B. L. PASSIversusCOMMISSIONER OF INCOME TAX, DELHI

496                      [2018]REPORTS
               SUPREME COURT    3 S.C.R. 496              [2018] 3 S.C.R.


A                                B. L. PASSI
                                       v.
                COMMISSIONER OF INCOME TAX, DELHI
                        (Civil Appeal No. 3892 of 2007)
B                               APRIL 24, 2018
        [R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.]
             Income Tax Act, 1961: s.80-O – Deduction under, claimed by
      assessee on the ground that it supplied to a foreign company the
      industrial and commercial knowledge about the Indian Automobile
C
      Industry, information about market conditions and also technical
      assistance as required by such foreign company and such foreign
      company used such services and accordingly supplied dies to
      Indian automobile manufacturer for manufacturing body parts –
      Maintainability of claim for deduction – Held: The provisions of
D     s.80-O mandate the production of document in respect of which
      relief has been sought – Assessee claimed that the major information
      sent to the foreign company was in the form of blue prints for
      manufacture of dies for stamping of doors, however, said blue prints
      were not produced before the lower authorities – Also there was
      nothing on record to prove that any product was developed by the
E
      foreign company by using the information supplied by assessee –
      Thus, there was no material to prove the sales effected by foreign
      company to its customers in India in respect of any product
      developed with the assistance of assessee’s information and also
      on as to how the service charges payable to assessee were computed
F     – The letters exchanged between the parties cannot be basis for
      getting deduction under s.80-O – High Court rightly denied the
      claim for deduction under s.80-O.
            Words and phrases: Technical assistance – Meaning of.
            Dismissing the appeal, the Court
G
            HELD: 1.1 Provisions similar to Section 80-O of the Act
      were originally in the former Section 85-C of the Income Tax
      Act, 1961 which was substituted by Finance (No. 2) Act, 1971.
      Section 80-O was inserted in place of Section 85C which was
      deleted by the Finance (No. 2) Act, 1967. While moving the bill
H
                                    496
  B. L. PASSI v. COMMISSIONER OF INCOME TAX, DELHI                     497


relevant to the Finance Act No. 2 of 1967, the then Finance            A
Minister highlighted the fact that fiscal encouragement needs to
be given to Indian industries to encourage them to provide
technical know-how and technical services to newly developing
countries. It is also seen that the object was to encourage Indian
companies to develop technical know-how and to make it available
                                                                       B
to foreign companies so as to augment the foreign exchange
earnings of this country and establish a reputation of Indian
technical know-how for foreign countries. The objective was to
secure that the deduction under the section shall be allowed with
reference to the income which is received in convertible foreign
exchange in India or having been received in convertible foreign       C
exchange outside India, is brought to India by and on behalf of
taxpayers in accordance with the Foreign Exchange Regulations.
[Para 12] [503-H; 504-A-C]
      1.2. In the instant case, it is evident from record that the
major information sent by the Appellant to the foreign company         D
was in the form of blue prints for the manufacture of dies for
stamping of doors. Several letters were exchanged between the
parties but there was nothing on record as to how this blue print
was obtained and dispatched to the said company. Also, the
Appellant has not furnished the copy of the blue print which was
sent to the foreign company before the Assessing Officer nor           E
was it submitted before the Appellate authority and the Tribunal.
The provisions of Section 80-O of the IT Act mandate the
production of document in respect of which relief has been sought.
The blue prints made available by the Appellant to the foreign
company can be considered as technical assistance provided by          F
the Appellant to the foreign company in the circumstances if the
description of the blue prints is available on record. The said
blue prints were not even produced before the lower authorities.
In such scenario, when the claim of the Appellant is solely relying
upon the technical assistance rendered to the foreign company
in the form of blue prints, its unavailability creates a doubt and     G
burden of proof is on the Appellant to prove that on the basis of
those blue prints, the foreign company was able to start up their
business in India and he was paid the amount as service charge.
Further, with regard to the remuneration to be paid to the Appellant
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498           SUPREME COURT REPORTS                     [2018] 3 S.C.R.


