No Section 80O deduction for income received from foreign enterprise for rendering services in India

Ramnath & Co. Vs CIT (Supreme Court)

Conclusion: Service charges received by assessees from the foreign enterprises did not qualify for deduction in view of clause (iii) of the Explanation to Section 80O as the services rendered by respective assessees were the ‘services rendered in India’ and not the ‘services rendered from India’ and merely having a contract with a foreign enterprise and mere earning foreign exchange did not ipso facto lead to the application of s. 80O of the Act.

Held: Assessee who had been engaged in providing services to certain foreign buyers of frozen seafood and/or marine products and had received service charges from such foreign buyers/enterprises in foreign exchange, claimed deduction under Section 80-O as applicable for the relevant assessment year/s. AO denied such claim for deduction essentially with the finding that the services rendered by respective assessees were the ‘services rendered in India’ and not the ‘services rendered from India’ and, therefore, the service charges received by assessees from the foreign enterprises did not qualify for deduction in view of clause (iii) of the Explanation to Section 80-O of the Act of 1961. ITAT, Cochin Bench accepted the claim for such deduction under Section 80-O with the finding in case of the assessee Ramnath & Co.for the assessment year 1993-94 that as per the agreements with the referred foreign enterprises, assessee had passed on the necessary information which were utilised by the foreign enterprises concerned to make a decision either to purchase or not to purchase; and hence, it were a service rendered from India. The same decision was followed by ITAT in the case of this assessee for other assessment years under consideration as also in the case of other assessee M/s Laxmi Agencies. Revenue preferred appeals before the High Court against the orders so passed by ITAT in favour of the present appellants as also a few other assessees. These appeals have been considered together by the High Court of Kerala and held that assessees were merely marine product procuring agents for the foreign enterprises, without any claim for expertise capable of being used abroad rather than in India and hence, the services rendered by them do not qualify as the ‘services rendered from India’, for the purpose of Section 80-O. Therefore, High Court had allowed the appeals of revenue while setting aside the respective orders of ITAT. Aggrieved, the assessees have preferred these appeals. It was held that ITAT, though took note of different services contemplated by the agreements in question and even observed that the clauses like those requiring assessee to settle the claim with manufacturers might be the services rendered in India but then, proceeded to assume, without any cogent material on record, that other services were rendered from India and on that basis, the foreign party took its decision. Even in this regard, the questions relevant and germane to the enquiry were not even gone into inasmuch as, it was not examined as to what and which part of the consideration was attributable to the services envisaged by Section 80-O, which were rendered from India. Therefore, the findings of the Appellate Authority and ITAT, being based on irrelevant considerations while ignoring the relevant aspects, were neither of binding nature nor could have been decisive of the matter.

FULL TEXT OF THE SUPREME COURT JUDGEMENT

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