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Blue Dart Express Ltd. Vs. Joint Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(2000)75ITD414(Mum.)
AppellantBlue Dart Express Ltd.
RespondentJoint Commissioner of Income-tax
Excerpt:
1. these appeals by the assessee are directed against consolidated order dated 19-3-1991 of the commissioner of income-tax under section 263 of the income-tax act, for the assessment years 1994-95 and 1995-96.2. the assessee is a company engaged in the integrated air and ground transportation of time sensitive packages to various destinations in the domestic and international sectors. to undertake its international operations the assessee entered into a global service partnership agreement with federal express incorporation usa. the assessee filed its return for the assessment year 1994-95 on 31-11-1994 declaring total income at rs. 54,42,074. in its return the assessee claimed deduction at rs. 4,55,57,524 under section 80-o of the act. since the said deduction was claimed on gross.....
Judgment:
1. These appeals by the assessee are directed against consolidated order dated 19-3-1991 of the Commissioner of Income-tax under section 263 of the Income-tax Act, for the assessment years 1994-95 and 1995-96.

2. The assessee is a company engaged in the integrated air and ground transportation of time sensitive packages to various destinations in the domestic and international sectors. To undertake its international operations the assessee entered into a global service partnership agreement with Federal Express Incorporation USA. The assessee filed its return for the assessment year 1994-95 on 31-11-1994 declaring total income at Rs. 54,42,074. In its return the assessee claimed deduction at Rs. 4,55,57,524 under section 80-O of the Act. Since the said deduction was claimed on gross basis, prima facie adjustment was made in intimation under section 143(1)(a) and deduction was reduced to Rs. 3,55,30,981 under section 80-O.3. Return for assessment year 1995-96 was filed on 30-11-1995 declaring income at Rs. 45,22,060. The return was processed under section 143(1)(a) but no prima facie adjustment was made. Later assessment was framed on 31-12-1997 under section 143(3) of the Act allowing deduction of Rs. 4,98,06,291 under section 80-O.4. On scrutiny of the assessment records of the assessee for the assessment years 1994-95 and 1995-96 the CIT found that the Assessing Officer had allowed the claim of deduction under section 80-O without examining whether the conditions of eligibility had been fulfilled, viz., whether the assessee, who was in courier business had rendered any technical or professional services to a foreign enterprise outside India in consideration of which the assessee had received income in convertible foreign exchange. As there was no application of mind by the Assessing Officer on the basic question of eligibility of the claim under section 80-O the assessment of both the years were considered to be erroneous and prejudicial to the interest of revenue. Notice under section 263 dated 10-2-1999 was accordingly issued. In response thereto oral and written submissions were made before the CIT. A copy of contract entered into by the assessee-company on 1-10-1993 with Federal Express International, Inc of USA (for short Fed Ex) was filed. It was submitted that it was a global service arrangement with Fed Ex under which the assessee runs certain technical services to Fed Ex outside/from India. Fed Ex requires the assessee under its contract to run worldwide services as per the procedure and standards laid down in its service/operation manuals and guides. It was brought to the notice of the CIT that the assessee has contractual relations only with Fed Ex and not with its overseas customers. Accordingly, on rendering contractual services to Fed Ex he earns its foreign exchange earnings.

Key steps in typical outbound shipment and inbound shipment were explained. It was argued that the assessee could render services to Fed Ex only due to use of advance technology/equipment and interface of the COSMOS and COSMAT system. To render the above services to Fed Ex, the assessee geared itself with the required technical skills, skilled manpower and infrastructure in the form of high power computer, specially designed software, satellite links and means of data transmission/communication. It was further explained that highly technical activities are undertaken by the assessee for accomplishing pick-up/delivery of packages so as to ensure strict compliance with the service standards laid down by Fed Ex and also for providing necessary commercial information concerning shipments on continuous basis.

According to the assessee such services are nothing but technical in nature as the procedures laid down are highly structured standardised and involves use of men, machines, software and communication lines.

The various technical report generated through the entire process of any shipments history from time of pick-up to end delivery upto POD stage are proof of the same. The assessee also employs specialised professionals who are trained in the skills required to handle the aforesaid activities of providing services to Fed Ex as per international standards. It was also submitted that the payments in foreign exchange in respect of which the deduction has been claimed by the assessee during both the years have been received within the stipulated period which has been substantiated by the Foreign Inward Remittance Certificate filed during assessment proceedings. It was also submitted that the explanation to the section clearly brings out the fact that the 'services rendered from India' would also be eligible for availing deduction. It was further explained that as long as services are rendered from India i.e., services originate in India but completed outside India, such services are eligible for deduction under section 80-O. The assessee while being involved in outbound shipments renders services from India i.e., the pickup of shipments is in India but the services are completed under the contract with Fed Ex only when the assessee successfully hands over the shipment to Fed Ex at the designated gateway outside India and further when Fed Ex delivers the shipments to the consignee and obtains the POD within the service time frame. It was thus stated that the assessee's business activity is structured time bound service coupled with continuous real time transmission of commercial information. It is not synonymous with simple transport of shipments but involves a dedicated and structured combination of activities with prominent emphasis on transmission of commercial information, which sets apart an Express Service Company like the assessee from any other ordinary courier service company. In support of the contention that the services provided by the assessee are technical in nature, reliance was placed on certain decisions. It was argued that the services rendered by the assessee to Fed Ex are much more than mere courier services. In order to ensure efficient and timely deliveries and to provide continuous real time information the assessee uses sophisticated technology, standardised methods, effective means of communication and efficient and technically trained manpower.

