- (1.) 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........" The impugned judgment is reported in (1982) 135 ITR 257 : (1982 Tax LR 79) (Delhi).
(2.) 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."
(3.) After that respondent represented its case before CBDT but again CBDT did not find any ground under the Section to approve the agreement and by order dated February 26, 1980, communicated its decision to the respondent. We reproduce the relevant portion of this order of CBDT as under : (pages 63-64 of the PB) "2. The Board have carefully reconsidered the matter in pursuance of the directions contained in the judgments of the Delhi High Court in the Civil Writ Petition Nos. 429 of 1974 and 1301 of 1975, on the basis of the written and oral arguments advanced by you. It is regretted that the Board does not consider it necessary to revise the decisions already communicated to you in the Board's orders referred to above owing to the following reasons :- (1) The services being rendered by you to the foreign party in both cases are in the nature of managerial services. As observed by the Delhi High Court in Civil Writ No. 901 of 1975 (M/s. J. K. Bombay Ltd. v. CBDT and another) the running of a business or the management of a business does not amount to the rendering of technical services. (2) What is being given under the agreements can also not be viewed as information concerning industrial, commercial or scientific knowledge or skill. It is not as if some information is being supplied by you which is made use of by the foreign parties. Under the two agreements, you are yourself functioning in the foreign countries. (3) Though your name is being utilised by the two foreign hotels, and the fee received for the use of your trade name would be covered by the provisions of Section 80-O yet the amount relatable to this aspect of the total services rendered under the two agreements would be so small that it is not easy to quantify the same for purpose of section 80-O of the Income-tax Act, 1961.";