1. This appeal by the revenue for assessment year 1997-98 is directed against order of CIT (Appeals) allowing deduction of Rs. 1,40,50,080 claimed under Section 80-O of the Income-tax Act.
2. The facts of the case in brief are that appellant claimed to have rendered technical services out of India as buying agent and thus claimed to be eligible for deduction of Rs. 3,20,81,836 under Section 80-O of the Income-tax Act. However, as positive income was shown at Rs. 1,40,50,080, the deduction under the above provision was restricted to the income shown. The Assessing Officer was, however, of the view that assessee merely rendered managerial services not of technical nature and thus requirement of Section 80-O of Income-tax Act were not satisfied. The deduction claimed by the assessee was accordingly denied. The Assessing Officer for his view relied upon the decision of Hon'ble Delhi High Court in the case of J.K. (Bombay) Ltd. v. CBDT 1979 118 ITR 312 1 Taxman 537.
3. On appeal, the CIT (Appeals) noted that assessee was rendering following services to its customers abroad: 1. Preparations of drawings and designs, supervision, and advising the buyer on market trends etc. The appellant employs designers/technicians for doing creative work for the merchandise.
2. Providing merchandising assistance for selection of products from various vendors.
3. Evaluate factories for technological superiority and infrastructure.
5. Protecting the buyer's interest for patents, designs and trademarks.
6. Working out the logistics of the whole movement of goods from vendors to customers including freight forwarding, packing instructions and the completion of bank formalities.
7. Inspecting the goods online at the factory premises in accordance with internationally accepted quality levels, evaluating the patterns and designs of the goods, conducting final inspections on a random visual basis of the final merchandise to be shipped. This includes material testing to ensure that the merchandise to be shipped. This includes material testing to ensure that the merchandise conforms to all specifications set forth in the buyer's order sheets and the sample designs. It also entails laboratory tests for cheeking the goods for wet and dry crocking, colour fastness, tear tests etc.
8. The above lab tests are also conducted to ensure that they meet specifications laid down by foreign regulatory authorities, e.g., AZO dyes.
9. Assisting the buyers in negotiationg any claims which arise on account of quality or late deliveries.
10. Ensure that adequate compliance is there for international norms related to the child and prison labour and also that factories follow standard norms for workers safety.
The appellant has in the paper book placed copies of correspondence with foreign principals indicating the scope and extent of services rendered to the foreign customers, professional/technical in nature and are not limited to merely passing on the orders received from the customers based overseas.
Design. and development of products, mainly garments requires skills and a deep understanding of new fashion trends, innovative designs, new fabric developments and the ability to be able to predict the requirement of a nebulous market. Competition for obtaining the business is intense as customers usually work with more than one agent. To be in a position to capture the business of the customer, the assessee is required to make extensive portfolios. These include graphics of designs, colours, technical specifications and other details to enable the customers to place the maximum business with vendors located in India who work in consonance with the assessee. A few samples of portfolios made for some French customers have been exhibited for any perusal. Some purchase orders placed by the customers on the designs presented were also submitted.
After considering facts and circumstances of the case and after considering submissions of both the parties, the learned CIT (Appeals) allowed relief to the assessee, with following observations: On the facts of the case, I find that the appellant is rendering service from India to foreign principals with regard to sourcing of produces from India. The appellant constantly communicates with the foreign principals and liaises with the Indian customers. The appellant makes available to the foreign principal commercial information relating to the fabrics in vogues, changing fashion trends, latest styles etc., which is evident from the samples of the portfolios shown to me. The orders are placed by the foreign principals on the Indian customers on the basis of such communication from the appellant. Further the appellant inspects the products or samples thereof at the premises of the Indian customers to see that the same conform to the agreed specification and quality and arranges with the buyer timely dispatches according to agreed schedule and keeps the foreign principals constantly updated about the same. The appellant is a qualified designer/merchandiser having substantial experience in then line of business to discharge the function towards the foreign principals.
In view of the aforesaid factual situation, I have no hesitation to hold that the services rendered by the appellant are professional and/or technical services. The view taken by the Assessing Officer that technical services would be restricted to services which are purely technical in nature involving scientific or engineering experience is taking a too narrow view of the matter as held by the Supreme Court in the case of Continental Construction Co. Ltd. and later in the case of Oberoi Hotels Ltd. {supra).
