The requirement of law is that there must be earning of foreign exchange under consultancy agreements which must be approved by the Central Government or the prescribed authority. A broad definition of the word technician is given under the statute. Such a person would include a person generally falling within the definition of technician, as in the case of a person who has qualification in any industrial or manufacturing activity.
The word technician has been widely defined to include a person having technical or professional qualification in any applied or natural science or in any construction activity or in agriculture or animal husbandry. Further, a Chartered Accountant and a business or management consultant have been included in the definition of technician. Some other persons who have been brought within the definition of technician are persons who have knowledge and experience in the profession of actuaries, banking, insurance and journalism.
The Supreme Court of India has held in C.B.D.T. v Aditya V. Birla (170 I.T.R. 137) that the benefit of section 80-RRA is not confined to an employee. Even part-time consultants can secure this benefit. An interesting point which has been considered by the Karnataka High Court is on the question whether consultancy services should be rendered outside India as a condition for claiming the benefit of section 80-RRA. The High Court held that, in order to claim exemption under section 80-RRA, it was unnecessary for a technician to be physically outside India for the purpose of deduction. In these days of technological development, one could render service without physically going outside India in terms of section 80-RRA. Section 80-RRA only provides for deduction for any service rendered outside India. The Court held that rendering services outside India need not be physical outside service as contended by the respondents.
No narrow interpretation is possible in such cases. Any narrow interpretation would result in the country losing foreign exchange in addition to losing the services of the technician, whose service would otherwise be available to the country notwithstanding rendering service outside India. In the light of the beneficial deduction provision and in the absence of any specific intention of the Legislature in seeking service physically outside India, it was not possible for the Court to accept the argument of the revenue.
The Legislature in its wisdom has stated in other provisions with regard to stay outside. Those words are missing in section 80-RRA. Therefore, so long as the service is rendered outside India, the benefit of section 80-RRA would be available, though the technician may be physically in India. In view of various technological developments, such services rendered outside India with the physical presence of the person in India is possible, not only in the case of scientists and doctors but even in the case of business and management consultants. The benefit of the deduction is 30 per cent for assessment year 2003-04 and 15 per cent for assessment year 2004-05.
Needless to add, the benefit of section 80-RRA is available only to a person who is a resident of India and, therefore, liable to tax on his foreign income. If the person is non-resident for any financial year, section 80-RRA is redundant because in any case the foreign income which accrues or is received outside India is not liable to tax in India. A new section 80-RRB has been inserted with effect from assessment year 2004-05 to grant 100% exemption subject to a limit of Rs 3 lakh every year, in respect of royalty earned by residents of India in respect of a patent registered after 31st March, 2003 under the Patents Act, 1970. Where a compulsory licence is granted in respect of any patent, the royalty which is exempt would be restricted to the amount under the terms and conditions of the licence as settled by the Controller under Patents Act.
In conclusion, it may be noted that while benefit under section 80-RRA will not be available with effect from assessment year 2005-06, the benefit of section 80-RRB will continue indefinitely until it is withdrawn by a legislative amendment. The object of the latter section is not to encourage earning of foreign exchange but to reward persons who have intellectual capital and who are considered to be true and first inventors.
The author is Advocate, Supreme Court