Important Point
As law stands today with reference to Section 80-O of Income Tax Act, 1961 it can be said that CBDT’s decision in not granting approval to the agreement dated 29.11.1969 between Oberoi Hotels (India) Pvt. Ltd. with M/s. Soaltee Hotel P. Ltd. Kathmandu (Nepal), a foreign enterprise, is not correct as CBDT took into account the considerations which were not relevant or germane to the real issue.

Headnote:Income Tax Act, 1961—Section 80-O—Agreement dated 29.11.69 between respondent with M/s. Soaltee Hotels P. Ltd. Kathmandu (Nepal) a foreign enterprise—CBDT giving its non-approval u/s. 80-O of the Act—Delhi High Court’s DB quashing it—Appeal to Supreme Court by special leave—Circular No. 187 dated 23.12.75 of CBDT—Whether taking into account Section 80-O and guidelines in circular, CBDT rightly came to the conclusion that the agreement did not justify itself for approval? (No)—Whether matter he remanded? (No)—Appeal dismissed—Case Law discussed.
       Held : There is no gainsaying that running a well equipped modern hotel is no ordinary affair. One needs a great deal of expertise skill and technical knowledge for the purpose. If we examine the agreement, it provides for rendering of technical services and also professional services for obtaining of Hotel Soaltee, a foreign enterprise. CBDT fell into an error in considering particularly the clause in the agreement which provided for operation of the Hotel Soaltee by the respondent. The agreement has to be seen as a whole and so examined it is quite apparent that it provided for rendering of not only technical services for operating the hotel of the foreign enterprise but also providing for professional and other services in connection with operating of the hotel. Section 80-O was enacted with the twin objects of encouraging the export of Indian technical know-how and augmentation of foreign exchange resources of the country. We have seen above that after the amendment of Section 80-O by Finance (No. 2 Act of 1991) the words “technical or professional services” have been inserted in place of the words “technical services”. But this Court in Continental Construction Ltd. case [(1992) 195 ITR 81 (SC)] took the view that the amendment was only of clarificatory nature and the term “technical services” always included within it professional services as well. This Court has gone even to the extent that when a person consults the lawyer and seeks his opinion on certain issue the advice rendered by the lawyer would be a piece of technical service. Considering the scope of the agreement and the width of Section 80-O we are of the opinion that the agreement provides for “information concerning industrial, commercial or scientific knowledge, experience or skill made available” by the respondent to the foreign enterprise for running of the Hotel Soaltee. Mr. Dave is right when he submits that in view of the judgment of this Court in Continental Construction Ltd. case Circular No. 187 dated December 23, 1975 of the CBDT [(1976) 102 ITR 83 (Statutes)] may perhaps require certain changes so as it is in conformity with Section 80-O of the Act. In J.K. (Bombay) Ltd. [(1979) 118 ITR 312] Delhi High Court was of the view that remuneration obtained by running or managing a foreign company would be in the nature of profits while Section 80-O deliberately restricted itself to income by way of royalty, commission or fees and included other types of remunerations. We do not think that this is a correct statement as the royalty, commission or fees can be in terms of percentage of profits earned by the foreign enterprise on account of services rendered by the Indian company. It is substance of the case which matters and not the name. The view taken by the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. case (203 ITR 947) commends to us. As it is more in consonance with the provision of Section 80-O and the object which it seeks to achieve. Karnataka High Court in the case of HMT Ltd. (188 ITR 457) has rather taken a narrow view of the provision of Section 80-O. Applying the principles of law as laid down by this Court in Continental Construction Ltd. case and the term “technical services” which included “professional services” and the nature of services agreed to be rendered by the respondent to the foreign enterprise we are of the view that CBDT was not right in not granting approval of the agreement to the respondent under Section 80-O of the Act. We have also seen the scope of circulars issued by the CBDT and had these are to be acted upon in various decisions of this Court. In the matter of the nature as in the present case and the legislative intention to give relief we have to draw interpretation to the term “technical services” which includes “professional services” as well. Basic purpose of Section 80-O is the spread by an Indian assessee of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill of the assessee for use outside India and in that process to receive income to augment the foreign exchange resources of the country. The assessee can also made available to foreign enterprise technical and professional services expertise of which it possesses for earning foreign exchange for the country. (Para 28)
       When exercising power of judicial review, courts have to see that the authority acts within the scope of its powers and, if discretion is conferred on the authority, it exercises the same in reasonable manner keeping in view the object which the statute seeks to achieve. We have no doubt that the decision of CBDT in not granting approval to the agreement was in good faith and it is the latest development of law both on the scope of judicial review and interpretation of Section 80-O that the decision has to be reversed. As law stands today with reference to Section 80-O, it can be said that CBDT took into account the considerations which were not relevant or germane to the real issue. In this view of the matter there is no ground for interference in the impugned judgment of the High Court. It was submitted by Mr. Shukla that in view of the decision in Godrej and Boyce Mfg. Co. Ltd. [(1993) 203 ITR 947 (Bom.)] of the Bombay High Court, this Court, if it decides to hold that the decision of the CBDT was not correct, the matter should be again remanded back to CBDT to grant approval or otherwise of the agreement keeping in view the latest development in law and the parameters laid down by us in this case. Normally, we would have adopted this very course, but in the present case, the matter relates to the year 1970 we do not find it will be proper for us to interfere in the impugned judgment of the High Court and send the matter back to the CBDT for fresh appraisal. ( Para 29)
       Accordingly, the appeal is dismissed and the judgment of the Delhi High Court is affirmed. (Para 30)

