GOSWAMY J. - The question for decision raised in this petition under art. 226 of the Constitution of India is whether the agreement in question satisfies the requirement of s. 80-O of the I.T. Act, 1961. The relevant facts are, as under :
The petitioners are a private limited company incorporated under the Companies Act, having their registered office at 4, Mangoe Lane, Calcutta, and are assessed to income-tax under the provisions of the I.T. Act, 1961. The petitioners, during the course of their business, entered into agreements with M/s. Soaltee Hotel Pvt. Ltd., a company incorporated and registered in Nepal and with M/s. Imperial Hotels Ltd., Singapore. The purpose and the terms and conditions are contained in the said agreements. In the present petition, the agreement entered into with Nepal company has been annexed and, thereforee, we would give the relevant clauses of the said agreement only. The relevant clauses are as under :
'And Whereas, the Hotel Company wants to construct and add approximately 190 (one hundred and ninety) more rooms in the Soaltee and also to obtain contracts for airlines catering (all the aforesaid activities of the Hotel Company, namely, Soaltee Hotel and the additions therein as described hereinafter, the restaurant at Tribhuvan Airport, Kathmandu, and the various airlines catering contracts are described, hereinafter collectively as the Hotel);
And Whereas, Oberoi has a name and worldwide reputation in the hotel field and is experienced in and has the technical skill for providing professional, architectural, engineering and decorating service, and is qualified to assist in planning, designing, constructing, furnishing and equipping of hotels;
And Whereas, Oberoi is engaged in the development, leasing and operation of hotels (said hotels being hereinafter referred to as the Oberoi group) in the interest of facilitating international travel and trade;
And whereas, in view of the name and tradition, experience and skill of Oberoi in the hotel world for profitable operation of hotels and for bringing the hotel to international standards and for ensuring better operational results and promotion of business of the hotels, the Hotel Company desires that the hotel should w.e.f. 1st December, 1969, and the new wing as and when completed, be run and operated by Oberoi and Oberoi agrees and accepts to do so for consideration herein contained.
Now, thereforee, in consideration of the aforesaid and the mutual covenants, herein contained, it is agreed as follows :
I. Trade Name.
The parties covenant and agree that during the term of this agreement the hotel (including commercial space, but excluding the Soaltee Casino, Nepal) shall henceforth be known and designated as the Hotel Soaltee Oberoi.
It is recognised, however, that the name Oberoi when used alone or in conjunction with some other word or words, is the exclusive property of Oberoi. The Hotel Company agrees that no right or remedy of the Hotel Company for any default of Oberoi, or delivery of possession of the Hotel to the Hotel Company, upon expiration or sooner termination of this agreement, shall confer, nor shall any provision of this agreement confer upon the Hotel Company, or any person, firm or corporation claiming by or through the Hotel Company, the right to use the name 'Oberoi' either alone or in conjunction with some other word or words, in the use and operation of the hotel by the Hotel Company, or any transferee, assignee or successor of the Hotel Company, or any person, firm or corporation claiming by or through the Hotel Company. Similarly, the word 'Soaltee' shall be the exclusive property of the Hotel Company and shall not be used by Oberoi either alone or in conjunction with some other word or words.
II. Training, advertising and promotion
Oberoi agrees to recruit and train the requisite staff of the Hotel through such training programme including hotel schedule, if any, and other training techniques, as it deems necessary. It is agreed and understood that Oberoi will select suitable personnel for adequate and proper training in hotel management and operation. It is understood that Nepalese nationals shall always be given a preference. Oberoi further agrees to use its best efforts to advertise and promote the business of the Hotel through its best existing facilities. The Hotels Company, subject to later amortisation and reimbursement as hereinafter provided, shall pay or reimburse Oberoi in full for all costs and expenses of the said training as herein provided, and for the cost of all advertising, promotion literature, travel and business entertainment, including celebrations and ceremonies, incurred prior to or concurrently with the beginning of full operation of the Hotel by Oberoi. All costs, if any, incurred by Oberoi shall be paid by the Hotel Company within thirty (30) days thereafter.
III. Duration of the term
The terms of this agreement shall expire at midnight fifteen years from the date Oberoi starts operating the Hotel. This agreement is subject to an extension for a further period of (5) five years at the option of Oberoi on the same terms and conditions as contained herein.
