Sabyasachi Mukharji, J. - (1.) This reference under Section 256(1) of the I.T. Act, 1961, arises out of an appeal for the assessment year 1969-70. In the assessment proceedings for the assessment year, the assessee claimed relief under Section 80-O of the I.T. Act, 1961, in respect of a sum of Rs. 4,66,858 received by it during the relevant previous year from a foreign company known as M/s. Indo-Ethiopian Textile Share Company under a managing agency agreement dated 27th January, 1958. It was not in dispute that the said amount was received by the assessee in consideration of the industrial, commercial or scientific knowledge, experience and skill made available or provided to the foreign company in consideration of technical service rendered or agreed to be rendered to the foreign company by the assessee under the agreement approved by the Central Govt. It was also not in dispute that the assessee-company applied to the Central Govt. as early as 22nd August, 1969, for approval of its agreement with the foreign company so as to qualify itself for relief under Section 80-O of the I.T. Act, 1961, for the assessment year under consideration. The Central Govt. in the Ministry of Foreign Trade accorded its approval by a letter dated 2lst of May, 1971, to the assessee. In that letter of the Govt. of India, it was stated that the approval would take effect from the assessment year 1969-70. The ITO held that, in view of the language of Section 80-O, the assessee-company was not entitled to the relief under the section since the approval of the Central Govt, was not accorded before the 1st of October of the relevant assessment year. He, accordingly, denied relief under Section 80-0 to the assessee. However, in view of the letter of the Govt. of India stating that the approval would take effect from the assessment year 1969-70, he sought clarification so that he could later rectify the assessment suitably in the light of the clarification.
(2.) There was an appeal before the AAC. The AAC held that under Section 80-O, as it stood prior to its amendment, by the Finance (No. 2) Act of 1971, the approval of the Central Govt. should have been accorded before the 1st of October of the relevant assessment year to be entitled to relief and that the ITO was, therefore, justified in not granting relief under Section 80-O for the relevent assessment year as the approval of the Central Govt. was not accorded prior to 1st of October, 1969, In that view of the matter, he confirmed the order of the ITO.
(3.) There was a further appeal before the Tribunal. The Tribunal, after considering the rival contentions, held that the reference in Section 80-O requiring the approval of the Central Govt. for the agreement with the foreign company before the 1st of October of the relevant assessment year should be construed merely as a directory provision and not as a mandatory provision. The Tribunal observed that Parliament wanted to give relief and, as such, the subsequent amendment was merely clarificatory or declaratory in character of what was the law prior to the amendment and held that, in the facts and circumstances of the case, which we have mentioned hereinbefore, the assessee was entitled to relief and, therefore, reversed the decisions of the ITO as well as the AAC. In the premises, under Section 256(1) of the I.T. Act, 1961, the Tribunal has referred to this court the following questions : " 1. Whether, on a correct interpretation of the provisions of Section 80-O of the Income-tax Act, 1961, and on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of Section 80-O of the Income-tax Act, 1961, requiring that the approval of the Central Government for the agreement with the foreign company shall be obtained before the 1st of October of the relevant assessment year were merely directory in character and the approval accorded by the Central Government in the present case subsequent to that date on the application filed by the assessee prior to that date was sufficient compliance with the requirements of the statutory provision ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee was entitled to the relief under Section 80-O of the Income-tax Act, 1961, although the approval of the Central Government for the agreement between the assessee-company and the foreign company was not accorded before the 1st day of October of the relevant assessment year ? ";