Skip to content


Simon Carves India Ltd. Vs. Income-tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberC.R. No. 2222 (W) of 1977
Judge
Reported in(1986)54CTR(Cal)178,[1986]159ITR167(Cal)
ActsIncome Tax Act, 1961 - Section 80O; ;Constitution of India - Article 226
AppellantSimon Carves India Ltd.
Respondentincome-tax Officer and ors.
Appellant AdvocateDebi Prosad Pal and ;M. Seal, Advs.
Respondent AdvocateN.L. Pal and ;R.C. Prosad, Advs.
Excerpt:
- .....the said act of 1961, hereinbelow :' 80-o. 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 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 assessee, or in consideration of technical services rendered or agreed to be rendered outside india to such government or enterprise by the assessee, under an agreement.....
Judgment:

P.K. Mukharji, J.

1. The order passed by the Central Board of Direct Taxes refusing to accord ' approval', under Section 80-O of the Income-tax Act, 1961, dated January 4, 1977, has been impugned in the present writ petition by the petitioner company, M/s. Simon Carves (India) Limited.

2. In communicating the said impugned order, the Under Secretary to the Central Board of Direct Taxes has referred to the petitioner's letter dated September 26, 1975, which was the application for grant of ' approval' under Section 80-O of the Income-tax Act, 1961.

3. The impugned order which is set out at annexure ' K ' to the writ petition, inter alia, runs as follows :

' The Board regret their inability to accord approval under Section 80-O of the Income-tax Act, 1961, to the above-mentioned agreement, inter alia, for the reason that the loaning of the services of engineers and draughtsmen for service abroad is not a technical service as contemplated under Section 80-O of the Act. '

4. Thus, it will appear from the above communication that the ' approval' was refused by the authorities on the ground that the loaning of services of the engineers and the draughtsmen for service abroad was not a ' technical service ' as contemplated under Section 80-O of the said Act of 1961, although no detailed reasons have been given in the said communications.

5. It would be convenient for me to set out the relevant portions of Section 80-O of the said Act of 1961, hereinbelow :

' 80-O. 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 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 assessee, or in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, 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 assessee 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 assessee:

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. '

6. Dr. Debi Prosad Pal, learned advocate appearing for the petitioner company, after referring to the aforesaid provisions challenged the impugned decision as communicated by Memo No. 473/93/75/FTD dated January 4, 1977, and submitted that the reasons for not granting approval to the agreement in question, under Section 80-O of the said Act could not be sustained in the eye of law.

7. He further submitted that in refusing to accord approval to the agreement under Section 80-O of the said Act of 1961, the Central Board of Direct Taxes, being respondent No. 3, took into account irrelevant and/or extraneous materials and, as such, the decision of the said respondents in refusing to accord approval to the agreement was not a proper decision in the eye of law and invalid and should be struck down.

8. In this connection, he has drawn the attention of the court to annexures to the writ petition and particularly annexure ' A ' to the writ petition, which contained the order for engineering staff made by Sim-Chem Ltd., a foreign company, to the petitioner.

9. In particular, he had drawn my attention to Item No. 1, i.e., work, design engineering and technical services for North Sea Oil or other projects.

10. He has also referred to Clause 8 of the said agreement, where the terms of accommodation and the mode of payment were referred to, which runs as follows:

' 8. Accommodation and payment :

Sim-Chem will provide each man with free boarding and accommodation furnished to a reasonable extent during his period in the U.K. As far as possible the accommodation will take the form of fiats shared by 2, 3 or 4 individuals, but the allocation of individuals sharing flats will be the responsibility of the Team Leader. Sim-Chem will also provide free bedding, kitchen utensils, crockery and cutlery, and will be the final arbiter in regard to the standard of accommodation provided.

8.1 Sim-Chem will pay SGIL a sum of 25 per week per draughtsman. Overtime will be based at 50 per week.

8.2 Sim-Chem will pay SCIL an amount of 35 per week per engineer. Overtime will be based at 70 per week.'

11. After referring to such terms. Dr. Pal has referred to the application under Section 80-O which is annexure ' B ' to the writ petition with which a 'pro forma' has also been annexed containing several items including items Nos. 1 and 5, which is relevant for our purpose, runs as follows :

1.Name of the assesseeSimon-Carves India Limited5.Please state whether the income is received in consideration for --

(a)(i)any patent, invention, model, design, secret formula or process, or similar property right (give details)

or (ii)information concerning industrial, commercial or scientific knowledge, experience or skill made available or agreed to be made available.

