The issue before the ITAT was whether such income is eligible for benefits under section 80-O of the I-T Act. This section covers income by way of royalties received for technical services and know-how.

The ITAT held that a foreign company's payment to an Indian entity for providing technical and commercial information on companies in India was indeed eligible for tax benefits under section 80-O. The section had been deleted a year ago, but the ITAT ruling will have a bearing on hundreds of similar issues pending before the department and appellate authorities.

In this case, Asha industries had disclosed income by way of commissions from a Japanese company in its returns for the assessment year 1997-98. The assessing officer, after inquiry, discovered that the Japanese company sold goods in India and Asha Industries received a percentage of sales in India as a commission. He therefore, disallowed the claim of deduction under section 80-O of I-T Act.

According to the company, represented by Jignesh Shah, its main job was to supply information regarding potential demand, the economic and financial status of Indian companies and the creditworthiness of different parties to the Japanese company. In short, the assessee has not booked any orders for the Japanese company. The sales orders were booked directly by the Japanese companies. Asha Industries' task was confined to providing information regarding certain companies in India.

The commissioner (appeal) dismissed the assessing officer's view, stating that since Asha Industries confined its work to collecting technical information and details regarding industrial capacity and background of different parties for the foreign company, it was fully covered under sec 80-O of the I-T Act.