1993 (10) TMI 45 - HC - Income Tax

Agreement By CBDT, Foreign Enterprise, Income Tax Authorities, Previous Year, Special Deduction

Summary

Issues:
Interpretation of provisions of section 80-O of the Income-tax Act, 1961 regarding deduction eligibility. Validity of approval by the Board for the consultancy agreement. Correctness of the Income-tax Officer and Commissioner of Income-tax (Appeals) decisions.

Analysis:
The case involved a question referred to the High Court by the Income-tax Appellate Tribunal regarding the interpretation of section 80-O of the Income-tax Act, 1961. The assessee company, incorporated to provide consultancy services in connection with insurance business, claimed a deduction under section 80-O for consultancy fees received from a Hongkong company. The agreement between the parties was executed on April 25, 1978, but services commenced from November 1, 1977. The Central Board of Direct Taxes approved the agreement on November 3, 1978, covering the assessment years 1979-80 to 1981-82. However, the Income-tax Officer rejected the claim, stating the agreement did not specify the commencement date. The Commissioner of Income-tax (Appeals) upheld this decision, leading to the appeal to the Tribunal.

The Tribunal accepted the assessee's claim, emphasizing that the approval by the Board covered the relevant assessment year and the commencement date was clearly stated in the application. The Tribunal highlighted that the approval governs the assessment year and services rendered before the agreement date should not be ignored. The High Court noted that the approval was based on the application submitted by the assessee, which clearly mentioned the commencement date, and the approval was granted for the relevant assessment year. The Court emphasized that the Income-tax Officer and Commissioner of Income-tax (Appeals) should not question the Board's approval and must accept it at face value. The Court held that once the agreement is approved by the Board, the assessee is entitled to the deduction under section 80-O, and authorities cannot challenge the approval's correctness.

Therefore, the High Court concluded that the Tribunal was correct in holding that the assessee was entitled to the deduction under section 80-O based on the Board's approval for the agreement in question for the assessment year 1979-80. The judgment favored the assessee, and no costs were awarded.