1986 (6) TMI 10 - HC - Income Tax

Summary

Issues:
1. Application of section 80-0 of the Income-tax Act to a contract between two Indian companies.
2. Interpretation of the conditions for deduction under section 80-0.
3. Analysis of payment terms in the agreement for eligibility under section 80-0.
4. Comparison with a previous judgment regarding section 80-0.

Analysis:
The judgment by Judge R. A. Jahagirdar of the Bombay High Court dealt with a petition challenging the rejection of an application under section 80-0 of the Income-tax Act. The petitioner, a private limited company, had a contract with another Indian company, Toyo Engineering India Ltd. (TEIL), for a project in Iraq. The petitioner sought deduction under section 80-0, which allows for certain income to be deducted while computing total income. The first respondent-Board rejected the application, stating that the agreement should have been with a foreign enterprise or government. However, the judge noted that section 80-0 does not specify that the agreement must be with a foreign entity. The key conditions are that the assessee must provide services or inventions to a foreign entity and receive payment in return.

The judge acknowledged the petitioner's argument that the agreement did not need to be with a foreign entity but highlighted that the petitioner failed to satisfy the third condition of receiving payment from a foreign government or enterprise. The payment terms in the agreement indicated that TEIL, an Indian company, was the entity making payments to the petitioner in foreign currency. The judge emphasized that there was no provision for payment from a foreign government or enterprise to the petitioner for the services rendered. This lack of payment from a foreign entity rendered the petitioner ineligible for deduction under section 80-0.

In response to the petitioner's reliance on a previous judgment, the judge distinguished the current case by emphasizing that the crucial requirement of receiving payment from a foreign entity was not met. Therefore, the judge concluded that the petition must fail as the petitioner did not fulfill the conditions specified under section 80-0. The rule was discharged, and no costs were awarded in the matter.