It was thus pleaded that the assessee is engaged in providing technical services to Fed Ex from/outside India.

5. Relying on CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom.) and ITAT Bombay decision in Jhulelal Land Development Corpn. v. Dy. CIT [1996] 56 ITD 345, it was argued that the proceedings initiated are not valid.

6. The submissions of the assessee were not acceptable to the Commissioner. He was of the view that the Assessing Officer had not applied his mind to the question whether the services provided by the assessee to Fed Ex are really technical services and that these services have been rendered outside India. He observed that as per the terms of agreement dated 11-10-1993 between the assessee and Fed Ex, it is seen that each is assisting the other in delivery of shipments (parcels) to India and outside India. The agreement itself has been described as a 'contract' and the assessee has been referred to in the agreement as a contractor. In section 11(c) of the contract, it has been laid down that the assessee-company (contractor) shall be entitled to indicate in business cards, advertising, stationery and promotional materials that it is a licensee of Fed Ex. Thus the terms of the contract clearly indicate that both the parties are sharing the courier work and the manner of sharing the work has been laid down the contract itself. The manner of payment and sharing of income between both the parties is also laid down in the contract. He, therefore, concluded that there is no unilateral transfer or rendering of technical or professional services from assessee to Fed Ex. The contract is mutual.

The services are rendered by both the parties to the contract to each other. The AO has not examined this issue in all aspects. He only assumed that the assessee is entitled to the claim under section 80-O.He applied his mind only to the quantum of relief admissible under the said section. Placing reliance on the decisions in Gee Vee Enterprises v. Addl CIT [1975] 99 ITR 375 (Delhi), Malabar Industrial Co. Ltd. v.CIT [1992] 198 ITR 611 (Ker.) and Aspinwall & Co. Ltd. v. CIT (No. 1) [1996] 220 ITR 611 (Ker.), the Commissioner held that he is justified in invoking the provisions of section 263 for both the years.

Accordingly, he set aside the assessment orders on the limited issue of eligibility of the assessee for deduction under section 80-O with a direction to the Assessing Officer to examine the same in the light of relevant facts and case laws and to come to a definite and informed conclusion whether relief under section 80-O should be granted to the assessee. He further directed that the issue be redecided in accordance with the facts as emerging from his order under section 263 and further facts as the Assessing Officer may consider necessary to be gathered.

Aggrieved thereby the assessee has come in appeal before the Tribunal.

Identical grounds have been taken in both the appeals.

7. Shri Dinesh Vyas, Advocate appearing for the assessee vehemently refutted the observations of the CIT about the non-application of mind by the Assessing Officer while allowing the assessee's claim of deduction under section 80-O. According to him, assessee's claim of deduction under section 80-O has been examined by three different Assessing Officers namely, S/Shri B. L. Meena in assessment year 1992-93, K. K. Tiwari in assessment year 1994-95 and A. K. Chauhan in assessment year 1995-96. All the three above Assessing Officers had applied their minds on the issue of eligibility or otherwise of the assessee for claiming deduction under section 80-O. He pointed out that in assessment year 1993-94 enquiry on the assessee's claim of deduction under section 80-O was made by the same Assessing Officer (K. K.Tiwari) who passed the assessment order dated 18-10-1996 for assessment year 1994-95. He pointed out that no action under section 263 has been initiated by the CIT for assessment year 1993-94 on this issue.

8. Shri Dinesh Vyas invited our attention to the assessee's letter dated April 13, 1994 submitted during assessment proceedings for the assessment year 1993-94 giving therein the details of direct and indirect expenses incurred by the assessee in earning the income for computing deduction under section 80-O. It appears as Annexure I. He further pointed out that in response to the request of the AO the assessee had submitted a letter dated July 27, 1995 (annexure J-1-7) giving therein the nature of assessee's business and enclosing therewith a copy of Global Service Partnership Contract (GSP Contract).