The decision of the Delhi High Court in the case of J.K. (Bombay) Ltd. (supra) relied upon by the Assessing Officer was rendered in the context of the provisions of Section 80-O as stood at the material time. The same, in my view, has no application under the present Section 80-O. Further the said decision has been substantially diluted by the Delhi High Court itself in the later decision in the case of Oberoi Hotels Ltd. which was subsequently approved by the Supreme Court and the judgment of J.K. (Bombay) Ltd. v. CBDT disapproved by the Supreme Court.
The assessee's stand is supported by the various decisions of the Authority for Advance Ruling of the Tribunal and CIT (Appeals) wherein deduction under Section 80-O of the Act has been held to be admissible on the facts in those cases. In all those cases, the services rendered by the assessee from India were held to be professional and/or technical services qualifying for the deduction under Section 80-O of the Act, even though the assessee was not professionally/technically qualified. There is also substance in the appellant's statement is that the revenue itself having allowed deduction under Section 80-O of the Act to other buying agents rendering similar services. There is no decision to take a different view in the case of the assessee.
The assessee's alternate arguments that even though services rendered by the appellant are regarded as managerial services, as admitted by the Assessing Officer, the same would be regarded as technical services entitled to the deduction under Section 80-O merits acceptance. For all these reasons, I hold the assessee is entitled to the deduction under Section 80-O of the Act. The Assessing Officer is directed to quantify the deduction admissible to the appellant after satisfying that the appellant has fulfilled other conditions in this regard.
4. The revenue is aggrieved and has brought the issue in appeal before the Appellate Tribunal. The learned senior Departmental Representative Shri K.C. Jain vehemently contended that assessee did not place agreement with all the 42 parties from whom commission/fees was received by the assessee in foreign exchange. He drew our attention to Explanation (Hi) to Section 80-O of the Income-tax Act which provided that deduction was not permissible in respect of services rendered in India. He emphasized that assessee in this case was rendering services to foreign buyers in India. Alternatively, he submitted that if certain portion of services was rendered outside India, then assessee could only be allowed deduction qua such portion of service. Deduction could not be allowed on the whole amount.
5. The learned Sr. D.R. further submitted that bifurcation of deduction under Section 80-O was permissible in the light of decision of Hon'ble Supreme Court in the case of Continental Construction Ltd. v. CIT . Shri Jain emphasized that in profit and loss account, receipt in dispute was shown as "commission". Later on it was added and shown as fees for "technical services". Shri Jain referred to and relied upon decision of Searle (India) Ltd. v. CBDT in which it was held that assessee carrying on certain tests and certifying product to conform required specification - when Testing and certification done in its laboratory in India and not outside India, was held to be not entitled to deduction under Section 80-O. Shri Jain also relied upon Third Member decision of ITAT, Delhi Bench in the case of East West Rescue (P.) Ltd. v. Dy. CIT 2002 81 ITD 160 wherein again it was held that transmission of information to the foreign enterprises by any mode was not a separate and independent activity de hors the medical treatment given to patients in India. Accordingly, it was held that assessee was not entitled to deduction under Section 80-O in respect of consideration received for supply of such information.
6. Shri Jain submitted that as a buying agent, primary service rendered by the assessee was that of examining of goods supplied. All the services rendered in connection with examination and supply and dispatch of goods exported were services rendered in India and in respect of those services, no deduction under Section 80-O could be allowed. With reference to the only agreement with sister concern of assessee Li & Fung, the learned Sr. D.R. pointed out that composite payment @ 4% of export purchase (page 10 of the paper book) was allowed to the assessee. The payment definitely included services rendered in India on which no deduction was permissible. Shri Jain also read out from pages 62, 63, 68 and 81 of paper book, filed by the assessee, to contend that decisions cited and relied upon by the learned CIT had no application in this case. He argued that assessee did not file any evidence to show that buyers had taken decision to import from India on account of information submitted by the assessee. There is nothing to show that orders were placed and goods imported from India at the suggestion of the assessee. The assessee might be developing designs, as reflected from claim under the head "Design and development charges" but there was nothing to show that expenditure did not relate to local receipts. The onus to show that requirements of Section 80-O were satisfied, was on the assessee and said onus in this case was not discharged. If limited services were rendered abroad to foreign buyers in the shape of technical services or relevant information was provided, then deduction was required to be limited to the extent of services. On account of failure of the assessee to file agreements with all the buyers abroad, proper examination of case was not carried and, therefore, it was necessary to send back the case to the Assessing Officer to examine and restrict allowance of deduction under Section 80-O to the services rendered outside India as envisaged by the statutory provision.
