Holding

The services rendered by the appellants are those of a procuring agent performed in India and do not satisfy the requirements of Section 80‑O; therefore, no deduction is allowable.

Summary

The appellants, engaged as agents procuring frozen seafood for foreign buyers, claimed a 50% deduction under Section 80‑O of the Income Tax Act for service fees received in foreign exchange. The Assessing Officer held the services were rendered in India, not "from India", and disallowed the deduction. The Income Tax Appellate Tribunal allowed the claim, but the Kerala High Court reversed, deeming the appellants mere procuring agents. The Supreme Court examined the language of Section 80‑O, the principles of strict construction for tax incentives, and the burden of proof on the assessee. It concluded that the agreements show the appellants acted only as procuring agents, their services were incidental to procurement, and no specific payment for technical or professional advice existed. Consequently, the services do not fall within the scope of Section 80‑O, and the appeals are dismissed.

Issues considered

The nature of services rendered by the appellants and whether they qualify as "services rendered from India" under Explanation (iii) to Section 80‑O.
Whether the burden of proving eligibility for deduction under Section 80‑O lies on the assessee.
Whether any ambiguity in the provision should be interpreted strictly in favour of the revenue.
Whether the High Court erred in characterising the appellants as mere procuring agents and disallowing the deduction.

Legislation cited

Income Tax Act, 1961s. 80-O

Subjects

Section 80-Otax incentiveservices rendered from Indiastrict interpretationburden of proofprocurement agencyforeign exchangeincome tax deduction

Judgment

[2020] 6 S.C.R. 719 719

RAMNATH & CO. A
v.
THE COMMISSIONER OF INCOME TAX
(Civil Appeal Nos. 2506-2509 of 2020)
JUNE 05, 2020 B
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Income Tax Act, 1961 – s. 80-O – The appellants-assessees
were engaged in providing services to certain foreign buyers of
frozen seafood and/ or marine products – Appellants claimed that
C
income received by them for services provided to foreign enterprises
qualifies for deduction u/s. 80-O of the Income Tax Act, as applicable
during the respective assessment years from 1993-94 to 1997-98 –
Appellants contended that they provided technical guidance or
advice or information to the foreign enterprises – Held: All the
clauses of the agreements read together make it absolutely clear D
that the appellant was merely a procuring agent and it was his
responsibility to ensure that proper goods are supplied in proper
packing to the satisfaction of the principal – Significantly, the
payment to the appellant, whatever label it might have carried, was
only on the basis of the amount of invoice pertaining to the goods –
E
There had not been any provision for any specific payment referable
to the so-called analysis or technical guidance or advice – Services
provided by the appellant as agent were rendered in India – Even if
certain information was sent by the assessee to the principals, the
information did not fall in the category of such professional services
or information which could justify its claim for deduction u/s. 80-O F
of the Act – Further, default clauses in the agreement made it more
clear that if quality of goods was found to be unsatisfactory to
principals, then they shall have no responsibility to pay agent’s fees
– If at all it had been a matter of the appellant furnishing some
technical information, the appellant was likely to receive some
G
professional charges, however, agreement provided for no payment
in case of dissatisfaction with goods – Besides, the appellants failed
to establish as to what was such information of special nature or of
expertise that was given by it and how the same was utilised, if at
all, by the foreign enterprises and how much of the foreign exchange
H
719
720 SUPREME COURT REPORTS [2020] 6 S.C.R.

A receipt was attributable to such special service – Hence, the services
rendered by appellants do not qualify for the purposes of s. 80-O
of the Act.
Interpretation of Statutes – Tax incentive provisions – Held:
The principles laid down in Constitution Bench in Dilip Kumar &
B Co., when applied to incentive provisions like those for deduction,
would be that the burden lies on the assessee to prove its applicability
to his case; and if there be any ambiguity in the deduction clause,
the same is subject to strict interpretation with the result that the
benefit of such ambiguity cannot be claimed by the assessee; rather
it would be interpreted in favour of the revenue.
C
Dismissing the appeals, the Court
HELD: 1. The principles laid down by the Constitution
Bench, when applied to incentive provisions like those for
deduction, would also be that the burden lies on the assessee to
D prove its applicability to his case; and if there be any ambiguity in
the deduction clause, the same is subject to strict interpretation
with the result that the benefit of such ambiguity cannot be claimed
by the assessee, rather it would be interpreted in favour of the
revenue. In view of the Constitution Bench decision in Dilip
Kumar & Co., the generalised observations in Baby Marine
E Exports with reference to a few other decisions, that a tax
incentive provision must receive liberal interpretation, cannot
be considered to be a sound statement of law; rather the
applicable principles would be those enunciated in Wood Papers
Ltd., which have been precisely approved by the Constitution
F Bench. Thus, at and until the stage of finding out eligibility to
claim deduction, the ambit and scope of the provision for the
purpose of its applicability cannot be expanded or widened and
remains subject to strict interpretation but, once eligibility is
decided in favour of the person claiming such deduction, it could
be construed liberally in regard to other requirements, which
G may be formal or directory in nature. [Para 20][775-E-F; 776-A-
C]
2. It remains trite that any process of construction of a
written text primarily begins with comprehension of the plain
language used. In such process of comprehension of a statutory
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 721

provision, the meaning of any word or phrase used therein has to A
be understood in its natural, ordinary or grammatical meaning
unless that leads to some absurdity or unless the object of the
statute suggests to the contrary. In the context of taxing statute,
the requirement of looking plainly at the language is more
pronounced with no room for intendment or presumption. In
B
this process, if natural, ordinary or grammatical meaning of any
word or phrase is available unquestionably and fits in the scheme
and object of the statute, the same could be, rather need to be,
applied. The other guiding rules of interpretation would be the
internal aides like definition or interpretation clauses in the statute
itself. Yet further, if internal aides do not complete the C
comprehension, recourse to external aides like those of judicial
decisions expounding the meaning of the words used in construing
the statutes in pari materia, or effect of usage and practice etc.,
is not unknown; and in this very sequence, it is an accepted
principle that when a word is not defined in the enactment itself,
D
it is permissible to refer to the dictionaries to find out the general
sense in which the word is understood in common parlance. In
fact, for the purpose of gathering ordinary meaning of any
expression, recourse to its dictionary meaning is rather interlaced
in the literal rule of interpretation. [Para 22.1][777-A-E; 778-A]
3. The agreements of the appellant with the foreign entities E
primarily show that the appellant was essentially to ensure supply
of enough quantity of good quality merchandise in proper packing
and at competitive prices to the satisfaction of the principals.
This has essentially been the job of a procuring agent. Though
the expressions “expert information and advice”, “analysis”, F
“technical guidance” etc., have been used in the agreements but,
these expressions cannot be read out of context and de hors the
purpose of the agreement. All the clauses of the agreements read
together make it absolutely clear that the appellant was merely a
procuring agent and it was his responsibility to ensure that proper
goods are supplied in proper packing to the satisfaction of the G
principal. All other services or activities mentioned in the
agreements were only incidental to its main functioning as agent.
Significantly, the payment to the appellant, whatever label it might

H
722 SUPREME COURT REPORTS [2020] 6 S.C.R.

A have carried, was only on the basis of the amount of invoice
pertaining to the goods. There had not been any provision for
any specific payment referable to the so-called analysis or
technical guidance or advice. Viewed from any angle, the services
of the appellant were nothing but of an agent, who was procuring
the merchandise for its principals; and such services by the
B
appellant, as agent, were rendered in India. Even if certain
information was sent by the assessee to the principals, the
information did not fall in the category of such professional
services or information which could justify its claim for deduction
under Section 80-O of the Act. In other words, in the holistic
C view of the terms of the agreements, this Court does not has an
iota of doubt that the appellant was only a procuring agent, as
rightly described by the High Court. [Para 32][793-G-H;
794-A-D]
4. In both the agreements, the default clauses make it more
D than clear that if the quality of goods was found to be unsatisfactory
to the principals after inspection in their respective countries,
they shall have no responsibility to pay the agent’s fees. If at all it
had been a matter of the appellant furnishing some technical or
material information which served the foreign enterprises in
making the decision for procurement, in the ordinary
E circumstances, after completion of such service and its utilization
by the foreign enterprises, the appellant was likely to receive
the professional service charges for furnishing such information
but, contrary and converse to it, the agreements provide for no
payment to the appellant in case of principal being dissatisfied
F with goods. These default clauses effectively demolish the case
of the appellant and fortify the submissions of the revenue that
the appellant was merely a procuring agent and nothing more.
[Para 33.1][795-A-C]
5. The matter can be viewed from yet another angle, as
G indicated by the High Court in the last paragraph of its judgment.
If at all it be assumed that out of various tasks mentioned in the
agreements, some of them involved such services which answered
to the requirements of Section 80-O, it was definitely required of
the appellant to establish as to what had been such information of
special nature or of expertise that was given by it and how the
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 723

same was utilised, if at all, by the foreign enterprises; and how A
much of the foreign exchange receipt was attributable to such
special service. Obviously, the appellant did not supply such
particulars. As noticed, the High Court posed a pointed query to
the learned counsel appearing for the appellant as to whether all
the services mentioned in the agreement would come within the
B
purview of Section 80-O. The cryptic response to this query on
behalf to the appellant had been that ‘if the recipient of services
is situated outside, all the services rendered by the assessee in
terms of the agreement come within the sweep of the provision’.
It was specifically contended on behalf of the appellant that
establishing ‘which of its services qualifies for the deduction is C
of no consequence, rather unnecessary’. In view of this Court,
this response was not in conformity with the requirements of
Section 80-O of the Act, as explained and applied by this Court in
Continental Construction and in B. L. Passi as also as applied by
Madras High Court in Khursheed Anwar. Rather, this stand, in
D
view of this Court, puts the final curtain on the appellant’s case
because most of the services in the agreements in question were
those of an agent ensuring supply; and if any part of the services
co-related with Section 80-O, the particulars were of utmost
significance and were fundamentally necessary which the appellant
had never supplied. Merely for having a contract with a foreign E
enterprise and mere earning foreign exchange does not ipso facto
lead to the application of Section 80-O of the Act. [Para 34][795-
D-H; 796-A]
Commissioner of Customs (Import), Mumbai v. Dilip
Kumar & Co. and Ors. (2018) 9 SCC 1 : [2018] 7 SCR F
1191; Commissioner of Wealth-Tax, Andhra Pradesh v.
Officer-in-Charge (Court of Wards), Paigah (1976) 105
ITR 133 – followed.
M/s Continental Construction Ltd. v. Commissioner of
Income Tax, Central-I (1992) 195 ITR 81 (SC); UOI v. G
Wood Papers Ltd. (1990) 4 SCC 256; CCE v. Hari
Chand Shri Gopal (2011) 1 SCC 236; B. L. Passi v.
Commissioner of Income-Tax 2018 (404) ITR 19 (SC)
– relied on.

H
724 SUPREME COURT REPORTS [2020] 6 S.C.R.

A Abhiram Singh v. C.D. Commachen (Dead) by LRs. and
Ors. (2017) 2 SCC 629 : [2017] 1 SCR 158; J. B. Boda
& Co. Pvt. Ltd v. Central Board of Direct Taxes, New
Delhi (1997) 223 ITR 271 (SC) – distinguished.
Commissioner of Income Tax, Thiruvananthapuram v.
B Baby Marine Exports, Kollam (2007) 290 ITR 323
(SC); Central Board of Direct Taxes, New Delhi & Ors.
v. Oberoi Hotels (India) Pvt. Ltd. (1998) 231 ITR 148
(SC); Commissioner of Income Tax-IV, Tamil Nadu v. B.
Suresh (2009) 313 ITR 149 (SC); K. Ravindranathan
Nair v. Commissioner of Income Tax, Ernakulam (2001)
C 247 ITR 178 (SC); Sea Pearl Industries v. CIT Cochin
2001(127) ELT 649 (SC); IPCA Laboratory Ltd. v. Dy.
Commissioner of Income Tax, Mumbai (2004) 266 ITR
521(SC); Bajaj Tempo Ltd. v. Commissioner of Income
Tax, Bombay (1992) 196 ITR 188 (SC); IPCA
Laboratory Ltd. v. Dy. Commissioner of Income Tax,
D
Mumbai (2004) 266 ITR 521(SC); Bajaj Tempo Ltd. v.
Commissioner of Income Tax, Bombay (1992) 196 ITR
188(SC); Sun Export Corpn. v. Collector of Customs
(1997) 6 SCC 564; CCE v. Parle Exports (P) Ltd. (1989)
1 SCC 345; Liberty India v. CIT (2009) 9 SCC 328 –
E referred to.
E.P.W. Da Costa and Ors. v. Union of India (1980) 121
ITR 751 (Delhi); Capt. K. C. Saigal v. Income Tax
Officer (1995) 54 ITD 488 (Delhi); Godrej & Boyce
Mfg. Co. Ltd. v. S.B. Potnis, Chief Commissioner (1993)
F 203 ITR 947 (Bom); Commissioner of Income Tax v.
Thomas Kurian (Dead) through LR Smt. Primari C.
Thomas (2012) 72 DTR (Ker); Commissioner of Income
Tax v. Mittal Corporation (2005) 272 ITR 87 (Delhi);
Li & Fung India (P) Ltd. v. Commissioner of Income
Tax (2008) 305 ITR 105 (Delhi); Commissioner of
G Income Tax v. Chakiat Agencies (P) Ltd.: (2009) 314
ITR 200 (Mad); Commissioner of Income Tax v.
Inchcape India (P) Ltd: (2005) 273 ITR 92 (Delhi);
Commissioner of Income Tax v. Khursheed Anwar
(2009) 311 ITR 468 (Mad) – referred to.
H Crawford v. Spooner (1846) 4 MIA 179 – referred to.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 725

Case Law Reference A
[2018] 7 SCR 1191 followed Para 17
[2017] 1 SCR 158 distinguished Para 22
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2506-
2509 of 2020. B
From the Judgment and Order dated 09.06.2016 of the High Court
of Kerala at Ernakulam in ITA Nos. 132/2002, 11/2003, ITA Nos. 761/
2009 & 294/2009.
With
C
C.A. No. 2510 of 2020
S. Ganesh, Arijit Prasad, Sr. Advs., Anil D. Nair, Prakash Ranjan
Nayak, Ms. Purnima Bhat, Ms. Shirin Khajuria, and Mrs. Anil Katiyar,
Advs. for the appearing parties.
The Judgment of the Court was delivered by D
DINESH MAHESHWARI, J.
PRELIMINARY WITH BRIEF OUTLINE
1. Leave granted.
2. The short point calling for determination in these appeals against E
the common judgment dated 09.06.2016 passed by the High Court of
Kerala at Ernakulam in a batch of appeals is as to whether the income
received by the appellants in foreign exchange, for the services provided
by them to foreign enterprises, qualifies for deduction under Section 80-
O of the Income Tax Act, 19611, as applicable during the respective F
assessment years from 1993-94 to 1997-98.
3. Put in a nutshell, the question involved in these appeals has
arisen in the backdrop of facts that the appellants herein, 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
G
foreign buyers/enterprises in foreign exchange, claimed deduction under
Section 80-O of the Act of 1961, as applicable for the relevant assessment
year/s. In both these cases, the respective Assessing Officer/s2 denied
such claim for deduction essentially with the finding that the services
1
Hereinafter also referred to as ‘the Act of 1961’ or ‘the Act’
2
‘AO’ for short H
726 SUPREME COURT REPORTS [2020] 6 S.C.R.

A rendered by respective assessees were the ‘services rendered in India’
and not the ‘services rendered from India’ and, therefore, the service
charges received by the 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. After different orders from the respective
Appellate Authorities, the Income Tax Appellate Tribunal3, Cochin Bench
B
accepted the claim for such deduction under Section 80-O of the Act
with the finding in case of the assessee Ramnath & Co. 4 for the
assessment year 1993-94 that as per the agreements with the referred
foreign enterprises, the assessee had passed on the necessary information
which were utilised by the foreign enterprises concerned to make a
C 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 Agencies5.
The revenue preferred appeals before the High Court against the orders
so passed by ITAT in favour of the present appellants as also a few
D
other assessees. These appeals have been considered together by the
High Court of Kerala; and similar questions regarding eligibility for
deduction under Section 80-O of the Act in relation to the similarly
circumstanced assessees have been decided by the impugned common
judgment dated 09.06.2016. The High Court has essentially held that the
E 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 of the Act of 1961. Therefore, the High Court has allowed the
appeals of revenue while setting aside the respective orders of ITAT.
F
Aggrieved, the assessees have preferred these appeals6.
4. The basic factual and background aspects relating to the two
assessees in appeal before us are more or less similar in nature but,

G 3
‘ITAT’ for short
4
Related with the appeal arising out of SLP (Civil) Nos. 23535-23538 of 2016.
5
Related with the appeal arising out of SLP(Civil) No. 23699 of 2016.
6
The appeals herein relate to ITA Nos. 132 of 2002, 11 of 2003, 761 of 2009 and 294
of 2009 as also ITA No. 771 of 2009, decided by High Court in the common impugned
judgment dated 09.06.2016, rendered in the batch of appeals led by ITA No. 131 of
H 2002.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 727
[DINESH MAHESHWARI, J.]

having regard to the position that ITAT had decided all other appeals A
based on its order dated 19.11.2001 for the assessment year 1993-94 in
relation to the assessee-appellant Ramnath & Co. and the High Court
has also rendered common judgment essentially with reference to the
facts relating to this assessee (with other assessees having adopted the
same contentions), it appears appropriate to elucidate the same facts
B
and background aspects for dealing with the questions raised in these
appeals.
RELEVANT FACTUAL AND BACKGROUND ASPECTS:
5. The appellant Ramnath & Co. is a firm engaged in the business
of providing services to foreign buyers of Indian marine products. The C
appellant filed its return of income for the assessment year 1993-1994
on 29.10.1993 declaring total taxable income at Rs. 6,21,710/- while
claiming 50% deduction (amounting to Rs. 22,39,825/-) under Section
80-O of the Act in relation to the amount of Rs. 44,79,649/- received by
it as service charges from foreign enterprises7.
D
5.1. While asserting its claim for such deduction under Section
80-O of the Act, the appellant submitted that it had rendered myriad
services to the foreign enterprises like: (i) locating reliable source of
quality and assured supply of frozen seafood for the purpose of import
and communicating its expert opinion and advice in that regard; (ii) keeping
a close liaison with agencies concerned for bacteriological analysis and E
communicating the result of inspection together with expert comments
and advice; (iii) making available full and detailed analysis of seafood
supply situation and prices; (iv) advising and informing about the latest
trends in manufacturing and markets; and (v) negotiating and finalising
the prices for Indian exporters of frozen marines products and F
communicating such other related information to the foreign enterprises.
The appellant claimed that pursuant to the terms and conditions of the
agreements with the foreign enterprises, it had received the said service
charges; and its services had directly and indirectly assisted the foreign
enterprises to organise, develop, regulate and improve their business.
G

7
It was noticed by the Assessing Officer in the assessment order dated 28.03.1996 that
the assessee had been in the business of marine products export since a very long time;
and until the assessment year 1992-93, the assessee had been claiming deduction under
Section 80HHC of the Act of 1961, which provides for deduction in respect of profits
derived from export of the specified class of goods or merchandise.
H
728 SUPREME COURT REPORTS [2020] 6 S.C.R.

A 5.2. In regard to such claim for deduction under Section 80-O of
the Act, the AO, by his letter dated 29.01.1996, raised the following
queries and sought clarifications from the appellant:-
“1. The location of services rendered by the assessee may be
mentioned if there are any services rendered outside India.
B 2. Whether the technical/professional services rendered by the
assessee were utilized by the foreign enterprises anywhere in
India or outside India independently of the assessee.
3. Whether the technical/professional services rendered by the
assessee were utilized by the foreign enterprises, in India,
C independently and without the assessee.
4. To clarify whether the technical/professional services rendered
by the assessee are capable or being made use of by the foreign
enterprises independently and without the assessee.”