Vide letter dated August 24, 1995 (annexure K 1-8) the assessee gave (para-8) reasons for computing deduction under section 80-O on gross basis. He pointed out that two issues arose for consideration before the Assessing Officer in assessment proceedings for the assessment year 1993-94, whether the deduction is admissible on gross basis or net basis and then to determine the quantum of the admissible deduction under section 80-O. Shri Dinesh Vyas further pointed out that a detailed note on eligibility of deduction under section 80-O was filed in assessment proceedings for the assessment year 1993-94, a copy of which appears as annexure L 1-3. The ld. Advocate for the assessee submitted that after applying his mind on the twin aspects, viz., eligibility of the assessee to deduction under section 80-O and quantum of deduction, the Assessing Officer observed that in the year of account the assessee claimed deduction under section 80-O on account of foreign exchange earnings for professional technical services given to Federal Express Incorporation, U.S. multinational company. He further observed that the assessee-company is running a line haul services and international inbound services and received total amount of Rs. 5,03,36,998 in respect of professional/technical services rendered to the above multinational company at USA out of India. He further stated that the assessee has claimed deduction under section 80-O on the gross amount of foreign exchange receipts. Rejecting the assessee's explanation giving justifications for deduction on gross basis vide letter dated 24-8-1995 the Assessing Officer on interpreting the provisions of section 80-O read with section 80AB held that indirect expenses of Rs. 87,58,385 had to be deducted from the above gross receipts and on the remainder i.e., Rs. 4,15,78,613/Rs. 5,03,36,998 minus Rs. 87,58,385 the assessee is entitled to deduction under section 80-O at the rate of 50% which worked out to Rs. 2,07,89,306 as against the claim of Rs. 2,51,67,461. Shri Vyas argued that it would appear from the above that there was conscious and deliberate application of mind by the Assessing Officer on points of law relating to deduction under section 80-O. It was only on interpretation of the provisions of law that the Assessing Officer allowed deduction under section 80-O on net basis as against assessee's claim of deduction on gross basis. In assessment year 1994-95 the same Assessing Officer (K. K. Tiwari) exercised jurisdiction over the assessee. As requested by the Assessing Officer during the course of assessment proceedings of that year the assessee vide letter dated February 22, 1996 submitted details of direct/indirect expenses and in annexure A thereto (F 3) the assessee gave computation of deduction under section 80-O as claimed in the return. In its letter dated August 30, 1996 the assessee wrote to the Assessing Officer that return for assessment year 1994-95 was filed claiming the deduction under section 80-O on a gross basis. However, since the assessment for the assessment year 1993-94 was completed computing the deduction under section 80-O on net basis, to avoid any further litigation the return for the assessment year 1995-96 was filed claiming deduction under section 80-O on net basis. Shri Vyas, Ld.

Advocate submitted that the same Assessing Officer in the asst. order dated 18-10-1996 for assessment year 1994-95 (who had completed the assessment for the preceding assessment year) again held after examining the assessee's claim that the direct and indirect expenses amounting to Rs. 2,00,53,086 had to be deducted from the gross receipts of Rs. 9,11,15,048 and on the remainder i.e., Rs. 7,10,61,962, 50% i.e., Rs. 3,55,30,981 is allowable deduction under section 80-O. He accordingly disallowed Rs. 1,00,26,543 and added the same to the income of the assessee. On these facts he vehemently argued that there was full application of mind by the Assessing Officer when he made the said disallowance out of the assessee's claim of deduction under section 80-O and it cannot be said that the Assessing Officer did not examine the assessee's claim in all aspects and that he simply assumed that the assessee is entitled to the claim under section 80-O.9. In assessment year 1995-96 vide letter dated 22-7-1994 filed during assessment proceedings, a copy of agreement entered between the assessee and Fed Ex was enclosed. Shri Dinesh Vyas ld. Advocate for the assessee invited our attention to the questionnaire issued by the Assessing Officer dated 28-10-1997 (annexure B 1-4). In (iii) of that questionnaire in respect of assessee's claim of deduction under section 80-O the Assessing Officer required the assessee to furnish complete partywise details along with foreign inward remittance certificates of receipt. He also required the assessee to explain in detail the nature of services rendered along with copy of the agreements, if any, as also evidences to show that the services were rendered outside India. He also required the assessee to furnish complete details of direct and indirect expenses incurred to earn such income and to explain the basis of such apportionment. Shri Vyas pointed out that vide letter dated 19-12-1997 the assessee made submissions about the eligibility of the assessee for deduction under section 80-O. Copy thereof appears at PP C 1-3 of the paper book. He submitted that the nature of services rendered by the assessee included 'transport and material handling'.

