9911796707
TMI Blog1988 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... as "the Act". By two agreements, one dated April 5, 1980, and the other dated August 14, 1980, entered into between the appellant-company and Toyo Engineering India Ltd. (for short "Toyo India"), the appellant-company agreed to render technical services in respect of Iraqi Storage Terminal Project Installations in consideration of payment to it by way of fees payable under the said agreements. In the said agreement dated April 5, 1980, it is stated, inter alia, that Toyo India has been engaged by Toyo Engineering Corporation (for short "TEC"), a company organised and existing under the laws of Japan having its registered office at Tokyo, Japan, for the Project of Storage Terminal of State Organisation for Oil Project, a public Organisation organised and existing under the laws of Iraq. Toyo India has, in its turn, engaged the appellant-company to perform certain construction and related services by the appellant-company of the project work as set out in the said agreement. The appellant-company, by its letter dated October 23, 1980, requested respondent No. 1, the Central Board of Direct Taxes, for the approval of the said agreements under section 80-0 of the Act. Respondent N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign ownership. Further, the words "foreign enterprise" could not be held to apply to an establishment or undertaking or branch or unit of an Indian company in a foreign country. Such establishment, undertaking, branch or unit might well be an enterprise, but not a foreign enterprise within the meaning of the said words. In that view of the matter, the Division Bench of the High Court, as stated already, upheld the judgment of the learned single judge and dismissed the appeal preferred by the appellants. Hence, this appeal by special leave. At this stage, we may refer to section 80-0 of the Act as it stood during the assessment year 1980-81 which is the relevant period for this appeal. Section 80-0 provides as follows: "80-0. Deduction in respect of royalties, etc., from certain foreign enterprises. Where the gross total income of an, assessee, being an Indian company, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be in respect of the whole of such income received in or brought into India. One of the principal points that is involved in this appeal relates to the interpretation of the expression "foreign enterprise". Respondent No. 1 refused to approve the agreements entered into by the appellants with Toyo India principally on the ground that Toyo India is not a foreign enterprise. According to respondent No. 1, Toyo India is an Indian company and cannot be regarded as a foreign enterprise within the meaning of section 80-0. The learned single judge and the Division Bench of the High Court also have taken the same view and upheld the order of respondent No. 1 refusing to approve the agreements. It is not disputed that Toyo India has been engaged by TEC. The latter company is, admittedly, a foreign company organised and established by the laws, of Japan for the Project of Storage Terminal of State Organisation for Oil Project. By the said agreements, Toyo India engaged the appellant company to perform certain constructions and related services for the project work as set out in the agreements. It is urged by Mr. Rajagopalan, learned counsel appearing on behalf of the appellants, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relief to 100 per cent. Even up to this day, no change has been made in respect of the payer. It thus appears from the legislative background or the legislative changes that from "foreign company", it has been changed into "Government of a foreign State or a foreign enterprise". It is apparent that the expression "foreign enterprise" has been substituted for "foreign company" while the words "Government of a foreign State" have been inserted. There can be no doubt that the expression "foreign enterprise" is a wider term than "foreign company". "Foreign enterprise" will include within it also a foreign company. Now, a foreign company is a company incorporated under the law of the foreign country concerned. An Indian company doing business or having a branch, unit or establishment in a foreign country cannot be called a foreign company. Thus, in the case of a foreign enterprise which is a foreign company, such company must be incorporated in accordance with the law of the foreign country in question. Keeping this in view, the question that arises is whether a branch, unit or establishment of an Indian company doing business in a foreign country can be said to be a foreign ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etation of a provision in a statute and that the court has to look to the setting in which the words are used and the circumstances in which the law came to be passed to decide whether there is something implicit behind the words actually used which would control the literal meaning of the words used. The expression "foreign enterprise" in section 80-0 has been placed after the words "the Government of a foreign State". The view which we take as to the interpretation of the expression "foreign enterprise" finds support from the setting in which the expression has been placed and the circumstances in which the law came to be passed. It is, however, urged by Mr. Rajagopalan, learned counsel for the appellants, that it may be that a foreign enterprise can be defined in the manner we have done ; at the same time, the definition of the expression on the basis of the test of location cannot altogether be ruled out. In any event, it is possible to define the expression "foreign enterprise" as an enterprise located outside India. Counsel submits that when two interpretations are possible to be made, the interpretation which is favourable to the assessee should be adopted. In support of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having earned foreign exchange, it should be held that the requirement of the section is satisfied and, accordingly, the appellant-company is entitled to deduction of income-tax. On the other hand, Dr. Gauri Shankar, points out that the main objective of section 80-0 is not the earning of foreign exchange. According to him, the principal purpose for which the deduction is allowed to an assessee is that contained in the speech of the Finance Minister on the floor of Parliament at the time of introduction of section 85C in the Act. A copy of the speech has been handed over to us and has also been supplied to learned counsel for the appellants. In his speech, the Hon'ble Finance Minister stated, inter alia, that "some fiscal encouragement needs to be given to our industries to encourage them to provide technical 'know-how' and technical services to newly developing countries". In view of the speech, it is urged by Dr. Gauri Shankar that the principal objective of section 80-0 is to supply technical know-how and render technical services by Indian companies to newly developing countries. Counsel submits that it will be wrong to say that the principal objective of section 80-0 is only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement. The same view has been taken in the other single Bench decision of the Bombay High Court in Indian Hume Pipe Co. Ltd. v. Central Board of Direct Taxes [1987] 165 ITR 537. Both the above decisions have been considered by the Division Bench in the impugned judgment and the Division Bench could not agree with the view expressed in those decisions. Mr. Rajagopalan has pressed us to hold, on the basis of the said two single Bench decisions of the Bombay High Court, that the objectives of the section having been fulfilled, the agreements should have been-approved by the Central Board of Direct Taxes. Attractive though the argument is, we regret, we are unable to accept the same. It is true that, viewed in the light of the submissions made on behalf of the appellants, the objectives of the section are to some extent fulfilled, but we cannot, at the same time, ignore the plain language of the section. Section 80-0 unequivocally provides that the income by way of royalty, commission, fees, etc., shall be received by the assessee from the Government of a foreign State or a foreign enterprise and, indeed, that is one of the principal conditions for the application of the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manifestly clear from the provisions of section 80-0 that the agreement shall be entered into by and between the assessee and the government of a foreign State or a foreign enterprise. In the instant case, no such agreement has been entered into by the appellant-company with the Government of a foreign State or a foreign enterprise. In that respect also, the appellant-company does not fulfil another condition of section 80-0 which is also very material, The agreements which have not been approved by the Central Board of Direct Taxes have been, as already noticed, entered into between the appellant-company and Toyo India which is not a foreign enterprise but an Indian company. In view of the facts stated above, the Central Board of Direct Taxes was justified in not approving the agreements in question. Lastly, it is argued on behalf of the appellants that section 80-0 should be construed as permitting canalisation and if so construed, the appellant company will be entitled to the benefit of the section. On the other hand, it is the contention of Dr. Gauri Shankar that in view of the specific mandate of section 80-0 that the income of the assessee shall be directly received from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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