerning industrial, commercial or scientific knowledge, experience or skill". The usage of comma and "or" entities each area by itself to the exemption under section 80-O and gives equal importance to each area. Thus, an asscssee who provides industrial or commercial or scientific knowledge or experience or skill is entitled to this benefit. It does not necessarily have to be technical only." 3.5 The second condition which is to be fulfilled is that it should be used outside India by an outside party and assessee should be paid in foreign convertible exchange for the services rendered. All these conditions are satisfied as the information was given to outside India party. The information was used outside India and the payment of commission were received in convertible foreign exchange. The dispute was whether the asscssee is providing his commercial knowledge, experience or skill or not. In our considered view, the assessee is supplying information like size of the item, use of item, then he gets orders from the foreign buyers, then the material was supplied as per their requirement and then the commission was received. In our considered view, this is purely a work ol" commercial knowledge, experience and skill. Therefore, the CIT (Appeals) was correct in allowing the deduction under section 80-O of the Income-tax Act. We further noted that in the present case this is not merely the information collected from commonly available source, but the assessee has developed a data base and infrastructure by contacting different markets in India and outside India. He has kept himself upto date with new developed commercial trends, foreign trade policies, pattern of global demands and supply of goods and merchandise. The most important thing is that assessee only provides the information collected to the foreign buyers and does not buy their goods for them. The foreign buyers place the orders directly on the suppliers, the supplier ships the goods directly to the foreign buyers. The foreign buyer makes payments directly to the supplier and pay only commission to the assessee. The goods are insured by the foreign buyers, these arc shipped by a foreign line on the instructions of the foreign buyers. At no point of time the assessee becomes the owner of the goods or becomes responsible tor the safety of the goods. He has only provided his commercial knowledge, experience or skill. The assessee is not an exporter. He does not sell goods abroad as an exporter does. He only sells his information and on the basis of these informations the foreign buyer pays and imports. Therefore, looking these facts, which are very clear in itself, they are commercial in nature. Therefore, in our considered view, there was no infirmity of any kind, legal or otherwise, in the findings of the CIT (Appeals). We have also considered the case laws as relied upon by the CIT (Appeals) and here before us and we find that they were rightly applied by the CIT (Appeals) as they are applicable on the facts of the assessee's case.
The Hon'ble Supreme Court in the case of Oberoi Hotels (India) (P.) Ltd. (supra) has held that information in regard to hotel industry is a technical information and the claim under section 80-O allowed by the Delhi High Court was confirmed by the Supreme Court and the appeal filed by the Central Board of Direct Taxes was dismissed. In view of all ihesc facts and circumstances, we confirm the findings of the CIT (Appeals) in toto and reject the appeal of the department.