The Commissioner Of Income Tax-10 v. M/S. Megatech Engineering And Servicespvt. Limited

IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. INCOME TAX APPEAL NO.2228 OF 2009 The Commissioner of Income Tax-10 ..Appellant. Vs. M/s. Megatech Engineering and ServicesPvt. Limited..Respondent. .... Mr. J.S. Saluja for the Appellant.Dr. K. Shivram with Mr. Sujeeth S. Karkal i/b Mr. Ajay R. Singh for the Respondent. ..... CORAM : DR.D.Y.CHANDRACHUD & J.P.DEVADHAR, JJ. P.C. : 27[th] January, 2010. 1.The appeal has been filed by the revenue on the following questions of law : “a)Whether on the facts and in the circumstances of the case, the Hon ble Tribunal was right in law in holding that services’provided by the assessee on account of design reviews and“”“discussion on design parameters are the same as providinhg”design to the foreign party? b)Whether on the facts and in the circumstances of the ’case, the Hon ble Tribunal was correct in law in holding thatCircular No.700 dated 23-3-1995 issued by the CBDT is applicable to the provisions of Section 80-O amended with effect from 1-4-1998?” assessment year 1998-99 is whether the assessee had supplied designs to a foreign enterprise for use outside India. The assessing officer came to the conclusion that the assessee is rendering technical services to MTS Systems Corporation, USA but these services are rendered in India and that the income which was received was for providing technical services which was not eligible for deduction under Section 80-O. The CIT(A) relied on the Board circular bearing No.700 dated 23[rd] March, 1995 which clarifies that as long as the technical and professional services are rendered from India and are received by a foreign enterprise outside India, the deduction under Section 80-O would be available to the person rendering the service, even if the foreign recipient utilizes the benefits of such services in India. The Tribunal confirmed the order passed by the CIT(A). 3.The order of the Tribunal does not contain any finding on the question as to whether the assessee had, as a matter of fact, supplied designs to the foreign enterprise outside India during the course of the assessment year 1998-99. During the course of the hearing, the paper book which was filed before the Tribunal was produced for the perusal of this Court. In our view, before the benefit of a deduction under Section 80-O is allowed, it is necessary that the conditions prescribed in the provision should be satisfied. One of the conditions is that the income received by the assessee from the Government of 3.The order of the Tribunal does not contain any finding on the question as to whether the assessee had, as a matter of fact, supplied designs to the foreign enterprise outside India during the course of the assessment year 1998-99. During the course of the hearing, the paper book which was filed before the Tribunal was produced for the perusal of this Court. In our view, before the benefit of a deduction under Section 80-O is allowed, it is necessary that the conditions prescribed in the provision should be satisfied. One of the conditions is that the income received by the assessee from the Government of a foreign State or a foreign enterprise must be in consideration for the use outside India of any patent, invention, design or registered trademark. Explanation (iii) states that for the purposes of the Section services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India. The circular of the Board dated 23[rd] March, 1995 clarifies that as long as services are rendered from India and are received by the foreign government or enterprise from outside India, the deduction under Section 80-O would be available to the person rendering the services even if the foreign recipient utilizes the benefits of such services in India. Therefore, both under Section 80-O and under the circular of the Board, it is necessary for the assessing officer to have rendered a finding of fact as to whether the services in question were received by the foreign enterprise in this case outside India. Apart from referring to certain provisions of the agreement, the Tribunal has also not entered any finding of fact conclusively. Hence, during the course of the hearing we had suggested to the learned counsel that it would be appropriate for this Court to remand the proceedings in order to enable a proper finding of fact to be recorded on the question as to whether designs were, as a matter of fact, supplied by the assessee during the relevant assessment year 1998-99 to the foreign enterprise outside India. The learned counsel have agreed to this course of action and by consent it has been agreed upon that remand should be made to the assessing officer for a fresh determination. In the circumstances, in order to facilitate this exercise the impugned judgment of the Tribunal pertaining to the assessment year 1998-99 and relating to the deduction under Section 80-O is set aside. The proceedings shall stand remanded back to the assessing officer for redetermining the question as regards the claim for deduction under Section 80-O in the light of the observations contained in this judgment. It would be open to the assessee to produce such further material and/ or documents as are sought to be relied upon in support of the claim. The appeal is accordingly disposed of. There shall be no order as to costs. (Dr. D.Y.Chandrachud, J.) (J.P. Devadhar, J.)