D 5.3. In response, the appellant justified its claim for deduction
under Section 80-O of the Act by way of its letter dated 19.02.1996
while asserting as under:
“1. The technical/professional services rendered by us are “from
India”.
E 2. Foreign buyers to whom we have rendered these services are
located in Japan, U.S.A., U.K. and France. None of these foreign
enterprises have utilized our services in any part of India. But the
entire benefit of our services were utilized by them in effectively
distributing and marketing the Indian sea-foods in their respective
countries.
F
3. We would like to emphasize that the foreign enterprises have
no place of business in India nor do they market any goods or
services in India.
4. Without services the import of marine products from India by
G the foreign enterprises will not be possible.”
5.4. In his assessment order dated 28.03.1996, the Assessing
Officer proceeded to analyse the agreements of the appellant with the
two foreign enterprises and reproduced the relevant terms thereof in
extenso. This part of the order of the AO, containing material terms of
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 729
[DINESH MAHESHWARI, J.]

agreements, being relevant for the present purpose, is reproduced as A
under: -
“In the context of the above claim of the assessee, it is necessary
to go through the agreements entered into by the assessee with
the foreign enterprises to find out the nature of the relationship of
the assessee with the foreign enterprises. I have gone through B
the agreements entered into by the assessee with HOKO Fishingco
Ltd. is captioned agreement regarding marine products and that
with GELAZURE S.A. is captioned agency agreement regarding
marine products. Articles 1 to 4 of the agreement with HOKO
fishing Co. Ltd. reads as under:-
C
Article 1: HOKO desires to avail of the benefit of the commercial
and technical knowledge experience and skill of “RC-
CN foods/Marine products of good quality and on
favourable terms and is willing to remunerate “RC-CN”
for use of such commercial and technical knowledge,
expert and skill and other related services. D

Article 2: “RC-CN agrees to render to “HOKO” the following
services on a continuing basis.
a) Locating reliable sources of quality and assured supply
of frozen seafood/marine products for the purpose of E
import by HOK and communicate its expert opinion
and advice to HOKO.”
b) In addition to the above services rendered by “RC-
CN, it will also keep a close liaison with agencies such
as EIA/LLOYDS/SGS especially for organoleptic/ F
bacteriological analysis and communicate the results of
inspection along with its expert comment and advise.
c) Making available full and detailed analysis of the sea
food supply situation and prices.
d) To advise HOKO and keep them informed of the G
latest trends/processes application in manufacturing and
of all valuable commercial and economic information
about the markets. Government Policies, exchange
fluctuations, banking laws which will directly or
indirectly assist HOKO to organize, develop control or
regulate their import business from India. H
730 SUPREME COURT REPORTS [2020] 6 S.C.R.

A e) To negotiate and finalize prices for Indian Exporters
of frozen marine products and to communicate such
and other related information to HOKO.
Article 5 RC-CN” shall also do everything that is required to
ensure highest standards of quality hygiene and
B freshness of products including supervision at various
stages.
Article 4: HOKO pays to RC-CN 0.7% of the invoice amount on
the C & F basis and US$ 2,000.00 per month as
commission. When the quality of goods is found to be
C unsatisfactory to HOKO after inspection in Japan,
HOKO shall have no responsibility to pay the agent
fee.”
Similarly, articles 1 to 4 of the Agreement with GELAZUR S.A
read as under:-
D Article 1: ‘GELAZUR appoints RAMNATH” as agent to operate
in priority their purchases in frozen seafood’s products
in India.
Article 2: RAMNATH’ does the following business as Agent on
behalf of GELAZUR.”
E
1) To negotiate with the local packers for the purchase of the
frozen seafood products which ‘GELAZUR’ requires:
2) To give “GELAZUR’ all the accurate information in respect of
the standard, quantity, price, quality, time of shipment, etc. promptly,
whenever the purchase of the products is made
F
3) To carry out technical guidance for processing and for quality
control and inspection of the products and to advise
“GELAZURE” of the results.
4)To inform GELAZURE’ regularly about the market situation,
G i.e. fishing situation, prices paid by other markets, prices paid by
French competitors, business opportunities, monthly supplies of
seafood-data.
Article 3: After reception of the goods, GELAZURE’ will pay
RAMNATH” commissions calculated on the following
H basis:
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 731
[DINESH MAHESHWARI, J.]

-CHAM ICE/Porbandar-Veraval-Bombay: A
Cephalepods or Fishes : 1.5% of the C+F Value
Shripps-Lobsters: 0.75% of the C+F Value
OTHER PACKERS
SHRIMPS & LOBSERS: 1% OF THE C+F value B
Squids, cuttlefish, Cockies
Mussels and other Fishes: USD O.65/Kg
When the quality and the packaging of the goods are
found to be unsatisfactory to ‘GELAZUR” after
C
inspection in FRANCE, GELAZURE, shall have no
responsibility regarding the payment of the Agent’s fee.
Article 4: If any claim arises out of or in relation to the purchases
of products for which ‘GELAZUR’ has no responsibility,
RAMNATH will do their best to settle the claim through
D
negotiation with manufacturers. The settlement of the
claim will have to be carried out 60 days after the
reception of the goods.”8
5.5. Having examined the contents of two agreements, the
Assessing Officer did not feel convinced with the claim that the appellant
had been rendering services from India so as to qualify for deduction E
under Explanation (iii) to Section 80-O of the Act. The Assessing Officer
was firmly of the view that the appellant had worked only as an agent of
the foreign enterprises in the matter of procurement of marine products
from India; and all the services envisaged in the agreements were
incidental to the carrying out of main function as agent. The Assessing F
Officer recorded his observations and findings as follows: -
“….A close study of the articles extracted above, would establish
that the assessee is merely an agent of the foreign enterprises in
India in the matter of procurement of marine products from India.
All the services which are required to be carried out by the assessee G
in terms of the agreements are incidental to the carrying out of
the primary function of acting as an agent. The assessee’s role is
8
Note: In the papers placed on record, the name of this foreign company has been
mentioned both as ‘GELAZUR’ and ‘GELAZURE’. We have retained the particulars
in extractions as stated in the respective papers but in our discussion, have referred it
as ‘GELAZUR’. H
732 SUPREME COURT REPORTS [2020] 6 S.C.R.

A to act on behalf of the foreign principals within the limits allowed
by them. In terms of the agreements, the assessee negotiates
with local packers with regard to quality, quantity and price. On
behalf of the principals, the assessee carries out technical guidance
for processing and for quality control and also inspection of the
products and also keeps close liaison with various agencies. These
B
are definitely services rendered in India and cannot be construed
as services rendered from India merely relying on the facts that
the foreign principals are advised of the results and that they are
stationed outside India. It is true that as per agreement, the
assessee was to supply certain information of a general nature
C regarding markets, government policies, exchange fluctuations,
banking laws, prices paid by competitors, monthly supplies of
seafood data etc. However, the agreements do not envisage any
payment of separate in commission or service charge for such
information. The commission is payable to the assessee as a
percentage of the C & F value of the imports by the foreign
D
enterprises through the assessee. However, the payment of
commission is conditional on the foreign enterprises finding
the quality of goods satisfactory. This would reinforce my
earlier observation that the assessee is only an agent of
the foreign enterprises in the matter of procurement of
E marine products from India and all the services envisaged in
the agreement are incidental to the carrying out of the main function
as agent. It is also not as if the foreign enterprises completely
stayed away from India. Though it might be a fact that none of
the foreign enterprises had any office or branch anywhere in India,
available information indicates that the representatives of the
F
foreign enterprises used to visit India in connection with the
procurement of marine products from various packers in India
and it fell upon the assessee to take these persons to the processing
facilities of various suppliers with a view to ensure quality and
hygiene standards. This is evident from the fact that a sum of
G Rs.23,122/- has been incurred by the assessee during the visit of
buyers, representatives to various seafood packers in Calcutta,
Bombay vizag, Madras Nandapam, Cochin, Calicut etc. Expenses
for souvenirs, compliments and samples of the value of
Rs.29,411.99 have also been incurred presumably in connection
with the visit of the representatives of the foreign buyers. By any
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 733
[DINESH MAHESHWARI, J.]

stretch of imagination, it cannot be claimed that the services A
rendered on the occasions of the visit of the representatives of
foreign enterprises were not rendered in India. The foreign travels
undertaken by the Managing Partner for meeting various buyers
can been seen as only an extension of the assessee’s role as an
agent of the foreign enterprises in India. An agent of a foreign
B
enterprise in India necessarily acts on behalf of the foreign
enterprise in India, and therefore, the services, namely
carrying out inspections to ensure quality of the products
and packaging, supervision of processing, negotiating prices
in respect of marine products exported with the assistance
of the assessee, could not have been rendered outside India C
as the parties to be contacted, products to be inspected,
processing to the supervised etc. were situated in India
only. In my view services that are incapable of being rendered
outside India will not come under the category of services that
can be rendered from India. Therefore, there is no merit in the
D
contention of the assessee that these services were rendered from
India but not within India….”
(emphasis in bold supplied)
5.6. The appellant also relied upon Circular No. 700 dated
23.03.1995 issued by the Central Board of Direct Taxes9 in support of E
its contentions. The Assessing Officer distinguished the matter dealt
with by the said Circular from that involved in the present case in the
following passage: -
“…..The assessee also strongly relies on circular No.700 dated
23/3/95 issued by the C.B.D.T. In my view, the reliance on the F
above circular by the assessee to buttress its case is misplaced.
Para 3 & 4 of the above circular which are quits relevant, reads
as under : -
“3. A question has been raised as to whether the benefit of
Section 80-O would be available if the technical and professional G
services, though rendered outside India, are used by the foreign
government or enterprise in India.
“4. The matter has been considered by the Board. It is clarified
that as long as the technical and professional services are
9
‘CBDT’ for short H
734 SUPREME COURT REPORTS [2020] 6 S.C.R.

A rendered from India and are received by a foreign government
or enterprise outside India deduction under Section 80-O would
be available to the person rendering the services even if the
foreign recipient of the services utilizes the benefit of such
services in India.”
B As is clear from the above, the C.B.D.T. was dealing with a
question whether deduction under Section 80-O could be denied
on the ground that the foreign enterprise uses the services rendered
outside India, in India. It has been clarified that merely because
the foreign enterprises utilized the benefit of services rendered
outside India, the deduction under Section 80-O cannot be denied.
C In the case before the C.B.D.T, there was not dispute as to where
the technical services were rendered. In the case before me, there
is absolutely no scope for doubt that the services as an agent
were rendered by the assessee in India only. In 132 ITR 637, the
Bombay High Court held that an assessee acting as a mere
D employment recruiting bureau was not entitled for deduction under
Section 80-O and the services rendered in locating prospective
candidates and collecting their bio-datas and conveying names of
candidates to foreign employers did not represent services rendered
outside India. Similarly, in 145 ITR 673 in the case of Searls (India)
Ltd, the same High Court ruled that testing of samples in India
E and giving results and certificate to foreign company did represent
technical services rendered outside India. In view of the forgoing
discussion, I would hold that the assessee is not entitled for
deduction u/s 80-O as the services made available to the foreign
enterprises were rendered in India.”
F 5.7. In the aforesaid view of the matter, the AO disallowed the
claim for deduction under Section 80-O of the Act.
5.8. In the appeal taken by the appellant, the Appellate Authority
did not agree with the opinion of the Assessing Officer, particularly with
reference to the decision of Delhi High Court in the case E.P.W. Da
G Costa and Ors. v. Union of India: (1980) 121 ITR 751 (Delhi) and
a decision of ITAT Delhi, D Bench in the case of Capt. K. C. Saigal v.
Income Tax Officer: (1995) 54 ITD 488 (Delhi) and hence, allowed
the appeal while observing, inter alia, as under: -
“14……In the present case, there is no dispute that the appellant
H is supplying information with regard to the markets, government
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 735
[DINESH MAHESHWARI, J.]

policies, exchange fluctuations, banking laws, data with regard to A
monthly supply of sea-food etc. to the foreign enterprises.
Secondly, even if the appellant is a mere agent of the foreign
enterprises, he is bringing the foreign enterprises in contact
with the manufacturers or processors of shrimps, lobsters
etc. and negotiating with the local packers and is locating
B
sources of frozen sea-foods for the foreign enterprises.
Though the various items of activity are rendered in India, they
are done on behalf of the foreign enterprises and the market
and other information had been supplied from India to the foreign
enterprises.
15. In section 80-O, Explanation (iii) reads as under : - C

“Services rendered or agreed to be rendered outside India shall
include services rendered from India but shall not include
services rendered in India”.
The word “from” means “out of” or “springing out of”. Thus, D
‘from India’ necessarily means that some of the activities will
spring out of or will be in India because the services are rendered
from India. In this connection, I am of the view that the decision
of the Delhi High Court in E.P.W. De Costa & Another vs. Union
of India (121 ITR 751) is really applicable to the facts of the case.
The services rendered with regard to assessing the radio-listening E
habits of the people were rendered in India i.e. The data had been
collected in India. However, it was held that a mere mass of
information without analysis and without being understandable
would not be of use to the B.B.C. The information is not,
therefore, mere data but scientific knowledge. In the present F
case, the appellant has located reliable source of quality and
assured supply of frozen sea-food products to the various foreign
enterprises at Japan, France and other countries and supplied
information with regard to sea-food processing, manufacturing
details and also government policies, exchange fluctuations etc.
to the foreign enterprises. The appellant has negotiated and G
finalised prices for the Indian exporters of frozen sea-food products
and communicated the same to the foreign enterprises. Thus, the
appellant has rendered the services from India to these foreign
enterprises. That the appellant’s information and experience have
been effectively utilised by the foreign enterprises can be seen H
736 SUPREME COURT REPORTS [2020] 6 S.C.R.

A from the fact that the export effected by the appellant-concern
have risen from 20 crores in the AY 1991-92 to 100 crores by AY
1996-97. For the year under consideration, the exports are
approximately 60 crores on which the appellant has earned a
commission of Rs. 44.79 lakhs.
B 16. The major issue to be decided in this case is whether the
services rendered by the appellant can be said to be ‘from India’.
On the facts and circumstances of the case, I am of the opinion
that the services have been rendered from India and hence, the
appellant is eligible for deduction u/s 80-O, especially in view of
the decision of the Delhi High Court in E.P.W. De Costa & Another
C vs. Union of India (121 ITR 751) and the I.T.A.T. Delhi ’D’ Bench
decision in the case of Capt. K. C. Saigal vs. I.T.O. (54 ITD
488).”
(emphasis in bold supplied)
D 5.9. Aggrieved by the decision aforesaid, the revenue preferred
appeal before the ITAT, being ITA No. 84/Coch/1997, that was considered
and decided by ITAT by its order dated 19.11.2001. The ITAT took note
of the history of introduction of Chapter VI-A and Section 80-O to the
Act of 1961 by the Finance (No. 2) Act, 1967 as also the fact that
Section 80-O had undergone several amendments over the course of
E time. The ITAT concurred with the findings of the Appellate Authority
that the services rendered by the appellant, which helped the foreign
parties to import marine products from India, had been specialised and
technical services and thereby, the appellant was entitled to claim
deduction under Section 80-O of the Act. The ITAT observed and held,
F inter alia, as follows: -
“9. The case of the Revenue is that the assessee has rendered
services only in India and not from India. The services that entitle
the assessee for the benefit under Section 80-O should be of such
nature that it can only be rendered outside India and not services
G that are capable of being rendered in India. According to the
revenue, the assessee was rendering only a generalised service
such as market studies, study of processing, etc. so as to satisfy
the quality of the materials exported, like any other general agent.
Therefore, the assessee is not entitled to claim the benefit under
Section 80-O. Considering the facts and circumstances of the
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 737
[DINESH MAHESHWARI, J.]

case, we are unable to agree with the above proposition. In CBDT A
v. Oberoi Hotels (India) (P) Ltd. [1998] 231 ITR 148’ the Supreme
Court has held that the agreement for managing modern hotel,
including promotion of business, recruiting and training staff are
all such services that entitle the assessee for the benefit of Section
80-O….……In circular No.700 issued on 23-3-1995 the Board
B
clarifies the position. It clarifies that “as long as the technical and
professional services are rendered from India and are received
by a foreign Government or enterprise outside India, deduction
under Section 80-O would be available to the person rendering
the services even if the foreign recipient of the services utilises
the benefit of such services in India”. Now the question is whether C
the assessee rendered any service and communicated the same
to the foreign party. Article 2 (4) of the agency agreement
regarding marine products entered into between Gelazur S.A. and
Ramnath & Co. (assessee) states that the assessee is to inform
“GELAZUR” regularly about the market situation, i.e. fishing
D
situation, prices paid by other markets, prices paid by French
Competitors, business opportunities, monthly supplies of seafood
data. This indicates that the assessee has to communicate
the data it collected, and on the basis of this, the foreign
party acts either to purchase or not to purchase. It is also
true that Article 4 of the said agreement states that “if, any claim E
arises out of or in relation to the purchase of products for which
‘GELAZUR’, has no responsibility, ‘RAMNATH’ will do their
best to settle the claim through negotiation with manufacturers”.
This indicates that the party is also doing supply of services.
But, this part of the service is only consequential to the
F
first. The agreement entered into between Hoko Fishing Co. Ltd.,
Tokyo, Japan and the assessee also stipulates that the assessee
has to keep “Hoko” informed of the latest trends/processes
applications in manufacturing and of all valuable commercial
and economic information about the market, Government
Policies, exchange fluctuations, banking laws which will directly G
or indirectly assist “Hoko” to organise, develop, control or regulate
their import business from India. In addition to this, the
assessee has to render services to ensure highest
standards of quality, hygiene and freshness of products
including supervision at various stages. The second
H
738 SUPREME COURT REPORTS [2020] 6 S.C.R.

A mentioned services may be considered as services
rendered in India. But, definitely the other services
rendered and informed to the other party like latest trends/
processes applications in manufacturing, commercial and
economic, information about the markets, Government
Policies, exchange fluctuations, banking laws etc. which help
B
the foreign party to import marine products from India is a
specialised and technical service. That, in our view, qualifies
the assessee to claim deduction under Section 80-O.”
(emphasis in bold supplied)
C 5.10. The ITAT also referred to the subtle distinction in the two
phrases: ‘the services rendered from India’ and ‘the services rendered
in India’; and while referring to a decision of Bombay High Court in the
case of Godrej & Boyce Mfg. Co. Ltd. v. S.B. Potnis, Chief
Commissioner: (1993) 203 ITR 947 (Bom) as also other decisions,
observed that if the assessee had not passed on the requisite information,
D the export would not have materialised. According to ITAT, if the assessee
had done the services like packing, shipping etc., in that case, the assessee
would have been merely an exporter and could not have claimed the
benefit under Section 80-O but, the services rendered by the assessee
were of specialised nature, which had been utilised by the foreign party.
E Accordingly, the ITAT dismissed the appeal of revenue while observing
as under:-
“10. It is true that the difference between ‘the services rendered
from India’ and ‘the services rendered in India’ used in the
Explanation below the proviso to the section is wafer-thin. But
F still the difference exists when looked from the point of view the
Indian Exporter. The services rendered in India are services to
make the goods eligible for export. On the other hand, the services
rendered from India can be treated as services rendered, as desired
by the foreign party, which need specialisation. If the foreign
party is interested in details or information or specific details
G and such details are supplied by the Indian party and such
details are utilised either to purchase or not to purchase
from India, such services can be treated as “services
rendered from India”. If the foreign party seeks any service
and it is rendered, it is a service rendered from India,
H whereas the services rendered in India are not necessarily by
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 739
[DINESH MAHESHWARI, J.]

virtue of the other party’s request or demand. In Godrej & Boyce A
Mfg. Co. Ltd. vs. S.B. Potnis, Chief Commissioner [1993] 203
ITR 947’ the Hon’ble Bombay High Court held that a provision
made for the giving of all marketing, industrial manufacturing,
commercial and scientific knowledge, experience and skill for the
efficient working and management of the foreign company could
B
be treated as services rendered that make the assessee eligible
for the benefit under Section 80-O.
11. In Mittal Corporation’s case (supra), the Delhi bench-D of the
Tribunal held that the object and spirit of Section 80-O was to
mainly encourage Indian technical know-how and skill abroad and
since the information was given outside India party and it was C
used outside India and payment was received in convertible foreign
exchange, the condition required for allowing deduction under
Section 80-O could said to have been fulfilled. In the case of
E.P.W. Da Costa (supra) the Delhi High Court has held that if the
information passed on by the assessee is of practical nature and D
was a result of making or manufacturing some concrete thing and
such information has been utilised by the foreign party, such
information is sufficient to claim the benefit under Section 80-O.
12. Before parting with, let us think in a negative way. If the
assessee had not passed on the information like marketing, E
processing, quality control, etc. to the other party, the export
would not have materialised. Short of this information, if
the assessee had done services like packing, shipping, etc.
and ensured quality and quantity, the assessee is merely
an exporter and cannot claim the benefit contemplated
under Section 80-O. If we look from this angle also, we are of F
the opinion that the assessee is entitled to succeed.”
(emphasis in bold supplied)
6. The facts discernible from the material on record make out
that on the similar pattern, the ITAT also allowed the claim of this appellant G
in relation to the assessment years 1994-95, 1995-96 and 1996-97, while
following its earlier orders. As noticed, the appeals against the orders
passed for these assessment years were clubbed together and disposed
of by the High Court by way of the common judgment dated 09.06.2016,
which is in challenge in these appeals.
H
740 SUPREME COURT REPORTS [2020] 6 S.C.R.