V. Operation of the Hotel
Oberoi covenants to use the Hotel solely for the operation of a first class hotel on international standards and all activities in connection therewith which are customary or usual for such operation. It is understood that Oberoi shall have, within the terms and provisions hereof, absolute discretion in the operation of the Hotel but the same shall always be and be deemed to be owned by the Hotel Company exclusively. Likewise, Oberoi shall not be liable for any insurance premia, land tax or ground rent or property tax or any other liability whatsoever in respect of the land/building of the Hotel.
Subject to the aforesaid, Oberoi shall have absolute discretion in the operation of the Hotel and without limiting the generality of the foregoing such discretion of Oberoi shall include and extend to among others the use of the Hotel for all customary purposes, the charges to be made for and the terms of, the admittance of the Hotel for rooms, for commercial space, for privileges for entertainments and amusements, for food and beverages and services, for formulation of all policies pertaining to operation of the Hotel, labour policies of the Hotel and all phases of promotion and publicity.
Oberoi undertakes to operate and provide in the Hotel all facilities and services normally operated or provide by operators of Hotel of comparable class and standing and shall not lease or sub-lease or grant concession in respect of such facilities and services provided however that Oberoi shall have the right to grant concessions or make arrangements in respect of commercial spaces or services on the premises or within the hotel customarily subject to the sub-lease or concession in comparable first class hotels and the rentals or other payments received under such concessions or arrangements shall be included in the revenue as hereinafter provided. The above arrangement, however, excludes the agreement the Hotel company has with the Soaltee Casino, Nepal.
VI. Amount payable to the parties
(a) The Hotel Company and Oberoi shall be entitled to 85% and 15% respectively, of the gross operating profits as defined in this Agreement. Payments of their shares of gross operating profits for each financial year shall be made as follows :
Subject to clauses (b) and (c) of article VII,
(i) Within 60 (sixty) days after the end of the first six months period of each completed financial year, a preliminary Installment shall be paid equivalent to 85% (eighty-five per cent) of the Hotels gross operating profit for such six months period as set forth in the Hotels profit and loss account certified by Oberois auditors and Oberoi shall similarly draw 15% (fifteen per cent.) of the gross operating profit;
(ii) Within 90 (ninety) days after the end of each financial year, a final installment shall be payable to the Hotel Company based on the Hotels gross operating profit for the entire financial year as certified by joint auditors of the Hotel Company and Oberoi after deducting there from the amount of the preliminary Installment /installments paid. Oberoi shall similarly draw its share of 15% (fifteen per cent.) of the gross operating profit for the financial year after deducting the preliminary Installment. In the event that the preliminary installment in any financial year shall exceed the amount due for the entire financial year both the parties shall refund the amount of such excess to the Hotel within 90 (ninety) days after the close of the financial year.
(b) The first financial year shall be the period between the commencement date of the operation of the Hotel by Oberoi and the following July 15. If the commencement of the term falls in the fourth quarter in any financial year, then the first installment shall be calculated and paid for the period from the commencement of the term to the end of the first six months in the next subsequent financial year.
(c) After the completion of the proposed new wing and with the commencement of its operation by Oberoi, Oberoi would be entitled to 12 1/2% (twelve and half per cent) of the gross appearing profits instead of 15% (fifteen per cent) as provided hereinbefore and the Hotel Companys share shall consequently be 87 1/2% (eighty seven and half per cent) instead of 85% (eighty five per cent).
VII. Accounting system and books and records and operation of bank accounts.
(a) Oberoi shall maintain full and adequate books of account and other records reflecting the results of operation of the Hotel. Records and books of account for the Hotel shall be kept in accordance with the uniform system of accounts for hotels in so far as it is not inconsistent with the provisions of law in Nepal.
(b) During the operation of the hotel all the revenue of the hotel shall be deposited in a bank account (hereinafter referred to as the operation account) to be operated by Oberoi and would be included in the Hotels books of account. A daily statement of collections will be furnished to the Hotel Company by Oberoi. The said daily statement shall be supported with the bank statement. Any authorised representative of the Hotel Company shall be entitled to do periodic or daily checking of the accounts of the Hotel.
