A.S Mani v. Commissioner Of Income-Tax

1. The applicant is an individual and an Indian citizen. The details furnished with the application show that during the financial year 1995-96, the applicant was a resident of Bahrain and was in India for only 65 days. Also, in the four financial years preceding 1995-96, he was in India only for 174 days. Hence, he is a non-resident for the said period under section 6 of the Income-Tax Act, 1961 (“the Act”). He no doubt returned to India in April, 1996, and has been resident in India since then. However, having been a non-resident during the financial year preceding the application, he is entitled to maintain this application under section 245Q(1) of the Act.

2. The applicant seeks the ruling of this Authority on the following question:

“Whether under the facts and circumstances stated in the statement of facts, the applicant is entitled to deduction under section 80-0 of the Act in respect of consideration received in terms of the consultancy agreement entered into between the applicant and Mabanaft AG, Switzerland?”

3. The applicant left India in August, 1990, and returned to India in April, 1996. He entered into an oral agreement of consultancy on February 9, 1996, with a Swiss company known as Mabanaft AG, which was later reduced into writing. The duration of the agreement is till March 31, 1999. Clause (2) of the agreement indicates the scope of the consultancy which includes studying the petroleum sector, analysing the Government of India's policies and identifying opportunities for supply of petroleum products to various customers by the company. He is also required to keep himself abreast of the latest trends in the Middle-East market and advise the company in matters of commercial interest to them and to provide market intelligence. He is further required to advise the company regarding continuance and implementation of long-term contracts entered into by the company with various customers in Middle-Eastern countries. Clause (7) of the agreement specifically declares that the consultant is not an employee of the company.

4. In the brief statement of facts, the applicant has claimed that he is an expert in the petroleum industry and is a Master in Economics with specialisation in international trade. He was employed in the Indian Oil Corporation for about 27 years. He was last employed as General Manager (International Trade). The applicant has detailed various services rendered to Mabanaft from April, 1996, onwards which include status and development of oil industries in India and industries in Middle-East.

5. Mabanaft has a liaison office in India but the applicant is said to have been sending his reports abroad.

6. The applicant seeks exemption under section 80-0 of the Income-Tax Act, 1961 (“the Act”), for the consideration received by him under the above agreement.

7. Section 80-0 of the Act reads as under:

“80-0. Where the gross total income of an 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, 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 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 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:

Provided that such income is received in India within a period of six months from the end of the previous year, or where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf.

Explanation.— For the purposes of this section,—

(i) ‘convertible foreign exchange’ means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the law for the time being in force for regulating payments and dealings in foreign exchange;

(ii) ‘foreign enterprise’ means a person who is a non-resident.

(iii) services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India.”

8. The only question for consideration is whether the sums received by the applicant fall within the scope of the words in italics above. According to the applicant, the services rendered by him to Mabanaft will fall under the term “professional sendees”. Further, the applicant contends that under Explanation (iii) to section 80-0 of the Act, the services rendered or agreed to be rendered outside India include services rendered from India and as such, he is covered by the provisions of section 80-0. Shri Ramasubramanian, during the arguments on behalf of the applicant stated that the question may be answered subject to the other conditions of the section being satisfied.

9. On behalf of the Department, Shri J. Krishna Kishore, Assistant Commissioner, argued that the applicant could not claim dual status. He says that the applicant is resident in India in the financial year 1996-97 onwards and cannot avail of a procedure intended for non-residents. However, it is well settled that in order to maintain an application under section 245Q(1) of the Act, the applicant should have been a non-resident in the financial year preceding the date of his application, (vide Dr. Rajnikant R. Bhatt v. CIT [1996] 222 ITR 562). It is immaterial whether the questions pertain to a period when he is resident or non-resident. Accordingly, there is no merit in the argument of the Department.

10. It was also argued by the Department that the applicant was an employee of Mabanaft because it is indicated in the brief statement of facts that he was “employed” as a consultant. Indeed, the applicant was discharging the same duties earlier as an employee of the company in Bahrain. Further, he was working only for Mabanaft and there is no indication that he was rendering services to any other person. The Department also argued that there was no evidence of information being actually transmitted from India abroad. It was also argued that the information provided by the applicant was of a general or routine nature and his services could hardly be characterised as “technical or services”. It was stated that no documentary proof had been furnished in this regard. The Department, therefore, pleaded that the application be referred to the Assessing Officer. These arguments were refuted by Shri Ramasubra-manian. He emphasized that the services rendered by the applicant did involve exercise of intellectual skill and as such were covered by section 80-0 of the Act. He said the information given to Mabanaft cannot be shared with others as it may result in a conflict of interest. He stated that the finding of this Authority would be conclusive only with regard to issues of law and not factual aspects.

11. The authority is of the opinion that the applicant is entitled to the exemption claimed, on the assumption that the services are rendered by him to Mabanaft outside India. The section confers exemption in two situations:

(a) the remuneration is paid by the foreign enterprise in consideration for its use outside India of the industrial or commercial information provided by the applicant; or

(b) the payment is received in consideration of technical or professional services rendered outside India.

12. The applicant does not claim that situation (a) prevails in the present case. The only question is whether situation (b) does.

13. The controversy whether the applicant is an independent consultant, or just an employee of Mabanaft is not strictly relevant as the section only talks of services rendered or information provided by a person to a foreign enterprise. It may have some relevance if the applicant wants to claim (and he seems to from the arguments addressed and cases cited by him) that he is rendering “professional” services. But the Authority is of the view that it is unnecessary to go into the question whether the applicant can be said to carry on a profession, as the services rendered by the applicant can be clearly described as “technical” services.

14. The word “technical” is defined by the Shorter Oxford Dictionary thus:

“(1) If a person having knowledge of or expertise in a particular art, science or other subject;

(2) Pertaining to, involving or characteristic of a particular art, science, profession or occupation, or the applied arts and sciences generally.”

15. The definition is thus very wide. There can be no doubt that the applicant has special knowledge in the production, imports and other aspects pertaining to the oil industry. Also, a reference to the terms of situation (a) referred to above will also indicate that services in industrial and commercial branches are intended to be covered by the section.

16. The only question that survives is whether the applicant can be said to be rendering his services outside India. The applicant says that he is collecting and analysing data and information pertaining to the oil industry from all over the world and advising Mabanaft in various matters with special reference to India. His advice, it is said, is delivered abroad. This being so, it is submitted, that the case falls squarely within the terms of clause (iii) of the Explanation. This appears to be the correct position. Subject to verification, if need be, by the Departmental authorities whether, in fact, the applicant has had no dealings with Mabanaft in India, it is clearly a case where the applicant can be said to be rendering services to Mabanaft from India and in view of the Explanation, the services would, therefore, be deemed to be services rendered outside India.

17. In the light of the aforesaid discussion, the Authority pronounces the following ruling in the present case:

RULING

Question Answer Whether under the facts and Yes, circumstances stated in the state-ment of facts, the applicant is entitled to deduction under section 80-0 of the Act in respect of consi-deration received in terms of the consultancy agreement entered into between the applicant and Mabanaft subject to the other condi-tions in section 80-0 of the Act that the payment should be in “converti-ble foreign exchange” and should be received in India within a pre scribed period,

18. A.G, Switzerland.