A     for the services rendered, in terms of the letter dated 25.01.1995,
      it has been specifically referred that the remuneration would be
      payable for the commercial and industrial information supplied
      only if the business plans prepared by the Appellant results
      positively i.e it will pay service charges on sales of its products
      so developed but there was nothing on record to prove that any
B
      product was so developed by the foreign company on the basis of
      the blue prints supplied by the Appellant as also that the foreign
      company was able to sell any product developed by it by using
      the information supplied by the Appellant. Meaning thereby, there
      is no material on record to prove the sales effected by the foreign
C     company to its customers in India in respect of any product
      developed with the assistance of Appellant’s information and also
      on as to how the service charges payable to Appellant were
      computed. [Paras 13, 16, 17] [504-D-E; 505-E-G; 506-A-B]
             2. In the present facts and circumstances of the case, the
D     services of managing agent, i.e., the Appellant, rendered to a
      foreign company, are not technical services within the meaning
      of Section 80-O of the IT Act. The Appellant failed to prove that
      he rendered technical services to the foreign company and also
      the relevant documents to prove the basis for alleged payment
      by the foreign company to him. The letters exchanged between
E     the parties cannot be claimed for getting deduction under Section
      80-O of the IT Act. It is settled law that the expressions used in
      a taxing statute would ordinarily be understood in the sense in
      which it is harmonious with the object of the Statute to effectuate
      the legislative animation. The Appellant was a managing agent
F     and the High Court was right in holding the principal agent
      relationship between the parties and there is no basis for grant
      of deduction to the Appellant under Section 80-O of the IT Act.
      [Paras 18, 19] [506-D; 506-E]
            J. K. (Bombay) Ltd. v. Central Board of Direct Taxes
G           and Another (1979) 118 ITR 312 (Del.) – referred to.
                            Case Law Reference
      (1979) 118 ITR 312 (Del.)        referred to          Para 15
            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3892
      of 2007.
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   B. L. PASSI v. COMMISSIONER OF INCOME TAX, DELHI                         499


      From the Judgment and Order dated 13.12.2006 of the High Court        A
of Delhi at New Delhi in Income Tax Appeal No. 1198 of 2006.
     Lakshmikumaran, Ms. Nina Gupta, Sanjay Gupta, Mudit Sharma,
Ms. Ranu Purohit, Saurav Sood, Shashank Sharma, Ms. Subhash Peer,
Ms. Bina Gupta, Advs. for the Appellant.
     K. Radhakrishnan, Sr. Adv., Ms. Niranjana Singh, Ms. Sadhana           B
Sandhu (for Mrs. Anil Katiyar), Advs. for the Respondent.
      The Judgment of the Court was delivered by
       R. K. AGRAWAL, J. 1. The above appeal has been filed against
the judgment and order dated 13.12.2006 passed by the High Court of         C
Delhi in I.T. Appeal No. 1198 of 2006 whereby the Division Bench of
the High Court dismissed the appeal filed by the appellant herein against
the order dated 10.10.2005 passed by the Income Tax Appellate Tribunal,
Delhi Bench (in short ‘the Tribunal’) in ITA No. 1603/D/2002.
      2. Brief facts:                                                       D
        (a) The Appellant herein filed return disclosing income of Rs.
57,40,360/- for the Assessment Year (AY) 1997-98 while claiming
deduction of Rs. 58,87,045/- under Section 80-O of the Income Tax Act,
1961 (in short ‘the IT Act’) on a gross foreign exchange receipt of Rs.
1,17,74,090/- received from Sumitomo Corporation, Japan. Sumitomo
                                                                            E
Corporation was interested in supplying dies for manufacturing of body
parts to Indian automobile manufacturers and entered into a contract
with the Appellant under which the services of the Appellant herein
were engaged by using his specialized commercial and industrial
knowledge about the Indian automobile industry. Sumitomo Corporation
also agreed to pay remuneration at the rate of 5% of the contractual        F
amount between Sumitomo Corporation and its Indian customers on sales
of its products so developed. The Appellant claimed to have supplied to
Sumitomo Corporation the industrial and commercial knowledge,
information about market conditions and Indian manufacturers of
automobiles and also technical assistance as required by the Corporation.
                                                                            G
      (b) The case of the Appellant was selected for scrutiny by the
Income Tax Department, Delhi and in response to notice under Section
143(2) of the IT Act, the Appellant along with others attended the
assessment proceedings from time to time justifying the claim under
Section 80-O of the IT Act. The Assessing Officer, vide order dated
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500            SUPREME COURT REPORTS                          [2018] 3 S.C.R.