Shri Vyas submitted that upto the assessment year 1991-92 the assessee had to make an application for approval of agreement under section 80-O to the Chief Commissioner in form No. 10F. It is evident from the said form that technical services outside India could be rendered in the field, inter alia, of transport and material handling. He pointed out that the assessee is engaged in transport as also material handling and, therefore, in the absence of change in law after the assessment year 1991-92 the claim of the assessee for deduction for rendering technical services outside India is admissible.

10. Shri Dinesh Vyas, ld. Advocate for the assessee, invited our attention to detailed not on eligibility of deduction under section 80-O filed by the assessee on December 29, 1997 in the case of assessment proceedings for the assessment year 1995-96 which appears at PP B 1-7 of the assessee's compilation. In the said note the nature of services rendered, requirement of section 80-O and the manner in which the conditions of section 80-O were fulfilled by the assessee were explained to the Assessing Officer. It was stated therein that the business activities of the assessee are not confined to simple 'transport of parcels' but it involves a structured technical activity wherein use of sophisticated software technology, equipments, skill and facilities were required. It was explained that services rendered by the assessee to Fed Ex were in the nature of technical services as these involved use of hightech communication/information systems, human skills use of computer environment and other equipments. In support of his contention reliance was placed on the judgments in Continental Construction Ltd. v. CIT [1992] 195 ITR 81/60 Taxman 429 (SC), Gannon Dunkerley & Co. Ltd. v. CBDT [1986] 159 ITR 162/24 Taxman 460 (Bom.), EPW Da Costa v. Union of India [1980] 121 ITR 751 (Delhi), Simon Carves India Ltd. v. ITO [1986] 159 ITR 167/28 Taxman 375 (Cal.), Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 (SC), Addendum to the above, note was also filed before the Assessing Officer during assessment proceedings referring therein the judgment of the Apex Court in J. B. Boda & Co. (P.) Ltd. v. CBDT [1996] 89 Taxman 311 wherein the services of a reinsurance broker for calculating the reinsurance premium on behalf of the foreign insurer and remitting the same to them, was held to be in the nature of technical services. It was submitted that since these services rendered by the assessee to Fed Ex consisted of supply of information concerning the shipments of various customers in which assessee employees specialised professionals trained to handle the activities of providing up-to-date information to Fed Ex and also uses advanced technology, etc. it is eligible for deduction under section 80-O. Shri Vyas, ld. Advocate for the assessee submitted that it was on consideration of the aforesaid material placed before the Assessing Officer during the assessment proceedings that in para 3 of the assessment order the Assessing Officer observed that the assessee is essentially engaged in the courier service and provides integrated air and ground transport of packages to various destinations both in India and abroad. He went on to observe further that the international operations are carried out with the services of the foreign company called Federal Express Incorporation, USA. He took note of the fact that the assessee has entered into a Global Service Partnership agreement. He argued that on these facts, it is submitted that the CIT was in total error in invoking section 263 the Act.

Further, in his impugned order under section 263 the Commissioner has not dealt with the merit of the assessee's case or the judicial pronouncements cited by the assessee before him. He argued that the foundation of the order of the CIT is 'non-application of mind by the Assessing Officer' which, as submitted earlier, is not correct as the material on record suggests the contrary. According to him, the CIT cannot substitute his opinion in place of the opinion of the Assessing Officer who had applied his mind fully on facts and law. Wherever two views are possible, the Commissioner cannot substitute the other view.

Change of opinion by the Commissioner is not permitted while invoking powers under section 263. In his order the Commissioner has not held that the assessment order on the point is erroneous. The Commissioner did not appreciate that the assessee was engaged in rendering technical/professional services to Fed Ex which in turn enabled them to serve their clients abroad. Therefore, it was not merely a contract for assisting Fed Ex for making deliveries. The assessee was rendering Fed Ex world class services as per the procedures and standards laid down in various operation manuals and guides. The services were rendered to Fed Ex under a contract on principal to principal basis and the same were much more than mere courier services. The assessee not only provided technical/professional services but it also provided on a continuous real time basis commercial information which enabled Fed Ex to coordinate its own activities abroad. Shri Dinesh Vyas, submitted that though the assessee was termed as a contractor in the agreement with Fed Ex, the substance of the agreement was that the assessee had to render technical/professional services (including furnishing of commercial information) by using its skills, technology, equipments and communication facilities for earning their fees in foreign exchange under the agreement. In support of the various contentions the ld.Advocate for the assessee relied on the following decisions :- (ii) CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81/79 Taxman 184 (Guj.) (iv) V. G. Krishnamurthy v. CIT [1985] 152 ITR 683/20 Taxman 65 (Kar.) (v) CIT v. Kanda Rice Mills [1989] 178 ITR 446/44 Taxman 316 (Punj.

