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Issues:
1. Interpretation of Section 80-O of the Income-tax Act in relation to technical services provided by an Indian company to a foreign enterprise. 2. Application of Section 80HHB in determining eligibility for deductions for income derived from a foreign project. 3. Assessment of the agreement between the petitioner-company and a foreign enterprise to determine its classification under relevant sections of the Income-tax Act. Analysis: The judgment by the High Court of Bombay involved a dispute concerning the approval of an agreement under Section 80-O of the Income-tax Act. The petitioner-company, engaged in providing technical services, entered into an agreement with an English company for services related to setting up a factory in Thailand. The Central Board of Direct Taxes rejected the application for approval under Section 80-O, citing that the activities involved in the agreement fell under Section 80HHB, which deals with deductions for profits derived from foreign projects. The court analyzed the provisions of both sections to determine the applicability to the agreement in question. The court examined the terms of the agreement, which outlined the technical services to be provided by the petitioner, including design engineering and project management for the construction of a plant in Thailand. The agreement did not involve the construction or assembly of structures or machinery outside India, which are prerequisites under Section 80HHB for deductions related to foreign projects. The court noted that the income received by the petitioner was for technical services rendered outside India, aligning with the criteria specified in Section 80-O for deductions. Referring to a Supreme Court decision, the court emphasized that Section 80-O pertains to the approval of contracts for deductions under its provisions, and the approval by the Board is essential for such purposes. The court clarified that in cases where income falls under both Section 80-O and Section 80HHB, the latter prevails. However, in the present case, the court found that the activities under the agreement primarily fell under Section 80-O, and the Board erred in not granting approval based on a misapplication of the relevant sections. Consequently, the court ruled in favor of the petitioner, stating that the refusal of approval by the Central Board of Direct Taxes was unjustified. The court directed the respondents to pay the costs of the petition, thereby concluding the judgment in favor of the petitioner-company.
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