Li & Fung India P.Ltd v. The Commissioner of Income Tax

V. B. GUPTA, J.

MAD AN B. LOKUR, J. April, 2008 rs

* HIGH COURT OF DELHI : NEW DELHI ITA No.532/2007 % Judgment reserved on: 19th March, 2008 Judgment delivered on: 2nd April, 2008 LI & FUNG INDIA P.LTD. 216, Okhla Industrial Estate, Phase III, New Delhi 110020 ..... Petitioner. Through: Mr. Ajay Vohra with Ms. Kavita Jha, Adv. Vs. THE COMMISSIONER OF INCOME TAX NEW DELHI ..... Respondent Through: Mr. R.D.Jolly, Adv. Coram: HON'BLE MR. JUSTICE MADAN B. LOKUR HON'BLE MR. JUSTICE V.B. GUPTA 1. Whether the Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes V.B.Gupta, J. The following substantial question of law arises in the present appeal:- "Whether on the facts and circumstances of the present case, assessee is eligible for deduction under Section 80-O of the Income Tax Act, 1961?" 2. Brief facts of this case are that the assessee claimed to have rendered technical services out of India as buying agent and thus claimed to be eligible for deduction of Rs. 3,20,81,836/- under Section 80-O of the Income Tax Act, 1961 (for short as "Act"). However, as positive income was shown at Rs.1,40,50,080/-, the deduction under the above provision was restricted to the income shown. The Assessing Officer was however of the view that the assessee has merely rendered managerial services not of technical nature and thus requirement of Section 80-O of the Act was not satisfied. The Assessing Officer thus denied the deduction claimed by the assessee. 3. On appeal filed by the assessee, the CIT(A) held that services rendered by the assessee are professional and / or technical services and view taken by the Assessing Officer that technical services would be restricted to services which are purely technical in nature involving scientific or engineering experience is taking too narrow view of the matter and held that the assessee is entitled to deduction under Section 80-O of the Act. 4. Being aggrieved with the order passed by the CIT(A), the revenue filed an appeal before the Tribunal and vide the impugned order the Tribunal held that 30% of the fees received by the assessee is taken towards services rendered in India and 70% of fees received by the assessee is taken to be qualified for deduction under Section 80-O of the Act and accordingly directed the Assessing Officer to re- compute the deduction. 5. The assessee has challenged the order of the Tribunal passed in ITA No.1547/Del/2001 relevant for the assessment year 1997-98 by way of the present appeal. 6. It has been contended by learned counsel for the Assessee that the assessee company is incorporated in India with the object of providing buying services from India to various principals and the services rendered by the assessee requires knowledge, expertise and experience and were essentially technical services and in any case, even if it was to be held that a portion of the said services were managerial services, the same would be regarded as technical services as defined in Explanation (2) to Section 9(i)(vii) of the Act and therefore, covered under Section 80-O of the Act. Further, the services rendered to the foreign principal no doubt originate in India but terminate outside India only when the foreign client is communicated the contents and factum of rendition of services. It is also submitted that even if the benefit of the services was utilized by the foreign principals to further their business interest in India, the services rendered by the assessee were to be regarded as rendered from India in the terms of the Circular of Central Board of Direct Taxes, No.700 dated 23rd March, 1995. 7. Learned counsel in support of his contentions has cited a decision of this Court in The Commissioner of Income Tax vs. Mittal Corporation [2005] 272 ITR 87. 8. On the other hand, it has been argued by learned counsel for the revenue that the assessee in this case was rendering services to foreign buyers in India and according to Expl