1. This appeal by the Revenue, for the assessment year 95-96, is directed against the order, of the CIT (A), Mumbai, dated 23.2.1998.
"On the facts and circumstances of the case and in law, the learned CIT (A) erred in directing the Assessing Officer to allow deduction Under Section 80-O of the Act, 1961".
3. The bone of contention between the parties is the alleged services provided by the assessee. As per the assessee, these services comprise 'technical or professional services' within the meaning of Section 80-O of the act, 1961. the Revenue, on the other hand, denies this claim.
Its stand is that the services of the assessee are no different from those of any other commonplace employment or recruitment bureau/ establishment and that as such, the assessee is not entitled to any deduction Under Section 80-O which has been wrongly allowed by the learned CIT (A).
4) The nature of the services provided by the assessee was explained to the taxing authorities. Written submissions were filed before the learned CIT (A). These find place at pages 391-405 of the assessee's paper book ('APB', for short), Volume-III.5. The assessee is a franchisee of an international institution called Boyden World Corporation. The assessee is engaged in the activity of providing consultancy services for the conduct of executive research.
This activity requires application of knowledge, experience and skill of high value to bear upon the assignment. As per the franchise agreement of the assessee with Boyden, 'know-how' means the special knowledge relating to the executive search business developed by the licensor, including the related knowledge within the Boyden group.
'Executive Search Business' means the assisting of corporations and other entities in the determination and placement of suitable candidates for management or specialist positions available with such corporations or other entities. The assessee is approached by companies on the look out for executives to be highly placed, including the chief executive officer. Since selection of such executives is of utmost importance to an organization, requiring the specialized knowledge, skill, research and experience of consultants, like the assessee, in the field of executive search, corporation and multinational organizations are increasingly seeking, utilizing and relying on suchlike services. these services are essentially vastly different from those provided by a common employment or recruitment bureau, which does no more than to register certain broad details, advertise for the positions and perform the function of recruitment. The factum of the Executive Search field of business management gaining awareness and importance is evident from a special Executive Search Diploma being introduced by the J.K. Kellogg School of Business Management, North Western University of the USA.6. The assessee has build-up a database of more than 40,000 executives.
This database has been compiled in a professional manner by studying annual reports, contacting people who matter, referring to various journals and gathering market information and knowledge of the various industries and their requirements, and studying the availability of human resources. Credentials, Qualifications, skills and potentials of key personnel constituting the human resource data bank are gathered professionally and confidentially in order to build the database. The database contains a confidential SWOT analysis of the concerned individual, which analysis is compiled on the basis of reference reports, published interviews, journal reports, etc 7. When the assessee is contacted by a client who is looking to appoint executives, the assessee's contribution is to advise and guide the client after assessing information from its database and conducting preliminary interviews of short listed candidates. The assessee accomplishes this by presenting an evaluation report, enlisting therein fundamental issues, which influence the selection. The report covers study of the industry to which the client belongs, study of the work culture of the client, impressions about the traits of the prospective candidates, which will provide a good match to the client organization, etc. After discussing the response of the client to the initial report, the assessee shortlists two or three candidates who, in the assessee's opinion, would meet the requirements of the client. The assessee formulates its own judgment about the acceptability and usefulness of candidates to the client Organization. This is a critical area requiring imparting of reliable advice on how an individual will perform in a given organization. Such advice is contained in the evaluation report and the reference check report, which the assessee sends to its client. Along with the assessee's comments, opinions and analyses are also enclosed. this involves communication of advice in a specific objective manner, though the ultimate advice is based on study of subjective perceptions and considerations.
8. The client of the assessee relies upon and uses the advice, opinion and analysis of the assessee in making the final selection. the report and advice of the assessee operate as important tools for the client.
However, the final selection is exclusively the prerogative and responsibility of the client and the assessee does not, at any stage, act as an agent to carry out the client's bidding. the final interview is conducted by the client. The assessee's task gets over before the final interviews and selection.
