Foreign enterprise test under tax exemption law requires direct receipt from the foreign entity, not an Indian company's overseas branch.

Section 80-0 requires direct receipt by an Indian company from a foreign State or a foreign enterprise under an approved agreement for technical know-how or services rendered outside India. The Court held that a "foreign enterprise" means an enterprise situated and constituted under foreign law; a branch, unit or establishment of an Indian company abroad does not become foreign merely by location. Liberal construction of the provision could not override its plain wording, and indirect satisfaction of the statutory object was insufficient. On that reading, payments received from an Indian company did not meet the statutory condition, so approval was rightly refused.

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Issues: Whether the Indian company's agreements entitled it to approval and deduction under section 80-0 of the Income-tax Act, 1961, when the payments were received from an Indian company and the foreign project participant was only indirectly connected; and whether the expression "foreign enterprise" includes a branch or unit of an Indian company operating in a foreign country.

Analysis: Section 80-0 requires, as a central condition, that the royalty, commission, fees or similar payment be received by an Indian company from the Government of a foreign State or a foreign enterprise in consideration of technical know-how or services rendered outside India, under an approved agreement. Reading the statutory scheme and its legislative background, the expression "foreign enterprise" was held to mean an enterprise situated in a foreign country and created or registered in accordance with the law of that country. A branch, unit or establishment of an Indian company abroad does not become a foreign enterprise merely because of its location. The Court also held that liberal construction of an exemption provision cannot override the plain language of the section, and that indirect satisfaction of the section's object does not dispense with the statutory requirement of direct receipt from the foreign State or foreign enterprise under an agreement with that entity.

Conclusion: The agreements did not satisfy section 80-0 because the payments were received from an Indian company and not from a foreign enterprise, so approval was rightly refused.

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