Section 80-O of the Income-tax Act, 1961--Guidelines for approval of agreements--Further clarifications - Income Tax - 253/1979

Section 80-O of the Income-tax Act, 1961--Guidelines for approval of agreements--Further clarifications Circular 253 Dated 30/4/1979 Attention is invited to the Board's Circular No.187 (F.No. 473/15/73-FTD), dated 23rd December, 1975,* on the above subject laying down the guidelines for the grant of approval under section 80-O. The Board has had occasion to re-examine the aforesaid guidelines and it has been decided to modify the guidelines to the extent indicated below:- (i) Para. 3(iii) of the Circular dated 23-12-1975 provided that the agreement should have been genuinely entered into on and after the date when the tax concession was announced by the introduction of the relevant Bill in the Lok Sabha. It has now been decided that approvals under section 80-O would not be denied on this ground. In other words, para. 3(iii) of the Circular dated 23-12-1975 may be treated as deleted. (ii) In para. (ix) of the said circular, it was mentioned that consideration for use of trade-mark would be outside the scope of section 80-O. It has now been decided that payments made for the use of trade-marks, are of the nature of royalty, and, therefore, fall within the scope of section 80-O. (iii) It was also stated in para. 3(ix) of the circular dated 23-12-75 that in the case of a composite agreement which specified a consolidated amount as consideration for purposes which included matters outside the scope of section 80-O, the Board may not approve such an agreement for the purposes of section 80-O of the Act if it was not possible to properly ascertain and determine the amount of the consideration relatable to the provision of the know-how or technical services, etc., qualifying for section 80-O. Thus, the benefit of section 80-O could be denied to the entire amount of royalty, commission, fees, etc., receivable under such an agreement. It has since been decided that in such cases approval would be granted by the Board subject to a suitable disallowance for the non-qualifying services, after taking into consideration the totality of the agreement, so that the balance of royalty/fees, etc., which is for the services covered by section 80-O, can be exempted. (Sd.) V.P. Mittal, Secretary, Central Board of Direct Taxes. * See [1976] 102 ITR (St.) 83.