A The impugned judgment by the High Court
7. In its impugned common judgment dated 09.06.2016, the High
Court of Kerala has disagreed with ITAT and has disallowed the claim
for deduction by the appellant essentially with the finding that the appellant
was merely a marine product procuring agent for the foreign enterprises,
B without any claim for expertise capable of being used abroad rather
than in India and hence, the alleged services do not qualify as the ‘services
rendered from India’, for the purpose of Section 80-O of the Act of
1961.
8. In view of the submissions made and the subject-matter of
C these appeals, we may examine the observations and reasoning in the
impugned judgment that have led the High Court to disagree with ITAT
and to reject the claim of the appellant for deduction under Section 80-O
of the Act in requisite specifics.10
8.1. The main plank of submissions on behalf of revenue, with
D reference to the agreements between the assessee on one hand and the
two foreign companies respectively on the other, had been that the
assessee was simply an agent of the foreign enterprises for procuring
marine products from India; that all its services were incidental to its
main functioning as a fish-procuring agent; and that the assessee rendered
its services “in India”, contra-distinguished with the expression “from
E India”. It was also contended on behalf of the revenue that mere
communication between the assessee based in India and the principal
based abroad does not bring their transactions within the purview of
Section 80-O. The submissions on behalf of the revenue were supported
with a Division Bench decision of that High Court in Commissioner of
F Income Tax v. Thomas Kurian (Dead) through LR Smt. Primari C.
Thomas, since reported as(2012) 72 DTR (Ker). On the other hand,
it was contended on behalf of the assessee that on reading the principal
provision of Section 80-O of the Act with clause (iii) of the Explanation,
it was clear that once the service is provided by an Indian company (or
other person who is resident in India) and the same is ‘used’ by a foreign
G 10
It may, in the passing, be observed that one of the preliminary points raised before
the High Court by the assessees had been on the maintainability of appeals by the
revenue in the face of Circular No. 21/2015 dated 10.12.2015 due to low-tax effect and
no likelihood of cascading effect because the provision having been amended
subsequently. The High Court did not agree with the assessees on this aspect while
observing that ITAT has passed all the orders by following its initial order relating to
H ITA No. 131 of 2002; and the order impugned has a cascading effect. This aspect of the
matter does not concern us in these appeals and hence, need no further comment.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 741
[DINESH MAHESHWARI, J.]

entity outside India, it made no difference if the advice is rendered from A
Indian soil. In relation to the query of the Court as to whether all the
services mentioned in the agreement would come within the purview of
Section 80-O, the response on behalf of the assessee had been that ‘if
the recipient of services is situated outside, all the services rendered
by the assessee in terms of the agreement come within the sweep of
B
the provision’. It was, therefore, contended on behalf of the assessee
thatthe assessee’s establishing ‘which of its services qualifies for the
deduction is of no consequence, rather unnecessary’. The decision
in Thomas Kurian (supra) was distinguished on behalf of the assessee
with reference to the facts that the assessee therein was engaged only
in verification of quality and fitness of marine products but provided no C
commercial or technical information from India to the foreign buyers
whereas the assessee in the present case had been supplying commercial
and technical information and, using the information supplied by the
assessee, the foreign companies had taken decision outside India as
regards how they could purchase the merchandise. The submissions on
D
behalf of the assessee were supported with reliance on the said Circular
No. 700 dated 23.03.1995 and the decisions in M/s Continental
Construction Ltd. v. Commissioner of Income Tax, Central-I: (1992)
195 ITR 81 (SC); Commissioner of Income Tax v. Mittal
Corporation: (2005) 272 ITR 87 (Delhi); Li & Fung India (P) Ltd.
v. Commissioner of Income Tax: (2008) 305 ITR 105 (Delhi); E
Commissioner of Income Tax v. Chakiat Agencies (P) Ltd.: (2009)
314 ITR 200 (Mad); Commissioner of Income Tax v. Inchcape
India (P) Ltd: (2005) 273 ITR 92 (Delhi); Central Board of Direct
Taxes, New Delhi & Ors. v. Oberoi Hotels (India) Pvt. Ltd.: (1998)
231 ITR 148 (SC) and E.P.W. Da Costa (supra).
F
8.2. Having thus taken note of the rival submissions, the High
Court proceeded to analyse Section 80-O of the Act with its Explanation
(iii). After reproducing the relevant text of the provisions, the High Court
entered into the lexical semantics of the prepositions ‘from’ and ‘in’ with
reference to their dictionary meanings. Then, reverting to Section 80-O
of the Act, the High Court observed that therein, the constants were the G
Indian agent, the foreign principal, and the Indian agent rendering services
from India but the variables were as to ‘how’ and ‘where’ the services
were used. Thereafter, the High Court looked at the intent and purpose
behind Section 80–O of the Act and observed as under: –
H
742 SUPREME COURT REPORTS [2020] 6 S.C.R.

A “29. Every nation meets any measure more than half way if it
results in the nation’s augmenting the foreign reserves. India is no
exception. It encourages and provides incentives to those who
earn foreign exchange. Over and above the incentive is the facility
of deduction from the taxable income in foreign exchange—that
is what Section 80-O is. The legislative intent behind the provision
B
is not far to seek. The Government encourages entrepreneurial
initiative and innovation by the Indian companies at the international
level. In a measure, the nation encourages any Indian showcasing
the Indian intellect internationally. That accepted, if Indian
technology, know-how, etc., is used in India itself even by a foreign
C company, it is an intellectual enterprise not only from India but
also in India. We reckon that use means the end use of the
information or know-how, but not its mere processing.”
8.3. Proceeding further, the High Court examined the position
obtainable in regard to the interpretation and application of Section 80-O
D of the Act from the precedents cited at Bar. The High Court pointed out
that in Thomas Kurian(supra), a case dealt with by the same High
Court, the main service rendered by the assessee was admittedly of
examining the quality and type of fish processed by the exporters in
India and certifying the fitness of the product for shipment; and such a
service was rendered entirely in India. It was further pointed out that in
E E.P.W. Da Costa(supra), the assessee had been a consultant engaged
in conducting specialised economic and public opinion research on an
all-India basis to assess the attitudes of political, social and economic
subjects and in the given nature of work, the High Court of Delhi held
that BBC, based in London, can be said to have used the information
F received from the assessee to formulate or modify its broadcasting
programmes to India; and though the information was provided by the
assessee from India, it was used in another country in its entirety. As
regards the decision in Mittal Corporation (supra), the High Court
observed that the assessee therein received commission as a buying
agent of certain foreign enterprises and it was held that it was not
G necessary that the assessee must provide technical services even where
it received consideration for only providing commercial information. The
High Court, however, observed that from the said decision, it could not
be gathered as to how the commercial information provided by the
assessee was used by the foreign enterprises outside India which was
H ‘a crucial aspect for determining the application of the provision’.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 743
[DINESH MAHESHWARI, J.]

As regards the decision in Oberoi Hotels(supra), the High Court again A
observed that the factual background was not explicit, but since the
agreement involved the assessee’s training the Nigerian personnel, it
was held that the assessee undoubtedly under the contract must make
use of its commercial and scientific expertise as well as experience and
skill, outside India. As regards the case of Inchcape India(supra),it
B
was pointed out that the assessee had to work in textile testing, inspection
of soft lines, electrical and electronic products according to the existing
standards of European and American markets, etc. It was also pointed
out that the issue arose much before the insertion of Explanation (iii) to
Section 80-O of the Act. In reference to the decision in Li & Fung
(supra), the High Court pointed out that therein, assessee claimed to C
have rendered technical services out of India as a buying agent and the
High Court of Delhi held that the services rendered by the assessee
required knowledge, expertise and experience; and, therefore, the fee it
received from foreign enterprises for supply of commercial information
sent from India for use outside India was eligible for deduction under
D
Section 80-O of the Act. The Court observed that the said decision gave
judicial imprimatur to the Board’s clarification to the effect that if an
assessee renders technical or professional services from India to a foreign
Government or enterprise outside India, it can claim deduction even if
the foreign recipient utilises the ‘benefit of such services in India’. In
this line of consideration, the High Court lastly referred to the decision in E
the case of Chakiath Agencies (supra) and pointed out that therein, the
assessee, a shipping agent, was to ensure that the ship owner picks up
the cargo and transports it within time and at the agreed rates; and the
information regarding the availability of cargo to ship owners and its
destinations at frequent intervals enabled the ship owners to program
F
the ships’ travel touching the Indian coasts. In the given facts, it was
held that the assessee had rendered commercial service to the foreign
shipping owner for his use outside India and received a commission in
convertible foreign exchange, entitling it to the benefit of Section 80-O
of the Act. After such discussion in relation to the aforesaid decisions,
the High Court observed that two crucial aspects of Section 80-O of the G
Act had not fallen for consideration therein: as to what type of services
rendered by an Indian entity falls within the sweep of the provision and
as to what is the true import of the expression ‘use outside India’. The
High Court said thus:
H
744 SUPREME COURT REPORTS [2020] 6 S.C.R.

A “46 With due regard to the above pronouncements, we, however,
feel it necessary to point out that in none of them, two crucial
aspects of Section 80-O of the Act have not fallen for consideration
: (i) What type of services rendered by an Indian entity falls within
the sweep of the provision; (ii) what is the true import of the
expression ‘use outside India’?”
B
8.4. Having said so in relation to the aforementioned decisions,
the High Court took note of the decision of this Court in the case of
Continental Construction (supra), wherein the assessee was a civil
construction company that had entered into various contracts for the
construction, inter alia, of a dam and irrigation projects in Libya and
C water supply projects in Iraq after obtaining the approval of CBDT in
terms of the then applicable requirements of Section 80-O of the Act.
The High Court noticed that in that case, on the assessee’s claim for the
benefit under Section 80-O of the Act, this Court has held that the assessee
was undoubtedly rendering services to the foreign Government and those
D were technical services indeed, for they required specialised knowledge,
experience and skill. The revenue’s contention that those services were
not covered by Section 80-O of the Act because there was no privity of
contract between the employees of the assessee and the foreign
Government was rejected by this Court while observing that the assessee
was a company and any technical services rendered by it could only be
E through the medium of its employees. As regards the claim for a deduction
based on labelling of the receipts, this Court held that that eligibility of an
item to tax or tax deduction could hardly be made to depend on the label
given to it by the parties in that, an assessee was not entitled to claim
deduction under Section 80-O merely because certain receipts were
F described in the contract as royalty, fee or commission and at the same
time, absence of a specific label cannot destroy the right of an assessee
to claim deduction if, in fact, the consideration for the receipts can be
attributed to the sources stated in the section. The High Court also noted
the dictum of Continental Construction that it is the duty of the revenue
and the right of the assessee to see that the consideration paid under the
G contract legitimately attributable to such information and services is
apportioned, and the assessee is given the benefit of deduction available
under the section to the extent of such consideration.
8.5. The High Court further took note of a decision of Madras
High Court in the case of Commissioner of Income Tax v. Khursheed
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 745
[DINESH MAHESHWARI, J.]

Anwar: (2009) 311 ITR 468 (Mad) wherein the assessee had an A
exclusive agency for promoting and concluding sales contract in India
for machinery and equipment for an enterprise based in Italy. On the
strength of agreement, the assessee worked with the foreign enterprise
but the Court observed that the benefit under Section 80-O of the Act
was not available to the assessee for mere asking; the records and
B
materials must support the claim and the benefit of the said Section
cannot be claimed as a matter of right, it being a question of fact, which
could be considered by the AO on the basis of the records. In that case,
the Appellate Authority had recorded a specific finding that the assessee
has simply effected the sale of machinery and spares manufactured by
the foreign enterprise; and, therefore, the assessee received only the C
sales commission, which was not for any activities relating to technical
or professional services and hence, the assessee was not entitled to
claim deduction under Section 80-O of the Act.
8.6. The High Court summed up the requirements, as emanating
from the ratio of the decisions in Continental Construction and D
Khursheed Anwar (supra) as follows: -
“53. Both from Continental Construction and Khursheed Anwar
we gather that not every receipt from a foreign enterprise in
convertible foreign exchange does not (sic) automatically get
qualified for deduction under Section 80-O—the nomenclature E
notwithstanding. The burden, in fact, is on the assessee to prove
before the Revenue through cogent material that the commission
is for the services it rendered falling within the scope of the section.
Neither of the facts—the existence of the contract and the receipt
of convertible foreign exchange—leads to a presumption that the
commission is deductible as provided in Section 80-O of the Act.” F

8.7. Having, thus, traversed through the provision of law applicable;
the meaning of the expressions occurring in text thereof; and the position
obtainable from the precedents, the High Court proceeded to examine
the facts and, with reference to the aforesaid agreements of the appellant
with French and Japanese companies respectively, held that some of the G
functions said to have been discharged by the assessee cannot qualify
for deduction under Section 80-O of the Act; and in none of the appeals,
the assessees had placed any material as regards the services they had
rendered to qualify under that provision.
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746 SUPREME COURT REPORTS [2020] 6 S.C.R.

A 8.8. While referring to Explanation (iii) to Section 80-O of the
Act, the High Court held that mere transferring information abroad would
not establish that the service is rendered from India and not in India; that
all receipts cannot qualify for concession; that the range of services
referred to in Section 80-O of the Act have the thread of connectivity in
all the intellectual endeavours mentioned therein. The High Court summed
B
up its discussion in the following passages:-
“56. To sum up, we wish to conclude that the Tribunal has erred
on two counts in holding that the assessees are entitled to the
benefit of deduction under Section. 80-O of the Act : First, mere
transmission of the information to a foreign enterprise,
C evidently, abroad does not go to show that it is a service
rendered from India, but not in India. With an element of
certainty, we can as well say that once there is a contract, an
Indian agent always interacts with and sends information—even
technical know-how—to a foreign enterprise abroad. If that alone
D qualifies for deduction without reference to ‘the services rendered
in India’, the very expression in explanation (iii) becomes otiose.
Trite it is to observe that statutory surplusage is not a settled canon
of construction; rather it is to be avoided.
57. The purpose of the provision is to provide an incentive
E to the indigenous know-how of whatever nature that reaches
the shores of foreign nations and gets applied there. The
resultant fruits may percolate to India, too, as is the case in E.P.W.
Da Costa and Continental Construction, even in which the Apex
Court has held that not all receipts can claim the concession.
If we refer back to the analogy employed by the learned senior
F counsel for the assessees, an advocate in India may render services
to a foreign client stationed abroad concerning a case pending in
India. It is a service rendered not only from India, but also in
India. On the other hand, if that piece of professional advice is
used abroad, even involving clients of Indian origin or laws of this
G nation as it happens in international arbitrations, the remuneration
is qualified for the benefit.
58. Once we look at the range of services referred to in
Section 80-O, we can discern the thread of connectivity in
all the intellectual endeavours mentioned therein : any
H patent, invention, model, design, secret formula or process, or similar
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 747
[DINESH MAHESHWARI, J.]

property right, or information concerning industrial, commercial A
or scientific knowledge, experience or skill made available or
provided or agreed to be made available or provided to such
Government or enterprise by the assessee. It can also be in
consideration of technical or professional services rendered or
agreed to be rendered outside India to such Government or
B
enterprise by the assessee. They cannot be said to be entirely
discrete and disparate. The services have an air of
intellectuality; as such, all and sundry services rendered
to a foreign enterprise cannot be taken into account, lest it
should amount to doing violence to the explanation (iii).”
(emphasis in bold supplied) C

8.9. While concluding on the matter, the High Court referred to
the dictionary meaning of the expression “render” and observed that
“rendering” includes both “providing” and “performing”; and that in the
context of Section 80-O of the Act, the services may be rendered in
India but have to be performed on the foreign soil. The High Court also D
observed that, if the assessees had at all rendered certain services which
qualify for deduction, they had failed to place any material in that regard;
and the agreements in question only point out that the assessees were
marine product procuring agents for the foreign enterprises without any
claim for expertise capable of being used abroad rather than in India. E
Accordingly, the High Court answered the question of law in favour of
revenue and set aside the orders passed by ITAT.
RIVAL SUBMISSIONS
Lead arguments on behalf of the appellant
F
9. On the debate relating to the question of applicability of Section
80-O of the Act to the foreign exchange earned by the appellant in lieu
of the services rendered by it to the foreign enterprises, the learned
senior counsel for the appellant has made wide-ranging emphatic
submissions on the process of interpretation, the scheme and object of
Section 80-O and has also referred to the decisions which, in his G
contention, cover the present case on the substance and principles.
9.1. The learned senior counsel for the appellant has strenuously
argued that the High Court has approached the entire case from an
altogether wrong angle and with rather linguistic and pedantic approach
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748 SUPREME COURT REPORTS [2020] 6 S.C.R.

