Case: B.L. PASSI Vs. COMMISSIONER OF INCOME TAX (XI)

(a) The Appellant herein filed return disclosing income of Rs. 57,40,360/for the Assessment Year (AY)while claiming deduction of Rs. 58,87,045/of the Income Tax Act, 1961 (in short ‘the IT Act?) on a gross foreign exchange receipt of Rs. 1,17,74,090/received from Sumitomo Corporation, Japan. Sumitomo Corporation was interested in supplying dies for manufacturing of body parts to Indian automobile manufacturers and entered into a contract with the Appellant under which the services of the Appellant herein were engaged by using his specialized commercial and industrial knowledge about the Indian automobile industry. Sumitomo Corporation also agreed to pay remuneration at the rate of 5% of the contractual amount between Sumitomo Corporation and its Indian customers on sales of its products so developed. The Appellant claimed to have supplied to Sumitomo Corporation the industrial and commercial knowledge, information about market conditions and Indian manufacturers of automobiles and also technical assistance as required by the Corporation.(b) The case of the Appellant was selected for scrutiny by the Income Tax Department, Delhi and in response to notice under Section 143(2) of the IT Act, the Appellant along with others attended the assessment proceedings from time to time justifying the claim under Sectionof the IT Act. The Assessing Officer, vide order dated 27.03.2000 under Section 143(3) of the IT Act assessed the total income at Rs. 1,18,43,060/and determined the sum payable by the assessee to the tune of Rs.Being aggrieved by the order dated 27.03.2000, the Appellant preferred an appeal being No.before the Commissioner of Income TaxNew Delhi. The Appellate Authority, vide order dated 20.02.2002, partly allowed the appeal and held that the Appellant is entitled to deduction under Sectionof the IT Act. Being aggrieved by the order dated 20.02.2002, the Revenue went in appeal before the Tribunal. The Tribunal, vide order dated 10.10.2005, allowed the appeal filed by the Revenue. The Appellant approached the High Court by filing I.T. Appeal No. 1198 of 2006 challenging the order of the Tribunal dated 10.10.2005 which was dismissedby a Division Bench of the High Court.(c) Aggrieved by the judgment and order dated 13.12.2006, the Appellant has filed this appeal by way of special leave before this Court.

Court's reasoning:
The blue prints made available by the Appellant to the Corporation can be considered as technical assistance provided by the Appellant to the Corporation in the circumstances if the description of the blue prints is available on record. The said blue prints were not even produced before the lower authorities. In such scenario, when the claim of the Appellant is solely relying upon the technical assistance rendered to the Corporation in the form of blue prints, its unavailability creates a doubt and burden of proof is on the Appellant to prove that on the basis of those blue prints, the Corporation was able to start up their business in India and he was paid the amount as serviceFurther, with regard to the remuneration to be paid to the Appellant for the services rendered, in terms of the letter dated 25.01.1995, it has been specifically referred that the remuneration would be payable for the commercial and industrial information supplied only if the business plans prepared by the Appellant results positively. Sumitomo Corporation will pay to PASCO International service charges equivalent to 5% (per cent) of the contractual amount between Sumitomo and its customers in India on sales of its products so developed. From a perusal of the above, it is clear that the Appellant was entitled to service charges at the rate of 5% (per cent) of the contractual amount between Sumitomo Corporation and its customers in India on sales of its products so developed but there is nothing on record to prove that any product was so developed by the Sumitomo Corporation on the basis of the blue prints supplied by the Appellant as also that the Sumitomo Corporation was able to sell any product developed by it by using the information supplied by the Appellant. Meaning thereby, there is no material on record to prove the sales effected by Sumitomo Corporation to its customers in India in respect of any product developed with the assistance of Appellant?s information and also on as to how the service charges payable to Appellant wereIn view of the foregoing discussion, we are of the considered opinion that in the present facts and circumstances of the case, the services of managing agent, i.e., the Appellant, rendered to a foreign company, are not technical services within the meaning of Sectionof the IT Act. The Appellant failed to prove that he rendered technical services to the Sumitomo Corporation and also the relevant documents to prove the basis for alleged payment by the Corporation to him. The letters exchanged between the parties cannot be claimed for getting deduction under Sectionof the ITBefore parting with the appeal, it is pertinent to mention here that it is settled law that the expressions used in a taxing statute would ordinarily be understood in the sense in which it is harmonious with the object of the Statute to effectuate the legislative animation. The Appellant was a managing agent and the High Court was right in holding the principal agent relationship between the parties and there is no basis for grant of deduction to the Appellant under Sectionof the IT