Supreme Court In National Thermal Power Co. Limited v. Commissioner Of Income Tax[[1

* THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.Nos.72 of 2002, 59, 209 & 290 of 2003 % Date: 06.08.2014 I.T.T.A.No.72 of 2002 The Commissioner of Income Tax-I, Aayakar Bhavan, Basheerbagh, Hyderabad. … Appellant Aayakar Bhavan, Basheerbagh, Hyderabad. … Appellant And $ M/s. Compagne Indo Franchaise Be Commerce (P) Ltd., 66, R.P.Road, Secunderabad. Be Commerce (P) Ltd., 66, R.P.Road, Secunderabad. … Respondent ! Counsel for Appellant: Sri J.V.Prasad ^ Counsel for Respondent: Sri Y.Ratnakar < GIST: > HEAD NOTE: ? Cases referred 1. 229 ITR 383 THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYANDTHE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.Nos.72 of 2002, 59, 209 & 290 of 2003 COMMON JUDGMENT:(Per Hon’ble Sri Justice L.Narasimha Reddy) As part of its activity, it undertakes several activities in trade and commerce within India as well as outside the country. One of the benefits claimed by it in the return submitted by it for theassessment years 1991-92 to 1994-95 was referable to Section 80-O of the Act, as it stood then. The plea of the respondent was that it has entered into an agreement with certain foreigncompanies for providing guidance and supply of information about the activities in India, of theforeign company, by name CSTP of French origin. For the assessment year 1992-93, the benefitclaimed was 50% of the commission received by it amounting to Rs.23,24,586/-. For theassessment year 1991-92, though claim was paid, it was not pressed and, for the assessmentyears 1993-94 and 1994-95, the benefit was claimed as regards different amounts. The Assessing Officer took the view that the claim made by the respondent does not fit intoSection 80-O of the Act and refused deductions. Aggrieved by that, the respondent carried thematters in appeal before the Commissioner (Appeals). The appeals were rejected throughseparate orders. Thereupon, the respondent filed appeals before the Hyderabad Bench ‘A’ of theIncome Tax Appellate Tribunal (for short ‘the Tribunal’), being ITA.Nos.961 and 860 of 1996 and282 and 1366 of 1997, covering four assessment years. Through a common order dated09.11.2001, the Tribunal allowed the appeals taking the view that the respondent is entitled forthe benefit under Section 80-O of the Act. Hence, these four appeals under Section 260-A of theAct. Sri J.V.Prasad, learned counsel for the appellant, submits that the Assessing Officer gavedetailed reasons, duly referring to the relevant provision of law, as to how the respondent is notentitled for deduction under Section 80-O of the Act. He submits that though the Tribunal has alsoagreed with the findings of the Assessing Officer that the services said to have been rendered bythe respondent cannot be treated as scientific and professional in nature, it has taken a view,which was not even pleaded by the respondent before the Assessing Officer, by treating it as aquestion of law. He contends that there is hardly a question of law and what was undertaken bythe Tribunal was an exercise of facts pure and simple. He placed reliance on the judgment of the Supreme Court in National Thermal Power Co. Limited vs. Commissioner of Income Tax[[1]]. Learned counsel submits that in case the Tribunal felt that the claim made by the respondent fitsinto another head, albeit within the purview of Section 80-O of the Act, the matter ought to havebeen remanded. Supreme Court in National Thermal Power Co. Limited vs. Commissioner of Income Tax[[1]]. Learned counsel submits that in case the Tribunal felt that the claim made by the respondent fitsinto another head, albeit within the purview of Section 80-O of the Act, the matter ought to havebeen remanded. Sri Y.Ratnakar, learned counsel for the respondent, on the other hand, submits thatSection 80-O of the Act, as it stood then, was wide enough to cover not only the professional orscientific services, but also the charges for exchange of information on ordinary, commercial andindustrial activities. He submits that the Tribunal did not deviate from the record and, onappreciation of facts with reference to the same record, arrived at the conclusion that the claimmade by the respondent can be treated as an activity of providing information concerningcommercial, industrial and scientific knowledge and experience with a foreign company, dulyreferring to the relevant proceedings, and that no interference is warranted with the order of theTribunal. Section 80-O of the Act, as it stood in the year 1991, reads as under: “Whether 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 theGovernment of a foreign State or a foreign enterprise in consideration for the use outsideIndia of any patent, invention, model, design, secret formula or process, or similarproperty right, or information concerning industrial, commercial or scientific knowledge,experience or skill made available or provided or agreed to be made available orprovided to such Government or enterprise by the assessee, or in consideration oftechnical or professional services rendered or agreed to be rendered outside India tosuch Government or enterprise by the assessee, and such income is received inconvertible foreign exchange in India, or having been received in convertible foreignexchange outside India, or having been converted into convertible foreign exchangeoutside India, is brought