TaxTMI 
TaxTMI 
1979 (4) TMI 10
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....nuary, 1971, with M/s. G. L. Restaurants Ltd. having its registered-office at 79/81, Mortimer Street, in the county of London. Some of the relevant clauses of the said agreement are as follows: "(1) One of the objects of the Indian company is to act as managers and consultants to companies and other business concerns and undertakings engaged in any of the business of hotel, restaurant, cafe, tavern, refreshment room and lodging-house keepers especially outside India. (3) Mr. Ghai and Mr. Lamba in their own right are experienced in the successful management of catering establishments in India and abroad. (4) The English company Mr. Ghai and Mr. Lamba and an Indian partnership firm by the name of Kwality Restaurant and Ice Cream Co. ....
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....ard. NOW THIS AGREEMENT WITNESSETH as follows:-- For the consideration aforesaid and in consideration of these presents and the agreement hereinbefore contained the English company, the Indian company and Mr. Ghai and Mr. Lamba for themselves and on behalf of the Indian company hereby mutually agree as follows: 1. The Indian company and/or Mr. Ghai and Lamba will use their best endeavours and their experience and expertise to promote and establish the English company in accordance with its memorandum and articles of association and in order to carry out their duties to the best advantage. Mr. Ghai and Mr. Lamba (or such substitutes as shall be nominated by the Indian company with the consent of Mrs. Kaul) together with Mrs. Kaul sh....
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....her restaurants shall be joint ventures by the parties hereto. " The total number of shares floated by M/s. G. L. Restaurants P. Ltd., London, is 20,000 and out of these 20,000 shares, 6,400 shares are held by the petitioner-company. The petitioner-company along with its letter dated September 21, 1972, addressed to the Central Board of Direct Taxes submitted an application on the prescribed pro forma along with a copy of the agreement for rendering technical services with G. L. Restaurants P. Ltd., London, for approval of the agreement under s. 80-O of the I.T. Act, 1961. While giving details of technical services rendered or agreed to be rendered outside India by the petitioner-company, the petitioner-company stated " Technical Coll....
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..... 901 of 1975 decided by us on January 17, 1979 [J.K. (Bombay) Ltd. v. CBDT [1979] 118 ITR 312 (Delhi) ]. After considering the entire scheme of s. 80-O, it was held in that case that the significant features of s. 80-0 were as follows (p. 316): "(1) The provision of deduction applies only to royalty, commission, fees or any similar payment. These payments are received by a company either for supplying information or for rendering technical services. This postulate that the Indian company, does not become a part of the foreign enterprise. If the two merge together then the identity of the Indian company would be lost and what would be paid would be not royalty or commission or fees, but rather a share in the profits. (2) The identity ....
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....d Mr. Lamba are on a part time basis and as such they cannot be considered as managing the restaurants. It was also pointed out that the Indian company has no power to appoint any employee in the English company without the previous approval of Mrs. Kaul. In our opinion, taking the totality of the clauses of the agreement, these two clauses are very insignificant. It is a clear case of joint venture and the management is practically left with the petitioner-company. The petitioner-company is entitled to dividends on its shareholding and is getting 25% of the annual net profits. In the circumstances, the said payments cannot be termed as royalty, commission, fees or any similar payment. The last contention of the counsel for the petitione....