A to interpretation while ignoring the basic object and purpose of Section
80-O of the Act, which is meant to give incentive for earning foreign
exchange. With reference to the decision in Abhiram Singh v. C.D.
Commachen (Dead) by LRs. and Ors.: 2017(2) SCC 629, the learned
counsel has submitted that this Court has cautioned against making a
‘fortress out of the dictionary’ but the High Court has proceeded with
B
excessive reliance on dictionary and has merely looked at the text without
its context and object and with such approach, has unjustifiably upturned
the well-considered decision of ITAT. Learned counsel has also referred
to the decision of this Court in the case of Commissioner of Income
Tax, Thiruvananthapuram v. Baby Marine Exports, Kollam: (2007)
C 290 ITR 323 (SC), to submit that an incentive provision has to be
construed purposively, broadly and liberally; and for the provision like
Section 80-O of the Act, when the basic object is to earn foreign
exchange, the incentive is required to be granted if the object is to be
achieved. With reference to the decision in Commissioner of Income
Tax-IV, Tamil Nadu v. B. Suresh: (2009) 313 ITR 149 (SC), the
D
learned counsel has pointed out that therein, even five years’ licence to
exhibit an Indian film abroad was held to be that of export of goods and
merchandise, covered by Section 80HHC of the Act; and Section 80-O
of the Act, being equally a provision for incentives to earn foreign
exchange, ought to receive the same liberal approach. According to the
E learned counsel, the approach of High Court in the present case had
been too narrow and rather unrealistic.
9.2. The learned senior counsel would contend that on a plain
reading of Section 80-O, it is clear that it applies to the income by way of
royalty, commission, fees or any similar payment received by the assessee
F from a foreign enterprise in consideration for the use outside India,
inter alia, of “information concerning industrial, commercial or scientific
knowledge, experience or skill” made available to foreign enterprises,
provided that the income is received in convertible foreign exchange in
India; and Explanation (iii) to Section 80-O makes it clear that this
Section would apply even to the services rendered from India, which
G are to be treated for the purpose of this Section as services rendered
outside India. Learned counsel has argued that Section 80-O is by no
means confined to grant of user of intellectual property rights or
intellectual activities, as contended by the revenue and as observed by
the High Court. In this regard, the learned counsel has again referred to
H the words “information concerning industrial, commercial or scientific
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 749
[DINESH MAHESHWARI, J.]

knowledge, experience or skill” in the latter part of Section 80-O and A
has argued that these words are distinct from the initial part of this Section,
dealing with the use of intellectual property rights. The learned counsel
has further argued that even ‘commission’, which could relate to ordinary
commercial activities, is also covered by Section 80-O.
9.3. While strongly relying upon the decision of this Court in the B
case of J. B. Boda & Co. Pvt. Ltd v. Central Board of Direct Taxes,
New Delhi: (1997) 223 ITR 271 (SC), the learned senior counsel has
argued that therein, even a commission received by the reinsurance
broker, who only sent information to the foreign reinsurance company
regarding the risk involved and other related data, was held entitled to
the benefit of Section 80-O of the Act in respect of the entire commission. C
The learned counsel has argued that the activity of reinsurance broker
cannot possibly be described as an intellectual activity or as a technical
or professional service; and in that case of J.B. Boda & Co., the activity
only consisted of sending commercial information from India about a
proposed reinsurance contract on the basis of which, the reinsurance D
company took a commercial decision to enter into the contract. The
learned counsel has pointed out that in that case, this Court had referred
to the Circular issued by CBDT specifically directing that the deduction
under Section 80-O should be allowed on the commission received by
an Indian reinsurance broker even though it was only deducted from the
remittance made to the company abroad and there was no actual inward E
remittance of foreign exchange. According to the learned counsel, this
judgment decisively negatives the stand of the revenue that Section 80-
O applies only to a payment for use of intellectual property rights or for
intellectual activities. The learned counsel would argue that the broad,
liberal and purposive interpretation of Section 80-O in J. B. Boda & F
Co. is of crucial importance and the analogy thereof applies to the
appellant.
9.4. The learned senior counsel for the appellant has further relied
upon the decision of Delhi High Court in E.P.W. Da Costa (supra) with
the submissions that therein, the Indian assessee only carried out market G
survey of radio listeners in India and communicated the information to
BBC in London; and BBC utilized that information to frame Hindi
language broadcasts to India. However, the payments made towards
such services by BBC to the assessee were also taken to be covered by
Section 80-O of the Act.
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750 SUPREME COURT REPORTS [2020] 6 S.C.R.

A 9.5. As regards the services and activities of the appellant, the
learned senior counsel has referred to the findings of the Appellate
Authority as also of ITAT and has submitted that the said findings are to
the effect that the appellant rendered services from India to its foreign
customers by making over to them the information regarding seafood
available in various Indian markets, their quality, price ranges etc.; and,
B
on the basis of this information, the foreign customers took decisions on
whether or not to import seafood from India, what to import and from
which market and supplier. Further, the other basic requirement of Section
80-O, i.e., remittance of the amount in convertible foreign exchange to
India has also been fulfilled. According to the learned counsel, the clear
C and unequivocal findings of the Appellate Authority and ITAT are findings
of fact and they fully establish that the appellant furnished information
from India to its customers abroad regarding its industrial and commercial
knowledge and skill, and such information was utilized abroad by the
said foreign customers and the appellant’s commission was remitted to
India in convertible foreign exchange. The learned counsel would argue
D
that nothing of perversity was shown in regard to such findings of fact
so as to call for interference but the High Court has proceeded on a
basis which is totally inconsistent with those findings. With reference to
the decision of this Court in the case of K. Ravindranathan Nair v.
Commissioner of Income Tax, Ernakulam: (2001) 247 ITR 178
E (SC), the learned counsel has argued that there was no scope of
interference in the findings of fact in this case.
9.6. Assailing the findings of High Court in the impugned judgment,
the learned senior counsel has also argued that the approach of the High
Court that unless services were rendered abroad, the amount received
F would not qualify for the benefit of Section 80-O is directly contrary to
the plain provision contained in Explanation (iii) to Section 80-O and is
also contrary to Circular No. 700 dated 23.09.1995 which had clarified
that Section 80-O covered not only the services rendered outside India
but also the services rendered from India to a party outside India; and it
does not matter if the service is subsequently utilized by the foreign
G customer in India. In regard to the case of the appellant, the learned
counsel would submit that in fact, the foreign enterprises related with
the appellant do not have any operation or place of business in India and
in such a situation, there was no question of the appellant rendering
service to the customers in India. Thus, according to the learned senior
H counsel, the activities in question are squarely covered by Section 80-O
of the Act.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 751
[DINESH MAHESHWARI, J.]

The respondent-revenue A
10. In counter to the submissions so made on behalf of the appellant,
learned senior counsel for the respondent-revenue has also referred to
the object and purpose behind the provisions contained in Section 80-O
of the Act; the rules of interpretation, which, in his contention, ought to
be applied to these provisions; and, while seeking to distinguish the B
decisions cited on behalf of the appellant, has relied upon other decisions,
which, according to him, apply to the present case and which duly support
the view taken by the High Court in the impugned judgment.
10.1. The learned senior counsel for the revenue has pointed out
that the provisions similar to Section 80-O were originally available in C
the former Section 85-C of the Income Tax Act, 1961, which was
introduced with the purpose to encourage Indian industries to develop
technical know-how and services and make it available to foreign
companies so as to augment the foreign exchange earning of our country
and to establish a reputation of Indian technical know-how in foreign
countries. Reverting to the contents of Section 80-O of the Act, as D
applicable to the case at hand, the learned counsel has submitted that its
purpose is indicated in the heading itself that the same is for providing
deduction in respect of royalties etc., received from certain foreign
enterprises. Dissecting the relevant parts of this provision, the learned
counsel would submit that some of the essential requirements for its E
applicability are that the assessee must receive income by way of royalty,
commission, fees or similar payment from a foreign enterprise; the
consideration must be for technical or professional services, of patents,
inventions or similar intellectual property or information concerning
industrial, commercial or scientific knowledge; and the services must be
rendered outside India. While reiterating and emphatically underscoring F
the observations in impugned judgment, the learned counsel would submit
that the intention of legislature behind introducing Section 80-O was to
provide deductions for only that income which is received through
intellectual activity/intellectual endeavours; and simple trading activity,
though may require certain commercial or industrial information, cannot G
be said to be covered by this provision. With reference to Explanation
(iii) to Section 80-O, the learned counsel would argue that the principal
provision specifically states that it covers the services rendered “outside
India” and the explanation clarifies that the services rendered or agreed
to be rendered outside India shall include services rendered from India
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752 SUPREME COURT REPORTS [2020] 6 S.C.R.

A but shall not include services rendered in India; and therefore, services
rendered by the assessee to a foreign entity must be rendered outside
India, in foreign soil, and not in India, though they may be rendered from
India.
10.2. As regards the principles of interpretation, the learned senior
B counsel for revenue has strongly relied upon the Constitution Bench
decision in Commissioner of Customs (Import), Mumbai v. Dilip
Kumar & Co. and Ors: (2018) 9 SCC 1 to submit that it is now settled
beyond doubt that taxing statutes are subject to the rule of strict
interpretation, leaving no room for any intendment; andthe benefit of
ambiguity in case of an exemption notification or an exemption clause
C must go in favour of the revenue, as exemptions from taxation have a
tendency to increase the burden on the unexempted class of tax payers.
The same principles, according to the learned counsel, shall apply to
Section 80-O of the Act and, for the law declared by the Constitution
Bench, the decision relied upon by the learned counsel for the appellant
D inBaby Marine Exports (supra), which even otherwise dealt with Section
80HHC of the Act and not Section 80-O, is of no help to the appellant.
10.3. Taking on to the facts, the learned senior counsel would
submit that the activities alleged to be rendered by the appellant to foreign
entities as per the respective agreements were not of technical or
E professional services so as to be covered by the main part of the provision;
and further, they are excluded by virtue of Explanation (iii) to Section
80-O, for having been rendered “in India” and not “from India”. The
learned counsel would elaborate on the submissions that as per the
agreements, the appellant was only to locate reliable and assured suppliers
of marine products, to finalise pricing and before exporting, to check the
F quality of goods to be exported from India to the foreign entity and to
communicate the same to the foreign entity. Moreover, the payment
was made on the basis of invoice amount; and not on basis of any
specialised commercial or technical knowledge given to the foreign entity.
The learned counsel has particularly referred to Article 3 of the above-
G referred agreement with GELAZUR to point out that if the quality or
packaging of the goods was found to be unsatisfactory after inspection
in France, the foreign company had no liability to pay the agent’s fee.
Thus, according to the learned counsel, the activities in respect of which
the agreements were entered into by the appellant were only that of a
‘buying or procuring agent’ and do not fall within the ambit of Section
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 753
[DINESH MAHESHWARI, J.]

80-O of the Act; and the primary activity being of certification, which is A
done in India, and of sourcing the goods, which is also done in India,
Section 80-O of the Act is not applicable per the force of its Explanation
(iii). The learned counsel has yet further submitted, while supporting the
observations of High Court, that if one were to assume that the appellant
had rendered certain services which qualify for deduction, no material in
B
that regard has been placed on record.
10.4. The learned senior counsel for the revenue has drawn
support to his contentions that Section 80-O of the Act does not apply to
the appellant by making reference mainly to two decisions. In the first
place, the learned counsel has relied uponthe decision of this Court in
B.L. Passi v. Commissioner of Income-Tax: 2018 (404) ITR 19 C
(SC) with the submissions that this decision applies on all fours to the
present case. Therein, the assessee stated that as per the agreement, it
was to provide blueprints for manufacture of dies for stamping of doors
of cars, though no blueprint sent was produced and there was nothing to
show that sales were effected because of information given by assessee. D
This Court held that the assessee was only a managing agent and was
not rendering ‘technical services’ within the meaning of Section 80-O of
the Act. Hence, there was no basis for grant of deduction. Next, the
learned senior counsel has referred to the decision of Kerala High Court
in the case of Thomas Kurian (supra), where the assessee was only
examining the quality and type of fish processed by the exporters and E
was certifying fitness for shipment to foreign buyer, who was bound to
accept the goods shipped from India. It was held that the referred services
were rendered “in India” and hence, the first eligibility condition of Section
80-O, that the services should be rendered outside India, was not fulfilled
and hence, benefit of deduction under Section 80-O of the Act was held F
not available even though the second condition of receiving foreign
exchange was fulfilled. The learned senior counsel would submit that
the principles available in the said decisions directly apply hereto and the
appellant is not entitled to claim deduction under Section 80-O of the
Act.
G
10.5. Seeking to distinguish the decisions cited by the other side,
the learned counsel for revenue has submitted that in the case of J.B.
Boda & Co.(supra), the issue was only about the method of receipt of
foreign exchange which would qualify for Section 80-O deduction, which
is not in dispute in the present appeals; and the relied upon Circular of
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754 SUPREME COURT REPORTS [2020] 6 S.C.R.

A 1995 was also limited to the point as to what constitutes receipt of foreign
exchange. According to the learned counsel, the nature of activity was
not in issue in that case and hence, there is no such ratio decidendi
which could support the case of appellant. The learned counsel has further
submitted that the case of E.W.P. Da Costa (supra) was of entirely
different activity inasmuch as therein, statistical tables were compiled
B
by the assessee after analysing masses of numerical data, which was
collected with audience research studies in India to assess and analyse
the radio listening habits of Indians for BBC; and such services were
held to be highly technical, pertaining to scientific knowledge and not
mere data collection because those services enabled BBC to broadcast
C not only in India but other parts of the world. As regards the decision in
B. Suresh (supra), it has been submitted that in that case, there was
admittedly transfer of rights of feature films for exploitation ‘outside
India’ and the main issue was only whether there could be said to be a
‘sale’ within the meaning of Section 80HHC, which is irrelevant to present
case.
D
10.5.1. It has also been submitted on behalf of the respondent
that, in the judgments relied upon by the appellant before the High Court,
the crucial twin aspects of Section 80-O, i.e., as to what type of service
rendered by the Indian entity comes within the sweep of this provision;
and as to what is the true import of the expression “use outside India” as
E per Explanation (iii) to Section 80-O, did not fall for consideration and
hence, those judgments were of no support to the proposition sought to
be advanced by the appellant. It has also been submitted that in the case
of Continental Construction (supra),the contracts were for carrying
out physical construction of dams and irrigation projects in foreign
F countries, i.e., ‘not in India’ and besides that, in special circumstances,
the benefit of Section 80-O was only allowed in part rather than on the
entire contract, where the revenue was directed to bifurcate and look at
each of the services rendered. According to the submissions on behalf
of the respondent, the appellant relied upon this decision in the High
Court but gave it up in this Court realising that the same is in favour of
G revenue; and if at all the ratio is applied, at best, the benefit of Section
80-O might have been considered activity-wise, if the appellant had placed
any material as to the actual services rendered, but no such material had
been placed on record by the appellant.
10.6. In regard to different services by the same assessee, some
H of which may not qualify for deduction, apart from relying on the
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 755
[DINESH MAHESHWARI, J.]

observations in Continental Construction (supra), reference has also A
been made on behalf of revenue to two circulars of CBDT i.e., Circular
No. 187 dated 23.12.1975 and Circular No. 253 dated 30.04.1979. It has
been pointed out that Circular dated 23.12.1975 provided, inter alia,
that in the case of a composite agreement which specified a consolidated
amount as consideration for purposes which included matters outside
B
the scope of Section 80-O, CBDT may not approve such an agreement
for the purposes of Section 80-O if it was not possible to properly
ascertain and determine the amount of consideration relatable to the
provision of the know-how or technical services etc., qualifying for Section
80-O. Thus, the benefit of Section 80-O could have been denied to the
entire amount of royalty, commission, fees etc., receivable under such C
an agreement. Thereafter, by Circular dated 30.04.1979, it was decided
that in such cases of composite agreement, approval would be granted
by CBDT subject to a suitable disallowance for the non-qualifying
services, after taking into consideration the totality of agreement, so that
the balance of the royalty/fees, etc., which was for the services covered
D
by Section 80-O, could be exempted. This Circular also clarified that
trade enquires will not qualify for deduction under Section 80-O as also
technical services rendered in India. It has been contended that if at all
the appellant had been rendering some such services which could qualify
for deduction, it had not given any such break-up of services and
corresponding receipts and therefore, benefit of Section 80-O of the Act E
is not available to the appellant.
10.6.1. As regards the circular relied upon by the counsel for the
appellant, i.e., Circular No. 700 dated 23.03.1995, it has been contended
on behalf of revenue that the same is of no assistance to the appellant
because, as per paragraphs 3 and 4 thereof, the services have to be F
rendered outside India, and it only clarifies that the foreign recipient of
the services may utilise the benefit of such services in India whereas in
the present case, the appellant merely rendered services in India and
only as an agent.
10.7. The learned senior counsel for revenue has also submitted G
that the findings of fact arrived at by the ITAT were clearly challenged
before the High Court in ITA No. 131 of 2002 and, in any case, it being
a matter of interpretation of statutory language of Section 80-O and its
Explanation (iii), the contention on behalf of the appellant about want
of challenge to the findings is without substance.
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756 SUPREME COURT REPORTS [2020] 6 S.C.R.

A Rejoinder submissions on behalf of the appellant
11. The submissions made on behalf of the respondent have been
duly refuted on behalf of the appellant by way of rejoinder submissions.
11.1. As regards the principles of interpretation in the case of
Dilip Kumar& Co. (supra), it has been contended on behalf of the
B appellant that reference to the said decision is wholly inapposite because
that deals with interpretation of an exemption notification and not an
incentive provision like Section 80-O, which has been interpreted in J.B.
Boda & Co.(supra) or Section 80HHC, which has been interpreted in
B. Suresh and Baby Marine Exports (supra).
C 11.2. As regards the decisions relied upon by revenue on
application of Section 80-O of the Act, it has been submitted that
reference to the case of B.L. Passi (supra) is completely misplaced
because therein, the assessee had not placed any material whatsoever
to show that it had rendered any service to the foreign customer; and
D therefore, the issue regarding the nature of service did not even arise.
As regards the decision of Kerala High Court in Thomas Kurian (supra),
it has been submitted that the nature of services rendered therein were
very different from those of the appellant because the said assessee
was only an inspector and certifier; and even otherwise, the said decision
is not of any force because the decision of this Court in J.B. Boda &
E Co. (supra) was not considered therein and the decision of Delhi High
Court in E.P.W. Da Costa (supra), which was accepted by revenue and
was allowed to become final, was also not considered. It has also been
submitted that there is no cogent or specific reply by the respondents to
the submissions based on the decisions of this Court in the case of J.B.
F Boda & Co. (supra); and it has been reiterated that even the activity of
reinsurance broker was taken to be covered for the benefit of Section
80-O though such activity cannot possibly be described as an intellectual
activity or as a technical or professional service. It has been contended
that a liberal and purposive approach adopted by this Court in J.B.Boda
& Co. for interpreting the incentive provision of Section 80-O is of utmost
G importance to the present case. It has further been contended in rejoinder
submissions that there is no material distinction between the cases of
J.B. Boda& Co. and E.P.W. Da Costa on one hand and that of the
appellant on the other; and superficial comments made on behalf of the
respondents in regard to these decisions remain meritless.
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 757
[DINESH MAHESHWARI, J.]

11.2.1. Similarly, as regards the Circulars dated 23.12.1975 and A
30.04.1979, it has been contended that reference to these circulars is
wholly misplaced because they dealt with the matter of approval by
CBDT of an agreement with foreign customers but such need for
approval of CBDT had been dispensed with by amendment of Section
80-O long ago and these circulars have nothing to do with the issues
B
involved in the present case.
11.3. With reiteration of the submissions relating to the nature of
activity of the appellant and the findings of ITAT, it has been argued that
the contention of the respondents that the primary activity of the appellant
had merely been of procuring agent remains untenable. It has also been
contended that as per the finding of fact of ITAT, it is but clear that C
whole of the services rendered by the appellant and the entire amount
received by it in foreign exchange was covered by Section 80-O of the
Act; and that the attempt on the part of the respondent to suggest as if
only a part of the amount received by the appellant may be eligible for
benefit of Section 80-O remains baseless. In the rejoinder submissions, D
it has also been indicated that reference to the decision of this Court in
Continental Construction (supra) by the respondents is irrelevant, as
the same has not been relied upon by the appellant.
12. We have given thoughtful consideration to the rival submissions
and have examined the records with reference to the law applicable. E
SECTION 80-O OF THE INCOME TAX ACT, 1961
13. Having regard to the subject-matter and the questions involved,
appropriate it would be to take note of the relevant provisions contained
in Section 80-O of the Act of 1961 and clause (iii) of the Explanation
thereto at the outset. This Section 80-O has undergone several F
amendments from time to time but, for the present purpose, suffice would
be to extract the relevant and pivotal provisions therein, as existing at
the relevant time and as applicable to the present appeal, as under: -
“80-O. Deduction in respect of royalties, etc. from certain
foreign enterprises.— Where the gross total income of an G
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 the Government of a foreign State or a foreign
enterprise in consideration for the use outside India of any patent,
H
758 SUPREME COURT REPORTS [2020] 6 S.C.R.