9. The Revenue relies on the decision of the Honourable Jurisdictional High Court in the case of 'Eastman Consultants P. Ltd. v. CBDT and Anr.', (1981) 132 ITR 637, wherein it was, inter alia, held that mere supply of particulars or bio-data of various Indians willing to work abroad and their selection or recruitment in India is a situation falling far too short of the requisites necessary for attracting the benefits of the section.
10. The assessee, on the contrary, has placed reliance on the decision of the Honourable Delhi High Court in 'E.P.W. Da Costa and Anr. v.Union of India' (1980) 121 ITR 751. It was held that an agreement between the assessee-company and the BBC, under which the assessee was to undertake an audience re-search study in the Hindi speaking areas in Indian states to assess the radio-listening habits of the people and to use its technical knowledge to advise on a questionnaire in the proposed audience research, was entitled to approval by the CBDT for the purposes of the deduction Under Section 80-O of the Income Tax Act, 1961.
11. In 'Eastman Consultants' (supra), the assessee-company, which acted as a mere employment or recruiting bureau for foreign employers, located prospective candidates or employees and collected their bio-data and particulars. This selection of the candidates was made in India itself and, at times, by a representative of the foreign employer coming to India for that purpose. In several letters-cum-agreements, the foreign employers authorized the assessee itself to select and recruit candidates in India and in some cases, the assessee was asked to keep candidates ready for interview in India by the representative of the foreign employer. The assessee charged fees primarily for locating and providing information, for which, the assessee claimed to have a vast staff, which located the required category of personnel and then processed their applications to see whether they were technically fit for the job and the entire service was undertaken and performed in India. The assessee entered into various agreements, in the form of cryptic letters with foreign employers, and "conveyed the names" of suitable candidates to the foreign employers. The assessee claimed exemption Under Section 80-O on the ground that it was providing "information" which was imparted by means of "conveying the names" of the suitable candidates to the foreign employers. The Honourable High Court held that the "information" provided by the assessee could not be said to partake of the nature of "industrial, commercial or scientific knowledge, experience or skill" within the meaning of Section 80-O.Further, the assessee did not satisfy the condition laid down in the section, viz., that the industrial, commercial or scientific knowledge, experience or skill must be made available for "use outside India". The fact that the selected candidates went abroad and worked outside India was held not relevant because that work had nothing to do with the assessee's work within India. The assessee was hence held not entitled to deduction Under Section 80-O of the Act.
12. In the present case, the assessee is a franchisee of Boyden World Corporation, New York, one of the oldest international consultancy firms in the field of executive search. "Executive Search Business", as per the franchise agreement between the assessee and Boyden, means the assisting of corporations and other entities in the determination and placement of suitable candidates for management or specialist positions available with such corporations or other entities. Executive search practice in India was pioneered in April, 1979 by Boyden. It was founded by Gulab Mirchandani, the Control Individual of Boyden in India, in engineer and an MBA with over 30 years experience in marketing, manufacturing and general management. Boyden is the only multinational in the field of executive search in India. It boasts of being the best in the quality of service. It is the only Indian search firm with a large databank comprising the best amongst senior professional in the country. The assessee, as a franchisee of Boyden, is a professional consultancy firm conducting executive search for multinationals and large Indian business organizations. Executive search involves the use of computerized databank and sourcing techniques to locate the right top-level professionals from the industry. Know-how in the executive search field concerns the special knowledge relating to the executive search business developed by Boyden World Corporation. The assessee is approached by companies on the look out for selection of executive to be placed high in the hierarchy, including the Chief Executive Officer, the assessee does not act as a mere employment or recruiting bureau. Since selection of the right leader and top executives is a sine qua non for the proper functioning and success of any organization, corporations and multinational organizations are increasingly relying on the knowledge, skill, research and experience of consultants like the assessee, to conduct executive searches in a professional and scientific manner. The assessee has built up a database of more than 40,000 executives. These details are not compiled by just writing or consolidating applications obtained through advertisements. They are compiled in a professional manner by study of annual reports, by contacting people who matter by reference to various journals, market information and knowledge of the various industries and theirin requirements and the availability of human resources. the database is built up in a highly professional and confidential manner by finding out the credentials, qualifications, skills and potentials of key personnel constituting the human resource data bank. It contains confidential prima facie SWOT analyses of the concerned individuals. The SWOT analysis is complied on the basis of reference reports, published interviews, journal reports, etc. The assessee advises and guides its clients after assessing information not obtained through advertisements from its database and conducting preliminary interviews of short-listed candidates. The assessee accomplishes this by presenting an evaluation report, enlisting the fundamental criteria influencing the selection. The reports cover a study of the industry to which the client belongs, a study of the work culture of the client, impressions about the traits of the prospective candidates, which would provide a good match to the organization, etc.