& Har.) (vi) Hindustan Marketing & Advertising Co. Ltd. v. ITO [1989] 28 ITD 231 (Delhi) (viii) Ampee Textiles (P.) Lid v. Asstt. CIT [IT Appeal No. 1571 (Bom.) of 1992] (x) Indian Hotels Co. Ltd. v. Dy. CIT [IT Appeal No. 3234 (Bom.) of 1992] (xi) CIT v. Shri Govindram Seksariya Charity Trust [1987] 167 ITR 580 (MP) (xii) Eicher Motors Ltd. v. CIT [1998] 101 Taxman 267 (Indore) (Mag.) (xiii) CBDT v. Oberoi Hotels (India) (P.) Ltd. [1998] 231 ITR 148/97 Taxman 453 (SC) 11. Shri Wasim Harshad, ld. D.R. on the other hand, supported the order of the Commissioner. He submitted that it would be seen from the impugned order that the Commissioner prima facie disagreed with the Assessing Officer and asked him to consider the issue of deduction under section 80-O afresh. Inviting our attention to para 7 of the impugned order, the ld. D.R. submitted that the prime question in the mind of the Commissioner was whether the services rendered by the assessee could at all be termed as technical/professional services.

According to him, it has first to be determined whether the assessee had rendered technical/professional services and after such determination is done, then transport, material handling can be taken to be technical services rendered outside India. Inviting our attention to the assessment order for assessment year 1992-93 (copy at p. 1-4 of the assessee's compilation) the ld. D.R. submitted the eligibility of the assessee to deduction under section 80-O had been presumed by the Assessing Officer. He did no examine whether the assessee fulfilled the conditions for eligibility of the said deduction. He accepted the assessee's claim of deduction without any enquiry. According to him, in assessment year 1993-94 the issue which was considered by the Assessing Officer was whether the deduction is admissible on gross or net basis.

According to him merely explaining the nature of assessee's business would not entitle the assessee to claim deduction under section 80-O which is not self evident from the GSP Contract itself. By presuming that the assessee is eligible to deduction under section 80-O the same was allowed without even raising any enquiry in respect thereof.

Likewise in the assessment year 1994-95 the Assessing Officer considered that the assessee was eligible to deduction on net basis which is obvious from para 6 of the asst. order. Likewise in the assessment year 1995-96 the Assessing Officer did not examine the contents of the note submitted before him in the course of assessment proceedings. He, therefore, submitted that the Commissioner was fully justified in invoking the powers vested in him under section 263. In support of his argument he referred to the following decisions :- (i) CIT v. South India Shipping Corpn. Ltd. [1998] 233 ITR 546 (Mad.) (ii) CIT v. Shree Manjunathesware Packing Products & Camphor Works [1998] 231 ITR 53/96 Taxman 1 (SC) 12. In his counter arguments Shri Dinesh Vyas, ld. Advocate for the assessee submitted that the Apex Court in Shree Manjunathesware Packing Products & Camphor Works' case (supra) was considering the question as to what constituted record in the context of section 263 of the Act.

This issue is not relevant in the case of the assessee. Further the decision of Madras High Court in South India Shipping Corpn. Ltd.'s case (supra) is distinguishable on facts. That was a case of no enquiry whereas the case of the assessee is fully covered by the judgment of Bombay High Court in Gabriel India Ltd's case (supra). It was only after satisfying himself that the conditions are fulfilled for deduction under section 80-O that the Assessing Officer had proceeded to examine the issue whether deduction is admissible on gross or net basis.

13. We have given careful though to the rival submissions. Perusal of the impugned order of the Commissioner would go to reveal that he exercised his revisionary jurisdiction for the sole reason that there was non application of mind by the Assessing Officer on certain aspects viz., whether the services rendered by the assessee to Fed Ex can be termed as technical services, whether the contract is mutual etc. while allowing deduction under section 80-O of the Act. Before we proceed further let us see what section 80-O stipulates. Section 80-O provides for deduction of 50% from the income of an Indian company or a non-corporate Indian resident by way of royalty, commission, fees or any similar payment from a foreign Govt. or enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, etc. or in consideration of technical or professional services rendered or agreed to be rendered outside India to such foreign Govt. or enterprise. Such income should be received in convertible foreign exchange. In Board's Circular No. 700, dated 23-3-1995 it has been clarified that as long as the technical and professional services are rendered from India and are received by a foreign Govt. or enterprise outside India, deduction under section 80-O would be available to the person rendering the services even if the foreign recipient of the services utilises benefit of such services in India. It may be stated that prior to the amendment of section 80-O by Finance (No. 2) Act, 1991 w.e.f. 1-4-1992 the condition of approval of agreement by the Board/Chief Commissioner or DG, as the case may be, was mandatory for availing the benefit under section 80-O. This requirement of approval of agreement has been dispensed with w.e.f.

1-4-1992 i.e., for and from assessment year 1992-93. The provisions of section 80-O have been brought on the statute book to achieve the twin objective of encouraging the export of India technical know-how and augmenting the foreign exchange resources of the country.

