1993 (12) TMI 55 - HC - Income Tax

Court upholds 50% fee approval under Income-tax Act, emphasizing technical know-how criteria.

The court upheld the respondent's decision to grant 50% approval of the consultant's fee under section 80MM of the Income-tax Act. While acknowledging ... Special Deduction, Technical Services, Writ Issues:Interpretation of technical know-how/services under section 80MM of the Income-tax Act for approval of consultant's fee.Detailed Analysis:The petitioner, a consulting company, entered into an agreement to provide technical know-how for setting up a copper sulphate plant. The fee for these services was set at Rs. 2 lakhs. The petitioner applied for approval under section 80MM of the Income-tax Act, which was initially granted partially by the respondent at 25% and later increased to 50% of the fee. The petitioner challenged this approval in a writ petition, seeking full approval of the fee.The petitioner argued that the technical services provided fell within the scope of section 80MM(2) of the Income-tax Act and that the respondent erred in considering certain aspects of the services as outside the purview of technical know-how. The petitioner contended that the entire range of services rendered should be eligible for approval under section 80MM(2).On the other hand, the Revenue's counsel argued that not all services listed in the agreement qualified as technical know-how under section 80MM(2). They pointed out specific items in the agreement, such as providing commercial data on raw materials and demand, which they believed did not strictly constitute technical know-how/services. The Revenue contended that partial approval was justified based on the nature of the services provided.The court examined the agreement and the services rendered by the petitioner. It noted that some aspects, like commercial data on raw materials, might not strictly fall under technical know-how/services. However, the court considered the petitioner's argument that these aspects were necessary for performance and should be included in technical services. The court referenced previous judgments to analyze the interpretation of technical know-how/services under the Income-tax Act.Referring to relevant case laws, the court highlighted the need for technical know-how to directly assist in manufacturing or processing goods. It emphasized the importance of liberal construction of exemption provisions without distorting their plain meaning. The court also noted the principle of apportionment in income tax matters.Ultimately, the court found that while some services might not strictly qualify as technical know-how, the respondent had applied its mind in granting partial approval. The court cited precedents to support the respondent's decision and dismissed the writ petition, upholding the 50% approval granted by the respondent.In conclusion, the court held that the respondent's decision was not arbitrary, and there was no justification for interference. The writ petition was dismissed, and no costs were awarded.