(c) Oberoi will submit monthly budget of estimated income and expenditure in detail and the gross operating profits in terms of this agreement. The surplus representing the above estimated gross operating profits shall be transferred every month to a separate bank account (hereinafter called the joint account) to be operated jointly by the Hotel Company and Oberoi out of the aforesaid joint account. The Hotel Company shall be paid monthly Installments of their estimated share of gross operating profits in order to facilitate the Hotel Company to meet its commitments. Oberoi shall also be entitled to take its estimated share of gross operating profit every month. The records of this account shall be maintained in the books of the Hotel Company and shall be designated Operational control account.......
VIII (C). Gross Operating Profits
Gross operating profits for any fiscal period shall be determined by deducting from the gross operating revenue, to the extent such gross operating revenue is available, the amounts specified in sub-section (1) and (2) of this section.
IX. Advertisement, Specialised Hotel services and reservation facilities
A. Oberoi shall not without the concurrence of the Hotel Company spend more than 3% of the total sales of the Hotel on the normal advertisement expenses of the Hotel. This expenditure shall be a prior charge to the gross operating revenue in arriving at gross operating profit.
B. For worldwide promotion of the Hotel, the Hotel Company desires and Oberoi accepts that Oberoi shall in any manner it regards fit and proper make necessary arrangements with any company or companies, agency or agencies in any one or more countries for specialised hotel services and worldwide reservation facilities. Oberoi is authorised to pay to such company or companies, agency or agencies as described above a total amount of 3% (three per cent) of the total sales of the hotel per annum as mentioned in Section A of Art. VIII hereof and such promotion expenses shall be a prior charge to gross operating profits.
The Hotel Company shall undertake to obtain necessary sanction from appropriate authority or authorities in connection with the remittance of the amounts mentioned hereinabove in convertible foreign currency.
Oberoi will at the time of taking over the operation of the Hotel, purchase the existing stock of food and beverages, oil or other fuel, stationery, and other similar stores (except operating equipments), and the Hotel Company shall be paid the cost thereof. The amount paid by Oberoi to the Hotel Company shall be payable to Oberoi out of the revenue of the Hotel before the expiry of one year..........
XIII. Damage to and destruction of the Hotel and insurance
A. The Hotel Company agrees, subject to the provisions of art. XI, to repair, restore, rebuild or replace any damage to, or furnishings and equipment, or any portion of either, resulting during the term of this Agreement, from fire or other casualty.
B. The Hotel Company shall at its own costs and during the term of this Agreement maintain adequate insurance for the purpose mentioned in the section A of this article and for any other purpose as is customary in the locality where the hotel is situated. The Hotel Company agrees to repair, restore, rebuild or replace any damage, impairment, or destruction in respect of the property including the buildings, furnishings, fixtures, equipment, etc.........
XV (C). Without prejudice to the contents of sections A and B of this article, either party to this Agreement shall have a right to claim liquidated damages from the other party arising out of non-performance and/or non-observance of the conditions of this Agreement and/or for nonpayment of any amount lawfully due to the party.
D. Without prejudice to the contents of sub-clauses (A) and (B) of this clause, the Hotel Company retains the right to require Oberoi, by written notice, to remedy within 30 days any non-performance and/or non-observance of the conditions of this agreement and/or non-payment of any amount lawfully due to the Hotel Company under this Agreement. Unless the matters so complained of are adjusted within the period specified above, the Hotel Company may give a further written notice to Oberoi of its intention to terminate this Agreement upon a date to be specified in such notice, which date shall not be less than 30 (thirty) days or more than 90 (ninety) days from the date of such further notice. In the event such further notice is given, this agreement shall terminate and the rights of the parties hereunder shall cease upon the date so specified in such further notice, either party hereto shall have requested arbitration as provided for in art. xviii of this Agreement, in which event, this Agreement shall remain in force and effect pending the decision in such arbitration proceedings......
Any and all disputes and controversies arising out of or in any manner relating to the performance of this agreement which cannot be settled by mutual agreement of the parties hereto shall be submitted to arbitration of the International Chamber of Commerce. The decision of the arbitrator/arbitrators shall be binding and judgment upon the award rendered by them may be entered in any competent court in Nepal. The obligation of the parties in respect of this agreement shall continue during the arbitration proceedings and no payment due to be made to either party other than those under dispute, shall be withheld on account of such proceedings....
