Section 80RRA benefits can be claimed without going out

TAXING MATTERS

• The assessee is a citizen of India;
  
• Remuneration has been received in foreign currency from any employer (being foreign employer or an Indian concern) and brought in India within the stipulated time;
  
• The remuneration must relate to services rendered outside India;
  
• If the assessee claiming the deduction is a government employee, his service outside India must be sponsored by the government; and
  
• In case of non-government employees, they have to be technicians (as defined in explanation to Section 80RRA) and their terms and conditions are to be approved by the central government or the prescribed authority.

The deduction stands reduced and ultimately eliminated from the assessment year 2005-06 as under:-
But the benefit is relevant till 2004-05.

An important issue concerning such tax benefit came up for consideration of the Karnataka High Court in the AS Mani vs Union of India case, (2003) 131 Taxman 717 (Karnataka).

The assessee before the high court was a petroleum sector marketing expert. A foreign company entered into an agreement with the petitioner for consultancy services.

An application was made to the government for approval of the agreement. The agreement was approved to condition that benefits in terms of Section 80RRA would be available only in the event of a physical outside service by the petitioner.

The condition of being outside India physically was challenged by the assessee before the court. The petitioner argued that to claim exemption under Section 80RRA, it was unnecessary for a technician to be physically outside India for the deduction.

These days, one can render service without physically going outside India in terms of Section 80RRA. Section 80RRA only provides for deduction for any service rendered outside India.

Rendering service outside India need not be physical outside service. No narrow interpretation was possible in such cases.

Any narrow interpretation would result in the country's losing foreign exchange along with the services of the person claiming the benefit as technician whose service was otherwise available to the country notwithstanding rendering service outside India.

The revenue department argued that the section made it clear that the benefit was available only in the event of a physical outside service by a government servant or a technician. The court did not accept the department's view.

Referring to Sections 80-O, 80-R and 80RRA, it said a combined reading of all these provisions would show that deduction was permissible in certain circumstances.

Section 80-O(iii) provides for services rendered or agreed to be rendered outside India and includes services rendered from India but does not include services rendered in India.

This means that service outside India cannot take into its compass the service rendered in India.

In case of professionals under Section 80R, deduction is permissible in the event of services rendered during the stay outside India. In case of professional income of artists deduction is permissible out of the income derived by them from the government of a foreign country.

As far as Section 80RRA is concerned, it is seen that deduction is permissible in respect of an individual who is a citizen of India for the remuneration received by him in foreign currency from an employer for any services rendered by him outside India.

According to the court, travel outside India for earning the income to claim deduction is not necessary. Referring to the decision of the Supreme Court in the Aditya V Birla case, 170 ITR 137, it was observed that there was no warrant in Section 80RRA to limit the benefit to only salaries received by employees. The coverage of the section is much wider.

The court also referred to the Bombay High Court order in the Taru Jethmal Lalvani case, 185 ITR 418, where it was held that Section 80RRA did not require service outside India as a technician, and the Delhi High Court order in the Mehendra Raj's case, 257 IATR 569, where it was held that the benefit under Section 80RRA was not restricted to employees alone.

The court said in these days of technological development, one could render service without physically going outside India in terms of Section 80RRA. Section 80RRA only provided for deduction for any service rendered by him outside India. Rendering service outside India need not be physical outside service.