7. Shri Ajay Vohra, learned Counsel for the assessee supported the impugned order of learned CIT(A). He argued that details of services and role of assessee as "agent" was placed in detail before the Assessing Officer. As a buying agent of foreign principal, the assessee is involved in collecting information relating to trends and designs in India, what material and fabrics are available which can be exported.
He has to collect source of pattern from India, scout the market and find manufacturers in India who can supply quality goods. A fair assessment of suppliers in India on behalf of foreign buyers is required to be made and this information is required to be collected and sent abroad. The assessee is not an ordinary commission agent, as understood in India. The assessee has employed large number of designers to prepare samples, for making selection of garments to be imported to principals abroad. After procuring orders, goods to be exported are got prepared from suppliers as per the specifications.
This is also a service which is rendered outside India. For carrying its duty, assessee was maintaining offices in Delhi, Mumbai, Tirpur near Madurai and other places.
Shri Vohra further argued that learned CIT(A) allowed relief to the assessee after considering statutory provisions and relevant facts and circumstances of the case. Relevant case law was appreciated and applied in this case. Statutory provisions of Section 80-O are extracted in page 7 of order of CIT(A). Explanation (iii) to Section 80-O further supports the case of the assessee. As services rendered by the assessee though originated from India ended at a place abroad where principal of the assessee was situated. On the basis of receipt of services, decisions are taken by foreign buyers. So fees in foreign exchange is received by the assessee for technical services rendered abroad. This view as per Sri Vohra was fully supported by Circular No.700 of CBD7'. Copy of the circular is available at page 96 of the paper book. In order to determine the question, it has to examine activities of service provider and recipient of services. According to the learned Counsel the following questions are required to be asked: Shri Vohra further submitted that for rendering professional services, it was not necessary that person rendering the services should be academically qualified. Experience was also a qualification for rendering professional services. Shri Vohra drew our attention to detail of design charges paid to show that large number of expert designers were employed by the assessee. Above evidence clearly established that professional and technical services were rendered by the assessee.
8. It was further contended by Shri Vohra that all the decisions relied upon by learned DR related to years prior to introduction of Explanation (iii). Further these decisions relate to period when words "professional and technical services" were not incorporated in Section 80-O. Shri Vohra further submitted that decision of Delhi High Court in the case of J.K. (Bombay) Ltd. v. CBDT was not accepted by Delhi High Court in the case of Oberoi Hotels (India) (P.) Ltd. v. CBDT 1982 135 ITR 257 1981 7 Taxman 344. Shri Vohra further drew our attention to decision in the case of CBDT v. Oberoi Hotels (India) (P.) Ltd. . He also referred to page 19 of the paper book which contained some of the correspondence carried on by the assessee with its principals. Some evidence was available at page 29 as to how samples were placed/approved and orders placed with buyers for export of goods. At page 57, services rendered by the assessee have been enumerated. Shri Vohra maintained that services were not rendered in India, although these are rendered from India. The assessee carried on preparatory work to enable foreign buyers to select garments to be exported. The decision in the case of Continental Construction Ltd. (supra) had no application. Likewise, Shri Vohra said that decision of Income-tax Appellate Tribunal, Patna in the case of Kamkap (India) v.Dy. CIT 1998 67 ITD 237 was distinguishable as in the said case, services were rendered in India. Further, in the decision, Circular No.700 was referred to but was not given due importance. Shri Vohra further argued that even a broker was treated to be performing technical services and, therefore, entitled to deduction under Section 80-O of IT Act. He referred to and relied upon decision in the case of K.C. Saigal v. ITO 1995 54 ITD 488 (Delhi). learned Counsel further relied upon the following decisions:Dy. CIT v. Mittal Corpn. 2001 77 ITD 270 (Delhi), affirmed by Delhi High Court in Overseas Merchandise Inspection Co. (India) (P.) Ltd. v. Dy. CIT 2002 80 ITD 176 (Cal.).