A invention, model, design, secret formula or process, or similar
property right, or information concerning industrial, commercial
or scientific knowledge, experience or skill made available or
provided or agreed to be made available or provided to such
Government or enterprise by the assessee, or in consideration of
technical or professional services rendered or agreed to be
B
rendered outside India to such Government or enterprise by the
assessee, and such income is received in convertible foreign
exchange in India, or having been received in convertible foreign
exchange outside India, or having been converted into convertible
foreign exchange outside India, is brought into India, by or on
C 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
to the provisions of this section, a deduction of an amount equal to
fifty per cent of the income so received in, or brought into, India,
in computing the total income of the assessee:
D
*** *** ***
Explanation.—For the purposes of this section,—
*** *** ***

E (iii) “services rendered or agreed to be rendered outside India”
shall include services rendered from India but shall not include
services rendered in India;
*** *** ***”11
14. Worthwhile it would also be to take a little excursion into the
F relevant parts of history related with Section 80-O of the Act while
putting a glance over some of the features of developments relating to
the provision/s in the Income Tax, 1961 concerning such deduction in
respect of particular class of income, received by way of royalty,
commissions etc., by an assessee in consideration of imparting specified
intellectual property, or extending specified information, or rendering
G
specified services to foreign State or foreign enterprise.
14.1. In the early stages of advent of the Act of 1961, Chapters
VI-A, VII and VIII respectively dealt with the deductions to be made in
11
This extraction is after omitting the other parts of Section 80-O of the Act, including
its Provisos and other clauses of Explanation, being not relevant for the question at
H hand.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 759
[DINESH MAHESHWARI, J.]

computing the total income, exempted portion/s of income, and rebates A
and reliefs but, several of the provisions in these Chapters as also some
of the provisions of Chapter XII were recast and were put together in
the newly framed Chapter VI-A by the Finance (No.2) Act, 1967 with
effect from 01.04.1968 with the result that all such incentives or reliefs
were directly provided by way of deductions from the total income itself.
B
In its framework, while Part A of this Chapter VI-A contains general
provisions including definitions, Part B thereof provides for deductions
in respect of certain payments and Part C provides for deductions in
respect of certain incomes in computation of total income. Part CA and
Part D making provisions for special class of income or persons were
introduced later. C
14.2. The aspect germane to the present case is that forerunner
to the provision relating to deduction of tax on royalties etc., received
from certain foreign companies, was Section 85-C in the Act of 1961,
that was inserted by Act No.13 of 1966 w.e.f. 01.04.1966 and was placed
in Chapter VII. The said Section 85-C and several other provisions of D
Chapter VII were omittedby Section 33, read with Third Schedule, item
14, of the Finance (No.2) Act, 1967. The reason for omission of the said
Section 85-C was that similar provision, with revised requirements, came
to be introduced by way of Section 80-O in the new Chapter VI-A12-13.
12
For the purpose of reference, we are reproducing the said repealed Section 85-C as E
under:-
“85C. Deduction of tax on royalties, etc., received from certain foreign
companies– Where the total income of an assessee, being an Indian company,
includes any income by way of royalty, commission, fees or any similar payment
received by it from a company which is neither an Indian company nor a
company which has made the prescribed arrangements for the declaration and
payment of dividends within India (hereafter, in this section, referred to as the F
foreign company) in consideration for the use of any patent, invention, model,
design, secret formula or process, or similar property right, or information
concerning industrial, commercial or scientific knowledge, experience or skill
made available or provided or agreed to be made available or provided to the
foreign company by the assessee, or in consideration of technical services
rendered or agreed to be rendered to the foreign company by the assessee, under
an agreement approved by the Central Government in this behalf before the 1st G
day of October of the relevant assessment year, the assessee shall be entitled to
a deduction from the income e-tax with which it is chargeable on its total
income for the assessment year of so much of the amount of income-tax calculated
at the average rate of income-tax on the income so included as exceeds the
amount of twenty-five per cent. thereof.”
13
For the purpose of reference, we may also reproduce Section 80-O in its original
form, as inserted by the Finance (No.2) Act, 1967 as under: H
760 SUPREME COURT REPORTS [2020] 6 S.C.R.

A 14.3. Section 80-O as introduced in Chapter VI-A got several
modifications/alterations in regard to the entities eligible to claim such
deductions as also the extent (that is percentage) of admissible deduction,
but the core of object remained that of encouraging the export of Indian
technical know-how and augmentation of the foreign exchange reserves
of the country. While the relief was originally admitted in Section 80-O
B
for dealing with a foreign company only, but later on, dealing with a
foreign Government or foreign enterprise was included and thereby, the
scope of coverage and activities was substantially expanded. However,
as noticed from the erstwhile Section 85-C and the originally inserted
Section 80-O, any such agreement with the foreign entity required the
C approval of Central Government and this requirement was later on altered
to that of the approval of CBDT. Various other features and aspects
related with the development and operation of Section 80-O, as then
existing, were dealt with by the two circulars referred to on behalf of the
revenue that is, Circular No. 187 dated 23.12.1975 and Circular No. 253
dated 30.04.1979. In fact, these circulars came up for their fuller
D
exposition by this Court in the case of Continental Construction (supra),
as we shall notice hereafter a little later. At this juncture, we may usefully
reproduce the relevant text of these two notifications which throw light
on the provisions as then existing and as applied. The relevant parts of
the said circulars read as under:-
E “Circular No. 187, dated 23rd December, 1975.
Subject : Section 80-O of the Income-tax Act, 1961-Guidelines
for approval of agreements.

F “80O. Deduction in respect of royalties, etc., received from certain foreign
companies. – Where the gross total income of an assessee being an Indian
company includes any income by way of royalty, commission, fees or any
similar payment received by it from a foreign company in consideration for the
use of any patent, invention, model, design, secret formula or process, or
similar property right, or information concerning industrial, commercial or
scientific knowledge, experience or skill made available or provided or agreed to
G be made available or provided to the foreign company by the assessee, or in
consideration of technical services rendered or agreed to be rendered to the
foreign company by the assessee, under an agreement approved by the Central
Government in this behalf before the 1st day of October of the relevant
assessment year, there shall be allowed a deduction from such income of an
amount equal to sixty per cent. thereof, in computing the total income of the
assessee.”
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 761
[DINESH MAHESHWARI, J.]

“With the twin objectives of encouraging the export of Indian A
technical know-how and augmentation of the foreign exchange
resources of the country, section 80-O of the Income-tax Act,
1961, provides for concessional tax treatment in respect of income
by way of royalty, commission, fees or any similar payment
received from a foreign Government or a foreign enterprise, subject
B
to the satisfaction of certain conditions laid down in the said section.
2. One of the conditions for availability of the tax concession
under section 80-O is that the agreement should be approved by
the Central Board of Direct Taxes in this behalf. The application
for the approval of the agreement is required to be made to the
Central Board of Direct Taxes before the 1st day of October of C
the assessment year in relation to which the approval is first sought.
The form of application for this purpose has been standardised
and a specimen is given in the Appendix.
3. The object of the provision when it was first introduced
as section 85C in the Income-tax Act, 1961, was stated in Board’s D
Circular No.4P (LXXVI-61) of 1966, to be to encourage Indian
companies to export their technical know-how and skill abroad
and augment the foreign exchange resources of the country. This
was reiterated in Board’s Circular No.72 explaining the changes
introduced by the Finance (No.2) Act, 1971. Keeping in view the E
purpose behind this tax incentive and the requirements of the
statutory provisions, the Board have evolved the following
guidelines for the grant of such approval:-…..
*** *** ***
(ix) In the case of a composite agreement specifying F
a consolidated amount as consideration for purposes which
include matters outside the scope of Section 80-O (e.g.,
use of trade-marks, supply of equipment, etc.) the amount
of the consideration relating to the provision of technical
know-how or technical services, etc., qualifying for purposes G
of section 80-O will have to be determined by the Income-
tax Officer separately at the time of assessment after due
appreciation of the relevant facts. Where, however, in the
opinion of the Board, it will not be possible to properly
ascertain and determine the amount of the consideration
H
762 SUPREME COURT REPORTS [2020] 6 S.C.R.

A relatable to the provision of the know-how or the technical
services, etc., qualifying for section 80-O, the Board may
not approve such an agreement for the purposes of section
80-O of the Act.”
*** *** ***”
B Circular No.253, dated 30th April, 1979.
Section 80-O of the Income-tax Act, 1961 –Guidelines for
approval of agreements – Further clarifications. – Attention
is invited to the Board’s Circular No. 187 (F. No. 473/15/73-FTD),
dated 23rd December, 1975, on the above subject laying down
C the guidelines for the grant of approval under section 80-O. The
Board has had occasion to re-examine the aforesaid guidelines
and it has been decided to modify the guidelines to the extent
indicated below : -
(i) Para.3(iii) of the Circular dated 23-12-1975 provided that
D the agreement should have been genuinely entered into on
and after the date when the tax concession was announced
by the introduction of the relevant Bill in the Lok Sabha. It
has now been decided that approvals under section 80-O
would not be denied on this ground. In other words, para
E 3(iii) of the Circular dated 23-12-1975 may be treated as
deleted.
(ii) In para (ix) of the said circular, it was mentioned that
consideration for use of trade-mark would be outside the
scope of section 80-O. It has now been decided that payments
F made for the use of trade-marks, are of the nature of royalty,
and, therefore, fall within the scope of section 80-O.
(iii) It was also stated in para 3(ix) of circular dated 23-12-75
that in the case of a composite agreement which specified a
consolidated amount as consideration for purposes which
included matters outside the scope of section 80-O, the Board
G
may not approve such an agreement for the purposes of
section 80-O of the Act if it was not possible to properly
ascertain and determine the amount of the consideration
relatable to the provision of the know-how or technical
services, etc., qualifying for section 80-O. Thus, the benefit
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 763
[DINESH MAHESHWARI, J.]

of section 80-O could be denied to the entire amount of A
royalty, commission, fees, etc., receivable under such an
agreement. It has since been decided that in such cases
approval would be granted by the Board subject to a
suitable disallowance for the non-qualifying services,
after taking into consideration the totality of the
B
agreement, so the balance of royalty/fees, etc., which
is for the services covered by section 80-O, can be
exempted.”
(emphasis in bold supplied)
14.4. There had been several other modifications of Section 80-O C
from time to time. The relevant aspects noticeable for the present purpose
are that the extent of deduction under Section 80-O was also altered
from time to time and it even came to be allowed 100 per cent. but, by
the Finance Act, 1984, it was reduced to 50 per cent. of the referred
income. Then, the requirement of approval by CBDT was substituted
by Finance Act, 1988 to the approval by Chief Commissioner or Director D
General. However, by Finance (No. 2) Act of 1991, even that requirement
was deleted. In fact, the Finance (No. 2) Act of 1991 brought about a
sea of changes in Section 80-O whereby, first and second provisos were
omitted and the above-mentioned clause (iii) of Explanation was
inserted. The words “or a person (other than a company) who is E
resident in India” were also inserted by this very Finance (No. 2) Act
of 1991 expanding the reach of Section 80-O even to non-corporate tax
payers. Moreover, the earlier expressions “technical services” were
also altered to “technical or professional services”. There is no
gainsaying the fact that Finance (No. 2) Act of 1991 led to a considerable
recasting of Section 80-O of the Act of 1961 with substantial expansion F
of its ambit and area of coverage. These amendments were made
applicable from the assessment year 1992-93 onwards and obviously,
this had been the reason that the assessees like the appellant, who had
earlier been taking the benefit of deduction under Section 80HHC with
reference to their earning of foreign exchange, attempted to shift, for G
the purpose of deduction, to this provision of Section 80-O. The effect
of the amendments to Section 80-O by Finance (No. 2) Act of 1991 was
also explained by the revenue in its Circular No. 621 dated 19.12.1991,
the relevant part whereof could be extracted as under:-

H
764 SUPREME COURT REPORTS [2020] 6 S.C.R.

A “Circular No. 621, dated 19th December, 1991:-
‘Extending the scope of deduction in respect of income from
royalties, commission, technical fee, etc. —-37. Under the
existing provisions of section 80-0 of the Income-tax Act, an Indian
company, deriving income by way of royalties, commission, fees
B etc., from a foreign Government or a foreign enterprise in
consideration of the provision of technical know-how or technical
services under an approved agreement, is entitled to a deduction,
in computing its taxable income, of an amount equal to 50 per
cent. of such income provided such income is received in, or brought
into, India in convertible foreign exchange.
C
37.1 With a view to bringing this provision on a parity with other
tax concessions for the export sector and also as a measure of
rationalisation, the benefit under section 80-0 has been extended
to a non-corporate tax payers resident in India. The concession
will now also be available in relation to professional services as
D well as for services rendered to foreign enterprise from India.
Further, the requirement of prior approval of the tax authorities in
this regard has been done away with.
37.2 This amendment will take effect from 1st April, 1992 and
will, accordingly, apply in relation to the assessment year 1992—
E 93 and subsequent years.
**** **** ****”
14.5. There had been several further clarifications concerning
Section 80-O, as refurbished by the Finance (No. 2) Act of 1991; and
F one such clarification by the revenue had been by way of Circular No.
700 dated 23.03.1995, which has been strongly relied upon by the learned
senior counsel for the appellant. The relevant contents of this circular
could also be extracted as follows:-
“Circular No. 700, dated 23rd March, 1995
G ‘Deduction under section 80-O of the Income-tax Act, 1961
– Clarification regarding.- Section 80-O of the Income-tax
Act,1961, provides for a deduction of 50% from the income of an
Indian resident by way of royalty, commission, fees or any similar
payment from a foreign Government or enterprise:
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 765
[DINESH MAHESHWARI, J.]

(a) in consideration for the use outside India of any patent, A
invention, model, design, secret formula or process, etc.; or
(b) in consideration of technical or professional services rendered
or agreed to be rendered outside India to such foreign
Government or enterprise.
In either case, the requirement is that the income should be in B
convertible foreign exchange.
2. It has been clarified in the Explanation (iii) to section 80-O
that services rendered or agreed to be rendered outside India [
i.e., item (b) above] shall include services rendered from India
but shall not include services rendered in India. C

3. A question has been raised as to whether the benefit of section
80-O would be available if the technical and professional services,
though rendered outside India, are used by the foreign Government
or enterprise in India.
D
4. The matter has been considered by the Board. It is clarified
that as long as the technical and professional services are rendered
from India and are received by a foreign Government or enterprise
outside India, deduction under section 80-O would be available to
the person rendering the services even if the foreign recipient of
the services utilises the benefit of such services in India. E
5. The contents of this circular may be given wide publicity and
brought to the notice of all the subordinate authorities under your
charge for information and necessary action.”
14.6. In summation of what has been noticed hereinabove, it turns
F
out that with the objectives of giving impetus to the functioning of Indian
industries to provide intellectual property or information concerning
industrial, commercial or scientific knowledge to the foreign countries
so as to augment the foreign exchange earnings of our country and at
the same time, earning a goodwill of the Indian technical know-how in
the foreign countries, the provisions like Section 85-C earlier and Section G
80-O later were inserted to the Act of 1961. Noteworthy it is that from
time to time, the ambit and sphere of Section 80-O were expanded and
even the dealings with foreign Government or foreign enterprise were
included in place of “foreign company” as initially provided. The
requirement of approval by the Central Government of any such
H
766 SUPREME COURT REPORTS [2020] 6 S.C.R.

A arrangement was also modified and was ultimately done away with.
Significantly, while initially the benefit of Section 80-O was envisaged
only for an Indian company but later on, it was also extended to a person
other than a company, who is resident of India. The extent of deduction
had also varied from time to time.
B 14.7. Broadly speaking, a few major and important factors related
with Section 80-O of the Act of 1961, with reference to its background
and its development, make it clear that the tax incentive for imparting
technical know-how and akin specialities from our country to the foreign
countries ultimately took the shape in the manner that earning of foreign
exchange, by way of imparting intellectual property, or furnishing the
C information concerning industrial, commercial, scientific knowledge, or
rendering of technical or professional services to the foreign Government
or foreign enterprise, was made eligible for deduction in computation of
total income, to the tune of 50 per cent. of the income so received. The
finer details like those occurring in Explanation (iii) of Section 80-O
D were also taken care of by providing that the services envisaged by
Section 80-O ought to be rendered outside India but they may be rendered
‘from India’, while making it clear that the services which are rendered
‘in India’ would not qualify for such a deduction.
The relevant principles for interpretation
E 15. Having thus taken note of annals and historical perspectives
of development of Section 80-O of the Act and the relevant parts of the
circulars issued by the department from time to time in tune with such
developments, we may now examine the principles for interpretation
and application of this provision. In this regard, as noticed, it has been
F argued on behalf of the appellant, with reference to the decisions in
Baby Marine Exports and B. Suresh (supra), that an incentive provision
like Section 80-O of the Act has to be construed purposively, broadly
and liberally so as to achieve its avowed object to earn foreign exchange.
Per contra, it has been contended on behalf of revenue, with reference
to the Constitution Bench decision in Dilip Kumar & Co. (supra), that
G the taxing statutes are subject to the rule of strict interpretation, and the
benefit of ambiguity in case of an exemption notification or an exemption
clause must go in favour of the revenue; and the same principles would
apply in relation to Section 80-O of the Act.
15.1. So far the decision in the case of B. Suresh (supra) is
H concerned, it does not appear necessary to dilate on the same because
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 767
[DINESH MAHESHWARI, J.]

the question involved therein was entirely different that is, as to whether A
the foreign exchange earned by transferring the right of exploitation of
films outside India by way of lease was admissible for deduction under
Section 80HHC of the Act, where the department attempted to contend
that movies/films were not goods. However, having regard to the
submissions made, we may look at the ratio from the other cited decisions
B
in requisite details.
Baby Marine Exports
16. The question that came up for determination before this Court
in the case of Baby Marine Exports(supra) was as to whether the
export house premium received by assessee was includible in ‘profits of C
business’ while computing deduction under Section 80HHC?
16.1. The assessee in the case of Baby Marine Exports was
engaged in the business of selling marine products both in domestic market
and was also exporting it to direct buyers as also through export houses.
Contracts with export houses were entered into where assessee received D
entire FOB value of exports plus export house premium of 2.25% of
FOB value. While claiming deduction under Section 80HHC of the Act,
this export house premium was also shown as part of total turnover, as
being part of sale consideration and not commission or service charge;
and deduction was claimed accordingly. The AO rejected such claim for
deduction with reference to clause 12 of the agreement and with the E
observation that such premium was clearly a commission or service
charge. The Appellate Authority held that what the assessee received
was only reimbursement of certain expenses or payments towards
commission or brokerage, falling within the ambit of clause 1 of
Explanation (baa) to Section 80HHC. However, the ITAT allowed the F
appeal of the assessee by accepting the stand that the export house
premium was includible in ‘profits of business’ while computing deduction
under Section 80HHC and that export house premium was nothing but
an integral part of sale price realised by assessee and could not have
been taken as either commission or brokerage. The appeal by revenue
was dismissed by the High Court while following its earlier decision on G
the same point.
16.2. In further appeal by revenue, this Court observed, inter
alia, with reference to other decisions in Sea Pearl Industries v. CIT
Cochin: 2001(127) ELT 649 (SC) and IPCA Laboratory Ltd. v. Dy.
Commissioner of Income Tax, Mumbai: (2004) 266 ITR 521 (SC) H
768 SUPREME COURT REPORTS [2020] 6 S.C.R.