A     27.03.2000 under Section 143(3) of the IT Act assessed the total income
      at Rs. 1,18,43,060/- and determined the sum payable by the assessee to
      the tune of Rs. 43,25,960/-. Being aggrieved by the order dated
      27.03.2000, the Appellant preferred an appeal being No. 272/01-02 before
      the Commissioner of Income Tax (Appeals)-XXVI, New Delhi. The
      Appellate Authority, vide order dated 20.02.2002, partly allowed the appeal
B
      and held that the Appellant is entitled to deduction under Section 80-O of
      the IT Act. Being aggrieved by the order dated 20.02.2002, the Revenue
      went in appeal before the Tribunal. The Tribunal, vide order dated
      10.10.2005, allowed the appeal filed by the Revenue. The Appellant
      approached the High Court by filing I.T. Appeal No. 1198 of 2006
C     challenging the order of the Tribunal dated 10.10.2005 which was
      dismissed on 13.12.2006 by a Division Bench of the High Court.
           (c) Aggrieved by the judgment and order dated 13.12.2006, the
      Appellant has filed this appeal by way of special leave before this Court.
            3. Heard Mr. Lakshmikumaran, learned counsel for the Appellant
D     and Mr. K. Radhakrishnan, learned senior counsel for the Respondent
      and perused the records.
            Point(s) for consideration:-
            4. The sole point for consideration before this Court is whether
E     the Appellant is entitled to deduction under Section 80-O of the IT Act
      under the facts and circumstances of the present case?
            Rival contentions:-
             5. Learned counsel for the Appellant contended that the Appellant
      has fulfilled all the conditions as envisaged under Section 80-O of the IT
F     Act inasmuch as he was providing specialized, industrial and commercial
      knowledge relating to the Indian automobile industry and also detailed
      information about the industry in India. Learned counsel further
      contended that the Appellant is enjoying a very good professional
      reputation amongst manufacturers and traders and having a vast
      experience of the Indian automobile industry. The services so rendered
G
      by the Appellant were in fact rendered and the payment was received
      for having rendered those services. Learned counsel finally contended
      that the High Court committed an error in considering it a principal-
      agent relationship and the order passed by the High Court is liable to be
      set aside.
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   B. L. PASSI v. COMMISSIONER OF INCOME TAX, DELHI                           501
                     [R. K. AGRAWAL, J.]

       6. Learned senior counsel for the Respondent submitted that in         A
order to claim deduction under Section 80-O of the IT Act, the information
must be concerning industrial, commercial or scientific knowledge,
experience or skill, which is made available to the non-resident party
and it is difficult to hold from the material on record that the Appellant
was having any information concerning industrial, commercial or scientific
                                                                              B
knowledge, experience or skill or he ever had in possession of any blue
prints. Learned senior counsel further submitted that the manner or
circumstances under which the proposed multipurpose vehicles of Telco
under SAFARI project were finalized are not clear and no documents
have been produced on record for the same. Learned senior counsel
finally submitted that the decision rendered by the High Court was right      C
and no interference is sought for by this Court.
       7. In rejoinder, learned counsel for the appellant contended that
the agreement between the parties satisfies the ingredients of Section
80-O of the IT Act entitling the Appellant to get the benefit of deduction
as the services rendered by the appellant were in the nature of industrial    D
and commercial knowledge to a foreign enterprise.
      Discussion:-
       8. The Appellant has claimed to have vast experience of the Indian
automobile industry and has acquired substantial expertise and experience
and is in a position to supply specialized commercial and industrial          E
information about the automobile industry to any foreign enterprise looking
for developing its market in India. The Appellant struck a deal with the
Sumitomo Corporation, Japan with regard to the information about the
market conditions existing in the Indian automobile industry, specific
information regarding manufacturers of automobiles in India, about the        F
market position, credibility and the product acceptance of each of those
manufacturers, to provide pre-information regarding the proposal to
launch any new product by any of the manufacturers in India, to provide
suggestions for development of automobile parts/dies for manufacture
of automobile body parts conforming to the specific needs of the
manufacturers of automobiles in India, to provide services and support        G
as may be reasonably required in connection with the development and
manufacture of the products in Japan for sale in India and to advise the
Sumitomo Corporation of legal laws and regulations applicable in India
relating to the importation and/or sale of its products in India etc.
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502            SUPREME COURT REPORTS                         [2018] 3 S.C.R.