XXI. Successors and assigns
All the terms and provisions of this agreement shall be binding upon and shall ensure to the benefit of the parties hereto and their respective successors and assigns. Either party to this agreement shall have a right to assign this agreement in full or in part provided, however, Oberoi shall not assign this agreement without the prior approval of the Hotel Company if the assignment is to be made to any company or party wherein Oberoi has no interest....
XXIII. Representation on the board of directors
It is agreed that Oberoi shall have due representation in the board of directors of the Hotel Company and at least one person nominated by Oberoi shall always represent Oberoi in all the meetings, deliberations and any decision arrived therein in connection with the hotel business.....
XXVI. Consulting services
(a) Oberoi will, in consultation with the Hotel Company, make available for the Hotel, its staff of consultants and specialists who are qualified to provide advice in the various departments and aspects of hotel operations. The services of the members of the Oberois staff and of any outside consultants engaged by Oberoi on retainer will be rendered on the basis of reimbursement by the Hotel Company to Oberoi of the salaries of Oberois personnel during the time they render services directly for the Hotel, and reimbursement of the amounts paid to such consultants under their retainers plus all travel, subsistence and out-of pocket expenses incurred by such personnel and consultants in performing services for the Hotel. Such amounts will be reimbursed in the currency in which the same are incurred.
(b) Oberoi will also provide training and instruction for key personnel of the Hotel in order to prepare them to serve the Hotel in the capacities for which they will be trained. Such key personnel to be trained will be placed in existing hotels of the Oberoi group and will be instructed and supervised by the management of hotels, and progress reports will be made from time to time on such personnel. All travailing expenses and salaries of the aforesaid trainees shall be borne by the Hotel Company and Oberoi shall make arrangements for their boarding and lodging at its own costs and also pay suitable pocket allowance to them.
XXVII. Oberoi to act solely as agents : Indemnity by the Hotel Company
A. In taking any action pursuant to this agreement, Oberoi shall be deemed to be acting as agent for the Hotel Company :
The Hotel Company will indemnify Oberoi and hold Oberoi harmless from and against any and all claims of any nature, including the cost, expenses and reasonable attorneys fees incurred in defending such claims, which may be asserted against Oberoi by reason of any action by either of them in accordance with this agreement. Nor shall Oberoi be liable to the Hotel Company for any action taken or omitted to be taken by either of them except for losses caused by their own willful misconduct or gross negligence.
B. It is agreed that Oberoi shall have full authority to file, institute, conduct and contest legal proceedings of any nature for and on behalf of the Hotel and to engage lawyers for conducting the aforesaid cases. For the due performance of their obligations under this agreement Oberoi shall be competent to execute any deeds or documents and to make or receive payments in connection thereof. The Hotel Company shall authorise Oberoi through a power of attorney to act on behalf of the Hotel Company and the Hotel on all matters concerning the operation of Hotel excluding transactions at Government level.
Xxviii. Title of the immovable property
The Hotel Company shall not pass the title of the immovable property of the Hotel or in any way alienate the same during the subsistence of this agreement or the renewal thereof. The Hotel Company shall make the said property available to Oberoi for the preparation of the Hotel at all times during the terms of this agreement.
XXIX. The principal shareholders of the two parties shall sign this agreement as if they are actual parties to the same and shall be bound by the terms of this agreement during its original term or renewal thereof and they shall not do or fail to do any act which may result in either the termination of this agreement or render its implementation and/or continuance and/or operation difficult or impossible.'
The petitioner-company submitted applications along with copies of the agreements for approval under s. 80-O of the I.T. Act, 1961. Respondent No. 1, however, refused to grant approval and rejected the applications by order dated June 12, 1973, in the case of Nepal Co. and by order dated July 9,1975, in the case of Singapore Co. The said orders of respondent No. 1 were challenged by way of two writ petitions under art. 226 of the Constitution of India. The writ petitions came up for hearing before a Bench of this court of which one of us (Goswamy J.), was a member. The petitions were allowed and the orders refusing to grant approval were quashed on the ground that the same did not contain any reasons and the reasons, for the first time, were disclosed in the counter-affidavits filed in opposition to the writ petitions. The cases were remanded to the respondent for fresh decision after giving adequate opportunity, of hearing, to the petitioner-company.
