RAUNAQ INTERNATIONAL LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) The petitioner is a public limited company. It is engaged in the business of export of engineering and industrial goods. Technical know-how to indigenous manufacturers is provided by the Sales Engineers of the petitioner as the exports comprised of sophisticated goods. Such technical assistance is also provided in development of various engineering and industrial goods for the purpose of exports.

(2.) An Iraq Government company known as a State Company for Rubber Industries, Baghdad (SCRI) sought for technical assistance of the petitioner pursuant whereto 16 specialists were deputed for the purpose of sharing experience for running the factory as also for improving and developing technical and managerial skills of its personnel as also to participate in the practical application of the planned technology.

(3.) On the ground that providing of such technical assistance would entitle the petitioner to claim deduction under Section 80-0 of the Income Tax Act, an application was filed for approval of the said agreement dated 10th August 1977 before the prescribed authority on 27th September 1978. By reason of the impugned order dated 24th December 1980, the said prayer was rejected by the Central Government stating: Subject: -Approval under Sec. 80-0 of the Income tax Act, 1961 - Agreement dated 10.8.1977 with the State Company for Rubber Industries, Ministry of Industry & Minerals, Government of Iraq, Baghdad, Iraq Dear Sirs, With reference to your application dated 27.9.1978 on the subject which was filed under your letter No. RID dated 27.9.1978, I am directed to say that the Board regret their inability to approve your agreement dated 19.8.1977 with the State Company for Rubber Works, Ministry of Industry & Minerals, Government of Iraq, Baghdad, Iraq, for purposes of Sec. 80-0 of the Income-tax Act, 1961, owing to the following reasons: - (i) The agreement does not provide for the transfer of any technology by the Indian company to the foreign enterprise as contemplated in Sec. 80-O. (ii) The services rendered by you to the foreign enterprise related to the mere supply of 16 specialists who would in turn assist the local personnel in the foreign project. These persons were specifically recruited by you for working on the foreign project and they were answerable for their work and conduct to the foreign enterprise and not to you. Consequently the services rendered by these personnel cannot be treated as services rendered by you for purpose of Sec. 80-O." Section 80-O of the Income Tax Act is as under: "80-O. Deduction in respect of royalties, etc., from certain foreign enterprises. 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 received by the assessee from the Government of a foreign State or foreign enterprise in consideration for the use outside India of any patent, invention, design or registered trade mark 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 - (i) forty per cent, for an assessment year beginning on the 1st day of April, 2001; (ii) thirty percent, for an assessment year beginning on the 1st day of April, 2002; (iii) twenty per cent, for an assessment year beginning on the 1st day of April 2003; (iv) ten per cent, for an assessment year beginning on the 1st day of April, 2004, of the income so received in, 4 or brought into, India, in computing the total income of the assessee and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April 2005, and any subsequent assessment year. Provided that such income is received in India within a period of six months from the end of the previous year, within such further period as the competent authority may allow in this behalf: Provided further that no deduction under this section shall be allowed unless the assessee furnishes a certificate, in the prescribed form, along with the return of income, certifying that the deduction has been correctly claimed in accordance with the provisions of this section. 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. (iv) "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange."