# [1992] 1 S.C.R. 57

- **Citation:** [1992] 1 S.C.R. 57
- **Court:** Supreme Court of India
- **Decided:** 1992-01-15
- **Case number:** Civil Appeal No. 3458 of 1990
- **Bench:** S. Ranganathan, V. Ramaswami, N. D. Ojha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1992-1-s-c-r-57-11454
- **Pages:** 60

## Headnote

B
Income-Tax Act, 1961 : Ss. 9(1)(vi), (vii), 119(1), 80-0, 80-HHB :
Assessee-Engineering and Construction Company-Undertaking of
foreign projects-Approval by Central Board of Direct Taxer-Payments in
respect of consideration for supply of technical information for use outside C
India and rendering Technical Services to foreign Government Enterprise--
Whether 'similar' to 'royalty', 'Commission' or 'fee' etc.-DeductionsScope of-Assessee-Whether entitled to relief under S. 80-0 for assessment
years earlier to 1983-84-Whether eligible for deductions under s. 80-HHB
for assessment years 1983-84 onwards.
Assessee Company-Foreign contracts-Execution of-Construction of
dam and i"igation project, water supply project etc.-Services involving
specialised knowledge, experience and skill in constructional operations--
Whether are technical services.
D
"Technical Services"-Whether can be rendered through medium of E
employees, skilled and unskilled.
Foreign projects of 'composite' activities-Activities falling partly
under S. 80-0 and partly under S. 80-HHB-Whether relief can be granted
under each sections separately.
F
>--"
Activities of foreign contract falling under S. 80-0 as well as Section
80-HHB--Deductions-Whether can be computed under S. 80-HHB only.
Central Board of Direct Taxe~irculars No. 187 dated 23.12.1975 &
253 dated 30.4.1979. Letters dated 28.10.83 and 31.7.1985-Boar<f s power G
to grant approval to foreign contracts-Purpose and scope of: Guidelines for
approval nature of: Approval once grante"'Whether to continue for subsequent assessment years for the same agreement.
Words and Phrases:
H
57
A
B
c
D
E
F
G
H
58
SUPREME COURT REPORTS
(1992] 1 S. C.R.
'business of execution of a foreign project', 'profits derived', 'royalty',
'similar', 'technical services'-Meaning of.
Section 80-0 of the Income Tax Act, 1961 provides for a deduction
in computing the total income, in respect 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 Central
Board of Direct Taxes in this behalf.
The appellant-assessee, a civil construction company, describing
itself as Engineers and Contractors, executed projects overseas and in
India. It undertook certain contracts for construction, inter alia, of a dam
and irrigation project, a fibre-board factory and a huge water supply •
project in foreign countries. One of its projects, called the Karkh
Project, which constituted a major portion of its gross total income was
with the Iraqi ~overnment through the Baghdad Water Supply Administration (BWSA). The contract was for the design, manufacture, delivery, supply, construction and installation for the first stage of Karkh
Water Supply Scheme. Since tenders had been called for from consortia
the assessee associated with the State Contracting Company for Water
and Sewerage Projects, Baghdad (SCC) and formed a consortium and
the said consortium entered into an agreement on 17 .12.1980 with the
Iraqi Government. The terms of the consortium between the assessee
and SCC were set out in another agreement dated 18.12.1980 dividing
the area~ of responsibility (the packages) under the contract between the
two.
The assessee applied to the Central Board of Direct Taxes (CBDT)
for latter's approval to the contracts ''for the supply of Civil construction
know-how to the Government of Iraq" under Section 80-0 of the
Income-Tax Act, 1961. In para S(a)(ii) of the profo

## Text

_Characters 0–39,255 of 157,181. This is a partial read: ask again with offset=39255 for what follows._

CONTINENTAL CONSTRUCTION LTD.
COMMISSIONER OF INCOME-TAX, CENTRAL-I
JANUARY 15, 1992
A
[S. RANGANATHAN, V. RAMASWAMI AND N. D. OJHA, JJ.]
B
Income-Tax Act, 1961 : Ss. 9(1)(vi), (vii), 119(1), 80-0, 80-HHB :
Assessee-Engineering and Construction Company-Undertaking of
foreign projects-Approval by Central Board of Direct Taxer-Payments in
respect of consideration for supply of technical information for use outside C
India and rendering Technical Services to foreign Government Enterprise--
Whether 'similar' to 'royalty', 'Commission' or 'fee' etc.-DeductionsScope of-Assessee-Whether entitled to relief under S. 80-0 for assessment
years earlier to 1983-84-Whether eligible for deductions under s. 80-HHB
for assessment years 1983-84 onwards.
Assessee Company-Foreign contracts-Execution of-Construction of
dam and i"igation project, water supply project etc.-Services involving
specialised knowledge, experience and skill in constructional operations--
Whether are technical services.
D
"Technical Services"-Whether can be rendered through medium of E
employees, skilled and unskilled.
Foreign projects of 'composite' activities-Activities falling partly
under S. 80-0 and partly under S. 80-HHB-Whether relief can be granted
under each sections separately.
F
>--"
Activities of foreign contract falling under S. 80-0 as well as Section
80-HHB--Deductions-Whether can be computed under S. 80-HHB only.
Central Board of Direct Taxe~irculars No. 187 dated 23.12.1975 &
253 dated 30.4.1979. Letters dated 28.10.83 and 31.7.1985-Boar<f s power G
to grant approval to foreign contracts-Purpose and scope of: Guidelines for
approval nature of: Approval once grante"'Whether to continue for subsequent assessment years for the same agreement.
Words and Phrases:
H
57
A
B
c
D
E
F
G
H
58
SUPREME COURT REPORTS
(1992] 1 S. C.R.
'business of execution of a foreign project', 'profits derived', 'royalty',
'similar', 'technical services'-Meaning of.
Section 80-0 of the Income Tax Act, 1961 provides for a deduction
in computing the total income, in respect 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 Central
Board of Direct Taxes in this behalf.
The appellant-assessee, a civil construction company, describing
itself as Engineers and Contractors, executed projects overseas and in
India. It undertook certain contracts for construction, inter alia, of a dam
and irrigation project, a fibre-board factory and a huge water supply •
project in foreign countries. One of its projects, called the Karkh
Project, which constituted a major portion of its gross total income was
with the Iraqi ~overnment through the Baghdad Water Supply Administration (BWSA). The contract was for the design, manufacture, delivery, supply, construction and installation for the first stage of Karkh
Water Supply Scheme. Since tenders had been called for from consortia
the assessee associated with the State Contracting Company for Water
and Sewerage Projects, Baghdad (SCC) and formed a consortium and
the said consortium entered into an agreement on 17 .12.1980 with the
Iraqi Government. The terms of the consortium between the assessee
and SCC were set out in another agreement dated 18.12.1980 dividing
the area~ of responsibility (the packages) under the contract between the
two.
The assessee applied to the Central Board of Direct Taxes (CBDT)
for latter's approval to the contracts ''for the supply of Civil construction
know-how to the Government of Iraq" under Section 80-0 of the
Income-Tax Act, 1961. In para S(a)(ii) of the proforma of the application
prescribed for the purpose, the assessee indicated that "information
concerning industrial, commercial, or scientifac knowledge or skill" was
being made available outside India; and in Column S(b) thereof it
mentioned that technical services would be rendered by the assessee to
;f-.
CONTINENTALCONSTRUCTION v. C.l.T.
59
BWSA, Government of Iraq through its Indian Engineers, Scientists, A
technicians and semi-skilled labours to be inducted for that purpose.
Meanwhile, by the Finance Act, 1982, section 80-HHB was inserted
to the Act with effect from 1.4.1983, providing for 25% deduction from
the profits and gains derived from the business of execution of a foreign
project undertaken by the assessee with the government of a foreign
B
State/enterprise. Sub-section (5) of section 80-HHB provided that notwithstanding any provision in Chapter VIA of the Act, no part of any
.-onsideration or of the income comprised in the consideration payable to
the assessee for execution of a foreign project shall qualify for deduction
for any assessment year under any such other provision.
The CBDT accorded its approval on 28.10.1983. However, with
respect to Karkh and Diwaniyah projects, the approval was granted for
the assessment year 1982-83, stating that for the subsequent period
section 80-HHB, which came into force w .e.f. 1.4.1983, would be operative.
The assessee claimed and obtained deduction under section 80-0 in
respect of some of the contracts in some assessment years between 197677 to 1980-81.
For the year 1983-84, the assessee returned a gross total income of
c
D
Rs. 72,67,45,938 but as against this it claimed a deduction of E
Rs. 89,16,19,198 : of this, the deduction claimed in respect of Karkh and
Diwaniyah projects came to Rs. 77,84,29,446 and Rs. 6,36,85,436 respectively. As Board's approval under section 80-0 in respect of these two
contracts was limited to the assessment year 1982-83, the Inspecting
Assistant Commissioner (IAC) declined to grant the assessee any deduction under section 80-0 not only in respect of these two projects but also F
for the others, holding that section 80-HHB, and not section 80-0,
applied to the agreements. However, relief was not granted even under
~ section 80-HHB on the ground that conditions for exemption specified
thereunder were not fulfilled. The IAC determined assessee's total
income at Rs. 89,41,35,103 raising a tax demand of Rs. 66,07,72,982.
On appeal, the Commissioner oflncome Tax (Appeals) agreed with
G
the IAC to the extent that the assessee was not entitled to relief under
section 80-0 because : (1) the approval of the CBDT for three of the
contracts did not extend to assessment year 1983-84; (2) all the contracts
u~dertaken by the assessee were in the nature of 'foreign projects'
within the meaning of section 80-HHB; and (3) notwithstanding the
H
~
SUPREME COURT REPORTS
[1992] 1 s. c. R.
A
approval of the CBDT section 80-HHB (5) ruled out the grant of relief
under section 80-0 for any of the projects. He, however, set aside the
assessment and directed tlie IAC to reQppraise assessee's claim for
exemption under section 80-HHB holding that the assessee, being under
a bona fide belief all through that it was entitled to relief under section
80-0, did not have a proper opportunity of putting forth its claim for
B
relief under section 80-HHB.
The assessee appealed to the Income Tax Appellate Tribunal
(ITAT). During the pend~ncy of the appeal before ITAT, the CBDT by
its letter dated 31.7.1985 modified the original letter of approval dated
28.10.1983 and made the approval operative even for years subsequent
C
to assessment year 1982-83.
The IT AT affirmed the order of the C.I.T. but, at the request of the
assessee, made a reference to the High Court. The High Curt answered
the reference against the assessee holding that the execution of the work
by the assessee fell under section 80-HHB and not under section 80-0; ,
D
the receipts of the assessee from the contracts did not fall within the
category of.receipts for which deduction is provided in section 80-0; that
the Board's approval was a qualified one which fully authorised and empowered the officer to determine whether all the conditions of the section
were fulfilled as well as the amount, if any, which could be deducted
under section 80-0.
E
::F
IH
In the assessee's appeal tO this Court, it was contended by the
Revenue that (1) the receipts of the assessee under the contract were
profits and gains or its business or execution of foreign projects under
sub-clauses (i) and (ii) of clause (b) of s. 80-HHB and did not qualify for
deduction under section 80-0 as the receipts did not fall under any of the
categories .either or royalty, commission, fees or 'any similar payment',
and the assessee either made any information available nor rendered any
technical service to its foreign clients; (2) the contract for Karkh Water
Supply Project was in the nature of a turnkey project as the client
wanted tt.e project to be executed by the consortium complete in all
respects and handed over to it, and the client was neither interested in
the details of the information possessed or the services rendered by the
contractor nor was the assessee as per consortium agreement, concerned
with any part of the contract other than the "civil works"; (3) the
assessee neither rendered any technical service nor made such information available either to the consortium or to the foreign government, but
the information possessed by it and the services rendered in these
respects by its engineers and other employees were utilised by the
CONTINENTAL CONSTRUCTION v. Cl.T.
61
assessee itself; (4) the contract being an integral indivisible one, it was
A
-(
not permissible to the assessee to dissect the consideration as attributable
to its several ingredients and apportion a part of it as being payment for
information made available or technical services rendered to the foreign
government; (5) even assuming that the whole or atleast a part of the
consideration payable to the assessee falls under section 80-0, still as per
sub-section (S) of section 80-HHB the assessee would be eligible for deB
duction under section 80-HHB only; and (6) even if the assessee's case
falls under section 80-0 it will be entitled to relief not on the entire
profits derived by it but only to that portion of the receipts as can be
described as having the character enumerated in section 80-0.
./..
On behalf of the assessee it was contended that since the insertion c
-
of section 80-HHB has not resulted in the deletion of section 80-0, the
two sections should be read harmoniously and given effect to together
restricting the operation of section 80-HHB to contracts entered into on
or after l.4.I983 so as not to affect the contracts entered into before that
date and approved by the Board; that even after the insertion of section
80-HHB there is room for applicability of section 80-0 in relation to a
D
contract of composite activities and section 80-HHB applies only to con·
struction/installation activity simpliciter; and that once an approval
under section 80-0 is granted (on whatever date it be) the approval
should ensure for the entire period of contract and cannot be restricted
to any particular assessment year or years.
E
On the question whether the assessee is entitled to a deduction
under section 80-0 or section 80-HHB or partly under one or partly
under the other or under neither of the provisions.
Dismissing the assessee's appeal, this Court,
F
HELD : I.I The assessee was entitled to the relief under section
t~
80-0 for assessment years earlier to I983-84 and the approval granted
·rby the Board under that section was right and proper. However, for the
assessment year I983-84, the assessee does not qualify for deduction on
the terms or that section as the contract receipts are fully covered by the
provisions of section 80-HHB and the deduction under that section will G
prevail over the relief that might have been otherwise available in view
or the terms of sectibn 80-HHB(S). [p. 116ABJ
I.2 The assessee's claim for exemption under section 80-HHB
deserves to be considered afresh after giving the assessee an opportunity
or being beard, as directed by the CIT (Appeals) and confirmed by the H
IT AT and the High Court. [p. 86BC]
-I,-
A
B
c
D
E
F
62
SUPREME COURT REPORTS
[1992] l S. C.R.
Continental Construction Ltd. v. Commissioner of Income Tax. (1990)
185 ITR 230, affirmed.
2.1 Exigibility of an item to tax or tax deduction can hardly be
made to depend on the label given to it by the parties. An assessee cannot
claim deduction under section 80-0 in respect of certain receipts merely
on the basis that they are described as royalty, fee or commission in the
contract between the parties. By the same token, the absence of a specific
label cannot be destructive of the right of an assessee to claim a
deduction, if, in fact, the consideration for the receipts can be attributed
to the sources indicated in the section. [p. lOOBC]
2.2 The receipts by way of royalty, fees, commissions and 'similar
payments' envisaged by section 80-0 may be derived in the course of a
business or profession and constitute part of the profits and gains of such
business or profession. For instance, the fees received by a consulting
scientist, an architect or an engineer for providing tec~nical services to
others will nevertheless be assessable as part of the profits and gains
from such profession. [p. 90DE]
2.3 The essence of the exemption under section 80-0 lies, not in
consigning the receipt to one of the pigeonholes of 'royalty', 'commission' or 'fees' but in examining whether the receipt is a payment in
consideration of one of the two situations envisaged in the section : e.g.,
where the assessee is the owner of a patent or invention, he may
generally permit another to make use of the patent or the invention in
consideration of a 'royalty' payment; or, where the assessee is in possession of technical know-how, he may be prepared to allow another to
makoe use thereof in consideration of a 'fee' to the ass~ee; or he may
stipulate a consideration in the form of a commission based on the sale5
of the products the other party is able to manufacture with the aid of
such invention or know-how, or an assessee may have achieved some
speciality and he may agree to.lend bis servkes to·some other person and
stipulate a consideration therefor which _, be variously described.
[p. 92E-G]
G
Gestetner Duplicators Pvt. Ltd. v. CJ.T., (1979) 117 I.T.R. 1 (S.C.);
Cloth Traders P. Ltd. v. CJ.T., (1979) 118 ITR 243 & DistribUJOrs (Baroda)
P. Ltd. v. Union, (1985) 155 ITR 120, referred to.
2.4 The word 'similar' occurring in section 80-0 connotes that the
payment made to the assessee need not be in the naiure of royalty, comH
mission or fees only; it could be any payment of like nature, made in
..,..
\
/
CONTINENTALCONSTRUCTION v. C.l.T.
63
consideration of the use or supply of such an asset, knowledge or services
A
in the same manner as royalty, fees or consideration could be. Therefore,
any type of payment received by an assessee will qualify for deduction
under the section so long as it is a payment made in consideration of one
of the two types of transaction referred to in the section. [p. 93AB]
2.5 In column 5 of the applications for approval under section
B
80-0 the assessee stated that the payments under the contracts did not
come under category (a) (i) but they did fall under categories a (ii) and
(b) enumerated therein. The finding of the Tribunal in this regard is not
one of fact based on an admission; it proceeds on .an incorrect appreciation of the contents of assessee's application for approval. [pp. 93G;
94AB]
C
3.1 The expression ''technical services" bas a very broad connotation and it has been used in ~ction 9(1) (vii) of the Act also so widely as
to comprehend professional services. [p. 98CD]
3.2 Services involving specialised knowledge experience and skill in
D
the field of constructional operations are ''technical services". The Board's
guidelines specifically say so. [p. 98DE]
3.3 Any engineering contract involves technical services more so, a
contract of the nature and magnitude involved in the instant case. Tb~
contract executed by the assessee was no ordinary contract; the activities E
thereunder involved technical and expertise. It was executed jointly with
an enterprise that was nothing but an instrumentality of the foreign
State. [p. 95B-F]
3.4 The assessee bad made available technical information to the
foreign Government for u~ outside India and had also rendered tecbnip
cal services to the foreign Government of the nature outlined in section
80-0. [pp. 98F; lOOF]
4.1 The assessee is a company and any technical services rendered
by it can only be through the mediUm of its employees, skilled and
unskilled. [p. 97E]
G
4.2 In order to say that a person is rendering technical services to
another, it is not necessary that the services should be rendered by the
former personally and not through the medium of others. [p. 98EF]
S.1 Section 80-HHB provides for an exemption in respect of profits H
from a "foreign project" undertaken outside India in the course of
64
SUPREME COURT REPORTS
[1992) 1 S. C. R.
A
business. The expressions "business of execution of a foreign project" or
work forming part of it or the 'profits derived' from the business, take
in all aspects of a business involving the activities referred to in subsection (2) (b) of section 80-HHB together with all activities, commitments and obligations ancillary and incidental thereto and the profits
flowing therefrom. The definition cannot be restricted to the mere
B
physical activity or putting up the superstructure, machinery or plant
but should be understood to take within its fold all utilisation of technical
knowledge or rendering of technical services necessary to bring about
the construction, assembly and installation. [p. 102FG]
5.2 Section 80-HHB comes into force on 1.4.1983 and should be
C
applicable for assessment year 1983-84 onwards in all cases. It does not
>..,,_
contain even a reference to section 80-0 and so its applicability cannot
depend on the formation of the contract subsequent to that date or to the
date of its approval under the latter section being after that date.
[p. USA]
•
.
D
5.3 Section 80-HHB does not confer an additional benefit; subsection (5) in no uncertain terms states that the benefit thereunder will
take away the benefit, if any, under any other provision. This has to be
given effect to. [p. llSF]
5.4 The assessee is entitled to deduction under section 80-0 on the
:....
E
terms of that section even for 1983-84 and subsequent years. It becomes
disentitled to the relief not because it does not fulfil the requirements of
sectiJn 80-0 but only because section 80-HHB(S) stands in the way and
mandates that in cases to which both provisions apply, relief under
section 80-HHB will alone be available. [p. 114G]
F
5.S The fact that the income in question may qualify for deduction
under section 80-HHB does not necessarily exclude the applicability of
, the provisions of section 80-0. The language of sub-section (5) of section
80-HHB which gives precedence to a claim under section 80-HHB over
one under any other provision, itself necessarily postulates the possibility
of the whole or part of the consideration payable to an assessee for the
G
execution of a foreign project qualifying for deduction under any other
provision as well. [pp. 86G; 87 A]
5.6 The statutory interdict cannot be frustrated by the terms of an
approval of the Board under section 80-0. Such approval, at its best,
cannot overreach the limitations imposed on the relief available under
H
that section as a consequence of section 80-HHB(S). [p. 107BC]
I
-(
•
CONTINENTAL CONSTRUCTION v. C.l.T.
65
5.7 The legislature has clearly envisaged the possibility or the same
A
receipts qualifying for deduction under section 80-HHB as well as under
any other provision of the Act and has specifically provided that, in such
a case, the terms or Section 80-HHB will prevail over the provisions of
such other provision. [p. 106FG]
5.8 One cannot decline to give effect to the applicability. of a
B
statutory provision on the ground of hardship or on the ground that it
restricts the relief which, but for the insertion of the section, would have
been available to the assessee, particularly when the section itself envisages the possibility of the assessee being also eligible for relief under
another section and makes special provision for that eventuality.
[p. 115BC]
C
5.9 The assessee was able to get 100% relief in earlier years only
because the contract is of such nature that it consists only of the
rendering of technical services so that the fields of the two exemptions
completely overlap. On the other hand, it is possible to conceive or
foreign projects wherein the construction and installation aspect and inD
formation or technical services aspect are kept separate. Equally, there
can be cases falling under section 80-0 which do not at all relate to a
"foreign projecf''as defined under section 80-HHB. In such cases the two
provisions will continue to operate independently. [p. 115F-H]
6.1 The Board was fully justified in considering the receipts of the E
assessee as falling under section 80-0 and in granting approval to the
contract. [p. 105BCJ
6.2 Board's approval for the purpose of section 80-0 cannot be
tentative or provisional or qualified. The Board can neither limit the
relief to certain assessment years only nor can it restrict or enlarge the F
scope of the relief that can be granted under the section. [p. 106AB]
6.3 Once a contract stands approved under section 80-0 in relation
to the first assessment year, the approval enures for the entire duration
of the contract. Section 80-0 does not envisage an application for approval of the contract every assessment year or the limitation of the
G
approval granted by the Board to any particular assessment year. [p.
lOSDE]
Cl.T. v. Institute of Public -Opinion, (1982) 134 I.T .R. 23 (Del.),
referred to.
6.4 The Board's approval in respect of assessment years earlier to H
A
B
c
D
E
F
G
H
66
SUPREME COURT REPORTS
[1992] 1 S. C.R.
1983-84 will enable the assessee to claim like relief under section 80-0
for all subsequent years too. But, after the insertion of Section 80-HHB,
in the matter of receipts governed both by Section 80-HHB and Section
80-0, the former and not the latter will prevail. [p. 106BC)
6.5 The Board's decision of 31.7.1985 extending the approval
beyond 1982-83 cannot be given effect to in the same way as its earlier
approval letter of 28.10.1983 for the reasons : (1) the jurisdiction of the
Board is to grant approval to a contract only for the purpose of section
80-0, it has no jurisdiction to pronounce on the availability or otherwise
of an exemption under section 80-HHB and the Board's opinion as to
this, even if expressly stated, cannot bind the Officer, (2) the relief under
section 80-HHB is not dependent on the approval of the Board and is for
a totally different type of transaction; (3) the letter of 31.7.1985 is also
a decision in an individual case and cannot be treated as a general
circular incorporating a policy decision by the Board that in all cases of
a particular type governed by both sections relief may be given under
section 80-0; (4) the Board in the 1985 letter only stated, and rightly,
that the approval under section 80-0 would enure for 1982-83 onwards,
for the approval of the Board is to the contract and so long as the
contract subsists the relief should be granted on the terms of section 800; and (5) the approval which otherwise qualifies the assessee for relief
is no doubt still effective but its power to qualify for relief is taken away
by the new statutory provision. [pp. l14D-G; 115B]
6.6 The reasons to vest power of approval in the Board are that it
is considered better equipped, both on considerations of time as well as
the technieal knowledge needed to examine the ramifications of technical
international contracts and decide how far the relevant contract and the
receipts thereunder are of the nature intended to be covered by the
exemption clause and that the applicant is sure to take steps to obtain
necessary approval at a stage earlier to the implementation of the
contract and he can know well before-hand where he stands in the
matter of tax exemption. [p. llOC-F]
6.7 After the power of approval was vested in the Board, elaborate
guidelines, as provided, inter alia, in Board's Circular No. 187 dated
23.12.1975 and Circular No. 253 dated 30.4.79, were drawn up which
clearly envisage a detailed examination, by the Board, of the terms of the
contract submitted to it for scrutiny from all angles relevant for a
decision as to eligibility for exemption under section 80-0. These guidelines have also since attained statutory recognition as the proforma
earlier prescribed by the Board has virtually been incorporated in Rule
CONTINENT AL CONSTRUCTION v. C.I.T.
67
llE and Form prescribed thereunder. The proforma calls for details of A
. ...,.
the analysis of the receipts under the contract. [pp. lllAB; 113BCJ
6.8 The Board has chalked out for itself, quite legitimately and
properly, a very detailed and dominant rule as to the availability of exemptions under section 80-0. The guidelines are of general nature, fully
sanctioned by the provisions of section 119(1) of the Act and, being inB
structions enuring to the benefit of the assessee, cannot be gone back
upon by the Departmental Officers subordinate to the Board, particularly in a case where no steps have been taken - or even suggested as
necessary to be taken - to cancel or revoke the approval already
accorded. [p.112 FGJ
Navnitlal Javeri' s case (1965) 56 I.T.R. 198(SC), relied on.
c
6.9 While granting the approval under Section 80-0, the Board has
not only the jurisdiction but also the responsibility of examining the
agreement submitted for approval from all angles relevant to the deduction provided for under section 80-0 and it is not competent to the D
Dep~rtment to question the maintainability of the claim for deduction
under section 80-0 in respect of the aspects gone into and decided upon
by the Board. [p.113DEJ
6.10 However, the assessing officer is not deprived of his functions.
He has to satisfy himself that (i) the amounts in respect of which the E
relief is claimed are amounts arrived at in accordance with the formula,
principle or basis explained in the assessee's application and approved
by the Board; (ii) the deduction claimed in the relevant assessment year
relates to the items and is referable to the basis on which application for
'\:
exemption was asked for and granted by the Board; (iii) the receipts
(before the 1975 amendment) were duly certified by an accountant or F
that, thereafter, the amounts have been received in or brought into India
rin convertible foreign exchange within the specified period. The second
,,,
of these functions is particularly important as the approval for exemption granted in principle has to be translated into concrete figures for the
purposes of each assessment. Neither the introduction of the words "in
accordance with and subject to the provisions of this section" nor the G
various "conditions" outlined in the letter of approval add anything to or
detract anything from the scope of the approval. [p.113E-H]
7 .1 For purposes of income tax, a principle of apportionment has
always been applied in different contexts. Consolidated receipts and
expenses have always been considered apportionable in the contexts; (a)
H
of the capital and revenue constituents comprised in them; (b) portions
68
SUPREME COURT REPORTS
[1992) 1 S. C. R.
A
of expenditure attributa~le to business and non"business purposes; (c) of
-rplaces of accrual or arisal and (d) of agricultural and non-agricultural
elements in such receipts or payments. [p.IOODE]
Kanga & Palkhivala on the Law and Practice of Income-tax (Vol. I
Eighth Edition), referred to.
B
7 .2 Contracts of the type envisaged by section 80-0 are usually
very complex ones and cover a multitude of obligations and responsibilities. It is not always possible or worthwhile for the parties to dissect the
consideration and apportion it to the various ingredients or elements
comprised in the contract. [p. lOOCD]
c
7.3 If, a contract obliges the assessee to make available information
\---
and render services to the foreign Government of the nature outlined in
section 80-0, it is the duty of the Revenue and the right of the assessee
to see that the consideration paid under the contract legitimately attributable to such information and services is apportioned and the assessee
D
given the benefit of the deduction available under the section to the
.
.
extent of such consideration. [p.lOOFG]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3458 of
1990.
E
Appeal by Certificate from the Judgment and Order dated 24.5.1990 of
the Delhi High Court in I.T.R No. 110 of 1987.
F.S. Nariman, Srinivasan, Bishamber Lal Khanna, Harish Salve, Subhash
Shanna, D.N. Sawhney, Ms. Geetanjali Mohan and Vineet Kumar for the
Appellant
F
S.C. Manchanda, Ms. A. Subhashini and B.B. Ahuja for the Respondents.
-.;
-:
The Judgment of the Court was delivered by
-1
G
RANGANATHAN, J. This is an appeal preferred by M/s. Continental Construction Ltd. (hereinafter called 'the assessee') from the judgment of
the Delhi High Court in I.T.R. 110 to 112 of 1987 (reported in 1990-185
I.T.R. 178) answering, against the assessee, the following questions of law
referred to it under section 256 of the Income Tax Act, 1961 ('the Act') :
H
1. "Whether on the facts and in the circumstances of the case the
Tribunal is right in holding that the income arising from the
).
CONTINENTAL CONSTRUCTION v. C.I.T. [RANGANATHAN, J.)
69
--r'
activities pursuant to the seven agreement with foreign governA
ments/ enterprises, etc. are governed by the provisions of section
80-HHB of the Income-Tax Act, 1961 and not of section 80-0 of
that Act?"
2. "Whether on the facts and in the circumstances of the case, the
Tribunal was right in holding that notwithstanding the approvals
B
granted by the Board to the seven agreements for the purpose of
section 80-0, for the purpose of assessment for assessment year
1983-84, the income arising from these contracts have to be
brought under section 80-HHB of the Income-tax Act, 1961?"
3. "Whether on the facts of the case, the Tribunal is right in c
holding that the income from the entire activities under the seven
agreements cannot be bifurcated and is wholly covered under
section 80-HHB of the Income Tax Act, 1961?"
4. "Whether on the facts and in the circumstances of the case, the
Tribunal is right in holding that the assessee company is not an
'industrial company' as defined in the Finance Act, 1982?"
D
The first two Income-Tax References were made to the High Court at
the instance of the assessee which was dissatisfied with the decision of the
Income Tax Appellate Tribunal on these questions : there were two references because the above questions arose out of two cross-appeals before the
Tribunal - one by the assessee and the other by the Department. This appeal
E
by the assessee, CA. 3458 of 1990 is disposed by the present judgment.
The third reference (l.T.R. 112/87) was made by the Tribunal at the
instance of the Department on a totally different question which related to the
interpretation of sections 40(c) and 40A(5) of the Act. The High Court F
r
answered all the three references in favour of the assessee and the aggrieved
'~
Commissioner of Income Tax (C.I.T.) has preferred an appeal to this Court
r
from that part of the judgment being C.A. 3458-A of 1990. But that question
has no connection with the other four· questions set out earlier. We have,
therefore, delinked the appeal by the C.I.T. for separate hearing. Also, of the
four questions posed above in the assessee's appeal, counsel for the appellant G
has stated that he is not pressing question No. 4 before us. We, therefore, do
not express any opinion on it and merely dismiss the appeal in so far as this
question is concerned. In the result, we confine this judgment to the
assessee' s appeal and to the first three of the four questions set out above.
The questions arise out of the assessee's assessment to income tax for
H
70
SUPREME COURT REPORTS
[1992) 1 S. C. R.
- A
the assessment year 1983-84 (the calendar year 1982 being the relevant
r
previous year). ·Section 80-0 of the Act, under which the assessee claimed
deductions, provides for a deduction, in computing the total income, in
respect of royalties etc. from certain foreign enteiprises. This topic was
originally dealt with by section 85-C. Section 80-0 was substituted in its
place w .e.f. April 1, 1968. The section has since undergone amendments
B
from time to time. As on 1.4.83, the provision, in so far as is relevant for our
pUIJ>Oses, was in the following terms :
Section 80-0 Deduction in respect of royalties etc. from certain
·foreign enterprises.
"Where the gross total income of an assessee, being an Indian
A._
c
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,
D
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
enteiprise by the assessee, or in consideration of technical services rendered or agreed to be rendered outside India to such
Government or enteiprise by the assessee, under an agreement
E
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
F
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 such income so received in, or brought
-4
into India, in computing the total income of the assessee.
G
During the currency of this provision, the Finance Act, 1982 introduced
a new Section 80-HHB w.e.f. 1.4.1983. This provision reads thus :
Section 80-HHB Deduction in respect of profits and gains
from projects outside India -
(1) Where the gross total income of an assessee being an Indian
H
company or a person (other than a company) who is resident~
India includes any profits and gains derived from the business of-
,,..
CONTINENTALCONSTRUCTIONv.C.I.T. [RANGANATHAN, J.]
71
(a)
the execution of a foreign project undertaken by the assessee
A
in pursuance of a contract entered into by him, or
,(b)
the execution of any work undertaken by him and forming
part of a foreign project undertaken by any other person in
pursuance of a contract entered into by such other person,
with the Government of a foreign State or_ any statutory or other
public authority or agency in a foreign State, or a foreign
enterprise, there shall, in accordance with and subject to the
provisions of this section, be allowed, in computing the total
income of the assessee, a deduction from such profits and gains
of an amount equal to twenty five per cent thereof :
Provided that the consideration for the execution of such project
or, as the case may be, of such work is payable in convertible
foreign exchange.
(2) For the purposes of this section -
(a)
"convertible foreign exchange" means foreign exchange
which is for the time being treated by the Reserve Bank of
India as convertible foreign exchange for the purposes of
the Foreign Exchange Regulation Act, 1973 (46 of 1973),
and any rules made thereunder :
(b)
"foreign project" means a project for -
(i)
the construction of any building, road, dam, bridge or other
structure outside India;
B
c
D
E
(ii)
the assembly or installation of any machinery or plant F
outside India;
(iii)
the execution-of such other work (of whatever nature) as
may be prescribed.
(3) The deduction under this section shall be allowed only if the
G
following conditions are fulfilled, namely :-
(i)
the assessee maintains separate accounts in respect of the
profits and gains derived from the business of the execution
of the foreign. project, or, as the case ·may be, of the work
forming part of the foreign project un-dertaken by him and, H
72
SUPREME COURT REPORTS
[1992] 1 S. C.R.
A
where the assessee is a person other than an Indian company or a co-operative society, such amounts have been
y
audited by an accountant as defined in the Explanation
below sub-section (2) of section 288 and the assessee
furnishes, along with his return or income, the report of
such audit in the prescribed form duly signed and verified
B
by such accountant :
(ii)
an amount equal to twenty five per cent of the profits and
gains referred to in sub-section (1) is debited to the profit
and loss account of the previous year in respect of which
the deduction under this section is to be allowed and
c
credited to a reserve account (to be called the "Foreign
'
Projects Reserve Account") to be utilised by the assessee
·'°'~
during a period of five years next followiiig for the purposes of his business other than for distribution by way of
dividends or profits;
D
(iii)
an amount equal to twenty. five per cent of the profits and
gains referred to in sub-section (1) is brought by the
assessee in convertible foreign exchange into India, in
accordance with the provisions of the Foreign Exchange
Regulation Act, 1973 (46 of 1973), and any rules made
thereunder, within a period of six months from the end of
E
the previous year referred to in clause (ii) or, where the
Chief Commissioner or Commissioner is satisfied (for reasons. to be recorded in writing) that the assessee is, for
reasons beyond his control, unable to do so within the said
period of six months, within such further period as the
F
Chief Commissioner or Commissioner may allow in this
behalf:
Provided that where the amount credited by the assessee to the
-~
'
Foreign Projects Reserve Account in pursuance of clause (ii) or
-I
the amount brought into India by the assessee in pursuance of
G
clause (iii) or each of the said amounts is less than twenty five
per cent of the profits and gains referred to in sub-section (1), the
deduction under that sub-section shall be limited to the amount so
credited in pursuance of clause (ii) or the amount so brought into
India in pursuance of clause (iii) whichever is less.
H
(4) If at any time before the expiry of five years from the end of
the previous year in whkh the deduction under sub-section (1) is
,._
CONTINENTAL.CONSTRUCTION v. C.I.T.