1986 (2) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. Refusal of approval under section 80-0 of the Income-tax Act, 1961.
2. Definition and scope of "technical service" under section 80-0.
3. Validity of Circular No. 187 issued by the Central Board of Direct Taxes (CBDT).
4. Procedural fairness and adherence to natural justice by the CBDT.

Detailed Analysis:

1. Refusal of approval under section 80-0 of the Income-tax Act, 1961:
The petitioner company, M/s. Simon Carves (India) Limited, challenged the CBDT's refusal to grant approval under section 80-0 of the Income-tax Act, 1961. The refusal was communicated via an order dated January 4, 1977, which stated that the loaning of engineers and draughtsmen for service abroad did not constitute a "technical service" under section 80-0.

2. Definition and scope of "technical service" under section 80-0:
The core issue revolved around whether the services provided by the engineers and draughtsmen constituted "technical service" under section 80-0. The petitioner argued that the services involved design engineering and technical services for North Sea Oil and other projects, which should be considered technical services. The CBDT, however, maintained that the agreement only indicated the provision of engineering staff without specifying the nature of the technical services, thus not qualifying for approval under section 80-0.

3. Validity of Circular No. 187 issued by the CBDT:
The petitioner also contested the validity of Circular No. 187, particularly clause (vi), which stated that agreements for the recruitment or mere supply of technical personnel from India for service outside India would not be eligible for approval. The petitioner argued that this circular could not override the provisions of section 80-0 of the Income-tax Act, 1961.

4. Procedural fairness and adherence to natural justice by the CBDT:
The court examined whether the CBDT had followed procedural fairness and the rules of natural justice in refusing the approval. The petitioner had furnished additional particulars as required by the CBDT, but the board still refused the approval based on a perverse conclusion that the loaning of services did not constitute technical services. The court found that the CBDT had not considered the application in accordance with the law and had merely applied the guidelines from Circular No. 187.

Judgment:
The court held that the CBDT had not considered the petitioner's application for approval in accordance with the law. It concluded that the petitioner company was entitled to approval under the first part of section 80-0, as it was making available information concerning industrial, commercial, or scientific knowledge, experience, or skill to the foreign company. The court referenced the Division Bench judgment of the Delhi High Court in Oberoi Hotels (India) Pvt. Ltd. v. CBDT [1982] 135 ITR 257, which supported the petitioner's case.

Accordingly, the writ petitioner succeeded, and the impugned order dated January 4, 1977, was set aside. The respondents were directed to reconsider the application for approval in accordance with the law. There was no order as to costs, and the rule was made absolute. The operation of the judgment was stayed for six weeks to allow for any further legal actions by the respondents.