DSP Merrill Lynch Limited Vs ACIT (ITAT Mumbai)
Conclusion: Professional and technical advisory services rendered from India to foreign clients in connection with overseas securities offerings qualify for deduction under Section 80-O as there was coordinate Bench’s decision in the assessee’s own case for AY 1995-96 and lower authorities disallowed portion merely because FIRC did not specify service details which was based on “suspicion, conjectures or surmises” rather than evidence.
Held: Assessee was a company engaged in merchant banking, investment advisory and broking activities, filed its return declaring income of ₹11,04,49,495/-. The return was initially processed u/s 143(1)(a). It had claimed a deduction of ₹3.21 crore under Section 80-O for foreign exchange receipts from clients such as Merrill Lynch International (MLINT) and John Govett & Co. AO restricted the claim to just ₹7.81 lakh on the ground that the assessee had not provided detailed proof of services rendered abroad. CIT (Appeals) partly upheld this view, allowing only 50 per cent of the receipts from Merrill Lynch International and disallowing the claim relating to John Govett & Co. Aggrieved by this order, assessee filed an appeal before the Tribunal. Assessee contended that identical services were accepted as eligible for deduction in earlier and subsequent years and that the agreements with foreign clients were duly approved by the Central Board of Direct Taxes (CBDT) and the Chief Commissioner. It was submitted that the advisory work, covering structuring, documentation, marketing, and regulatory approvals for global depository receipts (GDRs) and debt issues, was executed from India and used outside India, meeting the statutory criteria. Reliance was placed on CBDT Circular No. 700 dated 23 March 1995, which clarified that services rendered from India but received abroad by a foreign enterprise qualify for Section 80-O benefits, even if the foreign client utilises them in India. AO however, maintained that assessee had failed to substantiate actual use of the services abroad and that the deduction could not be based solely on agreements or past acceptance. After examining the record, Tribunal observed that DSP Merrill Lynch’s nature of work, investment-banking advisory in international capital-market transactions, had remained unchanged across years and that foreign-currency receipts and agreements supported the genuineness of the services. It was held that the coordinate Bench’s decision in the assessee’s own case for AY 1995-96, Tribunal held that the lower authorities’ approach was based on “suspicion, conjectures or surmises” rather than evidence. Accordingly, it directed the AO to delete the disallowance and restore the full deduction under Section 80-O for receipts from Merrill Lynch International. In contrast, the claim for deduction on payments received from John Govett & Co. was remitted to the AO for fresh examination in light of CBDT’s circular, as adequate documentation had not been produced. Therefore, advisory services rendered from India to foreign enterprises for overseas use fell squarely within the scope of Section 80-O.