As a consequence of the aforesaid orders of this court, the applications of the petitioner-company again came up for hearing before respondent No. 1. At the hearing the petitioner-company filed further affidavits disclosing the nature and type of the expertise, knowledge and services rendered by the petitioner-company to the foreign companies in general and to the Hotel Soaltee Oberoi and Hotel Oberoi Imperial in particular. Respondent No. 1, however, declined to grant approval vide its order dated February 26, 1980, on three grounds which are :
'(1) The services being rendered by you to the foreign part in both cases are in the nature of managerial services. As observed by the Delhi High Court in Civil Writ No. 901 of 1975 (J.K.(Bombay) Ltd. v. CBDT : 118ITR312(Delhi) ) the running of a business or the management of a business does not amount to the rendering of technical services.
(2) What is being given under the agreements can also not be viewed as information concerning industrial, commercial or scientific knowledge or skill. It is not as if some information is being supplied by you which is made use of by the foreign parties. Under the two agreements, you are yourself functioning in the foreign countries.
(3) Though your name is being utilised by the two foreign hotels, and the fee received for the use of your trade name would be covered by the provisions of section 80-O yet the amount relatable to this aspect of the total services rendered under the two agreements would be so small that it is not easy to quantify the same for purpose of section 80-O of the Income-tax Act, 1961.'
Dissatisfied with the aforesaid order of respondent No. 1, the petitioner-company has filed the present petition under art. 226 of the Constitution of India. The question for decision in this petition is whether the agreements in question satisfy the requirements of s. 80-O of the I.T. Act, 1961, Section 80-O is as follows :
'80-O. Where the gross total income of an assessed being an Indian company includes any income by way of royalty, commission, fees or any similar payment received by the assessed 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 information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessed, or in consideration of technical services rendered or agreed to be rendered outside india to such Government or enterprise by the assessed, under an agreement approved by the Board in this behalf, and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessed in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of the whole of the income so received in, or brought into India in computing the total income of the assessed :
Provided that the application for the approval of the agreement referred to in this sub-section is made to the Board before the 1st day of October of the assessment year in relation to which the approval is first sought :
Provided further that approval of the Board shall not be necessary in the case of any such agreement which has been approved for the purposes of the deduction under this section by the Central Government before the 1st day of April, 1972, and every application for such approval of any such agreement pending with the Central Government immediately before that day shall stand transferred to the Board for disposal.
Explanation - The provisions of the Explanationn to section 80N shall apply for the purposes of this section as they apply for the purposes of that section......'
A Bench of this court to which one of us (Goswamy J.) was a member, had the occasion to analysed the provisions of s. 80-O of the I.T. Act in Civil Writ No. 901 of 1975 (J.K.Bombay) Ltd. v. CBDT : 118ITR312(Delhi) . After considering the entire scheme of s. 80-O it was held in that case that the significant features of s. 80-O were as follows (p. 316) :
(1) The provisions of deduction applies only to royalty,, commission, fees or any similar payment. These payments are received by a company either for supplying information or for rendering technical services. This postulates that the Indian company does not become a part of the foreign enterprise. If the two merge together then the identity of the Indian company would be lost and what would be paid would be not royalty, commission, or fees but rather a share in the profits.
(2) The identity of the Indian company being distinct from that of foreign enterprise,, the Indian company must not run foreign company. If it does so it is difficult to separated the management function exercised by the Indian company from the day to day working of the foreign company.
(3) This necessity of the Indian company having a separate identity explains why the meaning of 'technical services' to be rendered by an Indian company under section 80-O would have to be different from the meaning of technical services rendered by an individual. An individual would not become a part of the company under which he is serving. He would remain an employee. He cannot run a company as a whole. It would appear, thereforee, that the definition of 'technician' in section 80RRA(2) , Explanationn (c), is much wider than the scope of technical services envisaged in section 80-O. The same reason explains why the definition of technician in section 10(6)(vii) , Explanationn, includes industrial or business management techniques. For the same reason technical services in section 9(1)(vii) , Explanationn 2, includes managerial services, while such services are not included in section 80-O. '
The question in that case was whether the services of managing agents rendered by an Indian company to a foreign company are technical services within the meaning of s. 80-O of the I.T. Act, 1961. On the facts of that case, it was held that the managerial services rendered by the managing agents could not be termed as technical services for the reason that the performance of 'managerial' or 'commercial services' by an Indian company for a foreign enterprise would amount to virtually managing or running the foreign company remuneration obtained by the running or managing a foreign company would be in the nature of profits, while s. 80-O deliberately restricts itself to income by way of royalty, commission or fees and excludes other types of remunerations. Reliance was also placed on Circular No. 187, dated 23rd December, 1975, issued by the Board, published in : 102ITR83(Mad) , in particular, on para. 3(vii) of the said circular, which is in the following terms :
'Agreements which provide for participation in business or management operations abroad simplicities in return for specified percentage of commission or profit will not be eligible for approval'.
