1990 (9) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Legality and validity of the Central Board of Direct Taxes' (CBDT) refusal to approve the petitioner's agreement under Section 80-O of the Income-tax Act, 1961.
2. Applicability of Section 80HHB to the petitioner's agreement.
3. Jurisdiction of the Board versus the Assessing Officer in considering provisions of Section 80HHB and Section 80-O.
4. Limited jurisdiction of the High Court under Article 226 of the Constitution of India.

Detailed Analysis:

1. Legality and Validity of CBDT's Refusal to Approve the Agreement under Section 80-O:
The petitioner challenged the legality and validity of the CBDT's order dated March 18, 1987, which refused to approve the petitioner's agreement dated September 12, 1981, read with the memorandum of understanding dated June 27, 1983, under Section 80-O of the Income-tax Act, 1961. The petitioner contended that the Board's refusal was based on the incorrect application of Section 80HHB, which was not within the Board's jurisdiction to consider while approving an agreement under Section 80-O. The Board's duty under Section 80-O is to approve agreements provided the conditions laid down in that section are satisfied.

2. Applicability of Section 80HHB to the Petitioner's Agreement:
The Board refused to approve the agreement on the ground that it was covered by the provisions of Section 80HHB and thus fell outside the scope of Section 80-O due to the overriding provisions of sub-section (5) of Section 80HHB. The petitioner argued that no part of the income or consideration under the agreement was payable for the execution of a foreign project under Section 80HHB(1), clauses (a) and (b). The petitioner also contended that the power to consider whether any income or consideration arising out of an agreement fell under Section 80HHB(1)(a) or (1)(b) vested in the Assessing Officer, not the Board.

3. Jurisdiction of the Board versus the Assessing Officer:
The court noted that the jurisdiction to administer and apply Section 80HHB lies with the Assessing Officer, whereas the jurisdiction to approve agreements under Section 80-O vests in the Board. If the Board considers provisions of Section 80HHB while approving agreements under Section 80-O, the applicant would be deprived of the right to challenge the decision by way of appeal or reference. The court opined that the Board should consider applications for approval purely from the perspective of Section 80-O and leave the determination of applicability of Section 80HHB to the Assessing Officer.

4. Limited Jurisdiction of the High Court under Article 226:
The court acknowledged that its jurisdiction under Article 226 of the Constitution is limited and not a substitute for appeal. The court does not substitute its judgment for that of the Board, which is vested with the statutory duty. However, if the Board fails to perform its statutory duty, is influenced by extraneous considerations, or does not act in good faith, the court can issue a mandamus to compel the Board to perform its duty as required by law.

Conclusion:
The court concluded that the Board refused to approve the agreement not because any condition laid down in Section 80-O was not satisfied, but because it considered the agreement under Section 80HHB. This was beyond the Board's legal jurisdiction. The order was influenced by extraneous circumstances, and thus, the impugned order was quashed. The Board was directed to reconsider the approval of the agreement solely based on the conditions laid down in Section 80-O, leaving the applicability of Section 80HHB to the Assessing Officer. The rule was made absolute in terms of prayer clause (a), with no order as to costs.