A            9. The services so rendered by the Appellant were required to be
      used by Sumitomo Corporation for establishing its business in the Indian
      automobile industry and he received a sum of Rs. 1,17,73,940/- on account
      of technical and industrial knowledge and professional services rendered
      by him in relation to the SAFARI project of TELCO. It is his claim that
      the Sumitomo Corporation bagged the order from TELCO in respect of
B
      SAFARI project as a result of use of specialized, commercial and
      industrial knowledge and professional services rendered by him.
             10. The Appellant filed the income tax return declaring an income
      of Rs. 57,40,360/- which was selected for scrutiny by the Income Tax
      Department. While computing the income, a deduction of Rs. 58,87,045/
C     - was claimed under Section 80-O of the Act on the gross receipts of
      Rs. 1,17,74,090/- received from Sumitomo Corporation of Japan in
      convertible foreign exchange in the name of M/s Pasco International
      wherein the Appellant was the sole proprietor. It was further explained
      that he had received the above amount in convertible foreign exchange
D     as consideration for providing specialized industrial and commercial
      knowledge relating to the Indian automobile industry including therein
      the detailed information about the industry, analyzing the government
      policies relating to Indian automobile industry and also to identify
      opportunities for supply of products of M/s Sumitomo corporation to
      various customers in India and hence he is entitled to claim deduction
E     under Section 80-O of the IT Act which had been claimed in the return
      of income filed. However, the Assessing Officer, by order dated
      27.03.2000, disallowed the claim of deduction of Rs. 58,87,045/- under
      Section 80-O of the Act while holding that the Appellant’s services do
      not qualify for deduction under the relevant Section.
F          11. In the above backdrop, it is essential to quote Section 80-O
      (unamended) of the IT Act which reads as under:-
            “80-O.Deduction in respect of royalities etc. from certain
            foreign enterprises.—1) Where the gross total income of an
            assessee, being an Indian company or a person (other than a
G           company) who is resident in India, includes any income by way of
            royalty, commission, fee or any similar payment received by
            assessee from the Government of a foreign state or foreign
            enterprise in consideration for the use outside India of any patent,
            invention, model, design, secret formula or process or similar
H
   B. L. PASSI v. COMMISSIONER OF INCOME TAX, DELHI                           503
                     [R. K. AGRAWAL, J.]

      property right, or information concerning industrial, commercial        A
      or scientific knowledge, experience or skill made available of
      provided or agreed to be made available of provided to such
      Government or enterprise by the assessee, or inconsideration of
      technical or professional services rendered or agreed to be
      rendered outside India to such Government or enterprise by the
                                                                              B
      assessee, and such income 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        C
      to provisions of this section, a deduction of an amount equal to
      fifty percent of income so received in , or brought into, India, in
      computing the total income of the assessee:
      Provided that such income is received in India within a period of
      six months from the end of the previous year, or where the Chief        D
      Commissioner or Commissioner is satisfied (for reasons to be
      recorded in writing) that the assessee is, for reasons beyond his
      control, unable to do so within the said period of six months, within
      such further period as a Chief Commissioner may allow in this
      behalf:
                                                                              E
      Explanation for the purposes of this section:-
      (i) “Convertible foreign exchange” means foreign exchange which
      is for the time being treated by the Reserve Bank of India as
      convertible foreign exchange for the purpose of the law for the
      time being in force for regulating payments and dealing in foreign      F
      exchange.
      (ii) “foreign enterprise” means a person who is non resident.
      (iii) Services rendered or agreed to be rendered outside India shall
      include services rendered from India but shall not include services
      rendered in India.”                                                     G
       12. Provisions similar to Section 80-O of the Act were originally
in the former Section 85-C of the Income Tax Act, 1961 which was
substituted by Finance (No. 2) Act, 1971. Section 80-O was inserted in
place of Section 85C which was deleted by the Finance (No. 2) Act,
                                                                              H
504             SUPREME COURT REPORTS                           [2018] 3 S.C.R.


A     1967. While moving the bill relevant to the Finance Act No. 2 of 1967,
      the then Finance Minister highlighted the fact that fiscal encouragement
      needs to be given to Indian industries to encourage them to provide
      technical know-how and technical services to newly developing countries.
      It is also seen that the object was to encourage Indian companies to
      develop technical know-how and to make it available to foreign companies
B
      so as to augment the foreign exchange earnings of this country and
      establish a reputation of Indian technical know-how for foreign countries.
      The objective was to secure that the deduction under the section shall
      be allowed with reference to the income which is received in convertible
      foreign exchange in India or having been received in convertible foreign
C     exchange outside India, is brought to India by and on behalf of taxpayers
      in accordance with the Foreign Exchange Regulations.
             13. Now coming to the facts of the case at hand, it is evident from
      record that the major information sent by the Appellant to the Sumitomo
      Corporation was in the form of blue prints for the manufacture of dies
D     for stamping of doors. Several letters were exchanged between the
      parties but there is nothing on record as to how this blue print was obtained
      and dispatched to the aforesaid company. It is also evident on record
      that the Appellant has not furnished the copy of the blue print which was
      sent to the Sumitomo Corporation neither before the Assessing Officer
      nor before the Appellate authority nor before the Tribunal. The provisions
E     of Section 80-O of the IT Act mandate the production of document in
      respect of which relief has been sought. We, therefore, have to examine
      whether the services rendered in the form of blue prints and information
      provided by the Appellant fall within the ambit of Section 80-O of the IT
      Act or any of the conditions stipulated therein in order to entitle the
F     assessee to claim deduction.
             14. In New Encyclopaedia Britannica, where the term “technical
      assistance” had been considered, it has been stated that technical
      assistance may involve sending experts into the field to teach skills and
      to help solve problems in their areas of specialisation, such as irrigation,
G     agriculture, fisheries, education, public health, or forestry. In New
      Webster’s Dictionary of the English Language the word “technical”
      means what is characteristic of a particular art, science, profession, or
      trade and the word “technology” means the branch of knowledge that
      deals with the industrial arts and sciences; utilisation of such knowledge;
      the knowledge and means used to produce the material necessities of a
H     society.
   B. L. PASSI v. COMMISSIONER OF INCOME TAX, DELHI                            505
                     [R. K. AGRAWAL, J.]