The learned counsel for the petitioner sought to distinguish the case of J.K.Bombay : 118ITR312(Delhi) on various grounds; he contended that the petitioner-companies position qua the Nepal Hotel was quite different from that of the petitioners case in J.K (Bombay); he also urged that the propositions set out in that judgment had to be read in the context of the case and were not to be generally applied to the other cases also. The real question in the case of J.K. (Bombay) was whether managerial services rendered by the managing agents could be termed as technical services within the meaning of s. 80-O. He also sought to distinguish the case of the petitioner on the ground that though the petitioner was in a sense carrying on the day-to-day management of the hotel at Nepal, it was also rendering important technical services such as engineering services, laundry services, architectural services, interior decoration services, maintenance of cold storage, maintenance of generating sets or boiler rooms. Besides these services, there was the service of training the staff for the foreign company. The said staff was recruited in Nepal and trained by the petitioner-company and such to services were particularly technical in nature. The question really boils down to determining whether the services which are being rendered by then petitioner to the company in Nepal are distinguishable from the services which were being rendered in the case of J.K. (Bombay) : 118ITR312(Delhi) . Can it be said that services which being are being rendered by the services being by the petitioner are similar to or almost the same as the services which were being rendered by the managing agents in the case of J.K.(Bombay). It seems that the passage appearing in the case of J.K.(Bombay) are somewhat widely stated because it was quite a new type of which did not visualise all the possible situations. We are, thereforee, to find out what is the ratio decidendi of the case as opposed to the general propositions stated in the case. As stated by Salmond in his work on Jurisprudence and also in the case of Qualcast (Wolverhampton) Ltd. v. Haynes  AC 734 (HL) it is the radio disdained which determines the statement of law and that ratio depends on the legal problems arising from the facts of the case. This is the statement of law which creates the precedent. However, general propositions set out in the judgment are not part of the ratio. We have to determine what is the ratio of the case, rather than apply the propositions stated therein as if they are statutory provisions.
This view and the manner in which the ratio disdained is to be applied has been approved by the Supreme Court in the case of Dalbir Singh v. State of Punjab, AIR 1979 SC 1384. It is true that the agreement with the Nepal Company also visualise the provisions of day to day managerial services for the foreign company and it may be urged that such managerial services are not distinguishable from the services being rendered by J.K.(Bombay) : 118ITR312(Delhi) to the foreign company. But, it does seem that there is a difference between the two cases. The management of a managing agency is not the same thing as managing hotels for a foreign company. It is not an aid to another who is managing but, is the taking over of the operation for oneself. The managed company and a managing agent have one and the same personnel. But the managing of a hotel for another is not the management of that foreign company. But, it is the doing of some work or the provision of a service for that case of a modern hotel. If it was not a technical service requiring the use of expertise, it would be unnecessary for the foreign company to employ the petitioner in the present case for the purpose. As is well known, in the case of hotels and such like enterprises, experts used to be called from France and Italy even by Indian Hotels as the work was not properly understood. Persons, who have to acquire knowledge in the working of hotels, have even till today, in some cases, been sent abroad for training in understand that the degree and diplomas in hotel management are granted to successful persons who have had this training. This in not the case in a managing agency. Anybody can be a managing agent. He does not have to have any technical knowledge for the purpose. Every-body, however, cannot operate and manage a hotel, there are so many branches of hotel management which require experts only. For instance, decoration of rooms, making of menu, making arrangements for guests at large functions, cooking of the special quality food which is expected to be supplied at such hotels; making provisions for the accommodation of customers; getting customers from abroad to visit, making commercial arrangements with others, and so on. All these and may other services are requirements for ensuring that the necessary number of experts fill the hotel and also serve to give a good name to the hotel as regards its comforts and the food and other services supplied in such a hotel. But, this is not at all akin to the services that a managing agency renders to the managed company. Those services are of purely commercial nature which cannot to described as technical. In fact, in most examples of managing agency in Indian before the system was abolished, the managing agent was the managing agent only because he or the firm or company, as the case may be, held the controlling interest of the shares. If the managing agent lost the control of the shareholding, he also lost the managing agency. The managing agency was, thereforee, purely financial as opposed to the case of the petitioner.
