9911796707
TMI Blog1996 (9) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... ve subject and to say that, as already explained to your representative, in view of the provisions in sub-sections (1)(b) and (5) of section 80HHB of the Act, the application under section 80-O was rejected and no review lies in the matter." The petitioner is a company registered under the Indian Companies Act, 1956, having its registered office at Madras. The petitioner-company has acquired experience in the erection of structural steel work and they are in possession of complete technical know-how relating to estimation checking of centre lines in foundations and certain preliminary works like setting, assembling and field-welding prior to the erection of structural steel work. For the assessment year 1983-84, the petitioner filed a return of income on June 30, 1983, showing an income of Rs. 4,23,963. The first respondent determined the total income at Rs. 4,68,593. The first respondent disallowed the claim of the petitioner under section 80-O of the Act on the ground that the agreement with the foreign company, Emirates Trading Agencies, had not been approved by the second respondent, the Central Board of Direct Taxes (hereinafter called "the Board"). For the year 1984-85, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pprove the agreement for the purpose of section 80-O of the Act. The reasons given in the order state that all or any of the activities under the abovesaid agreement involved the execution of a foreign project or work forming part of the foreign project described in section 80HHB of the Act, and, therefore, they are not activities covered by section 80-O of the Act. In particular, reference was made to sub-section (5) of section 80HHB which disentitles the assessee from claiming any deduction under section 80-O of the Act. The petitioner filed another application to the Board on August 1, 1986, to reconsider the matter. The Board again passed an order on October 6, 1986, rejecting the petition. A second review petition was filed on November 26, 1986, and the impugned order dated December 15, 1986, came to be passed. The contention of the petitioner is that section 80HHB of the Act does not apply to the facts of the petitioner's case and the Board is bound to consider the claim of the petitioner under section 80-O of the Act. It is the further contention of the petitioner that so long as the salient requirements of section 80-O are satisfied the Board cannot shirk its responsibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e application for approval and a direction that the petitioner is entitled to the approval for the two assessment years 1983-84 and 1984-85. Once the petitioner gets an approval, the assessee can work out his rights in respect of the assessment orders. The question whether the order of approval by the Board will have an effect on the scope of assessment by the assessing authority, is also indirectly involved in this case. In my opinion, the court cannot blindly direct the Board to consider the claim of the assessee purely on a consideration of the applicability of the requirements under section 80-O of the Act. Learned counsel for the petitioner says that the law is settled with reference to the two provisions, i.e., under sections 80-O and 80HHB of the Act, by the judgment of the Supreme Court in Continental Construction Ltd. v. CIT [1992] 195 ITR 81. He draws my attention to the following passage in the said decision : "...it is sufficient for us to point out that it is a well-settled principle that exigibility of an item to tax or tax deduction can hardly be made to depend on the label given to it by the parties. As assessee cannot claim deduction under section 80-O in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of appeal and reference, etc." This judgment was rendered on September 17, 1990. The same learned judge had rendered an identical decision on September 19, 1990, in K. M. A. International Ltd. v. CBDT [1992] 194 ITR 332 (Bom). Observed the Bombay High Court : "In the above view of the matter, in my judgment, it is only appropriate that the Board continues to consider the agreements in question purely from the point of view of section 80-O and grant or refuse approval on that basis. The Board may, if so advised, qualify the approval by making it clear that it will be open to the Assessing Officer to examine whether the whole or part of the income under the agreement falls under section 80HHB(1), so as to disentitle such income from the benefit under section 80-O. Because, if the Board refuses to approve the agreement, no Assessing Officer will grant relief under section 80-O." In my opinion, there is one other judgment of the Bombay High Court rendered by a Division Bench in Blue Star Ltd. v. CBDT [1993] 204 ITR 860. This judgment was rendered on August 26, 1992, after the judgment of the Supreme Court in Continental Construction Ltd. v. CIT [1992] 195 ITR 81. A circular iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court has observed that after April 1, 1987, both sections 80HHB and 80-O of the Act permit a deduction from the gross total income of 50 per cent. of the profits in the one case and all the qualifying receipts in the other. The Supreme Court also takes note of the fact that prior to April 1, 1987, the relief under the two different sections was totally different. While under section 80HHB only 25 per cent. of the profits were eligible for exemption, the deduction under section 80-O of the Act, was 100 per cent. of the qualifying receipts, up to the assessment year 1984-85. This is precisely the reason why in the present case learned counsel for the petitioner is urging for quashing of the Board's order and for reconsideration of the same in the light of the judgment of the Bombay High Court. The Supreme Court then considered the question of the approval granted by the Board vis-a-vis the judgment in CIT v. Indian Institute of Public Opinion Co. P. Ltd. [1982] 134 ITR 23 (Delhi). In other words, once the Board approves a contract under section 80-O in relation to the first assessment year, approval enures for the entire duration of the contract. Even so, observed the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned by the provisions of section 119(1) of the Act and, being instructions enuring to the benefit of the assessee, cannot be gone back upon by the Departmental Officers subordinate to the Board, particularly in a case where no steps have been taken-or even suggested as necessary to be taken to cancel or revoke the approval already accorded." With reference to the facts of the present case the following observation of the Supreme Court are also apposite (page 133 of 195 ITR) : "We may in this context, also point out that, while the Board, in the present case, simply approved some of the contracts on the basis of the application filed, it has, in the case of some other contracts, modified that basis also. For instance, in regard to the Wadi Khan and Abu Sukhair Projects, the letter of approval states that approval is granted subject to the condition or clarification that only the profits relating to rendering of technical services would qualify for the benefit of section 80-O of the Income-tax Act and not the profits relating to the supply of material/equipment. These guidelines have also since attained statutory recognition as the pro forma earlier prescribed by the Board has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the scope of the Board's power vis-a-vis the power of the assessing authority and the importance given to the circulars regarding the guidelines that should be followed by them while granting or rejecting an application for approval should be kept in mind before considering the validity of the orders impugned in these two writ petitions. The Board has clearly stated that in the case of composite agreements "approval would be granted by the Board subject to suitable disallowance for 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, could be exempted." All that the petitioner is pleading for in this case is the above consideration by the Board. This is precisely what the Division Bench of the Bombay High Court had also indicated in their judgment dated August 26, 1992, in Blue Star Ltd. v. CBDT [1993] 204 ITR 860. Learned counsel for the respondents, however, sought to argue that the Board had in fact pointed out in their letter dated June 21, 1984, that out of the works undertaken by the petitioner-company, clauses (d), (e) and (f) clearly involved ..... X X X X Extracts X X X X X X X X Extracts X X X X
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