Deduction under section 80-MM - technical know-how - Income Tax - 580/CBDT

INSTRUCTION NO. 580/CBDT Dated : August 1, 1973 Section(s) Referred: 80MM Statute: Income - Tax Act, 1961 Under section 80-MM approval to an agreement is granted by the Central Board of Direct Taxes. But the amount which qualifies for deduction under the said section has to be quantified by the Income-tax Officer at the time of assessment. 2. While determining the amount for deduction under section 80-MM for any assessment year the Income-tax Officers should bear in mind the following:- (i) Under the provisions of section 80-MM as introduced originally by the Finance Act, 1969, agreements for the provision of technical know-how were required to be approved by the concerned Ministries of the Central Government. By an amendment made to that section by the Finance (No.2) Act, 1971, the power of granting approval has been vested in the Central Board of Direct Taxes with effect from 1st April, 1972. In view of these provisions, approval granted by the concerned Ministries of Central Government to any such agreement on or after 1st April, 1972 will not be in accordance with the provisions of law and, therefore, will not have any legal validity. If in any case a claim is made before the Income-tax Officer on the basis of approval granted by Ministries of the Central Government after 1.4.1972 such a claim should not be accepted and the matter should be referred to the Board by a D.O. letter. (ii) Deduction within the meaning of section 80-MM is to be restricted in respect of amounts relating to imparting of technical know-how which fall within the ambit of the section. While granting approval to a composite agreement, the Board will specify in the approval order the portion of the agreement which is not covered by the provisions of section 80-MM. It will be left to the Income-tax Officer to bifurcate the income at the time of the assessment. (iii) The amount which will qualify for deduction will not be the gross income, by way of royalty, commission, fees or any other payment but the net amount after deduction of expenditure incurred in earning such income. The Income-tax Officer must ensure that with a view to inflate the exempt income the expenses relating to the provision of technical know-how are not debited to some other source of income. (iv) The deduction to be granted should be quantified by the I.T.O. with the approval of the IAC, who may in suitable cases consult the C.I.T. (v) Section 80-MM(2A) provides that where an assessee is a person other than a company or a cooperative society, the deduction under section 80-MM will be admissible only if the accounts have been audited and audit report furnished in Form No.3C as required by rule 6AB of the Income-tax Rules, 1962. (vi) The Board approves only the agreement placed before it and the facts presented therein. It does not go into the genuineness of the agreement or the reasonableness of the claim. These are matters of facts which the I.T.O. may look into at the time of assessment. Where the Income-tax Officer finds that the approval has been obtained by fraud or misrepresentation, or any terms of the agreement are enlarged, modified or rescinded after the grant of such approval, the facts should be forthwith brought to the notice of the Board. (vii) With a view to have centralised statistics regarding the deduction allowed under section 80-MM, the Income-tax Officer should intimate the details regarding such deduction to the Commissioner of Income-tax in the proforma (printed below). The Commissioner of Income-tax will maintain a register which will provide all the information collected in the proforma. 3. Necessary instructions may please be issued to the Income-tax Officers working in your charge on the lines indicated above. PROFORMA ------------------------------------------------------------------------- NAME OF PAN NAME ADDRESS OF DATE BRIEF PARTICU- Asst. GROSS NET TAX THE AP- THE PERSON TO WHOM OF LARS OF THE YEAR INCOME INCOME EF PLICANT KNOW HOW HAS BEEN AGRE NATURE OF etc.QUALIFYING FE PROVIDED EMENT KNOW HOW U/S.80MM CT -------------------------------------------------------------------------