1991 (3) TMI 112 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee is entitled to claim deduction under section 80-O of the Income-tax Act, 1961, in respect of the amount received from the State Development Corporation of Negeri Sembilan, Malaysia.
2. If the answer to question No. 1 is affirmative, whether the Tribunal was right in directing the Income-tax Officer to allow deduction under section 80-O with reference to the gross amount and not the net amount after deduction of relevant expenses.

Issue-wise Detailed Analysis:

Issue 1: Entitlement to Claim Deduction under Section 80-O

The Tribunal initially held that the assessee was entitled to claim deduction under section 80-O of the Income-tax Act, 1961, for the technical fees received from the Negeri Sembilan State Development Corporation of Malaysia. However, the High Court disagreed with the Tribunal's decision. The High Court emphasized that section 80-O mandates the approval of the agreement by the prescribed authority, which in this case is the Central Board of Direct Taxes (CBDT). The Board had repeatedly declined to approve the agreement, and the Tribunal had no jurisdiction to dispense with this statutory requirement. The High Court concluded that the approval of the agreement is a mandatory condition precedent to the grant of relief under section 80-O and cannot be waived or relaxed by the assessing authority or the appellate authority.

Issue 2: Deduction Reference to Gross Amount vs. Net Amount

Since the High Court answered the first question in the negative, determining that the assessee was not entitled to claim deduction under section 80-O due to the lack of approval of the agreement, the second question became moot. Therefore, the High Court did not address whether the deduction should be allowed with reference to the gross amount or the net amount after deduction of relevant expenses.

Key Points and Legal Terminology:

- Section 80-O of the Income-tax Act, 1961: This section provides for concessional tax treatment for income derived from royalties, commissions, fees, or similar payments received from foreign companies in consideration of technical services rendered, provided the agreement is approved by the prescribed authority.
- Mandatory Condition: The High Court emphasized that obtaining approval from the CBDT is a mandatory condition for claiming deduction under section 80-O.
- Tribunal's Jurisdiction: The Tribunal does not have the authority to dispense with the statutory requirement of approval of the agreement by the prescribed authority.
- Remedy for Assessee: If the Board wrongfully refuses to approve the agreement, the assessee can seek judicial remedies such as a writ of certiorari or mandamus against the CBDT.

Conclusion:

The High Court concluded that the Tribunal erred in granting relief to the assessee under section 80-O without the necessary approval of the agreement by the CBDT. The requirement of approval is mandatory and cannot be bypassed by the Tribunal or any other appellate authority. Consequently, the High Court answered the first question in the negative and did not address the second question. There was no order as to costs.