A that Section 80HHC was incorporated with the object of granting incentive
to earners of foreign exchange and this section must receive liberal
interpretation. This Court also observed with reference to the decision
in Bajaj Tempo Ltd. v. Commissioner of Income Tax, Bombay:
(1992) 196 ITR 188 (SC) that we ‘must always keep the object of
the Act in view while interpreting the Section. The legislative intention
B
must be the foundation of the court’s interpretation’.
16.3. However, noticeable it is that in Baby Marine Exports,
ultimately this Court upheld the claim of assessee for deduction under
Section 80HHC of the Act not by way of any liberal or extended meaning
to the provision, but only on its plain construction with reference to the
C definition of the term “supporting manufacturer” in that provision and its
direct application to the facts of the case as would distinctly appear
from the following passages (at pp. 334-335 of ITR):-
“According to section 80HHC(1), the export house in
computing its total income is entitled to deduction to the extent of
D the profit derived by the assessee from the export of the goods or
merchandise. Whereas, according to section 80HHC(1A), the
supporting manufacturer shall be entitled to a deduction of profit
derived by the assessee from the sale of goods or merchandise.
The term “supporting manufacturer” has been defined in this section
E and it reads as under:
“ ‘supporting manufacturer’ means a person being an Indian
company or a person (other than a company) resident in India,
manufacturing (including processing), goods or merchandise and
selling such goods or merchandise to an Export House or a Trading
F House for the purposes of export”: According to the said definition,
the respondent clearly comes within the purview of supporting
manufacturer. On plain construction of section 80HHC(1A)
the assessee being supporting as manufacturer shall be
entitled to a deduction of the profit derived by the assessee
from the sale of goods or merchandise.
G
The respondent - a supporting manufacturer sold the goods
or merchandise to the export house and received the entire FOB
value of the goods plus the export house premium of 2.25 per
cent. of the FOB value. The relevant clause 12 of the agreement
has already been extracted in the earlier part of the judgment and
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 769
[DINESH MAHESHWARI, J.]

according to the said clause, the export house is under obligation A
to pay to the supporting manufacturer an incentive of 2.25 per
cent. on the F.O.B. value according to the terms of the agreement.
The respondent, a supporting manufacturer, admittedly sold the
goods to the export house in respect of which the export house
has issued a certificate under proviso to sub-section (1). According
B
to the section, the respondent - assessee, in computing the total
income be allowed a deduction to the extent of profits referred to
in sub-section (1B) derived by the assessee from the sale of goods
to the export house.
The Appellate Tribunal has arrived at the definite conclusion
that the Export House premium is nothing but an integral part of C
sale price realized by the assessee - a supporting manufacturer
from the Export House. The Tribunal further held that the Export
House premium cannot possibly be considered to be either
commission or brokerage, as a person cannot earn commission or
brokerage for himself. D
The High Court has upheld the findings of the Tribunal. In
our considered view, the order of the Appellate Tribunal is based
on proper construction of section 80HHC(1A) of the Income-tax
Act that the Export House premium is an integral part of the sale
price realized by the assessee from the export house. E
*** *** ***
The submission of the appellant that the premium earned
by the respondent assessee is totally unrelated to export is
fallacious and devoid of any merit. This submission of the appellant
is also contrary to the specific terms of the agreement between F
the appellant and the respondent.
On a plain construction of section 80HHC(1A), the
respondent is clearly entitled to claim deduction of the
premium amount received from the export house in
computing the total income. The export house premium can G
be included in the business profit because it is an integral part of
business operation of the respondent which consists of sale of
goods by the respondent to the export house.”
(emphasis in bold supplied)
H
770 SUPREME COURT REPORTS [2020] 6 S.C.R.

A Dilip Kumar & Co.
17. The core question referred for authoritative pronouncement
to the Constitution Bench in the case of Dilip Kumar & Co. (supra)was
as to what interpretative rule should be applied while interpreting a tax
exemption provision/notification when there is an ambiguity as to its
B applicability with reference to the entitlement of the assessee or the rate
of tax? The reference to the Constitution Bench was necessitated
essentially for the reason that in a few decisions, one of them by a 3-
Judge Bench of this Court in the case of Sun Export Corpn. v. Collector
of Customs: (1997) 6 SCC 564, the proposition came to be stated that
any ambiguity in a tax provision/notification must be interpreted in favour
C of the assessee who is claiming benefit thereunder.14
17.1. In Dilip Kumar & Co., the Constitution Bench of this Court
examined several of the past decisions including that by another
Constitution Bench in CCE v. Hari Chand Shri Gopal: (2011) 1 SCC
236 as also that by a Division Bench of this Court in the case of UOI v.
D Wood Papers Ltd.: (1990) 4 SCC 256 wherein, the principles were
stated in clear terms that the question as to whether a subject falls in the
notification or in the exemption clause has to be strictly construed; and
once the ambiguity or doubt is resolved by interpreting the applicability
of exemption clause strictly, the Court may construe the exemption clause
E liberally. This Court found that in Wood Papers Ltd. (supra), some of
the observations in an earlier decision in the case of CCE v. Parle
Exports (P) Ltd.: (1989) 1 SCC 345 were also explained with all
clarity. This Court noted the enunciations in Wood Paper Ltd. with total
approval as could be noticed in the following:-

F “46. In the judgment of the two learned Judges in Union of India
v. Wood Papers Ltd.: (1990) 4 SCC 256 (hereinafter referred to
as “Wood Papers Ltd. case”, for brevity), a distinction between
stage of finding out the eligibility to seek exemption and stage of
applying the nature of exemption was made. Relying on the
decision in CCE v. Parle Exports (P) Ltd. : (1989) 1 SCC 345, it
G was held: (Wood Papers Ltd. case, SCC p. 262, para 6)

14
In Sun Export Corpn. v. Collector of Customs, (1997) 6 SCC 564 the Court had
stated the law as follows (at page 568) :
“Even assuming that there are two views possible, it is well settled that one
H favourable to the assessee in matters of taxation has to be preferred.”
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 771
[DINESH MAHESHWARI, J.]

“6. … Do not extend or widen the ambit at the stage of A
applicability. But once that hurdle is crossed, construe it
liberally.”
The reasoning for arriving at such conclusion is found in para 4
of Wood Papers Ltd. case, which reads: (SCC p. 260)
“4. … Literally exemption is freedom from liability, tax or duty. B
Fiscally, it may assume varying shapes, specially, in a growing
economy. For instance tax holiday to new units, concessional
rate of tax to goods or persons for limited period or with the
specific objective, etc. That is why its construction, unlike
charging provision, has to be tested on different touchstone. In C
fact, an exemption provision is like an exception and on normal
principle of construction or interpretation of statutes it is
construed strictly either because of legislative intention or on
economic justification of inequitable burden or progressive
approach of fiscal provisions intended to augment State revenue.
But once exception or exemption becomes applicable no rule D
or principle requires it to be construed strictly. Truly speaking
liberal and strict construction of an exemption provision
are to be invoked at different stages of interpreting it. When
the question is whether a subject falls in the notification
or in the exemption clause then it being in nature of E
exception is to be construed strictly and against the subject,
but once ambiguity or doubt about applicability is lifted
and the subject falls in the notification then full play should
be given to it and it calls for a wider and liberal
construction.”
F
(emphasis supplied)
*** *** ***
58. In the above passage, no doubt this Court observed that: (Parle
Exports case, SCC p. 357, para 17)
G
“17. when two views of a notification are possible, it should be
construed in favour of the subject as notification is part of a
fiscal enactment.”
This observation may appear to support the view that ambiguity
in a notification for exemption must be interpreted to benefit the
H
772 SUPREME COURT REPORTS [2020] 6 S.C.R.

A subject/assessee. A careful reading of the entire para, as extracted
hereinabove would, however, suggest that an exception to the
general rule of tax has to be construed strictly against those who
invoke for their benefit. This was explained in a subsequent
decision in Wood Papers Ltd. case. In para 6, it was observed as
follows: (SCC p. 262)
B
“6. … In CCE v. Parle Exports (P) Ltd., this Court while
accepting that exemption clause should be construed liberally
applied rigorous test for determining if expensive items like
Gold Spot base or Limca base or Thums Up base were covered
in the expression food products and food preparations used in
C Item No. 68 of First Schedule of Central Excises and Salt Act
and held ‘that it should not be in consonance with spirit and the
reason of law to give exemption for non-alcoholic beverage
basis under the notification in question’. Rationale or ratio is
same. Do not extend or widen the ambit at stage of applicability.
D But once that hurdle is crossed construe it liberally. Since the
respondent did not fall in the first clause of the notification
there was no question of giving the clause a liberal construction
and hold that production of goods by respondent mentioned in
the notification were entitled to benefit.”
59. The above decision, which is also a decision of a two-Judge
E Bench of this Court, for the first time took a view that liberal and
strict construction of exemption provisions are to be invoked at
different stages of interpreting it. The question whether a
subject falls in the notification or in the exemption clause,
has to be strictly construed. When once the ambiguity or
F doubt is resolved by interpreting the applicability of
exemption clause strictly, the Court may construe the
notification by giving full play bestowing wider and
liberalconstruction. The ratio of Parle Exports case deduced
as follows: (Wood Papers Ltd. case, SCC p. 262, para 6)
“6. … Do not extend or widen the ambit at stage of applicability.
G
But once that hurdle is crossed, construe it liberally.”
60. We do not find any strong and compelling reasons to differ,
taking a contra view, from this. We respectfully record our
concurrence to this view which has been subsequently,
elaborated by the Constitution Bench in Hari Chand case.”
H
(emphasis in bold supplied)
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 773
[DINESH MAHESHWARI, J.]

17.2. The Constitution Bench decision in Hari Chand Shri Gopal A
(supra) was also taken note of, inter alia, in the following:-
“50. We will now consider another Constitution Bench decision
in CCE v. Hari Chand Shri Gopal(hereinafter referred as “Hari
Chand case”, for brevity). We need not refer to the facts of the
case which gave rise to the questions for consideration before the B
Constitutional Bench. K.S. Radhakrishnan, J., who wrote the
unanimous opinion for the Constitution Bench, framed the question
viz. whether manufacturer of a specified final product falling under
the Schedule to the Central Excise Tariff Act, 1985 is eligible to
get the benefit of exemption of remission of excise duty on specified
intermediate goods as per the Central Government Notification C
dated 11-8-1994, if captively consumed for the manufacture of
final product on the ground that the records kept by it at the
recipient end would indicate its “intended use” and “substantial
compliance” with procedure set out in Chapter 10 of the Central
Excise Rules, 1994, for consideration? The Constitution Bench D
answering the said question concluded that a manufacturer
qualified to seek exemption was required to comply with the
preconditions for claiming exemption and therefore is not exempt
or absolved from following the statutory requirements as contained
in the Rules. The Constitution Bench then considered and
reiterated the settled principles qua the test of construction of E
exemption clause, the mandatory requirements to be complied
with and the distinction between the eligibility criteria with
reference to the conditions which need to be strictly complied
with and the conditions which need to be substantially complied
with. The Constitution Bench followed the ratio in Hansraj F
Gordhandas case, to reiterate the law on the aspect of
interpretation of exemption clause in para 29 as follows: (Hari
Chand case, SCC p. 247)
“29. The law is well settled that a person who claims exemption
or concession has to establish that he is entitled to that exemption G
or concession. A provision providing for an exemption,
concession or exception, as the case may be, has to be
construed strictly with certain exceptions depending upon
the settings on which the provision has been placed in the
statute and the object and purpose to be achieved. If
H
774 SUPREME COURT REPORTS [2020] 6 S.C.R.

A exemption is available on complying with certain conditions,
the conditions have to be complied with. The mandatory
requirements of those conditions must be obeyed or
fulfilled exactly, though at times, some latitude can be shown,
if there is failure to comply with some requirements which
are directory in nature, the non-compliance of which would not
B
affect the essence or substance of the notification granting
exemption.
*** *** ***”
(emphasis in bold supplied)
C 17.3. In view of above and with reference to several other
decisions, in Dilip Kumar & Co., the Constitution Bench summed up
the principles as follows:-
“66. To sum up, we answer the reference holding as under:

D 66.1.Exemption notification should be interpreted strictly;
the burden of proving applicability would be on the assessee to
show that his case comes within the parameters of the exemption
clause or exemption notification.
66.2.When there is ambiguity in exemption notification
which is subject to strict interpretation, the benefit of such
E
ambiguity cannot be claimed by the subject/assessee and it
must be interpreted in favour of the Revenue.
66.3. The ratio in Sun Export case is not correct and all the
decisions which took similar view as in Sun Export casestand
overruled.”
F
(emphasis in bold supplied)
17.4. Obviously, the generalised, rather sweeping, proposition
stated in the case of Sun Export Corporation (supra) as also in other
cases that in the matters of taxation, when two views are possible, the
G one favourable to assessee has to be preferred, stands specifically
disapproved by the Constitution Bench in Dilip Kumar & Co. (supra).
It has been laid down by the Constitution Bench in no uncertain terms
that exemption notification has to be interpreted strictly; the burden of
proving its applicability is on the assessee; and in case of any ambiguity,
the benefit thereof cannot be claimed by the subject/assessee, rather it
H would be interpreted in favour of the revenue.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 775
[DINESH MAHESHWARI, J.]

18. It has been repeatedly emphasised on behalf of the appellant A
that Section 80-O of the Act is essentially an incentive provision and,
therefore, needs to be interpreted and applied liberally. In this regard,
we may observe that deductions, exemptions, rebates et cetera are the
different species of incentives extended by the Act of 196115. In other
words, incentive is a generic term and ‘deduction’ is one of its species;
B
‘exemption’ is another. Furthermore, Section 80-O is only one of the
provisions in the Act of 1961 dealing with incentive; and even as regards
the incentive for earning or saving foreign exchange, there are other
provisions in the Act, including Section 80HHC, whereunder the appellant
was indeed taking benefit before the assessment year 1993–94.
19. Without expanding unnecessarily on variegated provisions C
dealing with different incentives, suffice would be to notice that the
proposition that incentive provisions must receive “liberal
interpretation” or to say, leaning in favour of grant of relief to the
assessee is not an approach countenanced by this Court. The law declared
by the Constitution Bench in relation to exemption notification, proprio D
vigore, would apply to the interpretation and application of any akin
proposition in the taxing statutes for exemption, deduction, rebate et al.,
which all are essentially the form of tax incentives given by the
Government to incite or encourage or support any particular activity16.
20. The principles laid down by the Constitution Bench, when E
applied to incentive provisions like those for deduction, would also be
that the burden lies on the assessee to prove its applicability to his case;
and if there be any ambiguity in the deduction clause, the same is subject
to strict interpretation with the result that the benefit of such ambiguity
cannot be claimed by the assessee, rather it would be interpreted in
favour of the revenue. In view of the Constitution Bench decision in F
Dilip Kumar & Co. (supra), the generalised observations in Baby
Marine Exports (supra) with reference to a few other decisions, that a

15
As tersely put by this Court in Liberty India v. CIT: (2009) 9 SCC 328, the Act of
1961 broadly provides for two types of tax incentives, namely, investment-linked incentives
and profit-linked incentives. Chapter VI-A which provides for incentives in the form of
G
tax deductions essentially belong to the category of “profit-linked incentives” (at p.
339).
16
Of course, there may be other objectives also like supporting any particular class of
persons e.g., those contained in Section 80TTB of the Act (for deduction in respect of
interest on deposits in case of senior citizen) or Section 80U of the Act (for deduction
in case of differently abled person). H
776 SUPREME COURT REPORTS [2020] 6 S.C.R.

A tax incentive provision must receive liberal interpretation, cannot be
considered to be a sound statement of law; rather the applicable principles
would be those enunciated in Wood Papers Ltd. (supra), which have
been precisely approved by the Constitution Bench. Thus, at and until
the stage of finding out eligibility to claim deduction, the ambit and scope
of the provision for the purpose of its applicability cannot be expanded
B
or widened and remains subject to strict interpretation but, once eligibility
is decided in favour of the person claiming such deduction, it could be
construed liberally in regard to other requirements, which may be formal
or directory in nature.
21. As noticed, Section 80-O of the Act has a unique purpose and
C hence, peculiarities of its own. Applying the aforesaid principles to an
enquiry for the purpose of a claim of deduction under Section 80-O of
the Act as applicable to the present case, evident it is that for the purpose
of eligibility, the service or activity has to precisely conform to what has
been envisaged by the provision read with its explanation; and the other
D requirements of receiving convertible foreign exchange etc., are also to
be fulfilled. It is only after that stage is crossed and a particular activity
falls within the ambit of Section 80-O, this provision will apply with full
force and may be given liberal application. The basic question, therefore,
would remain as to whether the suggested activity of appellant had been
of rendering such service from India to its principals in foreign country
E which answers to the description provided by the provision. As regards
this enquiry, nothing of any liberal approach is envisaged. The activity
must strictly conform to the requirements of Section 80-O of the Act.
22. At this juncture, we are impelled to deal with a segment of
submissions on behalf of the appellant with reference to the decision in
F the case of Abhiram Singh (supra). It has been argued that this Court
has cautioned against making ‘a fortress out of the dictionary’ but the
High Court has relied heavily on text and dictionary rather than the object
of the provision. In our view, this part of criticism on behalf of the appellant
on the approach of the High Court is entirely inapt and rather unnecessary.
G The referred observations in the majority view in Abhiram Singh’s case
occurred in relation to the interpretation of Section 123(3) of the
Representation of People Act, 1951, which is aimed at curbing the
unwarranted tendencies of communalism during election campaign and
operates in entirely different fields of social welfare and ethos of
democracy.
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 777
[DINESH MAHESHWARI, J.]

22.1. It remains trite that any process of construction of a written A
text primarily begins with comprehension of the plain language used. In
such process of comprehension of a statutory provision, the meaning of
any word or phrase used therein has to be understood in its natural,
ordinary or grammatical meaning unless that leads to some absurdity or
unless the object of the statute suggests to the contrary.17 In the context
B
of taxing statute, the requirement of looking plainly at the language is
more pronounced with no room for intendment or presumption.18 In this
process, if natural, ordinary or grammatical meaning of any word or
phrase is available unquestionably and fits in the scheme and object of
the statute, the same could be, rather need to be, applied. The other
guiding rules of interpretation would be the internal aides like definition C
or interpretation clauses in the statute itself. Yet further, if internal aides
do not complete the comprehension, recourse to external aides like those
of judicial decisions expounding the meaning of the words used in
construing the statutes in pari materia, or effect of usage and practice
etc., is not unknown; and in this very sequence, it is an accepted principle
D
that when a word is not defined in the enactment itself, it is permissible
to refer to the dictionaries to find out the general sense in which the
word is understood in common parlance. In fact, for the purpose of
gathering ordinary meaning of any expression, recourse to its dictionary

17
In Principles of Statutory Interpretation by Justice G.P. Singh (14 th edn.at p. 91) this E
elementary rule of literal construction has been stated with reference to scores of
decisions, including that in Crawford v. Spooner : (1846) 4 MIA 179 as follows:
“The words of a statute are first understood in their natural, ordinary or popular
sense and phrases and sentences are construed according to their grammatical
meaning, unless that leads to some absurdity or unless there is something in the
context, or in the object of the statute to suggest the contrary.”
18
Apart from the principles already noticed hereinbefore, profitable it would be to F
point out that the basic principles of interpretation of taxing statutes have been re-
condensed by this Court in CIT v. Yokogawa India Ltd.: (2017) 391 ITR 274 (SC) as
follows :
“The cardinal principles of interpretation of taxing statutes centres around
the opinion of Rowlatt, J. in Cape Brandy Syndicate v. Inland Revenue Commissioners
which has virtually become the locus classicus. The above would dispense with the
G
necessity of any further elaboration of the subject notwithstanding the numerous
precedents available inasmuch as the evolution of all such principles are within the four
corners of the following opinion of Rowlatt, J.: (Cape Brandy case, KB p. 71)
“… in a taxing Act one has to look merely at what is clearly said. There is
no room for any intendment. There is no equity about a tax. There is no
presumption as to a tax. Nothing is to be read in, nothing is to be implied.
One can only look fairly at the language used.” H
778 SUPREME COURT REPORTS [2020] 6 S.C.R.

A meaning is rather interlaced in the literal rule of interpretation. This aspect
was amply highlighted and expounded by the Constitution Bench of this
Court in the case of Commissioner of Wealth-Tax, Andhra Pradesh
v. Officer-in-Charge (Court of Wards), Paigah: (1976) 105 ITR
133 as follows (at p.137 of ITR) :
B “8 . It is true that in Raja Benoy Kumar Sahas Roy’s case: [1957]
32 ITR 466(SC) this court pointed out that meanings of words
used in Acts of Parliament are not necessarily to be gathered
from dictionaries which are not authorities on what Parliament
must have meant. Nevertheless, it was also indicated there that
where there is nothing better to rely upon, dictionaries may be
C used as an aid to resolve an ambiguity. The ordinary dictionary
meaning cannot be discarded simply because it is given in
a dictionary. To do that would be to destroy the literal rule
of interpretation. This is a basic rule relying upon the ordinary
dictionary meaning which, in the absence of some overriding or
D special reasons to justify a departure, must prevail. …….”
(emphasis in bold supplied)
22.2. In the setup of the present case, for a proper comprehension
of the contents and text of the relevant provision of Section 80-O and
Explanation (iii), which are carrying even the minute distinction of the
E expressions “from India” and “in India”, recourse to lexical semantics
has been inevitable. However, in all fairness, the High Court has not
only discussed semantics and dictionary meanings but, has equally looked
at the object and purpose of Section 80-O of the Act. Hence, without
further expanding on this issue, suffice it to say for the present purpose
F that the submissions against the approach of High Court with reference
to the decision in Abhiram Singh (supra) does not advance the cause
of the appellant.
Interpretation and application of Section 80-O of the Act of
1961 in the referred decisions
G 23. Having thus taken note of the provision applicable as also the
principles for its interpretation, we may now take note of the relevant
decisions wherein the claim for deduction under Section 80-O of the Act
has been dealt with by the Courts in the given fact situations and in the
particular set of circumstances.
H J.B. Boda & Co.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 779
[DINESH MAHESHWARI, J.]