after discussing the response of the client to the initial report, the assessee short-lists two or three candidates who, in the opinion of the assessee, would meet the requirements of the client. the assessee formulates its own judgment about the acceptability and usefulness of candidates to the client organization. This involves imparting of reliable advice of judgment on how an individual will perform in a given organization. Such advice is contained in the evaluation report and the reference check report, which the assessee sends to its client with the assessee's comments, opinion and analysis. Thus, this advice is communicated by the assessee to its client in a specific objective manner, though the ultimate advice is based on a study of subjective perceptions and considerations. Assessment of technical competence, leadership and management skills and strengths of personality and stature is to be made during face to face interviews. The client of the assessee relies on and uses the advice and opinion of the assessee in making the final selection. The reports and advice of the assessee operate as important tools for the client. The final selection, however, is exclusively the prerogative and responsibility of the client and the assessee does not at any stage, act as an agent of the client to carry out the client's bidding. The fee charged by the assessee from its client is not dependant on the finalisation of the recruitment. It is payable irrespective of the short-listed candidate being recruited / not being recruited by the client. the final interview is conducted by the client and sometimes, the candidates have to go abroad for this purpose, if the client is based abroad. the assessee's task gets over before the final interview and selection.
13. That this procedure is carried out by the assessee is not disputed.
It is only stressed that carrying out of such procedure is not different from the job of any other ordinary recruitment agency, not inviting entitlement to deduction Under Section 80-O, as held in 'Eastman' (supra).
14. In 'Eastman'. under the agreements, mostly in the form of cryptic letters, the assessee collected information, particulars and/or bio-data and, on that basis, located in India, prospective candidates or employees. Thereafter, selection was also made in India itself and that too, in most cases, by the assessee itself and, at times, by a representative of the foreign employer coming to India for that purpose. In several cases, the foreign employers asked and/or authorized the assessee to keep candidates ready for interview in India by a representative of the foreign employer. It was in these circumstances that the Honourable High Court observed that the entire service rendered by that assessee was in India and no part thereof extended outside India; and that the approval applications themselves emphasized the aspect that the fees charged were primarily for locating and providing information, for which, the assessee claimed to itself have a vast staff which located the required category of personnel and then processed their applications to see whether they were technically fit for the job. Thereafter, the assessee merely "conveyed the names" of suitable candidates to the foreign employers.