Judgment

D.P. Wadhwa, J.—Central Board of Direct Taxes (CBDT) is in appeal. It is aggrieved by the judgment dated May 29, 1981 of a Division Bench of the Delhi High Court quashing its non approval under Section 80-O of the Income Tax Act, 1961 (for short ‘the Act’) to an agreement dated November 29, 1969 entered into by the respondent with M/s. Soaltee Hotel Pvt. Ltd. Kathmandu (Nepal) a foreign enterprise. Section 80-O is as under:

“80-O. Where the gross total income of an assessee being an Indian company includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, under an agreement approved by the Board in this behalf, and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of the whole of the income so received in, or brought into India in computing the total income of the assessee:

Provided that the application for the approval of the agreement referred to in this sub-section is made to the Board before the 1st day of October of the assessment year in relation to which the approval in first sought:

Provided further that approval of the Board shall not be necessary in the case of any such agreement which has been approved for the purposes of the deduction under this section by the Central Government before the 1st day of April, 1972, and every application for such approval of any such agreement pending with the Central Government immediately before that day shall stand transferred to the Board for disposal.

Explanation.—The provisions of the Explanation to Section 80N shall apply for the purposes of this Section as they apply for the purposes of that section......”

2. The impugned judgment is reported in (1982) 135 ITR 257 (Del).

3. As required by Section 80-O, the respondent sought approval of the agreement as falling within the purview of the section. CBDT declined to grant approval. However, it did not communicate any ground as to on what basis approval was not granted. Respondent filed a writ petition in the Delhi High Court, it being Civil Writ Petition No. 1301 of 1975. The writ petition was allowed by a Division Bench of the Delhi High Court on January 5, 1979 with a direction to the CBDT to consider the matter afresh and give a decision after granting hearing to the respondent. This order of the Division Bench is reproduced hereunder:

“The impugned order declining to give approval to the agreement under Section 80-O of the Income Tax Act, 1961, does not give any reasons for the decision. The reasons now stated in the counter affidavit have become known to the petitioner for the first time. The petitioner had no opportunity of meeting the same. The impugned order is, therefore, set aside and the case is sent back to the Board for a fresh consideration of the request of the petitioner for the approval of the agreement under Section 80-O and the new decision by the Board will be given after giving a hearing to the petitioner. The writ petition is allowed in the above terms. No order as to costs.”

4. After that

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1998 Supreme(SC) 408

Cases Referred (10)