1981 (9) TMI 99 - HC - Income Tax

Court upholds relief under section 80-O, rejects annual renewals, and disallows use of section 154 for revisions.

The court ruled in favor of the assessee, affirming the correctness of the relief granted under section 80-O of the Income-tax Act. It held that the ... Royalties Issues:Interpretation of section 80-O of the Income-tax Act regarding eligibility for exemption and approval requirements for agreements with foreign companies.Analysis:The judgment involved a dispute regarding the application of section 80-O of the Income-tax Act to an agreement between an Indian company and a foreign company. The agreement entailed the Indian company providing know-how to the foreign company in exchange for payments. The key issue was whether the assessee was entitled to the benefit of section 80-O of the Income-tax Act. The agreement in question had a clause stating it would remain in force until determined by a written notice from either party. The agreement was submitted to the Government of India for approval under section 80-O, which was granted. The Income Tax Officer (ITO) initially granted relief under section 80-O for two assessment years but later sought to rectify the assessment, claiming the agreement needed renewal for continued relief. The Appellate Authority and the Income Tax Appellate Tribunal both upheld the assessee's position that the agreement remained valid and relief under section 80-O was proper.The Commissioner contended that approval under section 80-O needed to be sought annually before the first day of October of each assessment year. However, the court held that the approval requirement pertained to the relevant assessment year in which the exemption was sought. The court emphasized that the agreement had been approved by the Central Government before the necessary date, fulfilling the conditions for exemption under section 80-O. The court clarified that the requirement for approval for the relevant assessment year did not necessitate repeated approvals for the same agreement annually. The court further stated that even if there were differing interpretations of the section, the action taken by the ITO to rectify the assessment was not justified. It reiterated that section 154 cannot be used to make revisions based on multiple plausible interpretations. Ultimately, the court ruled in favor of the assessee, affirming the correctness of the relief granted and setting aside the order of rectification. The judgment concluded by answering the referred question in the affirmative, in favor of the assessee, and awarded costs to the assessee.