The wider proposition stated in J.K. (Bombay) : 118ITR312(Delhi) was not accepted by the same Bench in the case of Ghai Lamba Catering Consultants P. Ltd. v. CBDT : 124ITR301(Delhi) . In that case, the petitioner-company was not non-suited on the ground that it was managing the company and as such was not rendering any technical services. The ratio of the decision is stated as under (pp. 305.306) :
'Applying the test laid down in the aforesaid judgment there is no escape from the proposition that the agreement in question is nothing but a joint venture. The petitioner-company is holding about 30% of the share capital of the company and is entitled to 25% of the annual net profits and it is further significant to note that the petitioner-company is also entitled to 25% of all the net capital profits arising for the benefit of the English company including any surplus arising on winding up. The petitioner-company is the sole authority for major policy decisions of the English company. A perusal of the relevant clauses of the agreement, reproduced above, leave no manner of doubt that the main function of the petitioner-company is to manage and the restaurants and in return the Indian company is entitled to a particular percentage of profits. The agreement does not in terms state as to what type of technical services are to be rendered by the Indian company....... It is clear case of joint venture and the management is practically left with the petitioner-company. The petitioner-company is entitled to the dividend on its shareholding and is getting 25% of the annual net profits. In the circumstances, the said payments cannot be termed as royalty, commission, fees or any similar payment.'
It cannot be disputed that the running of a modern hotel requires highly specialised management techniques and a combination of scientific management and highly specialised inn-keeping. The modern system of preparation of food and beverages also involves considerable technical skill and know-how. These elements do not find place in the case of a managing agency.
The present case is distinguishable from the two cases, namely, the case of J.K. (Bombay) : 118ITR312(Delhi) (Delhi) and Ghai Lamba Catering Services : 124ITR301(Delhi) referred to above, inasmuch as the petitioner-company is not managing the foreign companies but is only engaged in managing particular undertakings of the said foreign companies. The petitioner-company has no say in the management of the affairs of the two foreign companies and the petitioner-company does not control the utilisation of the profits or investments or other assets of the foreign companies. The petitioner-company does not participate in the net profits of the foreign company which was the case in both the cases referred to above. It has not been disputed in the counter-affidavit that the petitioner-company has not made any capital assets or acquired any interest in the capital assets or interest in the shareholding of the foreign company. All that the petitioner-company is entitled to is a percentage of gross operating profits which is different from sharing of commercial profits. The agreement with the Nepal Company is for a fixed period of 15 years, which can be extended at the most for a further period of five years, and after that the petitioner-company is not left with any interest in the foreign company. In these circumstances, it cannot be said that the petitioner-company has in any was merged with the foreign company.
The learned counsel for the petitioner also argued that in any case the petitioner-company was entitled to the approval of the agreement under the first part of s. 80-O inasmuch as it was making available the information concerning industrial. commercial or scientific knowledge, experience or skill to the foreign company. On a careful consideration of this argument, we are unable to agree that the petitioner-company is giving any such information to a foreign company inasmuch as there is no provision in the agreement referred to above.
For the reasons recorded above, we are of the opinion that respondent No. 1 was not right in saying that the case was covered by the judgment of this court in the case of J.K. (Bombay) : 118ITR312(Delhi) and as such we quash the impugned order and direct that approval be accorded in respect of the petitioners agreement with the Nepal Company. As far as the agreement with the Singapore Company is concerned, the same being not on record, we would send back the case to the Board for fresh consideration in the light of the observations made above. Since the points involved were not free from difficulty, we would leave the parties to bear their own costs.