Overseas Advisory Services Rendered from India: ITAT Restores Deduction u/s 80-O, Partly allows Appeal of DSP Merrill Lynch
The ruling reinforces that international advisory services executed from India can still qualify for export-linked deductions under Section 80-O if the foreign recipient uses them abroad. It underscores the continuing relevance of CBDT Circular No. 700 in interpreting cross-border service income
The Mumbai bench of Income Tax Appellate Tribunal (ITAT) has held that professional and technical advisory services rendered by DSP Merrill Lynch Ltd from India to foreign clients in connection with overseas securities offerings qualify for deduction under Section 80-O of the Income Tax Act, 1961.
The Tribunal restored the company’s full claim for such deduction, partly allowing its appeal while dismissing the Revenue’s cross-appeal for Assessment Year 1994-95.
DSP Merrill Lynch, a leading merchant banking and financial advisory company, had claimed a deduction of ₹3.21 crore under Section 80-O for foreign exchange receipts from clients such as Merrill Lynch International (MLINT) and John Govett & Co.
The AO restricted the claim to just ₹7.81 lakh on the ground that the assessee had not provided detailed proof of services rendered abroad.
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The Commissioner (Appeals) partly upheld this view, allowing only 50 per cent of the receipts from Merrill Lynch International and disallowing the claim relating to John Govett & Co. Aggrieved by this order, the assessee filed an appeal before the Tribunal.
Before the Tribunal, the assessee argued that identical services were accepted as eligible for deduction in earlier and subsequent years and that the agreements with foreign clients were duly approved by the Central Board of Direct Taxes (CBDT) and the Chief Commissioner.
It is submitted that the advisory work, covering structuring, documentation, marketing, and regulatory approvals for global depository receipts (GDRs) and debt issues, was executed from India and used outside India, meeting the statutory criteria.
Reliance was placed on CBDT Circular No. 700 dated 23 March 1995, which clarified that services rendered from India but received abroad by a foreign enterprise qualify for Section 80-O benefits, even if the foreign client utilises them in India.
The Revenue, however, maintained that the assessee had failed to substantiate actual use of the services abroad and that the deduction could not be based solely on agreements or past acceptance.
After examining the record, the ITAT observed that DSP Merrill Lynch’s nature of work,investment-banking advisory in international capital-market transactions, had remained unchanged across years and that foreign-currency receipts and agreements supported the genuineness of the services.
The Bench found no reason for the lower authorities to restrict the deduction merely because the bank's inward remittance certificate did not specify the type of services.
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Citing the coordinate Bench’s decision in the assessee’s own case for AY 1995-96, the Tribunal held that the lower authorities’ approach was based on “suspicion, conjectures or surmises” rather than evidence.
Accordingly, it directed the AO to delete the disallowance and restore the full deduction under Section 80-O for receipts from Merrill Lynch International.
In contrast, the claim for deduction on payments received from John Govett & Co. was remitted to the AO for fresh examination in light of CBDT’s circular, as adequate documentation had not been produced.
With these findings, the two-member bench of Amith Shukla (Judicial Member) and Padmavathy S (Accountant Member) partly allowed DSP Merrill Lynch’s appeal and dismissed the Revenue’s appeal, concluding that advisory services rendered from India to foreign enterprises for overseas use fall squarely within the scope of Section 80-O
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