       15. In J.K. (Bombay) Ltd. vs. Central Board of Direct Taxes             A
and Another (1979) 118 ITR 312 (Del.), the interpretation of technical
assistance has been described as under:-
      “We have shown above that adopting the wider meaning of the
      word “technical” would defeat the object of Section 80-O by
      enabling the remuneration for management or running of a foreign         B
      company to be eligible for deduction under Section 80-O. On the
      other hand, the narrower meaning of the word “technical” seems
      to be more in keeping with the object of the section. It has to be
      remembered that the word “technology” which has affinity with
      the word “technical” is concerned with the control of material
      environment by man. This is done by two means. Firstly, by the           C
      use of tools, and, secondly, by the application of reason to the
      properties of matter and secondly, by the application of reason to
      the properties of matter and energy. It would appear, therefore,
      that it would be reasonable to think that technical services should
      include the use of tools and machinery in addition to the use of         D
      reason. Managerial services which do not include any use of
      tools and machinery may not be regarded as technical services.”
       16. The blue prints made available by the Appellant to the
Corporation can be considered as technical assistance provided by the
Appellant to the Corporation in the circumstances if the description of        E
the blue prints is available on record. The said blue prints were not even
produced before the lower authorities. In such scenario, when the claim
of the Appellant is solely relying upon the technical assistance rendered
to the Corporation in the form of blue prints, its unavailability creates a
doubt and burden of proof is on the Appellant to prove that on the basis
of those blue prints, the Corporation was able to start up their business in   F
India and he was paid the amount as service charge.
       17. Further, with regard to the remuneration to be paid to the
Appellant for the services rendered, in terms of the letter dated
25.01.1995, it has been specifically referred that the remuneration would
be payable for the commercial and industrial information supplied only if      G
the business plans prepared by the Appellant results positively. Sumitomo
Corporation will pay to PASCO International service charges equivalent
to 5% (per cent) of the contractual amount between Sumitomo and its
customers in India on sales of its products so developed. From a perusal
of the above, it is clear that the Appellant was entitled to service charges   H
506              SUPREME COURT REPORTS                         [2018] 3 S.C.R.


A     at the rate of 5% (per cent) of the contractual amount between Sumitomo
      Corporation and its customers in India on sales of its products so
      developed but there is nothing on record to prove that any product was
      so developed by the Sumitomo Corporation on the basis of the blue prints
      supplied by the Appellant as also that the Sumitomo Corporation was
      able to sell any product developed by it by using the information supplied
B
      by the Appellant. Meaning thereby, there is no material on record to
      prove the sales effected by Sumitomo Corporation to its customers in
      India in respect of any product developed with the assistance of
      Appellant’s information and also on as to how the service charges payable
      to Appellant were computed.
C            18. In view of the foregoing discussion, we are of the considered
      opinion that in the present facts and circumstances of the case, the
      services of managing agent, i.e., the Appellant, rendered to a foreign
      company, are not technical services within the meaning of Section 80-O
      of the IT Act. The Appellant failed to prove that he rendered technical
D     services to the Sumitomo Corporation and also the relevant documents
      to prove the basis for alleged payment by the Corporation to him. The
      letters exchanged between the parties cannot be claimed for getting
      deduction under Section 80-O of the IT Act.
              19. Before parting with the appeal, it is pertinent to mention here
E     that it is settled law that the expressions used in a taxing statute would
      ordinarily be understood in the sense in which it is harmonious with the
      object of the Statute to effectuate the legislative animation. The Appellant
      was a managing agent and the High Court was right in holding the principal
      agent relationship between the parties and there is no basis for grant of
      deduction to the Appellant under Section 80-O of the IT Act.
F
             20. In view of the above, the appeal is dismissed with no order as
      to costs.


      Devika Gujral                                                Appeal dismissed.
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