(a)(ii)information concerning scientific knowledge, experience and skill made available.

(b)technical services rendered or agreed to be rendered outside India (give details)(b)technical services rendered outside India.'

12. Dr. Pal has referred to a letter No. 473/93/75-FTD dated February 13, 1976, which, is annexure ' E ' to the petition whereby the Under Secretary to the Central Board of Direct Taxes directed the petitioner to furnish a ' revised pro forma ', which was also duly replied and, in Clause 5, the said reply was set out, at page 36 of the writ petition,

5. Please state whether the income is received in consideration for--

(a)the use outside India of (i)any patent, invention, model, design, secret formula or processes or similar property right

(ii)information concerning industrial, commercial or scientific knowledge, experience or skill made available.

information concerning scientific knowledge, experience and skill made available.

(b)technical services rendered or agreed to be rendered outside India (please also state the arrangements available with the applicant for rendering such technical services and the mode of rendering such services).

technical service rendered outside India.

Applicant has acquired and developed basic knowledge by employment of highly competent professional engineers in most of the technical fields and by execution of large projects.

13. After referring to the reply in the revised pro forma, the learned advocate submitted that the information concerning scientific knowledge, experience and skill made available were furnished to the authorities and it was ascertained that the applicant had acquired and developed basic knowledge by employment of highly competent professional engineers in most of the technical fields and by execution of large projects.

14. Dr. Pal further submitted that on the basis of the aforesaid materials available before the Central Board of Direct Taxes, there was no room for arriving at the relevant satisfaction, namely, as to the loaning of services of engineers and draughtsmen for service abroad. It was 'not a technical service' as contemplated under Section 80-O of the said Act and accordingly such finding being perverse and based on ' no evidence ' at all, the same should be struck down by this court by issue of appropriate writ.

15. The counsel for the petitioner further said that if any instruction in the present case, viz., the Circular No. 187 dated December 23, 1975 : [1976]102ITR83(Mad) in particular, Clause (vi) thereof, is inconsistent with the provisions of Section 80-O of the Income-tax Act, 1961, for not granting approval, then, to that extent, the said circular may be declared void by this court as admittedly the circular cannot override the provisions of the enactment.

16. The said Circular No. 187 dated December 23, 1975 : [1976]102ITR83(Mad) , which has given power to the Central Board of Direct Taxes to refuse grant of approval, under Section 80-O of the Income-tax Act, 1961, is set out hereinbelow (at p. 84) :

' (vi) Agreements for recruitment or mere supply of technical personnel from India for service outside India will not be eligible for approval.'

17. Mr. Nanda Lal Pal, learned advocate appearing with Mr. Ram Chandra Prosad, on behalf of the respondents, on the other hand, has placed reliance on the affidavit, which was affirmed by D.S. Wali, Under Secretary, Central Board of Direct Taxes, on July 23, 1979, before the Oath Commissioner, Delhi, on June 14, 1985.

18. After placing the said affidavit, he has drawn my attention particularly to the statements made in paragraph 10(a) of the said affidavit, which runs as follows :

' 10(a). With reference to the statements made in paragraph 18 of the said petition, I say that mere loaning of the services of engineers and draughtsmen for service abroad is not a technical service contemplated under Section 80-O of the said Act. I say that agreement also does not provide nor indicate that such engineers and draughtsman will prepare designs and data for use of the North Sea Oil Project. The agreement spoke only of the services of engineering staff being made available to the U.K. Co. The essence of the agreement is that the assessee will make certain staff available to the U.K. Co. and in consideration thereof, a certain fee would be payable to the Indian company. I deny that refusal of approval was wrong as alleged or at all or that respondents Nos. 2 and 3 were clearly in error in treating the said agreement as one merely of loaning of the services of engineers and draughtsmen.'