9. The learned Departmental Representative in rebuttal submitted that there was no evidence on record to show that any design or pattern was developed in India. As buying agent, assessee was collecting samples and supplying those samples to buyers outside India. Evidence of the services rendered was not placed on record. The agreement with Li & Fung was placed but agreements with other parties and what services were rendered are not placed on record. The revenue has no objection to re-examination of case with emphasis on detail of services rendered by the assessee. Assessee was only a communication agent and had no role in identifying suppliers or in selecting supplies. If quality check etc. was carried by the assessee then it was only a service rendered in India and in the light of decision in the case of J.K. (Bombay) Ltd. (supra), no deduction could be allowed to the assessee under Section 80-O. Explanation (Hi) to the Section was only clarificatory in nature which did not change the position of law as it earlier existed. No evidence on record to show that foreign buyers made selection of suppliers, on the basis of information supplied by the assessee. The learned Sr. D.R. further submitted that a distinction relating to services rendered in India and services and information supplied from India has to be kept in mind. But from the order of CIT(A), this was not evident. Therefore, for proper examination of the issue, the case should be remitted back to the Assessing Officer.
10. We have given careful thought to the rival submissions of the parties. The relevant provision of Section 80-O with Explanation (iii) applicable in the period under consideration were as under: 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 of 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 enterprise by the assessee and such income is received in convertible foreign exchange in 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 payment, and dealing 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; (iii) services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India.
11. The decision, on interpretation of Section 80-O, cited by the parties at bar, may be referred to at the out set. In the case of K.C.Saigal v. ITO 1995 54 ITD 488 (Delhi), the assessee claimed that royalty was received from foreign enterprises for carrying liaisoning between foreign ship-owners and Indian companies intending to send their cargo abroad. The assessee was signing agreements on behalf of foreign ship-owners and had been supplying specialized information to both parties gathered from available sources and earned Brokerage at the rate of 1.25% of freight paid.
12. The Hon'ble Bench after considering facts and circumstances of the case held that fees were received by the assessee for furnishing information outside India and such information was concerning Industrial, Commercial or scientific knowledge, experience or skill.
The Bench further observed as under: With reference to the receipt of income by the assessee on account of brokerage in convertible foreign exchange, in the light of the provisions of Section 80-O, the clarification furnished by the Reserve Bank of India on 4-10-1986 in the case of J.B. Boda and Co.
(P.) Ltd., the relevant documents and the other relevant submissions made by the parties, one could say that having regard to the spirit of the provisions for receipt of income in convertible foreign exchange in India, the assessee had met with the requirements of law as it was receiving the payment either directly from the foreign ship-owners or through the banks after the deduction made by the Indian party in foreign currency was converted into Indian rupees.
Therefore, the assessee had essentially met the requirements stipulated in Section 80-O for receipt of income in convertible foreign exchange.
In J.K. (Bombay) Ltd. v. CBDT 1919 118 ITR 312 1 Taxman 537, the Hon'ble Delhi High Court held that assessee acting as Managing Agents for foreign company did not provide any technical service and assessee therefore not entitled to deduction. As the information which was commercial in nature, the assessee is held to be not covered by the section for the following reasons: Therefore, the information conveyed may include many kinds of information though technical services rendered would not include commercial services rendered by a company. To sum up, the main reason why the word "technical" in Section 80-O cannot be given a wider meaning to include "managerial" or "commercial" is that the performance managerial or commercial services by an Indian company for a foreign enterprises would amount to virtually managing of running the foreign company and remuneration obtained by running or managing a foreign company would be in the nature of profits, while Section 80-O deliberately restricts itself to income by way of royalty, commission or fees and excludes other types of remunerations.
13. It is evident from above that the decision in the above case was given on peculiar facts of the case. The assessee claiming deduction under Section 80-O was Managing Agent and was held to be performing only managerial services. This case, decided prior to amendment and introduction of Explanation (iii), has no application to the facts of the case.Dy. CIT v. Mittal Corpn. 2001 77 ITD 270(Delhi), Their Lordships have observed as under: The dispute was whether the assessee was providing his commercial knowledge, experience or skill or not. The assessee was supplying information like size of the item, use of item, then he got orders from the foreign buyers, then the material was supplied as per their requirement and then the commission was received. This was purely a work of commercial knowledge, experience and skill. Therefore, the Commissioner (Appeals) was correct in allowing the deduction under Section 80-O. In the present case this was not merely the information collected from commonly available source, but the assessee had developed a data base and infrastructure by contacting different markets in India and outside India. He had kept himself up to date with new developed commercial trends, foreign trade policies, pattern of global demands and supply of goods and merchandise. The most important thing was that assessee only provided the information collected to the foreign buyers and did not buy their goods from them. The foreign buyers placed the orders directly on the suppliers, the supplier shipped the goods directly to the foreign buyers. The foreign buyer made payments directly to the supplier and paid only commission to the assessee. The goods were insured by the foreign buyers, these were shipped by a foreign line on the instructions of the foreign buyers. At no point of time the assessee became the owner of the goods or became responsible for the safety of the goods. He had only provided his commercial knowledge, experience or skill. The assessee was not an exporter. He did not sell goods abroad as an exporter does. He only sold his information and on the basis of this information the foreign buyer paid and imported.