14. In its return for the assessment year 1994-95 the assessee-company claimed deduction of Rs. 4,55,57,524 under section 80-O on page 2 of the assessment order dated 18-10-1996 the Assessing Officer (Shri K. K.Tiwari, Dy. CIT Spl. Range - 35) observed thus :- "During the period under consideration, like earlier years, the assessee company was engaged in the integrated air and ground transportation of time sensitive packages to various destinations in the domestic and international sectors. To undertake its international operations, Blue Dart entered into a global service partnership agreement with Federal Express Incorporation, USA. During the period under consideration, the assessee company has shown total receipts (service charges and other income) at Rs. 58,33,28,224 as against total receipt of Rs. 47,59,35,452 in the immediately preceding assessment year. After discussing the facts of the case with the authorised representative of the assessee-company, assessment is completed subject to the following remarks - On page 8 of the order dealing with assessee's claim under section 80-O in para 6 the Assessing Officer observed thus :- "During the year under consideration, the assessee-company has claimed deduction under section 80-O at Rs. 4,55,57,524 on account of foreign exchange earnings for professional/technical services given to M/s. Federal Express Incorporation, a US multinational company. It is seen that the assessee-company is running a linehaul services and international inbound sales and received total amount of Rs. 9,11,15,048 in respect of professional/technical services rendered to the above-mentioned international company at USA. It has claimed deduction under section 80-O on gross amount of foreign exchange receipt." In assessment year 1995-96 in para 3 of the assessment order the Assessing Officer (Shri A. K. Chauhan, Dy. CIT, Spl. Range 35), observed that "the assessee company is essentially engaged in the courier services and provides integrated air and ground transportation of packages to various destinations both in India and abroad. The international operations are carried out with the services of the foreign company called Federal Express Incorporation, USA. The assessee had entered into a global service partnership agreement." In computation the Assessing Officer allowed deduction of Rs. 4,98,06,291 under section 80-O. It may be noted that during the course of assessment proceedings the Assessing Officer had issued a questionnaire dated 28-10-1997 to the assessee asking it to explain in detail the nature of services rendered along with copy of the agreements, if any, as also evidences to show that the services were rendered outside India. In response thereto the assessee explained in detail nature of services rendered and gave calculation claiming deduction under section 80-O as follows :--------------|---------------|-------------|-------------|-------------Particulars | Sales | Direct | Indirect | Profit | | Cost | Cost |--------------|---------------|-------------|-------------|-------------Pick-up |6,56,24,341 |2,53,70,314 | 19,84,685 |3,82,69,343Charges | | | | | | | |Inbound | | | |Sales |7,44,17,497 | 23,97,908 |1,06,76,349 |6,13,43,240--------------|---------------|-------------|-------------|-------------Total Profit | | | | 9,96,12,582--------------|---------------|-------------|-------------|-------------Deduction under section 80-O (50% of 15. Besides, a detailed note on eligibility of deduction under section 80-O was filed on December 29, 1997 in the course of assessment proceedings. These are available at PP C/2-3 and D/1-17 of assessee's compilation. It was, inter alia, submitted that the nature of services rendered by the assessee as a part of its agreement with Fed Ex is of technical nature and, therefore, the consideration received from Fed Ex falls within the parameters of technical services eligible for deduction under section 80-O. It was also submitted that the services which the assessee renders to Fed Ex consists of 'supply of information" concerning the shipment of various customers for which the assessee employees specialised professionals who are trained in the skills required to handle the activities of providing updated information to Fed Ex and also uses advanced technology, human skills and its professional expertise. Therefore, it is eligible for deduction under section 80-O.16. On the facts enumerated above, can it be said that the impugned assessments were made without application of mind on the assessee's claim of deduction under section 80-O. The obvious answer is - it cannot. As stated earlier, upto and for the assessment year 1991-92 approval of agreement by the Board/Chief Commissioner or DG was a must.

In assessment year 1992-93 while considering the assessee's claim of deduction under section 80-O the Assessing Officer in his order dated 25-11-1994 under section 143(3) of the Act observed that the assessee is rendering linehaul services and international inbound and received foreign exchange earnings of Rs. 8,96,74,832 in respect of professional technical services rendered to Federal Express Incorpn. out of India.

Rejecting the assessee's claim of deduction on gross basis, the Assessing Officer allowed deduction on net basis. In assessment year 1993-94, the Assessing Officer required the assessee during assessment proceedings to file details of expenses incurred in earning the income eligible for deduction under section 80-O. This was filed vide assessee's letter dated 13-4-1994. Thereafter, the Assessing Officer required the assessee to explain the nature of its business and to file a copy of agreement which the assessee had entered into with Fed Ex.

