603. Whether benefit of section 80-O would be available if technical and professional services, though rendered outside India, are used by Foreign Government or enterprise in India
Circular No. 700 was issued by the Central Board of Direct Taxes on 23 March 1995. Its subject is 603. Whether benefit of section 80-O would be available if technical and professional services, though rendered outside India, are used by Foreign Government or enterprise in India.
Holds that the section 80-O deduction is not lost merely because the foreign recipient uses the services in India. So long as the technical or professional services are rendered from India and are received by the Foreign Government or enterprise outside India, the person rendering them gets the deduction even if the foreign recipient utilises the benefit of those services in India. The circular recites that section 80-O gives a deduction of 50 per cent of royalty, commission, fees or similar payment from a Foreign Government or enterprise for the use outside India of a patent, invention, model, design, secret formula or process, or for technical or professional services rendered or agreed to be rendered outside them, the income having to be in convertible foreign exchange, and that Explanation (iii) includes services rendered from India while excluding services rendered in India.
A question was raised whether the benefit is available where technical and professional services, though rendered outside India, are used by the Foreign Government or enterprise in India.
603. Whether benefit of section 80-O would be available if technical and professional services, though rendered outside India, are used by Foreign Government or enterprise in India
Section 80-O of the Income-tax Act, 1961, provides for a deduction of 50% from the income of an Indian resident by way of royalty, commission, fees or any similar payment from a Foreign Government or enterprise :
(a) in consideration for the use outside India of any patent, invention, model, design, secret formula or process, etc.; or
(b) in consideration of technical or professional services rendered or agreed to be rendered outside India to such Foreign Government or enterprise.
In either case, the requirement is that the income should be in convertible foreign exchange.
It has been clarified in the Explanation (iii) to section 80-O that services rendered or agreed to be rendered outside India [i.e., item ( b) above] shall include services rendered from India but shall not include services rendered in India.
A question has been raised as to whether the benefit of section 80-O would be available if the technical and professional services, though rendered outside India, are used by the Foreign Government or enterprise in India.
The matter has been considered by the Board. It is clarified that as long as the technical and professional services are rendered from India and are received by a Foreign Government 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 the benefit of such services in India.
Circular : No. 700, dated 23-3-1995.
In an assessment where a section 80-O claim is refused because the foreign client used the report or advice in its Indian operations.
Source: the Income Tax Department’s own published text — its page for this instrument.