The Commissioner of Income Tax vs Shri Charles M. Correa

D.Y. Chandrachud, J.—The appeal by the Revenue u/s 260A of the Income Tax Act, 1961 arises out of an order passed by the Income Tax Appellate Tribunal on 27th February 2009. The issue relates to assessment year 2003-2004. The question of law which has been formulated by the Revenue, is as follows:

Whether on the facts and circumstances of the case and in law the Tribunal, "C" bench, Mumbai has erred in not considering that the assessee is not eligible for deduction u/s 80O since he is a professional and is providing professional service and therefore it cannot be said that he was owning some Intellectual Property and earning income through use / exploitation of such Intellectual Property in view of Supreme Court''s decision in the case of NTPS ?

The assessee is an architect. During the previous year relevant to the assessment year 2003-2004, he received professional fees of Rs. 3.15 crores including an amount of Rs. 2.43 crores, which was received in convertible foreign exchange from Goody, Clancy & Associates, Incorporated, U.S.A. and Moffat Kinoshita Architects Incorporated, Canada. The assessee claimed a deduction on the receipts received in convertible foreign exchange u/s 80O to the extent of 20 per cent. The Assessing Officer denied the benefit of deduction u/s 80O. In appeal, the Commissioner of Income Tax (Appeals) held that the assessee was entitled to a deduction u/s 80O. The Tribunal confirmed the decision of the Commissioner of Income Tax (Appeals). The Tribunal has relied upon its own order dated 12th November 2008 pertaining to the assessment year 2002-2003 and upon a decision of the Mumbai Bench of the Tribunal in (2004) 269 ITR 133 .

The issue before the Court is as to whether the assessee had fulfilled the conditions specified in Section 80O. During the previous year relevant to the assessment year in question, the assessee had two contracts - the first relating to the development of a new Brain and Cognitive Centre for Massachusetts Institute of Technology and the second in respect of the Ismaili Centre, Toronto. Under the first contract in which the assessee was described as an Associate Architect, the assessee had to provide architectural and design services primarily in schematic and design development phases. Under the second contract where the assessee was described as a Consultant, the assessee was required to assist the Architect with the design for the construction of the project. In the present case, as the facts before the Court would show that it has not been disputed that the assessee did as a matter of fact provide the designs. Nor is it disputed that the designs provided by the assessee were used outside India. Moreover, it is an admitted position that income in convertible foreign exchange was received by the assessee in India.

Section 80O inter alia contains the following requirements: (i) The gross total income of the assessee, being an Indian company or a person resident in India must include any income received by the assessee from the Government of a Foreign State or a Foreign Enterprise; (ii) The income must be received in consideration of the use outside India of any patent, invention, design or registered trademark; and (iii) Such income must be received in convertible foreign exchange in India or having been received in convertible foreign exchange outside India or being converted into convertible foreign exchange outside India must be brought into India, by or on behalf of the assessee, in accordance with any law for the time being in force regulating payments and dealings in foreign exchange. The deduction that is allowed is in terms of the provisions of Section 80O, and varies between 40 per cent for the assessment year beginning on 1 April 2001 and 10 per cent for the assessment year beginning on 1 April 2004. No deduction was to be allowed for any assessment year beginning on 1 April 2005 or any subsequent assessment year.

The principal requirement of the Section, which is a matter of interpretation in this case is that the income must be received in convertible foreign exchange from a foreign enterprise {defined by explanation (ii) to mean a person who is a nonresident} in consideration for the use outside India of any patent, invention, design or registered trademark. In the present case, the assessee did in fact provide a design under the terms of the contract to a foreign enterprise within the meaning of Section 80O and received payment in consideration of the use outside India of the design, which the assessee provided. The object underlying Section 80O is to allow a deduction in respect of incomes received in convertible foreign exchange in consideration for the use outside India of certain categories of intellectual property namely patents, inventions, designs or registered trademarks. The fact that the assessee supplied designs is not in dispute.

From the question of law that has been framed by the Revenue, it appears that the contention is that the assessee was providing professional services and could not be regarded as the owner of Intellectual Property. There is no merit in the submission. The income in respect of which a deduction is claimed u/s 80O was not income, generally speaking, received for rendering professional services outside India. The income which was received was specifically in consideration for use outside India of the designs which were supplied by the assessee. For the purposes of Section 80O, use that is made outside India may be single or multiple use, which may vary upon the facts and circumstances of each case. So long as the use has taken place outside India and the payment which is received in convertible foreign exchange is in India for the use of Intellectual Property of the stated description outside India, the benefit of the deduction would have to be granted. The assessee had prepared designs in India and had supplied them to its foreign counterpart outside India in pursuance of the contracts noted earlier. Explanation (3) to Section 80O clarifies that services rendered or agreed to be rendered outside India, would include services rendered from India but not to include services rendered in India. There is no dispute about the fact that the designs were supplied and used outside India. All the conditions requisite for an exemption u/s 80O were fulfilled.

Before concluding, it would be necessary to note that though in the question which has been formulated in the memo of Appeal, there is a reference to a judgment of the Supreme Court "in the case of NTPS", the learned Counsel appearing on behalf of the Revenue has stated that there is no such judgment and that consequently during the course of the argument, reliance was not placed thereon.

The Court has also been informed during the course of hearing that for assessment year 2002-2003, the decision of the Tribunal allowing a deduction u/s 80O has not been questioned by the Revenue.

For the aforesaid reasons, we are of the view that no substantial question of law would arise. The appeal is accordingly dismissed. There shall be no order as to costs.