This was complied with by the assessee vide letter dated 27-7-1995.

Break-up of expenses for the purposes of deduction under section 80-O was also provided. Further submission as to the admissibility of deduction under section 80-O on gross basis was made vide assessee's letter dated 24-8-1995. A note on deduction under section 80-O was also submitted stating, inter alia, that the assessee has satisfied all the requisite conditions for claiming deduction under section 80-O. It was on consideration of the entire aforesaid material that the Assessing Officer (Sri K. K. Tiwari) in para 4 of his order dated 21-11-1995 discussed the nature of the assessee's business and in para 8 the receipts of the assessee of Rs. 5,03,36,998 in respect of the professional/technical services rendered to Fed Ex a US multinational company on which deduction at Rs. 2,51,68,499 was claimed under section 80-O. Since the assessee had claimed the said deduction on gross amount of foreign exchange receipts, the Assessing Officer recorded the reasons for non-acceptance of the said claim and allowed deduction under section 80-O after deducting indirect expenses incurred by the assessee. It is worthwhile to mention that the same Assessing Officer completed the assessment for the assessment year 1994-95 on 18-10-1996, i.e., barely after ten months and that too after elaborate discussion and full application of mind on the material brought on record. The successor Assessing Officer while completing the assessment for the assessment year 1995-96 took due note of the nature of assessee's business and made a specific mention that the international operaties are carried out by the assessee with the services of the foreign company viz., Fed Ex with which the assessee had entered into a global service partnership agreement. He had the benefit of the note submitted by the assessee on eligibility of deduction under section 80-O explaining therein that the services rendered by the assessee as per the agreement were of technical/professional nature and it was on consideration of the material brought on record by the assessee before him that the Assessing Officer allowed deduction to the assessee under section 80-O. It is thus apparent that the charge of non-application of mind on the part of the Assessing Officers in allowing deduction under section 80-O is contrary to the facts and material borne from records.

17. It is now well settled that the question whether the assessee is rendering technical or professional services has to be considered against the background of the factual matrix of each case. The case of the assessee all along has been that it is engaged in integrated air and ground transportation of time sensitive packages to various destinations in domestic and international sectors. It has entered into global service arrangement with Fed Ex under which it renders technical services to Fed Ex outside/from India. Copy of agreement was brought on record during assessment proceedings for assessment year 1992-93. On being asked by the Assessing Officer copy of agreement was again filed during assessment proceedings for assessment year 1995-96 along with necessary evidences to show that the assessee had rendered technical/professional services to Fed Ex outside India. It was brought to the notice of the Assessing Officer that Fed Ex requires the assessee under its contract to render world class services as per the procedures and standards laid down in their operations, manuals and guides. It was on rendering such services to Fed Ex that the assessee earned its foreign exchange earnings. Even in response to show cause notice issued by the CIT under section 263 the assessee gave exhaustive details of the services rendered by it, viz., international outbound consignee shipments (outbound shipment) and international inbound shipments (inbound shipment) in respect of which it earned foreign exchange. The technical and other aspects of the above activities were also explained giving the details of technical infrastructure set up by it on which the assessee had already invested an amount of over Rs. 20 crores, in technology. It was also explained that the assessee also provides 'commercial information' on a continuous basis to Fed Ex of various shipments originating from/or destined to India. It was pointed out that this on line and real time transmission of data concerning shipment is the key to the success of Fed Ex's commitment of assured and timely deliverities to its own customers. It was pointed out to the Commissioner that services rendered by the assessee to Fed Ex are technical in nature as the procedures laid down are highly structured, standarised and involves use of men, machines, software and communication line. It was explained that the various technical reports generated through the entire process proved that the services are technical in nature. It was emphasised that the business activity of the assessee is a structured time bound service coupled with continuous real time transmission of commercial information. It is not synonymous with simple transport of shipments but involves a dedicated and structured combination of activities with prominent emphasis on transmission of commercial information which sets apart an express service company like the assessee from any other ordinary courier service company. The Commissioner did not assign any valid and cogent reasons as to why, having regard to the nature of assessee's business, the services rendered by the assessee to Fed Ex could not be termed as technical or professional services.

