1999 (4) TMI 137 - AT - Income Tax

Summary

Issues involved:
1. Taxation of income under section 9(1)(vii) for assessment years 1978-79 and 1979-80.
2. Approval of contracts by the Central Government before 1-4-1976.
3. Application of proviso to clause (vii) of sub-section (1) of section 9 of the Income-tax Act.
4. Verification of proposal approval by the Central Government for contracts executed after 1-4-1976.
5. Determination of business connection under section 9(1)(vii)(c) or section 9(1)(vii)(b).

Analysis:
1. The appeals were against confirming the taxing of the assessee-company under section 143(3)/163(2)/251 for the assessment years 1978-79 and 1979-80. The Assessing Officer held income of Rs. 1,96,957 for 1978-79 and Rs. 28,69,460 for 1979-80 as deemed to have arisen in India under section 9(1)(vii) due to contracts with a foreign company. The issue was whether the contracts were approved by the Central Government before 1-4-1976.

2. The assessee argued that all contracts were approved by the Central Government before 1-4-1976, but the CIT(A) was not convinced due to lack of specific approval evidence. The Tribunal found that the contracts were made before 1-4-1976 and held that the letter from the Ministry of Energy, approval by the Joint Secretary, and payment clearance by the Government indicated Central Government approval. Thus, directed deletion of income for 1978-79 and two contracts for 1979-80.

3. For the remaining contract of 1979-80 executed after 1-4-1976, the Tribunal directed verification of the proposal approval date by the Central Government. It clarified the interpretation of the proviso to clause (vii) of section 9(1) that approval by the Central Government was not required before 1-4-1976 for contracts made before that date.

4. The Tribunal held that the case fell under section 9(1)(vii)(b) based on previous decisions. However, the appeals were decided based on the proviso and Explanation 1 to clause (vii) of section 9. The Tribunal allowed the appeals for statistical purposes, indicating a favorable outcome for the assessee.