S.C. Pratap, J.
1. This petition under article 226 of the Constitution arises out of proceedings for approval under section 80MM of the Income-tax Act, 1961 (hereinafter 'the Act'), by the Central Board of Direct Taxes (hereinafter 'the Board') of an agreement for supply of technical know-how.
2. The petitioner - Birla Consultants Limited - is a public limited company duly recognised by the Government of India as a consulting engineering company specialised in various fields. According to the petitioner, it has acquired considerable technical know-how in setting up plants for which purpose, it utilises the services of highly qualified technical persons like engineers, technologists, architects, chemists, etc. The petitioner also renders services as consulting engineers to various concerns and even foreign technical consultants have recognised the services of the petitioner and have collaborated with it to submit technical proposals to various private and Government undertakings. Some joint proposals have also been entered into with Danish, French and Canadian companies.
3. Another public limited company in India, namely, the South India Viscose Limited (hereinafter 'the company') had in existence its plant for manufacture of viscose staple fibre. The company, however, wanted to expand its plant with capacity to manufacture twenty tons viscose staple fibre per day. For establishing its original plant, the company had entered into an agreement with Snia Viscose of Italy which had then provided the necessary technical know-how to the company for establishing the original plant. For expansion of its production capacity, the company had entered into an agreement with Gwalior Rayon and Silk Manufacturing (Weaving) Company Limited (hereinafter 'GRASIM') for supply of plant and equipment. Having agreed to purchase the plant and machinery from GRASIM, the company wanted some consulting engineers who could render to it technical services relating to design, engineering, erection, commissioning, etc. GRASIM suggested in that behalf the name of the petitioner. The company then proposed to the petitioner to take up the contract for rendering technical services relating to the plant and machinery agreed to be supplied by GRASIM. In due course of its own business in that behalf, the petitioner accepted the proposal and entered into an agreement with the company on March 31, 1972.
4. Under the said agreement, the petitioner -
(a) was to furnish to the company all necessary engineering and technical know-how for plant and civil engineering works, transports and to erect, install, test, commission, conduct performance, guarantee test and train the company's personnel;
(b) prepared various sketches, drawings, blueprints and designs for the purposes of erection and installation of machinery and plant;
(c) transferred all the rights relating to them to the company;
(d) trained the staff of the company by giving them necessary technical know-how and information concerning the working and operations of and use of models, designs, process for manufacturing rayon staple fibre formulas, machinery installation, erection of plant and machineryfor manufacture of 20 tons of viscose staple fibre, 7 1/2 tons per day of carbon disulphide and 60 tons per day of concentrated sulphuric acid;
(e) provided -
(i) civil designs and prepared other layout drawings for all items of plant, structure and facilities listed in exhibit 'A' to the said agreement;
(ii) detailed design work for individual construction and each section of the plant and the plant as a whole;
(iii) detailed drawings, electrical layouts and design engineering complete utility system; and
(iv) the necessary know-how for operation of plants and machinery to achieve the guaranteed production which was in fact achieved by the company.
5. Now, the Finance Act of 1969 inserted in the Act section 80MM with effect from April 1, 1970, under which Indian companies became entitled to certain deductions from income-tax in respect of royalties, fees for technical services rendered, etc. The object was to minimise the repetitive import of technology and to encourage development of local know-how. With a view to receive benefit of this provision, the petitioner applied to the first respondent-Board in May, 1972, for approval of its aforesaid agreement dated March 31, 1972, under section 80MM of the Act. The petitioner also submitted details as required from time to time by the Board. However, by its order dated May 10, 1974, the Board held that the said agreement did not qualify for approval under section 80MM of the Act.
6. The petitioner thereafter made an application to the Board for reconsidering and reviewing its decision under section 80MM of the Act. Pursuant thereto, several meetings and extensive discussions were held. However, by its order dated February 8, 1979, the Board declined to change its earlier decision. It is the legality and validity of these two orders, namely, order dated May 10, 1974 (exhibit D), and order dated February 8, 1979 (exhibit G), that is challenged in this petition under article 226 of the Constitution.