15. Such, as evident from the underlined portion of para 12 above, is not the case before us. the assessee does not merely convey names - it prepares comprehensive reports, which are used by its clients outside India, to enable them to formulate their policies and decisions for the final selection. In addition, the assessee renders services by designing and structuring compensation packages. the assessee undertakes compensation studies for its clients and helps them in restructuring the executive compensation at various levels and bringing it to the market level. the assessee is being retained by big corporations in India and abroad only because they have the knowledge, expertise and skill, coupled with professional integrity, to carry out executive search. Without industrial knowledge, the assessee cannot make valuable recommendations, for which, it has to study the challenges of the particular industry concerned. short of commercial knowledge, the assessee, for instance, would not know that the challenges before the CEO of a sick unit are different from those before the CEO of a prosperous unit. With the aid of commercial knowledge, the assessee bases its advice on the study of all such commercial factors. The advice is finally based on the exclusive high quality database maintained by the assessee on reliable statistical theories of psychological analysis tests and ratios, which have contributed to formulating judgments. The services rendered by the assessee thus belong to the category of advanced management consultancy services. The assessee seeks to address the issue of human resource promotion and strength. It irrefragably provides information concerning industrial and commercial knowledge and makes available experience and skill to its clients and provides technical and professional services from India. The search for quality management professionals is a task calling for extreme sensitivity, caution, professionalism and confidentiality. It is a specialized job that only the best executive search consultants can be entrusted with. And the assessee undoubtedly qualifies to be that, as is obvious from the payment of Rs. 7.75 lakhs for one single assignment in the year 1994-95, which the assessee allegedly earned, more so, when such payment is in-contingent on whether the client appoints any of the candidates recommended by the assessee, or not. That big corporations and multinationals have retained the assessee as their executive research consultant speaks volumes of the fact that the assessee has carved out a niche for itself as specialized professionals and consultants and that the information and services provided by it are of much value to foreign companies. If the job of the assessee was in the nature of a mere recruitment agent, its services would not be retained by the giant Indian companies who have their local offices and who do not need a recruitment agency to interview and appoint personnel. It is because the assessee is rendering valuable information, experience, skill and professional services as consultants, that the assessee has huge receipts from local parties as well as foreign enterprises.
16. The 'Eastman' decision, therefore, does not help the Revenue. The facts present there are not pari materia with the ones before us.
Respectfully agreeing with the ratio laid down therein, we hold it to be inapplicable hereto.
17. In 'E.P.W. Da Costa' (supra), the question for consideration was, whether the assessee therein had received payment from the BBC in consideration for the use outside India, of information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available to the BBC.The BBC is a commercial corporation interested in knowing how the BBC broadcasts are received by the listeners in India. For that purpose, they engaged the assessee to conduct a public opinion survey. As per the assessee, the information supplied by him was used by the BBC in its audience research organization and, inter alia, helped the said organization in planning its programme. The BBC would make modifications in its programmes after knowing, from the information supplied by the assessee, as to how its broadcasts are received in India. The assessee issued a questionnaire to the listeners and the information gathered from the answers was compiled in the form of various statistical tables. The assessee termed these statistical tables, compiled after analyzing masses of numerical data, as commercial or scientific knowledge made available to the BBC. The CBDT, on the other hand, contended that this information was only data and not scientific or commercial knowledge. The Honourable Delhi High Court held in favour of the assessee.
18. It was observed that if information is understood as something communicated and if the contents of the information concern scientific knowledge, the knowledge gathered and analysed by the assessee from the Indian listeners and communicated to the BBC may be said to be information concerning commercial or scientific knowledge. If commercial or scientific knowledge is confined to mean the abstract exposition of commercial or scientific theories, then only a book on a commercial or scientific subject may be regarded as scientific knowledge. But knowledge may be general or particular. Such knowledge as was compiled, classified and made useful for the BBC may also be said to be commercial or scientific knowledge. the BBC is a commercial corporation. Its function may be to disseminate information, but in the discharge of this function, it requires commercial or scientific knowledge as to the way its broadcasts are received in different countries. Such a highly organized concern as the BBC would not be content with the general information as to he receipt of its broadcasts in India. The information would have to be specific, particular and analysed according to the languages in which the broadcasts are made and according to the classes of the public who listen to such broadcasts. In view of the trend to give a wider meaning to words "science and scientific knowledge", it would not be possible to restrict the connotation of these words too narrowly. They would include the statistical tables compiled by the assessee for the use of the BBC in as much as statistics itself has been recognized as a science.
