Difference between Service Rendered from India and in India:
Exemption to Income u/s 80-O of Income Tax Act, 1961.
The agreements of the appellant with the foreign entities primarily show that the appellant 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 finalise the prices. As per the agreements, in lieu of such services, the appellant was to receive the agreed commission on the invoice amounts.
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 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 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 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 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 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 the appellant, the same is effectively quelled by the default clauses in the agreements in question.
In both the agreements, the default clauses make it more 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 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 and fortify the submissions of the revenue that the appellant was merely a procuring agent and nothing more.
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 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 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 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 Construction and 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 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.