7. Mr. S. P. Mehta, learned counsel for the petitioner, submitted at the outset that the petitioner has suffered considerable loss and injustice amounting to virtual miscarriage of justice by its agreement with the company not being approved by the Board under section 80MM of the Act. He submitted that the agreement between GRASIM and the company, which agreement, according to the Board was 'very relevant' for examination of the claim under section 80MM of the Act, could have been easily produced at an earlier stage but was, out of sheer want of due care and caution, not so produced. He further urged that there was, apart from the materials already produced before the Board, considerable other materials and evidence which, if produced before the Board, would further cogently support its claim for approval under section 80MM of the Act. He, therefore, requested that in the interest of justice and to prevent loss and miscarriage of justice, opportunity be given to the petitioner to go to the Board and satisfy it on the petitioner's claim under section 80MM of the Act. The petitioner will produce before the Board not only the 'very relevant' agreement between GRASIM and the company but also all other documents, materials and evidence. Mr. R. J. Joshi, learned counsel for the respondents, stated that having himself seen the materials shown to him by the petitioner's learned counsel, Mr. Mehta, he was not in a position to seriously object to Mr. Mehta's aforesaid request for an opportunity to go to the Board and satisfy the Board qua the petitioner's application for approval of the agreement in question under section 80MM of the Act. He, however, added that this opportunity should be on payment of substantial costs quantified of this petition as condition precedent.
8. Now, the petitioner's application dated May 14, 1976 (exhibit E), has not been rejected in limine. Indeed, the Board did entertain the same. It also received further materials. It also held meetings and had discussions. The point to be noted is that the petitioner's claim for approval under section 80MM of the Act was being heard and considered on merits almost or virtually afresh. Having decided to do so, the Board would then have been justified in granting to the petitioner full opportunity of producing all such agreements, materials, data and evidence as the petitioner was advised. It would then have been also more appropriate not to reject the claim, inter alia, on the ground that materials now produced have not been produced earlier. Besides, proceedings having been in fact reopened, there was then no good reason why other agreements and documents, apparently genuine and pre-existing during the original enquiry itself, should be excluded from consideration. When a case for reconsideration appeared to have been otherwise made out and when the process of reconsideration had in fact been initiated, then justice required reconsideration of all aspects on the basis of materials, documents and evidence irrespective of whether the same or had not been produced earlier. Once the door for reconsideration consideration afresh was opened, it would then be in all fairness to permit the petitioner to produce all such agreements, documents, materials evidence as would, according to the petitioner, aid and help its claim approval under section 80MM of the Act.
9. It is not the view of the Board that the agreement constituting the subject-matter of approval proceedings under section 80MM of the Act is not bona fide and genuine or that it is a collusive arrangement for abuse the tax concession admissible under section 80MM. Short of that, no prejudice would be caused to the Revenue if the petitioner is permitted, albeit by a fresh opportunity, to satisfy the Board on its own merits and in accordance with law that the agreement in question meets the requisite conditions necessary and required for its approval under section 80MM, the onus, of course, being entirely on the petitioner to establish that the requirements of the law and the objectives behind it are fulfilled in its case
10. In all these circumstances, including the pertinent fact that the respondents' learned counsel has also after seeing the materials found himself not in a position to seriously object to an opportunity being given as requested on behalf of the petitioner, the better order, and one more in consonance with justice, would be not to decline the requested opportunity - particularly in a high-stakes matter with an apparently genuine claim - but to set aside the orders impugned herein and send the proceedings to the Board for consideration afresh of the petitioner's application for approval of the agreement of March, 1972, under section 80MM of the Act and deciding the same on merits and in accordance with law but after providing to the petitioner an opportunity to produce all such and other materials, documents and evidence and after fully taking the same into account and consideration. Since indulgence is being granted to the petitioner, I am, in agreement with the submission in that behalf of the respondents' learned counsel, Mr. Joshi, inclined to grant this opportunity on condition that the petitioner pays to the respondents, as condition precedent, costs of this petition quantified at Rs. 2,500.
11. In the result, this petition is allowed. The impugned order dated May 10, 1974 (exhibit D), and the impugned order dated February 8, 1979 (exhibit G), are both set aside and quashed. The proceedings are sent back to the first respondent - the Central Board of Direct Taxes - which will now hear and decide, on merits and in accordance with law in the light of the observations hereinabove, the petitioner's application dated May 25, 1972, for approval of the agreement dated March 31, 1972, with South India Viscose Limited under section 80MM of the Income-tax Act, 1961. As a condition precedent to the action by the Board under this order, the petitioner shall pay to the respondents an amount of Rs. 2,500 as costs quantified of this petition latest by October 31, 1984.
12. Rule is made absolute in terms aforesaid with order for costs as directed.