24. The decision of this Court in J.B. Boda & Co.(supra) has A
been rather the mainstay of the contentions urged on behalf of the
appellant.
24.1. In the case of J.B. Boda & Co., the appellant was engaged
in brokerage business as reinsurance broker. The appellant had been
arranging for reinsurance of a portion of risk with various reinsurance B
companies either directly or through foreign brokers against which, it
was receiving a percentage of premium received by the foreign companies
as its share of brokerage. With respect to reinsurance business, appellant
contacted M/s Sedgwick Offshore Resources Ltd. (London brokers)
and furnished all details about the risk involved etc., and confirmation
about the assignment was informed to the appellant. Following this, the C
Indian ceding company handed over the premium to be paid by it to the
foreign reinsurance company to the appellant for onward transmission.
Appellant approached the RBI showing the amount payable after
deducting its brokerage amount; and this amount of brokerage was
claimed to be a receipt of convertible foreign exchange without a D
corresponding foreign remittance with reference to the provision
contained in Section 9 of the Foreign Exchange Regulation Act.
However, the respondent revenue took the stand that the agreements of
the appellant could not be approved for the purpose of Section 80-O of
the Act, for the income having been generated in India and not received
in foreign currency. This was unsuccessfully challenged by the assessee E
before the High Court and hence, the matter was in appeal before this
Court.
24.2. It is at once clear that in J. B. Boda & Co., the question, as
to whether the foreign exchange received by the assessee in lieu of
services to the foreign company was eligible for deduction under Section F
80-O of the Act or not, did not even arise. This was because of the fact
that the activity of assessee was, in fact, accepted by CBDT to be
eligible for deduction under Section 80-O of the Act in its Circular No.
731 dated 20.12.1995 and the only issue sought to be raised against the
assessee by the revenue related to the method of receiving the amount G
by the assessee. In the said Circular, it was provided by the revenue that
‘receipt of brokerage by a reinsurance agent in India from the gross
premia before remittance to is foreign principals will also be entitled
to the deduction under Section 80-O of the Act’. This Court noted
the contents of the said Circular dated 20.04.1995; and two paragraphs
H
780 SUPREME COURT REPORTS [2020] 6 S.C.R.

A therein with the emphasis supplied by this Court could be usefully
reproduced as under (at p. 280 of ITR):-
“CIRCULAR NO. 731 DATED 20-12-1995
*** *** ***
B 2. Reinsurance brokers, operating in India on behalf of principals
aboard are required to collect the reinsurance premia from ceding
insurance companies in India and remit the same to their principals.
In such cases, brokerage can be paid either by allowing the brokers
to deduct their brokerage out of the gross premia collected from
Indian insurance companies and remit the net premia overseas
C or they could simply remit the gross premia and get back their
brokerage in the form of remittance through banking channels.
*** *** ***
4. The matter has been examined. The condition for deduction
D under section 80-O is that the receipt should be in convertible
foreign exchange. When the commission is remitted aboard, it
should be in a currency that is regarded as convertible foreign
exchange according to FERA. The Board are of the view that in
such cases the receipt of brokerage by a reinsurance agent in
India from the gross premia before remittance to his foreign
E principals will also be entitled to the deduction under section
80-O of the Act.”
(emphasis in italics in original)
24.2.1. This Court found the said Circular binding on revenue and
also found meaningless the insistence of revenue on a formal remittance
F
to foreign reinsurer and receiving commission from them. This Court
observed that such “two way traffic” was unnecessary because in the
end result, the income was generated in India in foreign exchange in a
lawful and permissible manner. Hence, this Court concluded on the matter
while disapproving the stand of the revenue as follows (at p. 281 of
G ITR):-
“The facts brought out in this case are clear as to how the
remittance to the foreign reinsurance company is made through
the Reserve Bank of India in conformity with the agreement
between the appellant and the foreign reinsurers, and that the
H remittance statement filed along with annexure “A” which
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 781
[DINESH MAHESHWARI, J.]

evidences that the amount due to the foreign reinsurers as also A
the brokerage due to the appellant and the balance due to the
foreign reinsurers is remitted (and expressed so) in dollars. It is
common ground that the entire transaction effected through the
medium of the Reserve Bank of India is expressed in foreign
exchange and in effect the retention of the fee due to the appellant
B
is in dollars for the services rendered. This, according to us, is
receipt of income in convertible foreign exchange. It seems to us
that a “two way traffic” is unnecessary. To insist on a formal
remittance to the foreign reinsurers first and thereafter to receive
the commission from the foreign reinsurer, will be an empty
formality and a meaningless ritual, on the facts of this case. On a C
perusal of the nature of the transaction and in particular the
statement of remittance filed in the Reserve Bank of India
regarding the transaction, we are unable to uphold the view of the
respondent that the income under the agreement is generated in
India or that the amount is one not received in convertible foreign
D
exchange. We are of the view that the income is received in India
in convertible foreign exchange, in a lawful and permissible manner
through the premier institution concerned with the subject-matter—
the Reserve Bank of India. In this view, we hold that the
proceedings of the Central Board of Direct Taxes dated March
11, 1986, declining to approve the agreements of the appellant E
with Sedgwick Offshore Resources Ltd., London, for the purposes
of section 80-O of the Income-tax Act, are improper and illegal.
We declare so. We direct the respondent to process the
agreements in the light of the principles laid down by us
hereinabove. The appeal is allowed. There shall be no order as to
F
costs.”
24.3. Though it has been painstakingly contended on behalf of
the appellant that the decision in J.B. Boda & Co. should be decisive of
the matter because even the brokerage of a reinsurance broker was
held eligible for deduction under Section 80-O of the Act but, we are
afraid, the said decision has no relevance whatsoever to the question at G
hand. The eligibility of the concerned services of reinsurance broker for
the purpose of Section 80-O was not even a question involved therein.
Needless to observe that the business of insurance carries its own
peculiarities where the factor of risk involved is of unique significance;
and any information and assessment of risk involved is itself a specialised H
782 SUPREME COURT REPORTS [2020] 6 S.C.R.

A task related with the business of insurance. In the fact sheet of the case
in J.B. Boda & Co., in the every opening paragraph of judgment, it has
been distinctively recorded that in respect of the insurance risk covered
by Indian or foreign insurance companies, the appellant had been
arranging for the reinsurance of a portion of risk with various reinsurance
companies either directly or through foreign brokers. As regards, the
B
services of the appellant with a broker in London, the Court noted, inter
alia, that the appellant ‘furnished all the details about the risk
involved, the premium payable, the period of coverage and the
portion of the risk which is sought to be reinsured’. Without entering
into further details of the activities of the said assessee, suffice it to say
C for the present purpose that the submissions on behalf of the appellant,
as if the task of a broker of reinsurance is not technical in nature, could
only be rejected as being not in conformity with the peculiarities of
insurance business. In any case, as observed hereinbefore, this aspect
does not require further elaboration because of entirely different question
involved and decided by this Court in J.B. Boda & Co.
D
E.P.W. Da Costa
25. Apart from the case of J.B. Boda & Co., much sustenance is
sought on behalf of the appellant with reference to the decision in E.P.W.
Da Costa (supra), which was a decision rendered by the Delhi High
E Court and was, admittedly, not appealed against.
25.1. Facts of the case of E.P.W. Da Costa (supra) had been
that the British Broadcasting Corporation (‘BBC’) was interested in
knowing how its broadcasts were received by listeners in India and hence,
engaged the services of petitioner for conducting a public opinion survey
F so that after gathering information from petitioner, it would make
modifications in its programmes. An agreement was entered by the
petitioner with BBC for conducting specialised economic and public
opinion research on all-India basis to assess the attitudes of a wide range
of political, social and economic subjects etc. Approval of this agreement
for the purpose of Section 80-O of the Act was refused by CBDT,
G essentially on the ground that the service (of audience research study in
Hindi speaking areas to assess the radio listening habits) was rendered
in India and information supplied to the foreign party was not the type
contemplated by Section 80-O.
25.2. In the said decision, of course, the question of nature of
H services for the purpose of Section 80-O was involved but, the High
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 783
[DINESH MAHESHWARI, J.]

Court precisely found the activity of the assessee to be that of imparting A
scientific knowledge after proper analysis of the voluminous data
collected. While rejecting the contention on behalf of the revenue, the
Court observed as under (at p. 755 of ITR):-
“Mr. Kirpal further contends that the information communicated
by the petitioner to the BBC is only data and not scientific or B
commercial knowledge. Perhaps data may be distinguished from
knowledge inasmuch as data may be mere masses of information
which is not properly analysed and made intelligible, while
knowledge is analysed and presented for understanding. The
information supplied by the petitioner to the BBC must fall in the
second category or else the BBC would not have entered into an C
agreement with the petitioner for the supply of the information. A
mere mass of information without analysis and without being
understandable would not be of use to the BBC. The information
is not, therefore, mere data but scientific knowledge.”
(emphasis in bold supplied) D

25.3. Reference to this decision in the case of E.P.W. Da Costa
also suffers from the same shortcomings as we have commented in
relation to the decision in J.B. Boda & Co. The appellant would suggest
that the assessee in the case of E.P.W. Da Costa was merely compiling
data and forwarding it to BBC. The Court has precisely pointed out that E
it was not merely the collection of data but it was analysis thereof that
was the root of agreement between the principal and the assessee. Again,
statistics and statistical analysis is a matter of specific branch of science.
In an elaborate discussion as regards the science of statistics with
reference to the activity of the assessee, the Court, inter alia, observed F
as under (at pp. 754-755 of ITR):-
“The petitioner issues questionnaire to the listeners and the
information gathered from the answers to the questionnaire is
compiled in the form of various statistical tables. According to
Webster’s New International Dictionary, Vol. III, statistics G
is a science dealing with the collection, analysis,
interpretation and presentation of masses of numerical data
and that it is a branch of mathematics. It would appear,
therefore, that the statistical tables compiled by the petitioner after
analysing masses of numerical data are commercial or scientific
H
784 SUPREME COURT REPORTS [2020] 6 S.C.R.

A knowledge which is made available to the BBC. For, the word “
science “ is also a very general word. Since statistics is a science
according to Webster’s, even in a more particular sense, the
statistical information may be said to be scientific knowledge within
the meaning of s. 80-O.………If commercial or scientific
knowledge is confined to mean the abstract exposition of
B
commercial or scientific theories then only a book on commercial
or scientific subject may be regarded as scientific knowledge.
But knowledge may be general or particular. Such knowledge as
was compiled, classified and made useful for the use of the BBC
may also be said to be commercial or scientific knowledge. BBC
C is a commercial corporation. Its function may be to disseminate
information, but in the discharge of this function it requires
commercial or scientific knowledge as to the way its broadcasts
are received in different countries. Such a highly organized concern
as BBC would not be content with the general information as to
the receipt of its broadcast in India. The information would have
D
to be specific, particular and analysed according to the languages
in which the broadcasts are made and according to the classes of
the public who listen to such broadcasts. In view of the trend to
give a wider meaning to the words “ science and scientific
knowledge “, it would not be possible to restrict the connotation of
E these words too narrowly. In our view they would include the
statistical tables compiled by the petitioner for the use of
the BBC inasmuch as statistics itself has been recognised
as a science.”
(emphasis in bold supplied)
F 25.4 The decision in E.P.W. Da Costa, again, does not make out
any case in favour of the appellant.
B. L. Passi
26. In counter to the contentions on behalf of appellant, the decision
G by Coordinate Bench of this Court in the case of B.L. Passi (supra) has
been strongly relied upon by the revenue but is sought to be distinguished
on behalf of the appellant with the submissions that therein, no material
at all was produced by the assessee. We may examine this case also
with the necessary specifics.

H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 785
[DINESH MAHESHWARI, J.]

26.1. The relevant facts of the case in B.L. Passi had been that A
a Japanese enterprise, Sumitomo Corporation, Japan, was interested in
supplying dies for manufacturing of body parts to Indian automobile
manufacturers and an agreement was entered with the appellant (who
claimed having vast experience in the Indian automobile industry)
whereunder, the appellant was to provide services which involved passing
B
of industrial and commercial knowledge, information about market
conditions and Indian manufacturers of automobiles and also technical
assistance as required, so as to assist the principal in establishing its
business in the Indian automobile industry. The appellant claimed
deduction under Section 80-O of the Act with reference to remuneration
received on account of such services rendered to the foreign enterprise. C
The AO disallowed the claim of the appellant for deduction with the
finding that the services in question do not qualify for deduction. However,
the Appellate Authority ruled in favour of the appellant but ITAT reversed
the order of the Appellate Authority and the decision of ITAT was upheld
by the High Court.
D
26.2. In further appeal,this Court briefly took note of the
background of insertion of Section 80-O in the Act of 1961 in place of
the former Section 85-C with the object of giving fiscal encouragement
to Indian industries to provide technical know-how and technical services
to newly developing countries and foreign companies to augment the
foreign exchange of our country and to establish the reputation of Indian E
technical know-how for foreign countries. Examining the facts of the
case relating to the assessment year 1997-98, this Court found that though
the appellant had exchanged several letters with its principal, but the
information was in the form of some blueprints and there was nothing on
record to show as to how the blueprints were obtained and dispatched; F
and such blueprints were not produced by the assessee on record. This
Court also found that the said assessee was to receive service charges
at the rate of five per cent. of the contributable amount from sale of the
principal’s products to its customers in India but again, there was nothing
on record to prove that any product was developed on the basis of the
blueprints supplied by the assessee or that the principal was able to sell G
any product developed by it by using the information supplied by the
assessee. Thus, this Court found that there was no material on record to
prove that the sales in question were of any product developed with the
assistance of the information by the assessee and equally, there was no
material on record to show as to how the service charges payable to the H
786 SUPREME COURT REPORTS [2020] 6 S.C.R.

A assessee were computed. This Court, inter alia, observed and found as
under (at pp 26-28 of ITR) :-
“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 blueprints for the
B manufacture of dies for stamping of doors. Several letters were
exchanged between the parties but there is nothing on record as
to how this blueprint was obtained and dispatched to the aforesaid
company. It is also evident on record that the appellant has not
furnished the copy of the blueprint which was sent to the Sumitomo
Corporation neither before the Assessing Officer nor before the
C appellate authority nor before the Tribunal. The provisions of
section 80-O of the Income-tax 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
blueprints and information provided by the appellant fall within
D the ambit of section 80-O of the Income-tax Act or any of the
conditions stipulated therein in order to entitle the assessee to
claim deduction.
*** *** ***
The blueprints made available by the appellant to the Corporation
E can be considered as technical assistance provided by the appellant
to the Corporation in the circumstances if the description of the
blueprints is available on record. The said blueprints were not
even produced before the lower authorities. In such scenario, when
the claim of the appellant is solely relying upon the technical
F assistance rendered to the Corporation in the form of blueprints,
its unavailability creates a doubt and burden of proof is on the
appellant to prove that on the basis of those blueprints, the
Corporation was able to start up their business in India and he
was paid the amount as service charge.

G Further, with regard to the remuneration to be paid to the appellant
for the services rendered, in terms of the letter dated January 25,
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. Sumitomo Corporation will pay to PASCO International
H service charges equivalent to 5 per cent. of the contractual amount
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 787
[DINESH MAHESHWARI, J.]

between Sumitomo and its customers in India on sales of its A
products so developed. From a perusal of the above, it is clear
that the appellant was entitled to service charges 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
B
was so developed by the Sumitomo Corporation on the basis
of the blueprints supplied by the appellant as also that the
Sumitomo Corporation 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 Sumitomo Corporation to its C
customers in India in respect of any product developed with
the assistance of the appellant’s information and also on as
to how the service charges payable to appellant were
computed.
In view of the foregoing discussion, we are of the considered D
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 Income-tax Act. The appellant failed to
prove that he rendered technical services to the Sumitomo
Corporation and also the relevant documents to prove the E
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 Income-tax Act.”
(emphasis in bold supplied)
F
26.3. The case of B.L. Passi (supra) had not been a matter where
nothing at all was on record. Indeed the letters exchanged by the assessee
with the principal were on record, but the core of information that was
allegedly supplied by the assessee to the foreign company, was not
furnished, nor it was shown as to how that information was utilized by
the foreign company and further, it was also not shown as to how the G
service charges payable to the assessee were computed when it was to
get the payment on the basis of sale to be made by the foreign company.
These crucial facts and factors directly co-relate with the requirements
of Section 80-O of the Act; and upon the assessee failing to meet with
such requirements, the claim for deduction under Section 80-O failed. H
788 SUPREME COURT REPORTS [2020] 6 S.C.R.

A Thomas Kurian
27. Thomas Kurian (supra) had been another case where, for
want of any specific material to connect the activity/service of the
assessee with Section 80-O, the assessee was held to be merely an
inspector or a certifier for the purpose of export as follows:-
B “6. On a reading of the above provisions what we notice is that
assessees service is certainly professional services which are
covered by the provisions of the Act. However, two conditions
have to be satisfied for eligibility for deduction under Section 80-
O, the first is that the service should be rendered outside India
C and the second one is that payment for such services should be
received in convertible foreign exchange in India. In this case
only one condition is satisfied, ie, receipt of consideration in
convertible foreign exchange and so far as rendering of service is
concerned, the entire service is rendered by the assessee in India
and no services is rendered outside India. Exporter ships the goods
D only with assessee’s certificate of fitnesses so that foreign buyer
cannot reject the goods. Assessee’s communication with foreign
buyers in our view does not amount to rendering of service outside
India.”
Continental Construction Ltd.
E
28. As noticed, in the present case, in the very first place, the
Assessing Officer,while dealing with the assessment in question, raised
the queries and sought clarifications from the appellant with reference
to the enunciations in the decision of this Court in the case of Continental
Construction (supra). Then, the High Court has also noticed in its
F impugned judgment that this was one of the decisions relied upon by the
learned counsel for the assessee. A comment has been made in the
reply submissions on behalf of the revenue before us that the appellant
has given up reliance on this decision for the reasons that the ratio
essentially operates against the appellant. The response on behalf of the
G appellant has been that reference to this decision by revenue was entirely
unnecessary for the same not being relied upon. Needless to observe
that it being a decision of this Court, the ratio and the principle emanating
therefrom cannot be ignored, whether relied upon by the appellant or
not. Moreover, the said decision has been rendered by a 3-Judge Bench
of this Court and has the force of a binding precedent. Having regard to
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 789
[DINESH MAHESHWARI, J.]

the submissions made and the questions raised, reference to the decision A
of this Court in the case of Continental Construction (supra) is
indispensable.
28.1 Briefly put, the relevant factual aspects of the matter in
Continental Construction had been that the assessee was a civil
construction company that had executed a large number of projects B
overseas and in India. The assessee entered into eight contracts for the
construction, inter alia, of a dam and irrigation project in Libya, a fibre-
board factory at Abu Sukhair in Iraq and the huge Karkh Water Supply
Project in Baghdad. For these contracts, the assessee obtained the
approval of CBDT in terms of Section 80-O. In its claim for deduction,
various issues related with different assessment years were raised, which C
included the applicability of the CBDT’s approval and the nature of
activities of the assessee, as also the question as to whether the assessee
was entitled to claim deduction only under Section 80HHB of the Act
and not under Section 80-O of the Act? A wide range of issues raised in
the matter were dealt with by this Court, all of which are not necessary D
to be dilated upon.
28.2. The relevant aspect of the matter is that regarding the
eligibility for deduction under Section 80-O of the Act, in Continental
Construction, this Court said that eligibility of an item to tax or tax
deduction could hardly be made dependent on the label given to it by the E
parties. Thus, the assessee was not entitled to claim deduction under
Section 80-O regarding certain receipts merely because they were
described as royalty, fees or commission; and at the same time, absence
of any specific label to the item was not destructive of the right of the
assessee to claim deduction. This Court pointed out that the contracts of
the type envisaged by Section 80-O are usually very complex and cover F
a multitude of obligations and response; and it is not always possible for
the parties to dissect the consideration and apportion it to various
ingredients or elements. This Court, however, pointed out that consolidated
receipts and responses were always apportionable. In the context, as
regards the activities of the said assessee and entitlement under Section G
80-O of the Act, this Court observed that the contracts in question obliged
the assessee to make available information and render services to the
foreign Government of the nature outlined under Section 80-O and
therefore, it was the duty of the revenue and right of the assessee to see
that the consideration legitimately attributable to such information and
H
790 SUPREME COURT REPORTS [2020] 6 S.C.R.

