1986 (8) TMI 34 - HC - Income Tax

Issues Involved:
1. Whether the agreement between the petitioner and Hindustan Lever Limited qualifies for approval under Section 80MM of the Income-tax Act, 1961.
2. Whether the petitioner provided technical know-how to Hindustan Lever Limited.
3. Whether the agreement between the petitioner and Hindustan Lever Limited was genuine or a colorable transaction.

Issue-wise Detailed Analysis:

1. Whether the agreement between the petitioner and Hindustan Lever Limited qualifies for approval under Section 80MM of the Income-tax Act, 1961:

Section 80MM of the Income-tax Act, 1961, provides for a deduction of 40% of fees received by an Indian company for providing technical know-how, provided the agreement is approved by the Central Board of Direct Taxes (CBDT). The petitioner applied for approval under this section but was denied by the CBDT. The refusal was based on the assertion that the agreement did not provide for furnishing technical know-how but merely prescribed lending services of three technicians to address post-commissioning problems. The court noted that the petitioner must establish that the agreement was entered into to receive fees for providing technical know-how likely to assist in the manufacture or processing of goods or materials. It was not claimed that the agreement provided for the installation or erection of machinery. The court concluded that the agreement did not qualify for approval under Section 80MM as it did not involve the provision of technical know-how as required by the section.

2. Whether the petitioner provided technical know-how to Hindustan Lever Limited:

The petitioner contended that it provided technical know-how to assist in the manufacture of sodium tripolyphosphate. However, the court found that the agreement between the petitioner and the English company (Albright & Wilson Limited) restricted the petitioner from disclosing unpatented information received from the English company. The tripartite agreement between the English company, Hindustan Lever Limited, and Dharamsi Morarji Chemicals Company Limited stipulated that the English company would provide all necessary technical know-how for the erection and operation of the plant. The court noted that the petitioner could not have provided any technical know-how without the English company's consent, and the English company had already undertaken to supply all required technical know-how to Hindustan Lever Limited. Therefore, the court concluded that the petitioner did not provide technical know-how to Hindustan Lever Limited.

3. Whether the agreement between the petitioner and Hindustan Lever Limited was genuine or a colorable transaction:

The respondents argued that the agreement between the petitioner and Hindustan Lever Limited was not genuine but a colorable transaction to secure tax benefits under Section 80MM. The court observed that the technical know-how for the manufacture of sodium tripolyphosphate was to be provided by the English company, and the agreement between the petitioner and Hindustan Lever Limited seemed to be a cover for some other transaction. The court found it unlikely that the petitioner would agree to supply any technical know-how that Hindustan Lever Limited had not already secured from the English company. The court concluded that the agreement was not genuine and was a colorable transaction.

Conclusion:

The court dismissed the petition, finding that the agreement did not qualify for approval under Section 80MM, the petitioner did not provide technical know-how to Hindustan Lever Limited, and the agreement was not genuine. The rule was discharged without any order as to costs.

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