RAMNATH & CO. versus THE COMMISSIONER OF INCOME TAX

Citation: [2020] 6 S.C.R. 719 · Decided: 05-06-2020 · Supreme Court of India · Bench: A.M. KHANWILKAR · Disposal: Dismissed

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Judgment (excerpt)

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RAMNATH & CO.
v.
THE COMMISSIONER OF INCOME TAX
(Civil Appeal Nos. 2506-2509 of 2020)
JUNE 05, 2020
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Income Tax Act, 1961 – s. 80-O – The appellants-assessees
were engaged in providing services to certain foreign buyers of
frozen seafood and/ or marine products – Appellants claimed that
income received by them for services provided to foreign enterprises
qualifies for deduction u/s. 80-O of the Income Tax Act, as applicable
during the respective assessment years from 1993-94 to 1997-98 –
Appellants contended that they provided technical guidance or
advice or information to the foreign enterprises – Held: All the
clauses of the agreements read together make it absolutely clear
that the appellant was merely a procuring agent and it was his
responsibility to ensure that proper goods are supplied in proper
packing to the satisfaction of the principal – Significantly, the
payment to the appellant, whatever label it might have carried, was
only on the basis of the amount of invoice pertaining to the goods –
There had not been any provision for any specific payment referable
to the so-called analysis or technical guidance or advice – Services
provided by the appellant as agent were rendered in India – Even if
certain information was sent by the assessee to the principals, the
information did not fall in the category of such professional services
or information which could justify its claim for deduction u/s. 80-O
of the Act – Further, default clauses in the agreement made it more
clear that if quality of goods was found to be unsatisfactory to
principals, then they shall have no responsibility to pay agent’s fees
– If at all it had been a matter of the appellant furnishing some
technical information, the appellant was likely to receive some
professional charges, however, agreement provided for no payment
in case of dissatisfaction with goods – Besides, the appellants failed
to establish as to what was such information of special nature or of
expertise that was given by it and how the same was utilised, if at
all, by the foreign enterprises and how much of the foreign exchange
[2020] 6 S.C.R. 719
719
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SUPREME COURT REPORTS
[2020] 6 S.C.R.
receipt was attributable to such special service – Hence, the services
rendered by appellants do not qualify for the purposes of s. 80-O
of the Act.
Interpretation of Statutes – Tax incentive provisions – Held:
The principles laid down in Constitution Bench in Dilip Kumar &
Co., when applied to incentive provisions like those for deduction,
would be that the burden lies on the assessee to prove its applicability
to his case; and if there be any ambiguity in the deduction clause,
the same is subject to strict interpretation with the result that the
benefit of such ambiguity cannot be claimed by the assessee; rather
it would be interpreted in favour of the revenue.
Dismissing the appeals, the Court
HELD: 1. The principles laid down by the Constitution
Bench, when applied to incentive provisions like those for
deduction, would also be that the burden lies on the assessee to
prove its applicability to his case; and if there be any ambiguity in
the deduction clause, the same is subject to strict interpretation
with the result that the benefit of such ambiguity cannot be claimed
by the assessee, rather it would be interpreted in favour of the
revenue. In view of the Constitution Bench decision in Dilip
Kumar & Co., the generalised observations in Baby Marine
Exports with reference to a few other decisions, that a tax
incentive provision must receive liberal interpretation, cannot
be considered to be a sound statement of law; rather the
applicable principles would be those enunciated in Wood Papers
Ltd., which have been precisely approved by the Constitution
Bench. Thus, at and until the stage of finding out eligibility to
claim deduction, the ambit and scope of the provision for the
purpose of its applicability cannot be expanded or widened and
remains subject to strict interpretation but, once eligibility is
decided in favour of the person claiming such deduction, it could
be construed liberally in regard to other requirements, which
may be formal or directory in nature. [Para 20][775-E-F; 776-A-
C]
2.  It remains trite that any process of construction of a
written text primarily begins with comprehension of the plain
language used. In such process of comprehension of a statutory
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provision, th

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