A services is apportioned and the assessee is given the benefit of deduction
under Section 80-O to the extent of such consideration. This aspect of
the matter, extensively dealt with by this Court, could be usefully extracted
as under (at p. 119 of ITR): -
“In our view, neither of the propositions contended for by
B Sri Ahuja can be accepted as correct. So far as the first proposition
is concerned, it is sufficient for us to point out that it is a well-
settled principle that eligibility of an item to tax or tax deduction
can hardly be made to depend on the label given to it by the parties.
As assessee cannot claim deduction under section 80-O in respect
of certain receipts merely on the basis that they are described as
C royalty, fee or commission in the contract between the parties.
By the same token, the absence of a specific label cannot be
destructive of the right of an assessee to claim a deduction, if, in
fact, the consideration for the receipts can be attributed to the
sources indicated in the section. The second proposition is equally
D untenable. Contracts of the type envisaged by section 80-O are
usually very complex ones and cover a multitude of obligations
and responsibilities. It is not always possible or worthwhile for the
parties to dissect the consideration and apportion it to the various
ingredients or elements comprised in the contract. The cases
referred to by the Tribunal and Sri Ahuja as to the indivisibility of
E a contract arose in an entirely different context. For purposes of
income-tax, a principle of apportionment has always been applied
in different contexts. Consolidated receipts and expenses have
always been considered apportionable in the contexts: (a) of the
capital and revenue constituents comprised in them; (b) portions
F of expenditure attributable to business and non-business purposes;
(c) of places of accrual or arisal; and (d) of agricultural and non-
agricultural elements in such receipts or payments. This is a point
that does not need much elaboration and it is sufficient to refer to
decided cases cited under the passages on this topic at pp. 47,
137, 264, 621 and 677 of Kanga and Palkhivala’sThe Law and
G Practice of Income Tax (Volumne I, eighth edition). We are,
therefore, of the opinion that, if, as we have held, the contracts in
the present case oblige the assessee to make available information
and render services to the foreign Government of the nature
outlined in section 80-O, it is the duty of the Revenue and the
H right of the assessee to see that the consideration paid
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 791
[DINESH MAHESHWARI, J.]

under the contract legitimately attributable to such A
information and services is apportioned and the assessee
given the benefit of the deduction available under the
section to the extent of such consideration.”
(emphasis in bold supplied)
28.3. It is also significant to notice that in Continental Construction, B
this Court took note of the aforesaid circulars of CBDT dated 23.12.1975
and 30.04.1979 and delineated the functions of the Assessing Officer
with reference to the claim for deductions under Section 80-O even
when approval had been granted by the Board in the following passage
(at p. 133 of ITR) :- C
“We should, however, make it clear that our conclusion does
not mean the deprivation of all functions of the Assessing Officer
while making the assessment on the applicant. The Officer has to
satisfy himself (i) that the amounts in respect of which the relief
is claimed are amounts arrived at in accordance with the formula, D
principle or basis explained in the assessee’s application and
approved by the Board; (ii) that the deduction claimed in the
relevant assessment year relates to the items, and is referable to
the basis, on which the application for exemption was asked for
and granted by the Board; (iii) that the receipts (before the 1975
amendment) were duly certified by an accountant or that, E
thereafter, the amounts have been received in or brought into India
in convertible foreign exchange within the specified period. The
second of these functions is, particularly, important as the approval
for exemption granted in principle has to be translated into concrete
figures for the purposes of each assessment. Neither the F
introduction of the words “in accordance with and subject to the
provisions of these sections” nor the various “conditions” outlined
in the letter of approval add anything to or detract anything from
the scope of the approval.”
28.4. A few aspects at once emerge from the said decision in G
Continental Construction that even under the provisions of Section 80-
O of the Act as then existing, whereunder prior approval of CBDT was
required to claim deduction, this Court underscored that deduction would
be available only in relation to the consideration attributable to the
information and services envisaged by Section 80-O and deduction would
be granted to the extent of such consideration; and all these aspects H
792 SUPREME COURT REPORTS [2020] 6 S.C.R.

A were to be examined by the Assessing Officer while making the
assessment.
Khursheed Anwar
29. In the impugned judgment, the decision of High Court of Madras
in the case of Khursheed Anwar (supra) has also been taken note of.
B Therein too, the claim for deduction under Section 80-O of the Act was
declined for want of necessary material while observing that the benefit
of Section 80-O cannot be claimed by merely asking for the same; it has
to be substantiated with the requisite record. In the said case, on the
query of the Assessing Officer, the assessee had submitted its reply but
C could not furnish the material so as to bring the case within the four
corners of Section 80-O of the Act. The High Court, inter alia, observed
as under (at p. 474 of ITR):
“Having regard to the above discussions, in our view, as
the assessee has not established his claim for deduction by
D producing the relevant records, the Tribunal has erred in reversing
the finding of the Commissioner of Income-tax (Appeals) rendered
on the basis that the assessee was not entitled to the benefit in
view of the fact that the commission received by the assessee
was not for any of the activities mentioned in paragraph 4.1 of the
order of the Commissioner of Income-tax (Appeals). There is
E absolutely no reason adduced by the Tribunal to reverse the said
finding. We must also mention here that during the course of
arguments, as we found that there were no supporting materials
for the claim, we directed the assessee’s counsel to produce the
materials, if any, available for our perusal. The learned counsel
F for the assessee, though had produced the explanation of the
assessee dated March 28, 1998, he was unable to produce any
materials to sustain any of the contentions made in the said letter.
In the absence of any materials to show that what was passed on
to the foreign enterprise was the information concerning with
commercial or technical or scientific aid, merely because an
G agreement is entered into between the assessee and the foreign
enterprise, we are not inclined to accept the claim of deduction
under section 80-O of the Act. Accordingly, the second substantial
question of law is answered in favour of the revenue and against
the assessee. The tax case appeal is allowed in part. No costs.”
H 30.
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 793
[DINESH MAHESHWARI, J.]

30. From the decisions aforesaid, it could be immediately A
culled out that for bringing any particular foreign exchange receipt
within the ambit of Section 80-O for deduction, it must be a
consideration attributable to information and service contemplated
by Section 80-O; and in case of a contract involving multiple or
manifold activities and obligations, every consideration received
B
therein in foreign exchange will not ipso facto fall within the ambit
of Section 80-O. It has to be attributable to the information or
service contemplated by the provision and only that part of foreign
exchange receipt, which is so attributable to the activity
contemplated by Section 80-O, would qualify for claiming
deduction. Such enquiry is required to be made by the Assessing C
Officer; and for the purpose of this imperative enquiry, requisite
material ought to be placed by the assessee to co-relate the foreign
exchange receipt with information/service referable to Section
80-O. Evidently, such an enquiry by the Assessing Officer could
be made only if concrete material is placed on record to show the
D
requisite co-relation.
Whether the appellant is entitled claim deduction under S.
80-O
31. Coming to the facts of the present case, the agreements of
the appellant with the foreign entities primarily show that the appellant E
was to locate the source of supply of the referred merchandise and
inform the principals; to keep liaison with the agencies carrying out
organoleptic/bacteriological analysis and communicate the result of
inspection; to make available to the foreign principals the analysis of
seafood supply situation and prices; and to keep the foreign principals
informed of the latest trends in the market and also to negotiate and F
finalise the prices. As per the agreements, in lieu of such services, the
appellant was to receive the agreed commission on the invoice amounts.
32. In contrast to what has been observed in the cases of J.B.
Boda & Co. (advising on the risk factor related to the proposed insurance/
reinsurance) and E.P.W. Da Costa (dealing with statistical analysis of G
data collected), what turns out as regards the activities/services of the
appellant is that the appellant was essentially to ensure supply of enough
quantity of good quality merchandise in proper packing and at competitive
prices to the satisfaction of the principals. This has essentially been the
job of a procuring agent. Though the expressions “expert information H
794 SUPREME COURT REPORTS [2020] 6 S.C.R.

A and advice”, “analysis”, “technical guidance” etc., have been used in
the agreements but, these expressions cannot be read out of context and
de hors the purpose of the agreement. All the clauses of the agreements
read together make it absolutely clear that the appellant was merely a
procuring agent and it was his responsibility to ensure that proper goods
are supplied in proper packing to the satisfaction of the principal. All
B
other services or activities mentioned in the agreements were only
incidental to its main functioning as agent. Significantly, the payment to
the appellant, whatever label it might have carried, was only on the basis
of the amount of invoice pertaining to the goods. There had not been any
provision for any specific payment referable to the so-called analysis or
C technical guidance or advice. Viewed from any angle, the services of
the appellant were nothing but of an agent, who was procuring the
merchandise for its principals; and such services by the appellant, as
agent, were rendered in India. Even if certain information was sent by
the assessee to the principals, the information did not fall in the category
of such professional services or information which could justify its claim
D
for deduction under Section 80-O of the Act. In other words, in the
holistic view of the terms of the agreements, we have not an iota of
doubt that the appellant was only a procuring agent, as rightly described
by the High Court.
33. If at all any doubt yet remains about the nature of services of
E the appellant, the same is effectively quelled by the default clauses in
the agreements in question. We may recapitulate the default clauses in
the referred agreements, which read as under:-
The agreement with HOKO

F “Article 4: HOKO pays to RC-CN 0.7% of the invoice amount
on the C & F basis and US$ 2,000.00 per month as commission.
When the quality of goods is found to be unsatisfactory to HOKO
after inspection in in Japan, HOKO shall have no responsibility to
pay the agent fee.”

G The agreement with GELAZUR
“When the quality and the packaging of the goods are found to be
unsatisfactory to ‘GELAZUR” after inspection in FRANCE,
GELAZURE, shall have no responsibility regarding the payment
of the Agent’s fee.”
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 795
[DINESH MAHESHWARI, J.]

33.1. In both the agreements, the default clauses make it more A
than clear that if the quality of goods was found to be unsatisfactory to
the principals after inspection in their respective countries, they shall
have no responsibility to pay the agent’s fees. If at all it had been a
matter of the appellant furnishing some technical or material information
which served the foreign enterprises in making the decision for
B
procurement, in the ordinary circumstances, after completion of such
service and its utilization by the foreign enterprises, the appellant was
likely to receive the professional service charges for furnishing such
information but, contrary and converse to it, the agreements provide for
no payment to the appellant in case of principal being dissatisfied with
goods. These default clauses effectively demolish the case of the appellant C
and fortify the submissions of the revenue that the appellant was merely
a procuring agent and nothing more.
34. The matter can be viewed from yet another angle, as indicated
by the High Court in the last paragraph of its judgment. If at all it be
assumed that out of various tasks mentioned in the agreements, some of D
them involved such services which answered to the requirements of
Section 80-O, it was definitely required of the appellant to establish as to
what had been such information of special nature or of expertise that
was given by it and how the same was utilised, if at all, by the foreign
enterprises; and how much of the foreign exchange receipt was
attributable to such special service. Obviously, the appellant did not supply E
such particulars. As noticed, the High Court posed a pointed query to
the learned counsel appearing for the appellant as to whether all the
services mentioned in the agreement would come within the purview of
Section 80-O. The cryptic response to this query on behalf to the appellant
had been that ‘if the recipient of services is situated outside, all the F
services rendered by the assessee in terms of the agreement come
within the sweep of the provision’. It was specifically contended on
behalf of the appellant that establishing ‘which of its services qualifies
for the deduction is of no consequence, rather unnecessary’. In our
view, this response was not in conformity with the requirements of Section
80-O of the Act, as explained and applied by this Court in Continental G
Constructionand in B. L. Passi (supra) as also as applied by Madras
High Court in Khursheed Anwar(supra). Rather, this stand, in our view,
puts the final curtain on the appellant’s case because most of the services
in the agreements in question were those of an agent ensuring supply;
and if any part of the services co-related with Section 80-O, the particulars H
796 SUPREME COURT REPORTS [2020] 6 S.C.R.

A were of utmost significance and were fundamentally necessary which
the appellant had never supplied. Merely for having a contract with a
foreign enterprise and mere earning foreign exchange does not ipso
facto lead to the application of Section 80-O of the Act.
35. The effect of Circular No.700 dated 23.03.1995 is only to the
B extent that once the service is rendered ‘from India’, even if its ultimate
use by the foreign enterprise occurs in India, the matter may not go out
of Section 80-O of the Act. This clarification is in tune with the nature of
this provision meant for extending incentive but it does not do awaywith
the basic requirements that to qualify for deduction under Section 80-O,
the service must be rendered from India to foreign enterprise and the
C nature of service ought to be as delineated in Section 80-O. Ultimate
use of the service could be in India, as illustrated by the case of E.P.W.
Da Costa (supra) and by the cases of Li & Fung and Chakiath Agencies
(supra) that were cited before the High Court. However, the claim of
the appellant fails at the threshold for the reasons foregoing. Circular
D No.700 dated 23.03.1995 is neither of any application to this case nor of
any assistance to the appellant. The appellant is not entitled to claim
deduction under Section 80-O of the Act.
36. For what we have discussed hereinabove, it is also apparent
that the Appellate Authority as also the ITAT had viewed the present
E case from an altogether wrong angle. As noticed, the Appellate Authority
even did not comprehend the observations in E.P.W. Da Costa (supra)
and assumed that every information is scientific knowledge. On facts,
the Appellate Authority observed that even if acting as agent of the
foreign enterprises, the appellant was locating the sources of frozen
seafoods, bringing the foreign enterprises in contact with the
F manufacturers or processors of seafood, and negotiating with the local
packers; and these activities, though carried out in India, had been on
behalf of the foreign enterprises. The ITAT, though took note of different
services contemplated by the agreements in question and even observed
that the clauses like those requiring the appellant to settle the claim with
G 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
H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 797
[DINESH MAHESHWARI, J.]

envisaged by Section 80-O of the Act, which were rendered from India. A
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.
Hence, neither anything turns upon the submissions made on behalf of
the appellant with reference to the decision in K. Ravindranathan Nair
B
(supra) nor this aspect requires any further discussion.
37. In our view, the High Court has rightly analysed the entire
matter with reference to the relevant questions and has rightly proceeded
on the law applicable to the case. The impugned judgment calls for no
interference.
C
The appellant M/s Laxmi Agencies - the appeal arising out of
SLP (Civil) No.23699 of 2016.
38. This appeal involves similar claim of the other assessee firm
M/s Laxmi Agencies, said to be engaged in similar business of rendering
services to foreign buyers of Indian marine products. For the assessment D
year 1997-98, this assessee firm, while declaring total income of Rs.
31,81,180/-, claimed deduction under Section 80-O to the tune of
Rs.21,84,302/-, being 50% of the net income of Rs. 43,68,604/- towards
the service charges received from such foreign buyers.
38.1. In the assessment order dated 31.01.2000, the AO noted E
the explanation of this appellant regarding the services rendered in the
following:
“…..As per the detailed letter dated 22.11.1999 filed by the
assessee the services rendered by it to the foreign enterprises are
by way of : F
1. To impact commercial and technical knowledge, experience
and skill in the field of Frozen Food/Marine products to enable
them to formulate their policies and take decision for import thereof
from India;
2. To locate reliable sources of quality and assured supply of G
Frozen Seafood/Marine products and communicate the assessee’s
expert opinion and advise to them to enable them to take decisions
for import from India;
3. To keep close liaison with agencies such as EIA/Llyods/ SGS
especially for organoleptic/bacteriological analysis and H
798 SUPREME COURT REPORTS [2020] 6 S.C.R.

A communicate the results of inspection along with assessee’s expert
comments and advice. This also enables the foreign enterprises
to take decisions for import from various sources from several
countries available to them.
4. Making available full and detailed analysis of the seafood
B situation and prices for the above purpose.
5. To advise and keep informed the foreign buyers of the latest
trends/process applications in manufacturing and all valuable
commercial and economic information which will directly and
indirectly assist them to organize, develop, control on regulate their
C import business from India.
6. To assist foreign buyers in negotiating and finalizing prices for
Indian marine products and advise them of all rules and regulations
and other related information for such import.”
In the case of this appellant, again, the AO was of the view that
D the services were rendered in India and the service charges received
from the foreign enterprises in respect of such services did not qualify
for deduction under Section 80-O.
38.2. In the case of this appellant, the Appellate Authority
examined the terms of agreements with the foreign enterprises in detail
E and noted the contents thereof in the following paragraphs:-
“2. The appellant had entered into agreement with various foreign
enterprises for render the following services. Article 2 of the
agreement entered into with Neptune Fisheries Ind. USA reads
as under:-
F
(a) Locating reliable source of quality and assured supply of frozen
sea-foods/marine products for the purpose of import by
“NEPTUNE” and communicate its expert opinion and advice to
the NEPTUNE;
(b) In addition to the above services rendered by ‘Laxmi’ it will
G also keep a close liason with agencies such as ELA/LLOYDS/
SGS especially for organolotic/acteriological analysis and
communicate the result of the inspection along with its expert
comments and advice.

H
RAMNATH & CO. v. THE COMMISSIONER OF INCOME TAX 799
[DINESH MAHESHWARI, J.]

(c) Making available full and detailed analysis of the sea food A
supply situation and prices;
(d) To advise NEPTUNE and keep them informed of the latest
trends/processes applications in manufacturing and of all valuable
commercial and economic information about the markets,
Government Policies, exchange fluctuations, banking laws which B
will directly or indirectly assist “NEPTUNE” to organize, develop
control or regulate their import business from India.
e) To negotiate and finalise the prices for India Exporters of frozen
marine products and to communicate such and other related
information to “NEPTUNE”. C
Article 4 of the agreement states:
“LAXMI” shall also do everything that is required to ensure highest
standards of quality hygiene and freshness of products including
supervision at various stages.”
D
3. The agreement made with other principles (sic- principals)
are also on similar lines.”
38.3. In this case, of course, the Appellate Authority took note of
various activities of the appellant with and for the buyer concerned and,
while disallowing 20% of the service charges received from foreign
E
enterprises towards the services rendered in India, allowed deduction
under Section 80-O to the extent of the net income arising out of 80% of
such charges received from foreign enterprises.
38.4. The order so passed by the Appellate Authority was
challenged both by the appellant and by the revenue before ITAT in ITA
No. 580/Coch/2004 and ITA No. 618/Coch/2004 respectively. The ITAT F
referred to its earlier decision in the case of the other assessee Ramnath
& Co. (as referred to hereinabove) and following the same, allowed the
appeal of the appellant and dismissed that of the revenue and thereby,
allowed the claim of appellant for deduction in toto.
38.5. Although, from the fact sheet of this case, it does not appear G
if the agreements of this appellant also carried the default clauses as we
have noticed in the lead case but, on all other major features, the
agreements had been of the same nature and again, this appellant has
also failed to bring any material on record to show if it had received any
H
800 SUPREME COURT REPORTS [2020] 6 S.C.R.

A specific consideration referable to the activities envisaged by Section
80-O of the Act. In the given set of facts and circumstances, this appellant
also turns out to be only a procuring agent and not beyond. Hence, this
appeal also deserves to be dismissed.
Conclusion
B 39. For what has been discussed and held hereinabove, these
appeals fail and are, therefore, dismissed. No costs.

Ankit Gyan Appeals dismissed.

C

D

E

F

G

H