Therefore, looking these facts, these activities were commercial in nature. Therefore, there was no infirmity of any kind, legal or otherwise, in the findings of the Commissioner (Appeals).Overseas Merchandise Inspection Co. (India) (P.) Ltd. v. Dy. CIT It was not in dispute that the assessee had received its income in convertible Foreign Exchange. Therefore, the only issue that remained to be investigated was regarding the nature of service rendered by the assessee. The assessee brought on record the letter addressed to the Dy. Commissioner wherein it had been written that the assessee conducted inspection/survey as to the quality, quantity and also the price of cargos exported from India. The nature of service rendered by the assessee had not been disputed by the revenue. After inspection the assessee used to issue certificate of inspection which was called report of findings. Some of the sample copies of the report placed on record showed that the report was issued according to the Import Regulation of the Republic of Kenya.
From the aforesaid facts it was clear that the Government clients of different countries required the aforesaid reports pursuant to the inspections made by the assessee on behalf of OMIC. The contract work was obtained by OMIC and the inspection was being made in India by the assessee in relation to the export goods sent to the destinations like Kenya, Benin and Peru. The assessee had brought on record the details of the certification job done by it for the purposes of deduction under Section 80-O. The assessee had rendered its specialized job for the destination countries like Kenya, Benin, Nigeria and Pakistan. The service was rendered by the assessee as per the Import Regulations of the Republic of Kenya and other countries. The object of such service which was being rendered by the assessee was that the quality, quantity and the price were checked and secured from the point of export. There was no material on record that this job was being done by the assessee at the instance of the Indian parties i.e., the exporters. On the other hand, sufficient evidences were brought on record by the assessee to hold that the services were being rendered by the assessee from India to be used in foreign countries in respect of the exports from India. The Explanation appended to Section 80-O of the Act was inserted with the object that even if the assessee rendered its service sitting in India but to be used in a foreign country, in that event also the assessee is entitled to relief under Section 80-O of the Act.
Considering the facts involved in the instance case and the provisions of law, there was material available on record to hold that the services were being rendered by the assessee from India which were being used in foreign countries by the respective importers and Government companies. Regarding the genuineness of the service and the fact that the assessee was receiving income in convertible Foreign Exchange, no doubt had been raised by the revenue. Considering the above, the provisions of Section 80-O were to be applied.
Accordingly, the assessee's claim for deduction under Section 80-O was to be allowed.
The first part of section refers to the gross income of the assessee. It includes any income by way of royalties, commission, payment received by the assessee. The second part indicates the source, such as, from the Government of a foreign State or foreign enterprises. The third part has two sub-parts, one reads as - "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". The second sub-part reads as - "In consideration of technical (or professional) services rendered or agreed to be rendered outside India to such Government or enterprises by the assessee". The fourth part is the mode of receipt, such as, income received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, etc. The fifth and last part refers to the deduction to be allowed under the said section.
The section is required to be read as indicated hereinabove. The two sub-parts of the third part are alternatives as they are separated by the word "or" and cannot be read conjunctively. Thus, it cannot be said that the assessee must provide "technical services"even where it receives consideration for only providing commercial information. The section is required to be interpreted accordingly.