into India, by or on behalf of the assessee in accordance withany law for the time being in force for regulating payments and dealings in foreignexchange, there shall be allowed, in accordance with and subject to the provisions ofthis section, a deduction of an amount equal to fifty percent of the 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 theend of the previous year, or where the Chief Commissioner or Commissioner issatisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyondhis control, unable to do so within the said period of six months, within such furtherperiod as the Chief Commissioner or Commissioner may allow in this behalf. Explanation – For the purpose 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 purposes of the law for the time exchange for the purposes of the law for the time being in force for regulating payments and dealings in foreign exchange; in foreign exchange; (ii) “foreign enterprise” means a person who is a non- resident. 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.” The intention or effort of the parliament was two fold, namely, (1) to encourage the Indiansand the Indian Companies to expand their activities beyond the borders of the country on certainfields, and (2) to earn the foreign exchange. Accordingly, incentive in the form of deduction ofincome so earned to the extent of 50% was permitted. being in force for regulating payments and dealings in foreign exchange; in foreign exchange; (ii) “foreign enterprise” means a person who is a non- resident. 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.” The intention or effort of the parliament was two fold, namely, (1) to encourage the Indiansand the Indian Companies to expand their activities beyond the borders of the country on certainfields, and (2) to earn the foreign exchange. Accordingly, incentive in the form of deduction ofincome so earned to the extent of 50% was permitted. The relevant portion of the contract or arrangement entered into between the respondent,on the one hand, and foreign company CSPT, on the other hand, was extracted in the order ofassessment itself. To be precise, the services to be rendered by the respondent to the foreigncompany were as under: “a) To keep close and permanent contact with the Indian customers and authorities inorder to immediately inform CSPT of any development which may contribute to increasethe business or may in any way affect the interest of CSPT. b) Give to CSPT specific recommendations as to action by the assessee tonegotiate and finalise prices, optional quantities and make necessary modifications. c) To render assistance to CSPT for the smooth and successful execution andadministration of sales contracts with customers in India with reasonable efforts incausing and enabling such customers to fulfil their obligations in each sales contractincluding Government requirement and all legal, financial and commercial aspects. Such assistance will include but shall not be limited to:- - Following and obtaining mutually acceptable schedules of shipments. Following nominations of vessels in accordance with theschedule of shipments.schedule of shipments. Following matters related to changes, substitutions ofvessels, and estimated times of arrivals.vessels, and estimated times of arrivals. - Following the timely establishment and communication of Letters of Credit. Following outstanding payments, and settlements of demurrage and despatch money - Following operations for the checking of the products quality and quantity at the post (a) of discharge. - Advising any matter which may prejudice relationship of the CSPT with customers. Calculation of demurrage at loading port, chartering of ships. (d) to provide CSPT with regular reports with respect to Rock Phosphate marketdevelopments and the developments of India Policy as regards the use and imports ofRock Phosphate in India. (e) to interpret the policy of the Government pertaining to import and export as wellas provide commercial information for use outside India pertaining to the demand offertilizer, strategy for marketing, the range of indigenous food prices, consequent uponthe monsoon of India. (f) to provide market strategy assistance in negotiating contracts, as well as to takeall steps necessary after the opening of the tender in or to endeavour for the tender to besuccessful. (g) to transmit to CSPT any and all tenders, orders and enquiries issued by Indianbuyers or potential buyers for the import of Rock Phosphate.” (d) to provide CSPT with regular reports with respect to Rock Phosphate marketdevelopments and the developments of India Policy as regards the use and imports ofRock Phosphate in India. (e) to interpret the policy of the Government pertaining to import and export as wellas provide commercial information for use outside India pertaining to the demand offertilizer, strategy for marketing, the range of indigenous food prices, consequent uponthe monsoon of India. (f) to provide market strategy assistance in negotiating contracts, as well as to takeall steps necessary after the opening of the tender in or to endeavour for the tender to besuccessful. (g) to transmit to CSPT any and all tenders, orders and enquiries issued by Indianbuyers or potential buyers for the import of Rock Phosphate.” The Assessing Officer took note of this and found that the activities cannot be treated asprofessional services, at all. In all fairness, he analysed