1988 (11) TMI 99 - HC - Income Tax

High Court rules commission exempt under Income-tax Act; emphasizes Central Govt approval; Revenue to pay costs.

The High Court of Bombay ruled in favor of the assessee in a case involving the interpretation of section 80-0 of the Income-tax Act, 1961 regarding the ... Special Deduction Issues involved: Interpretation of section 80-0 of the Income-tax Act, 1961 regarding exemption of commission amount.Summary:The High Court of Bombay considered a reference made u/s 256(1) of the Income-tax Act, 1961, regarding the exemption of a commission amount of Rs. 4,59,000 u/s 80-0 for the assessment year 1970-71. The case involved an agreement between the assessee and a foreign company, Stankoimport, for technical services in relation to the sale of bearings. The Income-tax Officer initially accepted the claim for exemption, but the Additional Commissioner later brought the amount to tax u/s 263, disputing the conditions of section 80-0. However, the Tribunal ruled in favor of the assessee, stating that all conditions of section 80-0 were satisfied, and the commission was exempt.The court highlighted the introduction and deletion of section 85C, which was later replaced by section 80-0, both having similar requirements for deduction of income from foreign companies for technical services. The Central Government had approved the agreement between the assessee and Stankoimport, confirming that Stankoimport was a foreign company, the agreement was valid, and technical services were to be provided. The court emphasized that the Additional Commissioner should have respected the Central Government's approval and not contradicted it.Regarding subsequent years, it was mentioned that similar proceedings were initiated for other assessment years, but the Additional Commissioner dropped them for the following year. Ultimately, the court answered the posed question in the affirmative, ruling in favor of the assessee and directing the Revenue to pay the costs of the application.