18. In the case of Oberoi Hotels (India) (P.) Ltd. (supra) at page 150 their Lordships held as under :- "The basic purpose of section 80-O is the spread by an Indian assessee 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 of the assessee for use outside India and in that process to receive income to augment the foreign exchange resources of the country. The assessee can also make available to the foreign enterprise, technical and professional services, expertise of which it possesses for earning foreign exchange for the country." 19. From the evidence on record it is apparent that the assessee did acquire speciality in integrated air and ground transportation of time sensitive packages and by contract commencing on 1-10-1993 agreed to render technical services to Fed Ex in consideration of convertible foreign exchange. As per the contract, assessee was under obligation to render technical/professional services (including furnishing of commercial information by using its skills, technology, equipments and communication facilities. It is not the mandate of law as envisaged in section 80-O that there should be unilateral transfer of any sophisticated technology which the Commissioner has in mind. There is no bar either for mutual contract of service. What is provided in section 80-O is that there should be agreement between the assessee on the one hand and the Govt. of a foreign State of foreign enterprise on the other hand and the assessee renders as technical or professional services to the foreign State or foreign enterprise as per the agreement and earns income in convertible foreign exchange. Mutual contract thus does not militate against the assessee's claim of eligibility of relief under section 80-O. On going through the contract between the assessee and Fed Ex as a whole it appears that it cannot be interpreted to mean that it was merely a contract for assisting Fed Ex for making deliveries as observed by the Commissioner. The assessee rendered services of technical nature to Fed Ex on principal to principal basis besides providing to Fed Ex on a continuous real time basis commercial information which enabled Fed Ex to coordinate its own activities abroad. Earning of substantial foreign exchange for rendering the aforesaid services by the assessee to Fed Ex in both the years is an admitted position. At this juncture it is worthwhile to quote the observations of the Apex Court in Continental Construction Ltd.'s case (supra). At page 117 of the report their Lordships observed thus : "The expression 'technical services' has a very broad connotation and it has been used elsewhere in the statute also so widely as to comprehend professional services : vide section 9(1)(vii). Whatever may be the position regarding other 'professional services', there can hardly be any doubt that services involving specialised knowledge, experience and skill in the field of constructional operations are 'technical services'. Where a person employs an architect or an engineer to construct a house or some other complicated type of structure such as a theatre, scientific laboratory or the like for him, it will not be correct to say that the engineer is, in putting up the structure, rendering him technical services even though the actual construction and even though the design thereof may be done by the staff and labour employed by the engineer or architect. Where a person consults a lawyer and seeks opinion from him on some issue, the advice provided by the lawyer would be a piece of technical service provided by him even though he may have got the opinion drafted by a junior of his or procured from another expert in the particular branch of law." 20. Their Lordships went on to observe further that the substitution of the expression 'technical services' by the expression 'technical or professional services' w.e.f. 1-4-1992 consequent to amendment of section 80-O is 'only clarificatory in nature'. Having regard to the conditions laid down in section 80-O the claim of the assessee for relief under section 80-O appears admissible even on merits.

21. Before the Commissioner the assessee had placed reliance on numerous decisions in support of its contention that the services provided by the assessee are technical in nature, but the Commissioner did not record any finding that the facts and/or ratio decidendi therein were inapplicable to the case of the assessee. The decisions cited before us by the ld. D.R. do not render any assistance to the revenue.

22. The Commissioner took assistance from certain decisions mentioned earlier in support of exercise of powers by him under section 263 on the grounds of 'no inquiry' by the Assessing Officer on the eligibility of the assessee for relief under section 80-O. As stated earlier, it is not a case of 'no enquiry' by the Assessing Officer. It is a case where all relevant material was brought on record by the assessee to enable the Assessing Officers to consider the assessee's claim and it was on due application of their minds that the two different Assessing Officers came to the same conclusion that the assessee was eligible to relief under section 80-O in the two years under consideration.

23. It is now well settled that the power of revision conferred on the Commissioner is not administrative; it is quasi judicial in character.

It is a salutary principle of law that an order passed by a quasi judicial authority without taking into consideration material which has a bearing on the final order, such order is not liable to be sustained.

This is what has happened in this case.

24. On perusal of the decisions cited on behalf of the assessee it is crystal clear that section 263 does not visualise a case of substitution of the judgment of the Commissioner for that of the Assessing Officer who passed the order, unless the decision is held to be erroneous. An order cannot be termed as erroneous unless it is not in accordance with law. If an Assessing Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. What has weighed in the mind of the Commissioner is that the Assessing Officers did not write in the assessment order that the assessee fulfilled the conditions prescribed for eligibility of relief under section 80-O.That by itself will not render their assessments on the point erroneous as on the basis of material before them they appeared to have been satisfied that the assessee fulfilled the prescribed conditions for eligibility of relief under section 80-O and proceeded to frame the assessments in accordance with law. The perusal of the impugned order of the Commissioner gives an inkling that he set aside the assessment orders by holding a view different from that of the Assessing Officers.

Such an approach is not envisaged under section 263 which is not intended to be invoked merely for change of opinion. For the reasons stated above, we hold that the Commissioner was in error in exercising his revisionary powers under section 263, as the conditions precedent for exercising revisionary jurisdiction, viz., the order must be erroneous as also prejudicial to the interest of the revenue, did not exist. Therefore, the impugned order dated 19-3-1999 pertaining to both the assessment years involved is hereby quashed.


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