1. The petitioner is a public limited company and carries on business, inter alia, of manufacture of sugar. In the other course of the petitioner's business, the petitioner has acquired necessary technical know-how for setting up sugarcane farms, sugar manufacturing factory, sale of sugar and the management of large sugar factories.
2. The petitioner offered its technical know-how to the Government of Malaysia and entered into correspondence of rendering of technical know-how and services by the petitioners to the Negeri Sembilan Development Corporation of the Government of Malaysia. Three different agreements in respect of; (1) know-how, (2) investment and (3) service were entered into with the Corporation on November 24, 1972. Under the know-how agreement, the petitioner was to provide and make available to the Corporation all the processes, formulae, knowledge and technical know-how developed by the petitioner for establishment of organisation, erection and installation of sugarcane plantations and sugar factory and production of sugar at the factory. The petitioner was to receive consideration in fully paid up equity shares of the face value of M$ 15,00,000 of the new company to be formed for the purpose of establishing the cane farm and sugar factory. The agreements entered into by the petitioner with the Corporation required approval of the Central Board of Direct Taxes, New Delhi, for the purpose of deduction from gross total income under s. 80-O of the I.T. Act, 1961.
3. Under s. 80-O of the I.T. Act, 1961, an assessee is entitled to certain deductions in respect of royalties and technical fees received from foreign Government or enterprise. Such deduction is permissible only if the agreement under which the payment is received is approved by the Central Board of Direct Taxes - respondent No. 1. The respondent No. 1 can consider the application for approval only if it is filed in the prescribed form and within the stipulates period. The petitioner applied by a letter dated August 3, 1973, to respondent NO. 1 for approval of the agreement dated November 24, 1972, for rendering the service to the Corporation. By a reply dated January 23, 1974, respondent No. 1 informed the petitioner that the particulars of the agreement should be furnished in the enclosed proforma in triplicate along with three duly certified true copies of the agreement. The petitioner by their covering letter dated July 12, 1974, forwarded the application in the prescribed form for approval, and the approval was sought in respect of both the agreements that is, (1) know-how agreement, and (2) service agreement. The petitioner also mentioned the amounts for which the deduction under s. 80-O of the I.T. Act was claimed by the petitioner. The copies of the agreements were also forwarded and the approval was sought in respect of both the agreements for the assessment year 1974-75 and subsequent assessment years. The petitioner thereafter sent several reminders and ultimately received the approval only in respect of the service agreements on February 25, 1976.
4. The petitioner filed the return of income of the assessment year 1975-76 and during the proceedings for completion of the assessment of that year claimed that amount of M$ 15,00,000 as capital receipts not liable to income-tax. The ITO took the view that the said amount was a trading receipt and, therefore, liable to tax. The petitioner thereupon by letter dated October 12, 1978, requested the Finance Minister, Government of India, to give appropriate directions to the ITO, but respondent No. 1 informed the petitioner by letter dated December 15, 1978 that the Board is unable to intervene in the matter. The petitioner thereupon entered into lengthy correspondence with respondent No. 1 requesting for approval under s. 80-O of the I.T. Act to an agreement for supply of technical know-how as mentioned in an application dated August 3, 1973. The petitioner was informed that the application for approval under s. 80-O of the I.T. Act was only in respect of the service agreement and not in respect of the agreement to supply know-how. The petitioner sought ground on which the approval to the know-how agreement was withheld, and ultimately by letter dated January 17, 1980, respondent No. 1 informed the petitioner that no application under s. 80-O. of the I.T. Act is pending before the Board and, therefore, the question of grant of approval or rejection does not arise. It was further stated that the mere mention of the claim for deduction in the pro forma accompanying the letter of the application would not amount to an application for approval of the know-how agreement. The petitioner thereafter filed the present petition in this court under article 226 of the Constitution of India on December 20, 1979, and the relies sought are that respondent No. 1 should be directed to consider the application for approval of the agreement to supply know-how to enables the petitioner to claim relief under s. 80-O. of the I.T. Act.
5. On behalf of the respondents, return dated August 12, 1981, sworm by Jaspalsingh, ITO, is filed to resist the reliefs sought by the petitioner. Shri Joshi, learned counsel appearing on behalf of the respondents, raised a preliminary objection to the maintainability of the petition on the ground that the Bombay Court has no jurisdiction to the grant the relief claimed in the petition. Shri Joshi urged that the office of respondent No. 1 is at New Delhi and no part of the cause of action arisen within the limits of the Bombay Court and, therefore, the filing of the petition in this court was not proper. In my judgment, it is not necessary to examine this plea in great detail for the reason that the petition is pending in this court for the last more than three years and no valid purpose would be served by driving the petition to the court in New Delhi. The respondents have filed their return opposing the petition on merits and, in my judgment, refusing to entertain the petition at this junction would lead to multiplicity of litigation, which every court should try to avoid.
6. Shri Joshi them submitted that the petition should not be entertained because the petitioner has approached this court after a considerable delay. The learned counsel urged that the petitioner sought approval in the year 1974 and the approval was granted only to the service agreement on February 25, 1976, and the petitioner should have then realised that the approval was declined in respect of the know-how agreement. Shri Joshi submitted that the petitioner took no steps from 1976 onwards and only when the ITO declined to treat the receipts from the Corporation as capital receipts, the petitioner started entering into correspondence. Shri Joshi submits that, in these circumstances, the filing of the petition in the year 1979 is clearly after considerable delay and the petition should be dismissed only on that count. I am not inclined to accept the submission of the learned counsel. There is no rule that the petition should be thrown out in each and every case where there is some delay in approaching the court. It is undoubtedly true that the petitioner started requesting for approval after the ITO declined to treat the receipt as a capital receipt, but, in my judgment, it would not be appropriate to defeat the petition on the ground of delay because on merits, the petitioner has got a good case.
7. Shri Mehta, learned counsel appearing in support of the petition, submitted that while making an application on August 3, 1973, for grant of approval to respondent No. 1, a mistake occurred in seeking the approval only in respect of the service agreement instead of both the service agreement and the know-how agreement. Shri Mehta submits that when the particulars were furnished by the petitioner in the pro forma a demanded by respondent No. 1 in January, 1974, the petitioner made it crystal clear that the approval was required both for the service agreement and the know-how agreement. The learned counsel referred to various items of the proforma and pointed out that the petitioner demanded approval for both the agreements. Clause 6 of the pro forma requires the petitioner to state the nature of the income in respect of which the deduction is claimed, and the petitioner answered by stating that the deduction is claimed for fees of lump sum of M$ 15,00,000, if and to the extent includible in total income (without prejudice to our view that this is a capital receipt for transfer of know-how). The other columns of the pro forma indicated that the petitioner was demanding approval in respect of both the agreements. Shri Mehta is right in his submission that it is by sheer oversight that the applicant sought approval only in respect of the service agreement and that error should not deprive the petitioner of a valuable right. In my judgment, the submission of the learned counsel is correct and deserves to be upheld. The respondent No. 1 should consider the application of the petitioner of August 3, 1973, as it was an application for approval for both the service agreement and the know-how agreement. As the approval is already granted in respect of the service agreement, respondent No. 1 should consider the application of the petitioner in respect of the Know-how agreement on merits and pass an appropriate order.
8. Accordingly, the petition succeeds and the rule is made absolute and respondent No. 1 is directed to consider the application dated August 3, 1973, filed by the petitioner as an application for approval of the Know-how agreement also and then dispose of the said application on merits. As an indulgence is shown to the petitioner, the petitioner shall pay the costs of the respondents.