the section into three components,namely, the form of amount, which an assessee is supposed to receive from a foreign company,the source from which it is to be received and the nature of services that are to be renderedtowards consideration under the contract or arrangement. On the 1[st] aspect, he took note of thefact that the receipts can be in the form of commission, royalty or fee or any other payment. Therewas no quarrel as regards the nature of the receipt by the respondent. Regarding source also,there was no difficulty, since the company with which the respondent had arrangement was aFrench origin. The activities, which an assessee must undertake to qualify under Section 80-O of the Act, were summed up as under: “a) Any patent sold; b) Any invention sold; c) Any model sold; d) Any design sold; e) Any secret formula sold; f) Any process sold; g) Any similar property right sold; h) Any information concerning commercial, industrial, scientific knowledge and experience sold to foreign Govt. or foreign enterprises; i) Any skill made available/to be provided/agreed to be made available; j) Any technical services rendered; k) Any professional services rendered;” It appears that the respondent also treated the activity undertaken by it as professional service, occurring in clause (k). The Assessing Officer found that there is nothing professional inthe service that was supposed to be rendered by the assessee and declined the deduction. TheCommissioner (Appeals) concurred with him. The Tribunal, in a way, has agreed with the finding of the Assessing Officer that theservices that were to be provided under the agreement by the respondent were not professional innature. However, on the same set of facts and on the basis of the same record, a contention wasadvanced before it by the respondent that the activity can be treated as the one of sharinginformation and experience concerning commercial and industrial activity and obviously occurringin clause (h) extracted above. The Tribunal found merit in this and accepted the contention. Oneerror, may be of inconsequential nature, committed by the Tribunal is that it treated the contentionof the respondent as the one of law. We do not find any traces of law in such a plea. It was a pleaon facts, pure and simple. The Tribunal, in a way, has agreed with the finding of the Assessing Officer that theservices that were to be provided under the agreement by the respondent were not professional innature. However, on the same set of facts and on the basis of the same record, a contention wasadvanced before it by the respondent that the activity can be treated as the one of sharinginformation and experience concerning commercial and industrial activity and obviously occurringin clause (h) extracted above. The Tribunal found merit in this and accepted the contention. Oneerror, may be of inconsequential nature, committed by the Tribunal is that it treated the contentionof the respondent as the one of law. We do not find any traces of law in such a plea. It was a pleaon facts, pure and simple. The contention of learned counsel for the appellant, that the Tribunal ought to haveremanded the matter, could certainly have been accepted, if only the Tribunal recorded anyfinding on the basis of the material, which did not form part of the record before the AssessingOfficer. Not a paper or a word was added to the record over and above what was there before theAssessing Officer. It is an appreciation of same set of facts and record, that the Tribunal arrived atthe conclusion that the claim of the respondent fits into one of the categories provided for underSection 80-O of the Act. The mere fact that the same set of facts are treated as constituting thebasis for a category, other than the one that was pleaded before the Assessing Officer, does notbring about a situation, warranting remand; nor does it fall outside the scope of the powers of theTribunal. The judgment relied upon by the learned counsel for the appellant, in a way, supports theview taken by the Tribunal. Their lordships took the view that if a new plea is raised on the sameset of facts, which formed part of the record, it is competent for the Tribunal to examine the same.Whatever may be the restriction placed upon the fora, which are conferred with restricted power ofrevision or the review, the jurisdiction and power of an appellate forum to arrive at the conclusionsdifferent from those arrived at by the primary authority on the same facts is, virtually unbridled. Forall practical purposes, an appeal happens to be continuation of the original proceedings, unlessthe concerned statute restricts the powers of the appellate authority. Added to that, the Tribunalhappens to be the last authority of facts, and on the same set of facts and circumstances and onthe same record before it, it is entitled to arrive at different conclusions. The necessity to remandwould arise, if only a new set of facts are pleaded, that too on the basis of additional material,which did not form part of the record of the original authority. We do not find any error of law orjurisdiction on the part of the Tribunal. We, therefore, dismiss the appeals. There shall be no order as to costs. The miscellaneous petitions filed in this appeal shall also stand disposed of. ______________________ 06.08.2014Note: L.R.copy B/o v v [1]229 ITR 383 L.NARASIMHA REDDY,J ____________________CHALLA KODANDA RAM,J