On the facts, the Tribunal clearly held that there is no dispute that it is commercial information which the assessee provided to the foreign buyers and in consideration thereof, the assessee received commission which was in convertible foreign exchange. In view of this, the claim made by the assessee cannot be denied under Section 80-O of the Act.CIT v. Inchcape India (P.)Ltd. technical services were rendered from India and received by Government or foreign enterprises abroad, the Hon'ble Court upheld allowance of deduction under Section 80-O with the following observations: In the dying services division, the information supplied out of India was in respect of research, local suppliers for various products/goods, information on the availability of products, information on market condition, etc. The Tribunal has examined in detail about the testing division services and pointed out that it was supplying information regarding testing, inspecting of the fabrics/garments/consumable goods sourcing from India. Quality assurance service was required to be provided. It was required to work in the field of textile testing, inspection of soft lines, electrical and electronics products according to the existing standard of European and American markets, etc. learned Counsel for the revenue submitted that in view of the decision in Searle (India) Ltd. v. CBDT , the assessee is not entitled to get the benefit. In that case there was an agreement for providing technical services. However, it is required to be noted that learned Counsel for the revenue admitted that this decision is rendered much before the insertion of Explanation (Hi) to Section 80-O of the Act, which 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.
Again our attention was drawn to the circular issued by the Central Board of Direct Taxes itself being Circular No. 700 dated March 23, 1995 see 1995 213 IT (St.) 78, specifically referring to Section 80-O of the Act. It is stated specially as under: The matter has been considered by the Board. It is clarified that as long as the 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 utilizes the benefit of such services in India.
Thus it is not open for the revenue to argue against the provision of law and the circular by which the public at large is informed as to what is the provision of law. Therefore, we would like to answer the question in favour of the assessee and against the revenue.
Ordered accordingly. The appeal stands disposed of.
18. Having regard to above decisions particularly of the juris-dictional High Court in the case of Mittal Corpn. (supra) and Inchcape India (P.) Ltd.'s case (supra), it is clear that fee received from foreign enterprises for supply of commercial information sent from India for use outside India is eligible for deduction under Section 80-O. Services can be rendered from India and "supply of information" would cover variety of cases as discussed above. All the same if service starts from India and ends in India then the assessee would not be entitled to deduction under Section 80-O for such services. In case where composite fee is received both for services rendered in India and for information sent or services rendered from India, it is necessary to bifurcate amount received and allow deduction under Section 80-O in respect of services rendered outside India. We shall elaborate on this while considering the facts of this case.
19. Now reverting to the facts of the case, the nature of services rendered by the assessee to the foreign client, as explained by the learned representatives of both the sides before us, is as follows. The assessee is not a buying agent simplicitor but the scope and gamut of services rendered by it are substantially more than what are generally rendered by a buying agent. The assessee basically collects the information regarding fashion design trend in India as well as abroad with particular reference to the different fabrics available, suitability of the said fabric to different weathers etc. This information is gathered through its knowledge and expertise in the field and after analyzing the same, the input regarding designs and fabrics are given to the foreign clients. Even the samples are also got prepared as per the design and fabric so suggested/recommended and the same are sent abroad. Based on this information received from the assessee as well as after inspection of the samples prepared and sent by the assessee, the decision regarding purchase/procurement thereof from India is taken by the foreign client in their respective country and accordingly, orders are directly placed by the said client with the concerned suppliers in India as suggested by the assessee. All these services rendered by the assessee up to this point culminating in the orders placed by the foreign client for procurement of goods directly with the Indian supplier can be regarded as services rendered by the assessee outside India for the purpose of Section 80-O in view of Explanation (iii)io the said section, according to which, even the services rendered from India are considered as services rendered outside India. A useful reference in this regard can be made to the decision of Hon'ble Delhi High Court in the case of CIT v. Inchcape India (P.) Ltd. wherein the information supplied on the basis of testing and inspection of fabrics/garments/consumable goods to the party situated outside India for sourcing the said goods from India was held to be covered within the provisions of Section 80-O. It appears that the basis for holding so is that even though the testing and inspection of the goods was done by the assessee in India, the services ultimately rendered by the assessee were to supply the information based on such testing and inspection and since this information was to be received by the party situated abroad and the same was to be utilized by the said party only outside India for making the decision, it was a case of services rendered by the assessee from India and such services were to be treated as the services rendered outside India within the meaning of Explanation (iii) to Section 80-O.The logic thus is that even if the services are rendered in India, the ultimate utilization of such services would be by the client outside India inasmuch as the analysis of the information received on the basis of such services in India is done abroad and the appropriate decision based on such analysis is also taken abroad. It is thus a case of rendering the services from India which ultimately are utilized abroad and thus are to be regarded as the services rendered outside India.