19. Likewise, in the case before us too, the information/services provided by the assessee constitute professional services. Such information as compiled, classified and made useful for the assessee's clients, in today's scenario, does require Executive Search consultancy, which is much more specialized than and different from ordinary placement or recruitment services merely conveying names of suitable candidates, just on the basis of information gathered in response to advertisements. Titanic business/corporate conglomerates, corporations and multinationals cannot afford to rest content with general information for their purpose of selecting high executives and CEOs, on whom, the very existence of these institutions depends. The information has to be specific, particular and analysed according to their peculiar requirement. It is this quality information, as detailed in para 12 above, which the assessee has been disseminating to its clients, by way of rendering its specialized professional executive search consultancy services.
20. The meaning of "professional services" is illustrated by some examples of typical liberal professions and this enumeration of professions has an explanatory character. The Law lexicon, edited by Hon'ble Justice Y.V. Chandrachud (1997 edition) defines 'profession', inter alia, as involving 'the idea of an occupation requiring either purely intellectual skill or any manual skill, as in painting and sculpture or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation, which is substantially the production or sale or arrangements for the production or sale of commodities'. this definition, barring the words "as distinguished from an occupation which is substantially the production or sale of arrangements for the production or sale of commodities" is, incidentally, the same as that assigned by Scrutton, LJ in Inland Revenue Commissioner v. Maxse [1919] 1KB 647; referred to in LB Curzon's Law Dictionary. Referring to the Honourable Bombay High Court's judgment in the case of 'Sakharam Narayan Kherdekar v. City of Nagpur Corporation', AIR 1964 Bombay 200, at page 210, the Law Lexicon further states that 'an activity, to be profession, must be one carried on by an individual by his personal skill and intelligence and dependent on individual characteristics'. Black's Law Dictionary [5th edition] defines profession as 'a vocation or occupation requiring special, usually advanced, education and skill, eg., in law and medicine' and observes that 'the labour and skill involved in a profession is predominantly mental or intellectual, rather than physical or mental'. The school of thought, thus emerging from these deliberations is that broadly speaking, a profession will imply any vocation carried on by an individual, or a group of individuals, requiring predominantly intellectual skills, dependent on individual characteristics of the person(s) pursuing that vocation, requiring specialized and advanced education or expertise. Irrefutably, the assessee herein is rendering professional services as contemplated in the above definitions of 'profession'. If commercial or scientific knowledge is confined to mean the abstract exposition of commercial or scientific theories, only a book on commercial or scientific subjects may be regarded as scientific knowledge, as observed in 'EPW Da Casta' (supra). But knowledge may be general or particular. Such knowledge as was compiled, classified and made useful for its clients by the assessee also comes within the ambit of commercial or scientific knowledge. Without the in-depth knowledge and study of the particular industry from which the client hails, the assessee would not be in a position to disseminate the requisite information regarding executive search, for which, the assessee consultancy is engaged by its clients.
Similarly, without observing keenly and with a rational approach, the background and character traits, end hence deducing the potential capability of a prospective candidate, the assessee would never be able to correctly advise its clients. In its function of disseminating such information, the assessee requires commercial and scientific knowledge, and when it does so, it is providing, in no uncertain terms, "professional services". Even otherwise, it would be foolhardy in today's age, which is aptly known as the age of information, to restrict and constrict the meaning of "professional services" to the classical concept of professional services. With the ever expanding horizons of human endeavor, such services as rendered by the assessee definitely find place in the realm of "professional services".
21. In this regard, CBDT Circular No. 700 of 23.3.1995 clarifies that as long as technical and professional services are 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 utilises the benefit of such services in India.
22. Thus, in respectful consonance and agreement with 'E.P.W Da Casta' (supra), the professional services rendered by the assessee are entitled to deduction Under Section 80-O. We hold accordingly.
23. For the foregoing discussion, the impugned order of the learned CIT (A) is entirely correct and legal. It suffers from no infirmity. It is upheld.