Merely Brandishing Newspaper Cuttings Doesn't Prove Sharing Commercial Expertise: Bombay High Court

The Bombay High Court has held that merely brandishing newspaper cuttings does not amount to proof of sharing commercial expertise with its French counterpart as mandated by Section 80-O of the Income Tax Act.

The bench of Justice K. R. Shriram and Justice Neela Gokhale has observed that Section 80-O was inserted in place of Section 85C, which was deleted by the Finance (No. 2) Act, 1967. While moving the bill relevant to the Finance Act No. 2 of 1967, the then Finance Minister highlighted the fact that fiscal encouragement needs to be given to Indian industries to encourage them to provide technical know-how and technical services to newly developing countries.

The appellant/assessee is a private limited company. An agreement was executed on February 2, 1987, by and between the appellant and M/s. Arianespace France. The shareholders of Arianespace are all government-controlled companies belonging to European space agencies and totally unconnected with the appellant. The main business of Arianespace was to launch satellites and place them in orbit above the earth.

In a bid to gain entry into the global satellite launch market, Arianespace was desirous of reducing its cost by placing bulk orders on its subcontractors on the basis of information about launch business worldwide, collected from their international network of consultants. It is the appellant's case that it was one such consultant of Arianespace appointed pursuant to the said agreement.

The agreement was revised and extended on December 10, 1987, February 20, 1990, and March 12, 1993. As per the latest agreement, the appellant was obliged to provide information to Arianespace regarding current regulations and market conditions in India. A lump-sum consideration was agreed upon and was revised upwards from time to time. The duration of the last agreement was up to December 31, 1996. The information required to be sent in terms of the agreement was sent to Arianespace regularly by post. The assessments and analysis were discussed orally at personal meetings with representatives of both sides to maintain the confidentiality of the information.

The appellant received a sum of Rs. 75,11,850 from Arianespace during the relevant year, AY 1995–96. After deducting 20% towards expenditure, the appellant claimed a deduction of Rs. 30,40,740 under Section 80-0 in its return of income filed for AY 1995–96. The Assessing Officer (AO) in his assessment order refused the deduction on various grounds, including the information provided by the appellant pursuant to the said agreement, which is comprised only of newspaper cuttings freely available and hence cannot be treated as 'information concerning commercial knowledge and experience'. There were no written reports of any analysis. The appellant had no experience in the satellite business. There was nothing to indicate that the information was used outside India.

The appellant challenged the assessment order before the Commissioner of Income Tax (Appeals) (CIT(A)), whose appeal was dismissed.

The appellant preferred an appeal to the Income Tax Appellate Tribunal ('ITAT'), which also confirmed the non-allowance of deduction under Section 80-0.

The appellant contended that the appellant has received fees in consideration for furnishing information concerning commercial knowledge and for rendering technical services, and the Tribunal ought to have appreciated the absence of written reports on account of confidentiality of information. Relying on the provision of Section 80-O existing at the relevant time, it was submitted that the Section only required approval of the Chief Commissioner of Income Tax (CCIT) for the agreement executed and that the CCIT had granted approval to the agreement for the AY 1991–92 upon specific consideration of the issue regarding the furnishing of newspaper cuttings and verbal discussions of reports.

The department contended that mere sharing of newspaper cuttings does not amount to information concerning industrial, commercial, or scientific knowledge, experience, or skill, which is a precondition to seeking deduction under Section 80-0 of the Act. Appellant has been unable to provide any analysis, report, or assessments purportedly furnished to Arianespace, and hence, Appellant is not eligible for deduction under Section 80-0 of the Act.

The court held that the AO is well within his jurisdiction to verify whether the information shared is attributable to the information or service contemplated by the provision. The AO is in fact required to make such an inquiry, and for that purpose, the assessee is required to place on record the requisite material supporting its claim for deduction, on the basis of which approval was procured from the CCIT.

Counsel For Appellant: J.D.Mistri

Counsel For Respondent: P.C.Chhotaray

Case Title: Hindustan Export & Import Corporation Private Limited Versus The Deputy Commissioner of Income-tax

Case No.: Income Tax Appeal No.225 Of 2002

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