Judgment:
Sujata Manohar, J.
1. Leave to amend the prayer (b) by correcting the name of the company.
2. The petitioners carry on the activity of rendering technical services, preparation of designs and provision of technical know-how to various industries. One Messrs. Holding and Industrial Promotion Ag. had undertaken a project at Pelambang in the island of Sumatra to manufacture various products based on technical know-how and the process package from an American company, Reichhold Chemicals Inc. The petitioners entered into an agreement dated September 4, 1982, with the said Messrs. Holding and Industrial Promotion Ag., which is a company registered in Switzerland, for rendering detailed engineering and technical design services as set out in Article 3 of the agreement. Under Article 4, it is clearly provided that the Swiss company shall be responsible for the fabrication, construction and operation of the plant at its own expense based upon detailed engineering drawings certified good by the engineer and subject to the expert advice of the engineer's personnel.
3. Annexure 'I' to the agreement sets out in detail the scope of services to be carried out by the petitioners for the plant. The details as set out in annexure '1' also clearly indicate that the petitioners were required to provide various types of drawings and to prepare various specifications and schedules as set out. They were also required to provide separate engineering services such as checking of detailed fabrication drawings prepared by the sub-contractor or selected vendors. They were required to review bids to ascertain the suitability of equipment offered by various vendors and they were also required to check production drawings prepared by the selected vendors. They were also required to prepare lubrication schedules for equipment.
4. The petitioners made an application dated September 9, 1983, for approval of the agreement by the Central Board of Direct Taxes under Section 80-O of the Income-tax Act, 1961. The Central Board of Direct Taxes, by its letter dated February 24, 1986, has declined to approve the agreement under Section 80-O of the Income-tax Act. The reason given in the said letter for non-approval is that the agreement is connected with the execution of a foreign project within the meaning of Section 80HHB of the Income-tax Act and hence it is outside the scope of Section 80-O. The letter goes on to state that the application which is made on September 9, 1983, relates to the assessment years 1984-85 to 1986-87, but the entire payment is received in the period relevant to the assessment year 1983-84 for which there is no application under Section 80-O, which is an additional ground for not approving the said application.
5. As far as the first ground is concerned, for reasons which we have set out in our judgment of today's date in Writ Petition No. 957 of 1986, Davy Powergas India Pvt Ltd. v. CBDT (No. 1) : [1994]207ITR158(Bom) , the agreement in the present petition does not fall under Section 80HHB of the Income-tax Act, 1961. The agreement in the present case is very similar to the agreement in the above case. It is confined to rendering technical services. In fact, the agreement in the present case, in terms, sets out that the work of construction is to be carried out by and is the responsibility of the foreign company. The present agreement does not fall within the purview of Section 80HHB. It is covered by Section 80-O.
6. The second reason which is given in the present case is that the application relates to the assessment years 1984-85 to 1986-87 only while the entire payment was received in the period relevant to the assessment year 1983-84. In the first place, this statement is factually incorrect because, as set out by the petitioners in their letter dated November 19, 1984, addressed to the Central Board of Direct Taxes, the payments were received by the petitioners from December 21, 1982, to March 26, 1984. As per the accounting practice of the petitioners, the income is shown for the assessment year 1984-85 which is the relevant assessment year in which the full payment has been received. Moreover, as set out by the Supreme Court in the case of Continental Construction Ltd. v. CIT : [1992]195ITR81(SC) , Section 80-O only empowers the Board to approve a contract on being satisfied that it gives rise to receipts qualifying for deduction under Section 80-O and nothing more. The Board cannot give relief for certain assessment years only. The Supreme Court has said (at page 126) :
'The assessment years for which relief is available, the extent of the receipts that qualify for deduction and all other incidents flow from the language of the section. The position, therefore, is that the Board's approval of the agreements in the present case, originally accorded legitimately and properly, as pointed out by us, in respect of assessment years earlier to 1983-84 would enable the assessee to claim like relief under Section 80-O for all subsequent years too.'
7. In the present case, therefore, applying the ratio of the above Supreme Court judgment, the petitioners have correctly asked for approval for the assessment year in which the full payment is received and for subsequent years. Therefore, if any payments under the contract which fall under Section 80-O have been received in the subsequent years also, the assessee would be entitled to the benefit of Section 80-O.
8. As far as the language of Section 80-O is concerned, the proviso to Section 80-O as it stood at the relevant time provided that the application for the approval of the agreement was required to be made before the 1st day of October of the assessment year in relation to which the approval is first sought. In the present case, as income in the assessment year 1984-85 attracted the provisions of Section 80-O for the first time, the petitioners have applied for approval on September 9, 1983, during the relevant assessment year. Therefore, their application is in accordance with the proviso to Section 80-O. We may also add that the existence of Section 80HHB in the statute book after April 1, 1983, does not make any alteration to this position. The Board, in granting approval under Section 80-O, is required to consider only the provision of Section 80-O and not the provision of Section 80HHB. As the Supreme Court observed in the case of Continental Construction Ltd. : [1992]195ITR81(SC) :
'Since Section 80-O continues to be in the statute book even after April 1, 1983, an application may be made and a contract approved under that section. In doing this the Board may not have, and certainly need not have, considered the provisions of Section 80HHB. But, despite such approval, the receipts under the contract cannot qualify for relief under Section 80-O if the Assessing Officer comes to the conclusion that the case falls under Section 80HHB. The Legislature has clearly envisaged the possibility of the same receipts qualifying for deduction under Section 80HHB as well as under any other provision of the Act and has specifically provided that, in such a case, the terms of Section 80HHB would prevail over the provisions of such other provision.'
9. In the present case, looking to the nature of the agreement, this is a fit case where the rule should be made absolute as prayed.
10 The petition is, therefore, allowed and the rule is made absolute in terms of prayers (a) and (b).
11. The respondents to pay to the petitioners the costs of this petition.