20. The position in respect of the services rendered or to be rendered after the order is placed by the foreign client directly on the Indian supplier, would normally be different and the services rendered after the placement of order in connection with the execution of the said order would be services rendered in India. For instance, if the scope of work includes follow up of such orders to ensure quality control, delivery schedule etc., the services rendered in connection with such activities like testing and inspection of samples, follow up of the order to ensure timely supplies and even dispatch of the said goods to the foreign party would be normally the services rendered in India and not the services rendered from India because the utilization of the said services will effectively be in India for which no deduction is permissible. For this proposition, support can be derived from the decision of Hon'ble Bombay High Court in the case of Searle (India) Ltd. v. CBDT wherein an American company was importing goods from India which were to conform to its quality specifications and the assessee was required to carry out certain test in its laboratory in India and forward to the American company the result of those tests with a certificate that each lot of the goods to be imported from India conforms to the specifications of the American company. In these facts and circumstances, Hon'ble Bombay High Court held that the testing and certification were done by the assessee in India and not outside India so as to attract the provisions of Section 80-O. Above decision of Hon'ble Bombay High Court was rendered prior to the insertion of Explanation (iii) to Section 80-O.21. Shri Jain, learned Sr. D.R. is right in contending that all the agreements with different buyers and details of services rendered by the assessee should have been thoroughly examined to determine as to what portion of services were rendered to foreign buyers from India and what portion of services were rendered in India. On the basis of decision of Supreme Court in the case of Continental Construction Ltd. (supra), Shri Jain has also rightly contended that in case of composite services both inside and outside India, proportionate deduction has to be allowed to the assessee under Section 80-O of the Income-tax Act. We further find that services 5 to 10 enumerated at pages 2 & 3 of this order are such which could be treated as services rendered in India.
But here again there can be mixture of services in India and services out of India to a foreign buyer. For example, if the agent conveys to the foreign buyers that goods required to be sent are in accordance with sample and, therefore, clearance for dispatch be given. This is a service rendered from India on which a decision is taken by the foreign buyers. Likewise, certificate of the agent that goods conform to specification and, therefore, payment should be remitted from foreign land is also a service rendered from India. On the basis of above information the decision is taken by the foreign buyers. Shri Vohra has shown us correspondence/telex messages between buyers and the assessee relating to various purchases and supplies to be sent from India. These contain instructions of the buyer relating to delects and alterations in the goods to be prepared for export to the foreign buyer. The correspondence shows that decisions were taken by foreign buyer on the basis of information supplied by the assessee. Thus even in above services, some element of supply of commercial information which qualify for deduction is involved. The present is a case in which composite services were rendered and, therefore, CIT(A) was not justified in allowing 100% relief to the assessee. A portion of fees for services rendered in India was to be disallowed.
22. Shri Jain had vehemently contended that matter should be remanded to the lower authorities for examining each of the contract with foreign buyers and for determine of the ratio in which deduction is to be allowed to the assessee. We see from assessment record that assessee furnished whatever information was asked for by the Assessing Officer.
The claim of the assessee that all the contracts are of similar nature, was never challenged. It is not the case of the Assessing Officer that assessee failed in his duty to supply information and on that ground relief was disallowed to the assessee. The learned Assessing Officer took the view that assessee rendered managerial or commercial services and was not entitled to relief under Section 80-O, a view with which we are unable to agree. As already noted, fees received for commercial information supplied to foreign purchaser is entitled to deduction under Section 80-O of the Income-tax Act. Further in appellate proceedings the correspondence and details filed by the assessee were thoroughly examined and also put to the Assessing Officer. No request was made by the Assessing Officer to the learned CIT (Appeals) that matter be remitted to him for further examination or verification. It is further a fact that assessee has received composite fee for all the services rendered to the foreign buyers and bifurcated or separate figure of fees of each services rendered in India is not available. One has to make a reasonable estimate of above amount on the basis of material available on record having in mind the finding of the revenue authorities. In these circumstances, we are of view that no useful purpose would be served in giving a second inning to the revenue.
Having regard to the documents and relevant material available on record, and above discussion, we are of view that interest of justice would be met if 30% of fees received by the assessee is taken towards services rendered in India and 70% of fees received by the assessee is taken to be qualified for deduction under Section 80-O of the Income-tax Act. Accordingly, we direct the Assessing Officer to recompute the deduction having in mind our directions above.