19. In paragraph 10(b) of the said affidavit, the following note submitted by Shri J.C. Kalra, Joint Secretary to the F.T.D., was referred to, which runs as follows :

' Shri S.N. Makhijani, secretary of the company, and Shri Dilip Sirkar, resident representative, came and discussed the case with me. I pointed out to them that the agreement with the U.K. company lying at page 29/c clearly provides for the Indian company making services of certain engineers and draughtsmen available to the U.K. company fordesign, engineering and technical services for the North Sea Oil Project. Even the caption of the agreement is ' Order for engineering staff '. The essence of the agreement, therefore, is that the Indian company will make certain staff available to the U.K. company and in consideration thereof, a certain fee would be payable to the Indian company. Shri Makhijani and Shri Sirkar argued at length that these engineers and draughtsmen actually prepared designs and data which were made use of for the North Sea Oil Project. However, the agreement gave no indication whatsoever of the nature of the design or engineering data which the assessee company was to supply. On the other hand, the agreement spoke only of the services of engineering staff being made available to the U.K. company. An agreement of this type is clearly ineligible for approval under Section 80-O, as indicated in para. 3(vi) of the Board's Circular No. 187.'

20. After referring to the aforesaid note, Mr. Pal submitted that mere supply of the engineers and draughtsmen outside India does not come within the condition or guidelines laid down in Circular No. 187 : [1976]102ITR83(Mad) as stated hereinabove.

21. After going through the original record, which was produced by Mr. Nandalal Pal on January 30, 1986, I do not find anything new apart from the facts disclosed in paragraph 10(b) of the affidavit-in-opposition.

22. It appears from the impugned memo dated January 4, 1977, that a gist of the decision of the Central Board of Direct Taxes was communicated to the petitioner company, whereby the said Board had recorded its inability to accord ' approval', under Section 80-O of the Income-tax Act, 1961, to the agreement for the reasons that loaning of the services of engineers and draughtsmen for service abroad is not a technical service, as contemplated under Section 80-O of the said Act.

23. It is not disputed that in exercising jurisdiction to grant ' approval', under Section 80-O of the Income-tax Act, 1961, the Central Board of Direct Taxes is exercising administrative power, but from the wording of the said section, it appears that the said authority is duty bound to exercise its discretion, as the revenue authority, by granting approval to the agreement is giving relief relating to taxation to a company in consideration of technical services rendered outside India by such company.

24. It is well established by a series of recent decisions of the Supreme Court that the court should interfere in cases where the taxing authority commits an error of law and the resultant action threatens and violates the fundamental rights of the petitioner.

25. In the present case, the Central Board of Direct Taxes is required to act as administrative tribunal and to follow the procedural rules and therules of natural justice, but it appears that although the petitioner company was required to furnish additional particulars by submission of a revised pro forma as disclosed in page 36 of the petition and had duly discharged their obligations in the said regard, yet, in refusing to grant approval, the said Tribunal had merely refused to grant approval by arriving at the perverse conclusion that the loaning of services of engineers and draughtsmen for service abroad was not a ' technical service ' as contemplated under Section 80-O of the said Act.

26. After going through the respective pleadings and the original records, which was produced on January 30, 1986, and after hearing the counsel for both parties at length, I am of the view that the Central Board of Direct Taxes had not considered the application of the petitioner for ' approval', in accordance with law, but had merely refused the approval, by applying paragraph 3(vi) of the Board's Circular No. 187 : [1976]102ITR83(Mad) , which indicated mere guidelines for grant of approval of the agreement, under Section 80-O of the Act.

27. In my opinion, the petitioner company was entitled to approval of the agreement under the first part of Section 80-O, inasmuch as it was making available the information concerning industrial, commercial or scientific knowledge, experience or skill to the foreign company. The Division Bench judgment of the Delhi High Court in Oberoi Hotels (India) Pvt. Ltd. v. CBDT, : [1982]135ITR257(Delhi) , applies with full force to the facts of the present case.

28. Accordingly, the writ petitioner is entitled to succeed. The impugned order communicating refusal to grant approval dated January 4, 1977--(annexure ' K ') is accordingly set aside by appropriate writ.

29. The respondents are further commanded to act and proceed in accordance with law and to consider the application for grant of approval of the petitioner in accordance with law.

30. On the facts and circumstances of the case, there will be no order as to costs. Rule is made absolute.

31. On the prayer of Mr. R.C. Prosad, learned advocate appearing on behalf of the respondents, operation of the judgment and order shall remain stayed for a period of six weeks from date, subject to continuance of the interim order granted by this court at the time of issuance of the rule.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //