Judgment sc-1992-1-57-116

CONTINENTAL CONSTRUCTION v. C.l.T. [RANGANATHAN, J.) 97

T Similar objective observations regarding technical competence, exper- A tise and experience are also found in para 44 of the order which is extracted a little later. In the context of these factors and findings, it is difficult to say that no information of the type contemplated in col. 5(a)(ii) of the application form had been made available by the assessee to the foreign Government for use outside India. What exactly would be the proportion of the total consid- eration that could reasonably be attributed to such imparting of information B would, however, be a separate question and may have to be reasonably estimated.

But, even assuming that there could be some difference of opinion on the above issue, there can be no doubt at all that, under the contract, technical _). services were rendered by the assessee to the foreign Government. In our c opinion, the attempt of Sri Ahuja to differentiate technical services rendered to the assessee by its employees and technicians from technical services rendered by the assessee to a foreign constituent and urge that the latter alone can qualify for relief under section 80-0 on the ground that the project in question was a turnkey project which has succeeded before the High Court, proceeds on an unduly narrow interpretation of the section. In our view, the D assessee was undoubtedly rendering services to the foreign Government by executing the water supply project. These services were no doubt technical services, as they required specialised knowledge experience and skill for their ~- proper execution. The argument seems to be that the services in the present case will not be covered by the section because there was no privity of contract between the employees of the assessee who contributed their tech- E nical skill and the foreign Government. We think this argument cannot be accepted. The assessee is a company and any technical services rendered by 1it can only be through the medium of its employees, skilled and unskilled, and, even if the contract had not related to a turnkey project, the assessee's employees would have been answerable only to the assessee and none else though, perhaps, in such an event, the other party to the contract may have r retained a larger degree of control and supervision in the execution of the contract. Even where the contractor is an individual or firm and not a company, a contract of this magnitude can be executed only through the medium of employees or other personnel engaged by the assessee. The facts that, physically speaking, it is only such employees that render services and that, so far as they are concerned, they render services only to their employer and not to the other contracting party are in no way inconsistent with, or repugnant to, the notion that, so far as the foreign Government is concerned, it looks only to the assessee for the rendering of the technical services under the contract. The High Court has pointed out that a person who manufactures a television set ordered by another cannot be said to render technical services · H ~

98 SUPREME COURT REPORTS (1992) 1 S. C.R.

A to the latter. In our view, that analogy is not apposite in the context of a contract of the nature," magnitude and specialisation with which we are concerned. Where a person employs an· architect or an engineer to construct a house or some other . complicated type of structure such as a theatre, scientific laboratory or the like for him, it will not be incorrect to say that the engineer is, in putting up the structure, rendering him technical services even B though the actual construction and even the design thereof may be done by staff and labour employed by the engineer or architecL Where a person consults a lawyer and seeks an opinion from him on some issue, the advice provided by the lawyer will be a piece of technical· service provided by him even though he may have got the opinion drafted by a junior of his or procured from another expert in the particular branch of the law. Sri Ahuja c tried to negative this line of thinking by urging that "professional services" have been brought within the scope of section 80-0 only by an amendment by the Finance (No. 2) Act, 1991 and that, too, w.e.f. 1-4-1992 which is proposing to substitute the word "technical or -professional services" in place of the word "technical services" now used in the section. It seems to us that this amendment may be only of a clarificatory nature. The expression D "technical services" has a very broad connotation and it has been elsewhere in the statute also so widely as to comprehend professional services : vide section 9(1)(vii), referred to earlier. But we need not digress.on this aspect for two reasons. Firstly, whatever may be the position regarding other "pro- fessional services", there can hardly be any doubt that services involving specialised knowledge experience and skill in the field of constructional E operations are "technical services". The Board's guidelines, to which refer- ence is made later, specifically say so. Secondly, the question whether "professional services" would be "technical services" or not has no impact on the point we are trying to make viz. that in order to say that a person is rendering such services to another, it is not necessary that the services should be rendered by the former personally and not through the medium of others. F For the reasons discussed above, we have come to the conclusion that, under the contracts in question, the assessee had made available technical informa- tion to the foreign Government for use outside India and had' also rendered technical services to the foreign Government outside India.

G All the same, contends Sri Ahuja, the receipts_of the assessee under the contract are just the profits of its business and cannot be described as received in consideration of such information or services as discussed above. If what Sri Ahuja means is that no part of the payments made to the consortium is specially described by the contract, or even the consortium agreement, as made in consideration of such information or services he is no H doubt correct and the consequence of such non-specification has to be

CONTINENTAL CONSTRUCTION v. C.I.T. [RANGANATHAN, J.] 99

considered. But Sri Ahuja, like the Tribunal, seems to go even further. He A· says that the contract has been found to be an integral, indivisible contract and that it is not permissible for the assessee to dissect the consideration as attributable to its several ingredients and apportion a part of the consideration as being payment for information made available to, or technical services rendered to, the foreign Government. The Tribunal observed : B "43. Schedule 11 to the contract refers to the consideration of the work. Though the lumpsum price is indicated for different works but the overall consideration is for the work as a whole and it is made clear even before the tenders were given that the contract could not be bif~ated and it could not be given in parts. Separate. payments are not contemplated for the surveys done, c designs made and the other studies carried on they are mad~ an integral part of the work. The assessee company had to give proposals for execution of the works and had to submit a preliminary work programme showing the starting and comple- tion dates for each complex and major installation induding construction of the preliminary works, submission of functional D plants and general designs and periods for manufacture, delivery, e..ection etc., of all works required including plant and civil works pipelines and services. The price schedules were deemed to cover all expenses, costs risks and all material necessary for the contractor to execute, operate and maintain the works. E

44. The perusal of the contract and its various parts very clearly shows that it was a contract for commissioning of a turn-key project for the Karkh Water Supply Scheme. It is true that for executing this work, it was absolutely essential for the contractor to have necessary technical competence and they had to use highly experience technical personnel for this purpose. From the very nature of the work, it is clear that the execution of the project involved a high degree of technical competence as well as expertise and experience. However, reading the contract as a whole, the intention of the parties was only to get the whole project being made available on a turn-key basis according to the general specifications laid down by the Baghdad authorities. It is not possible in this contract either to separate one part from the other or to bifurcate a part of consideration for any particular service. We have already considered the various case laws in- cluding certain decisions of the Hon'ble Supreme Court in the case of Gannon Dunkerley & Co. and Ram Singh Engineering H

100 SUPREME COURT REPORTS [1992] ~ S. C.R.

A Works (supra) which throw light on interpretation on such con- tracts. Various High Courts have also considered similar ques- tions throwing light on the nature of contracts. Applying these principles, it appears that this is an indivisible and integrated contract for the whole work and has to be treated as such."

B In our view, neither ot the propositions contended for by Sri Ahuja can be accepted as correct. So far as the first proposition is concerned, it is sufficient for us to point out that it is a well-settled principle that exigibility of an item to tax or tax deduction can hardly be made to depend on the label given to it by the parties. An assessee cannot claim deduction under section 80-0 in respect of certain receipts merely on the basis that they are described c as royalty, fee or commission in the contract between the parties. By the same I ><. token, the absence of a specific label cannot be destructive of the right of an assessee to claim a deduction, if, in fact, the consideration for the receipts can be attributed to the sources indicated in the section. The second proposition is equally untenable. Contracts of the type envisaged by section 80-0 are usually very complex ones and cover a multitude of obligations and respon- D sibilities. It is not always possible or worthwhile for the parties to dissect the consideration and apportion it to the various ingredients or elements com- prised in the contract. The cases referred to by the Tribunal and Sri Ahuja as to the indivisibility of a contract arose in an entirely different context. For purposes of income-tax, a principle of apportionment has always been J.. applied in different contexts. Consolidated receipts and expenses have always E been considered apportionable in the contexts : (a) of the capital and revenue constituents comprised in them; (b) portions of expenditure attributable ... to business and non-business purposes; (c) of places of accrual or arisal; and (d) of agricultural and non-agricultural elements in such receipts or payments. This is a point that does not need much elaboration and it is sufficient to refer to decided cases cited under the passages on this topic at pp. 47, 137, 264, F 621 and 677 of Kanga & Palkhivala on the Law and Practice of Income-tax (Vol. I, Eigth Edition). We are, therefore, of opinion that if, as we have held, the contracts in the present case oblige the assessee to make available information and render services to the foreign Government of the nature outlined in section 80·0, it is the duty of the Revenue and the right of the G assessee to see that the consideration paid under the contract legitimately attributable to such information and services is apportioned and the assessee given the benefit of the deduction available under the section to the extent of such consideration.·

So far, we have looked at the language of section 80-0 in isolation. The H question to be considered next is whether the introduction of section 80-HHB

CONTINENTAL CONSTRUCTION v. C.I.T. [RANGANATHAN, J.] 101

...,, has made a difference. On behalf of the Revenue, it is urged that the facts of the present case squarely fall under the scope of this new Section. The assessee, it is said, has derived profits and gains from its business of execution of a foreign project, as defined in clauses (b)(i) and (ii) of sub- section (2) of the section. Whether the contract is viewed as one directly entered into by the assessee with the foreign Government or as involving the execution of work undertaken by it as part of a foreign project undertaken in pursuance of a contract entered into by the consortium with the foreign Government, the profits and gains qualify for deduction under section 80- HHB, subject to the conditions and to the extent, outlined in the section. Even assuming that the whole, or at least a part, of the consideration payable to the _..... assessee for the execution of a foreign project or work in connection therewith can be said also to fall under the terms of section 80-0, the tenns c of sub-section (5) of section 80-HHB make it clear that the assessee would be eligible for deduction under section 80-HHB only and cannot claim deduc- lion under section 80-0 in respect of any part of the consideration.

Sri Nariman, on behalf of the assessee, seeks to repel this contention in several ways. He submitted, firstly, that since the insertion of section 80- D /

HHB has not resulted in the deletion of section 80-0, the two sections should be read harmoniously and given effect to together. This, he says, can be done by restricting the operation of section 80-HHB to contracts entered into on or -l after 1-4-1983 on which date that section came into force and so as not to affect contracts entered into before that date and approved by the Board. In this context, it is pointed out that section 80-0 envisages grant of approval E to a contract and once such approval is granted (on whatever date it be) the approval should enure for the entire period of contract and cannot be restricted to any particular assessment year or years. In support of this contention, the decision in CJ.T. v. Indian Institute of Public Opinion, (1982) 134 I.T.R. 2 (Delhi) is relied upon. It is urged that, once the approval is granted to.a contract, Section 80-0 becomes operative in respect of all sums F ~ received under the contract of the nature specified therein. If the applicability r of section 80-HHB is thus restricted, it is submitted, the terms of that section, including sub-section (5) thereof; ~annot stand in the way · of the relief available to the assessee under section 80-0. Secondly, he contends that the definitioQ of "foreign project" in section 80-HHB (2)(b) is a restrictive one; G it covers only the construction of the nature specified in sub-clause (i) or the assembly and installation of the nature specified in sub-clause (ii), there being no other prescribed work in terms of sub-clause (iii) and it is only the consideration received for the carrying out of these two activities that is excluded from the purview of relief under other sections under Heading 'C' ·of Ch, VI-A. In other words, it is said, section 80-HHB applies only to con- H .....

102 'SUPREME COURT REPORTS [1992) 1 S. C.R.

A struction/installation activity simpliciter and not a "composite" activity. It is argued that where, as in the present case, the contract envisages, in addition to construction of buildings or other structures and installation of machinery or plant outSide India, some further acts to be done by the assessee-such as making available information on rendering of services to the foreign Govern- ment or enterprise - the consideration attributable to such action will not B forfeit the deduction otherwise available under section 80-0. Some signifi- cance is sought to be attached to the use in sub-section (5) of the words "Not- withstanding anything contained in any other provision under this Chapter" and not "Notwithstanding anything done or any approval granted under any other provision" as also the use of the word "shall not qualify" at the end of the sub-section. It is argued that once approval is granted under section c 80-0, the receipts have already qualified for deduction under that section and section 80-HHB(S) does not operate after that stage. A reference is also made '· to the different language used in section 80-HHA(6) which specifically excludes relief under section 80 I and J and to the language used in section 80-MM which specifically excludes section 80-0. Thirdly, it is submitted that, if the Board, after considering the arguments as to applicability of D section 80-HHB put forward by the assessee, accepted this as a plausible view of the relative area of operation of the two provisions, and extended the approval to assessment year 1983-84 onwards as well, it could not be said to have exceeded its jurisdiction and it is not open to the Revenue to ignore the order of approval merely for the reason that section 80-HHB has been introduced into the statute book. E The contention of Sri Nariman that, even after the insertion of section 80-HHB, there is room for applicability of section 80-0 in relation to a contract of tlais type which is not a construction/installation contract simplic- iter appears attractive but we do not think section 80-HHB should be interpreted in such a narrow or pedantic fashion. The section provides for an F exemption in respect of profits from a "foreign project" undertaken outside India in the course of business. The expressions "business of execution of a foreign project" or work forming part of it or the 'profits derived' from the business, take in all aspects of a business involving the activities referred to in sub-section (2)(b) of section 80-HHB together with all activities, commit- G ments and obligations ancillary and incidental thereto and the profits flowing therefrom. The definition cannot be restricted to the mere physical activity or putting up the superstructure, machinery or plant but should be understood to take within its fold all utilisation of technical knowledge or rendering of technical services necessary to bring about the construction, assembly and installation. However, we need not theoretically eliminate all possibility of a H contract i.nvolving independent elements calling for consideration both ~nder

CONTINENTALCONSTRUCTIONv. C.I.T. [RANGANATHAN, J.] 103

section 80-lffiB and section 80-0. It is perhaps possible to envisage cases where, while undertaking a foreign project, separate contracts are entered into fonning two different sets of activities involved viz. (i) con~truction of works and assembly or installation of plant and machinery and (ii) the transfer of rights know-how, the impartation of technical knowledge or infonnation and the rendering of technical services and providing separate consideration under each heading. It is perhaps possible to say in such cases that there are two contracts in respect of a foreign project, one of which will fall under section 80-HHB and another under section 80-0. Or it may be that even though there is a single contract, it separately identifies the two sets of activities and provides separate consideration for each. In such a case also, it is perhaps, possible to say that the consideration for the foreign project does not comprise in part or in whole of consideration that would fall under c section 80-0. But where the contract is for a single indivisible consideration for the execution of a foreign project and does not spell out the imparting of infonnation or the technical services and any consideration therefor, it is difficult to segregate two parts of such a contract, artifically apportion the consideration under two headings referred to above and then apportion the relief under section 80-HHB and section 80-0. This is particularly so in the D context of the fact that in the particular case, as has been pointed out earlier the impartation of information was only indirect consisting of what the foreign enterprise of Government could gather from the manner of execution of the contract by the assessee and the technical services rendered to the non- resident principal consisted only of the execution of the project for it by the assessee. In other words, this is a case where the execution of the foreign E · project, in itself, comprises the elements referred to in section 80-0. There is one single, ilategral, indivisible contract for executing a foreign project and the entire consideration is attributable to such execution.

Sri Nariman drew our attention to columns 27 and 28 in Form lOF which read thus : F

''27. Whether any part of the payment is derived from, -

(a) the execution of a foreign project undertaken by the applicant in pursuance of the agreement under consideration, or G

(b) the execution of any work undertaken by the applicant and fonning part of a foreign project undertaken by any other person in pursuance of a contract entered into by such other person with a foreign Government or any statutory or other public authority or agency in a foreign State or a foreign enterprise. H

104 SUPREME COURT REPORTS [1992] I S. C. R.

A 28. With reference to 27(b) above, -

(a) fu~ish the date of the contract entered into by the other person with the foreign Government or enterprise for the execution of the foreign project,

B (b) whether all the services were rendered by the applicant -

(i) before the signing of such contract; or

(ii) after signing of contract."

c He sought to contend on the strength of these columns that a part only of the payment derived from a contract submitted for approval under section 80-0 may be referable to section 80-HHB leaving a balance, at least, eligible for relief under section 80-0. This is not the purport of this para. On the other hand it seems to be clearly intended to ensure while granting approval under section 80-0 in pursuance of the application that section 80-HHB(S) is given effect to and no part of the payment derived from the execution of such a project is allowed to qualify under section 80-0.

Sri Ahuja sought to make a further point that even if the assessee's case • falls under section 80-0, assessee will be entitled to relief not on the entire profits derived by the assessee but only to that portion of the receipts as can be ascribed the character enumerated in section 80-0. He suggested that it may actually be more beneficial to the assessee to claim relief for 25% of the whole under section 80-HHB rather than claim 100% of say 10% attributable to section 80-0. There is, of course, a fallacy in this argument. For the assessee's case is that the contract falls either wholly under section 80-0 or partly under section 80-HHB and partly section 80-0. Thus, if only 10% of the receipts are attiibutable to section 80-0, the assessee would be entitled to relief of 25% of the 90% under section 80-HHB and the whole of the 10% under section 80-0-in other words a relief of 32-1/2% (which is more than ·- 25%) of the whole. But, for reasons, we have already set down this is a case in which the impartation of information and provision of technical services arise directly from the execution of the project and nothing else. This being so there is a complete identity of the matters governed by section 80-HHB and section 80-0 and so the assessee will be entitled to only one and not both the reliefs.

The assessee has, naturally, placed considerable reliance on the ap- H proval granted by the Board under section 80-0 and, in particular, on the

CONTINENTAL CONSTRUCTION v. C.I.T. [RANGANATHAN, J.] · 105

clarifications issued by the Board on 31.7.85 after the assessee's representa- A tion, by deleting the reference to section 80-HHB. The Department has sought to retaliate by taking up the stand that the contracts in the present case do not at all fall under section 80-0 and that the Board erred altogether in granting such approval. The Tribunal accepted a suggestion put forward on behalf of the Department that the clarification was the result of some confusion and purported. to obtain a further clarification from the Board in a B manner that has attracted vehement complaint and criticism from the assessee. We do not think it is necessary for us to enter into this realm of debate for, apart from the doubtful sustainability of a collateral attack by the Department on an approval granted by the highest administrative authority under the Act, we have endeavoured to point out that the Board was fully justified in con- sidering the receipts of the assessee as falling under section 80-0 and in c -· · granting approval to the contract We shall also proceed on the footing that the assessee is also right in saying that the Board had, after considering its representations, accepted the position that the approval under section 80-0 would enure also for the assessment year 1983-84 onwards. In fact, we think that, irrespective of the Board'-s clarification of 1985, the correct position is that, once ~ contract stands approved under section 80-0 in relation to the first assessment year in relation to which the approval is sought, the approval enures for the entire duration of the contract This is the principle enunciated in CJ.T. v. Institute of Public Opinion, (1982) 134 l.T.R. 23 (Del.) the correctness of which cannot be doubted and is, indeed, accepted by both counsel before us. Section 80-0 does not envisage an application for approval of the contract every assessment year or the limitation of the approval granted by the Board to any particular assessment year. The Board is approving of a contract having regard to the nature of the receipts flowing therefrom and once this approval is granted, the assessee is entitled to seek a deduction under section 80-0 in respect of all the receipts under the contract the consideration for which is traceable to the three ingredients discussed earlier irrespective of the assessment year in which the receipts fall for assessment The Board's approval of the contract - in 1983 as well as in 1985 - has no doubt this effect But this is not the same thing as saying that relief under sectionl80-0 would be available despite section 80-HHB. It seems to us that the Board's clarification of 31.7.1985 (which merely withdraws the reference to section 80-HHB and extends-the approval beyond G 1982-83) cannot be read as involving a further decision that the assessee should be granted relief under section 80-0 contrary to the terms of section 80-HHB. Section 80-0 only empowers the Board to approve of a contract on being satisfied that it gives rise to receipts qualifying for deduction under section 80-0 and nothing more. In fact the various terms and conditions of the Board's letter of approval (in relation to which arguments have been ad- H

106 SUPREME COURT REPORTS [1992] 1 S. C.R.

A dressed before us) are totally redundant and unnecessary. All that the Board T has to do is to approve of an agreement for the purposes of section 80-0. It has nothing more to do. Its approval cannot be tentative or provisional or qualified. It cannot be hedged in with conditions and restrictions of the nature set out in the Board's letter. It cannot limit. the relief to certain assessment years only; it cannot restrict or enlarge the scope of the relief that can be B granted under the section. The assessment years for which relief is available, the extent of the receipts that qualify for deduction and all other incidents flow from the language of the section. The position therefore is that the Board's approval of the agreements in the present case, originally accorded legitimately and properly, as pointed out by us, in respect of assessment years earlier to 1983-84 will enable the assessee to claim like relief under section c 80-0 for all subsequent years too. But, after the insertion of S. 80-HHB, in the matter of receipts governed both by section 80-HHB and section 80-0, the former and. not the latter will prevail. We have therefore come to the conclusion that the 31.7.85 amendment of the Board's approval cannot help the assessee to overcome the mandate of section 80-HHB(5). The Board, by its 31.7.1985 letter, could not have intended to say this and, if it did, it acted D outside the jurisdiction conferred on it by the statute. While the Board has every right to declare that section 80-0 applies in respect of the receipts under a contract approved by. it, it has no statutory or other right to supersede or limit the clear terms of section 80-HHB. We find ourselves unable to accede to the proposition of Sri Nariman that the scope of S. 80-HHB should be excluded from application to contracts approved prior to 1.4.1983. Indeed, E a difficulty of this type could arise even in respect of a contract entered into after 1.4.1983. Since section 80-0, continues to be in the statute book even after 1.4.1983, an application may be made and a contract approved under that section. In doing this the Board· may riot have, and certainly need not have, considered the provisions of section 80-HHB. But, despite such ap- proval, the receipts under the contract cannot qualify for relief under section F 80-0 if the assessing officer comes to the conclusion that the case falls under section 80-HHB. The legislature has clearly envisaged the possibility of the same receipts qualifying for deduction under section 80-HHB as well as - under any other provision of the Act and has specifically provided that, in such a case, the terms of section 80-HHB wiil prevail over the provisions of such other provision. Sri Ahuja invited our attention to the fact that sub- section (5) was not part of section 80-HHB at the stage of the Finance Bill but was inserted during the passage of the Bill in Parliament. The Finance. Minister explained the purpose in his budget speech. He said :

"Indian companies and resident non-corporate tax payers are entitled under the Bill to an exemption of 25 per cent of the >-

CONTINENTAL CONSTRUCTION v. Cl.T. [RANGANATHAN, J.] 107

<' profits desired by them from the execution of foreign contracts undertaken by them. Some doubts have been raised that income derived from such foreign projects may also be eligible for exemption under section 80-0 of the Income-t,ax. Act. I propose to make a provision to clarify that no part of the consideration received by a person for the execution of the foreign project or the income comprised in such consideration shall qualify for deduction under any other provision in the Income-tax Act."

The statutory interdict thus inserted cannot be frustrated by the terms of an approval of the Board under section 80-0. Such approval, at its best, cannot overreach, the limitations imposed on the relief available under that _..o( section as a consequence of section 80-HHB(5). c There was a good deal of discussion before us as to the scope and effect of the approval granted by the Board to the terms of a contract under section 80-0. Sri Ahuja would have us hold that the approval of the Board has significance only in that, without such approval, the assessee's claim for relief under section 80-0 could not all be entertained. It only opens the gate to enable the assessee to enter and seek a deduction under the section. It is not conclusive on any other aspect of section 80-0, certainly not on the merits of the assessee's claim. Despite the approval, the Income-tax Officer .cannot be absolved of his functions and responsibility of deciding whether the any part of the assessee's receipts fulfills the characteristics prescribed for deduction under the section and, if so, to what extent the assessee is entitled to get the deduction in accordance with and subject to the provisions of the section. According to counsel, the Board is not competent to decide these issues in the process of granting approval to the agreement. He points out that, in the instant case, the assessee has not identified the receipts or any parts thereof as having the characteristics enumerated in the section. Never- theless the assessee purported to claim that the entirety of such unidentified F _,..... receipts would be the value of the technical information and services to be i" imparted or rendered under the contract (vide col. 6 of the application), eligible for relief under section 80-0. In order, however, not to give an impression that exemption was sought for the entire profits, the assessee purported to exclude from the claim of exemption the net cost of certain G machinery, equipment and other items allegedly supplied to the foreign Government under the contract on a no-profit basis. Sri Ahuja says, the calculations of the assessee are incorrect in several respects. These errors apart, the consideration for services plus profits under the entire contract wat estimated at 69 .893 million ID at the time of filing the application for approval as per a break-up chart placed on record. Of this the figure of profits H

108 SUPREME COURT REPORTS [1992) 1 S. C.R.

A was estimated at 25.49 million IDS or Rs. 68 crores only. As against this, the assessment order shows that the relief claimed under section 80-0 for the assessment year 1983-84 alone was to the tune of Rs. 77 .84 crores in respect of the Kirkh contract. He also points out that the aggregate net profits shown by the assessee from this contract for the a~sessment years 1982-83 to 1989- 90 were Rs. 165 crores, almost 50% of the total receipts from the contract. B Sri Ahuja says, therefore, the application for approval was based on wild estimates made before the contract began to be worked in right earnest and the Board could certainly have had no possible material for accepting the basis of claim for exemption set out in col. 6 as correct It would, therefore, Sri Ahuja urges, be totally untenable to interpret the Board's approval as a decision on the merits of the assessee's claim putting the seal of finality as c to the basis or quantum of the relief to be granted to the assessee. That is the exclusive domain of the assessing officer which the Board has no business to encroach upon.

On the other hand, Sri Nariman contended that it would be preposter- ous to attribute such an insignificant role to the Board. The Board is the appex administrative authority under the Act and the responsibility of approving the contract was entrusted to such a high authority for weighty reasons with the clear intention that, once the contract is approved by the Board, the assessee should be entitled to exemption subject only to the arithmetical computations being left to be done by the assessing officer. He points out that the Board had prescribed an elaborate and detailed proforma on which the application for approval had to be made, some portions of which have been extracted earlier in this judgment. It requires the assessee to give full details of the contract (col. 2 to 4, 3 to 19) explain how the receipts under contract fulfill each of the reqgirements of the section (col. 5 to 9), specify the nature and quantum of Hie exemption claimed (col. 10 and 11) and indicate the terms and mode of payment (col. 12). Elaborate guidelines were drawn up and publicised by Board's circular no. 187 dated 23.12.75, (See (1976) 102 I.T.R. St. 83). These guidelines, read with the proforma, clearly envisage a vital role to the Board to analyse the terms of the contract and nature of the assessee's receipts carefully and ensure that they qualify for relief under the section. No doubt, the approval is granted on the basis of the terms of the contact and the actual quantification of the relief available under the contract for any particular assessment year has to be worked out by the assessing officer under the contract. It is also possible that the Board's approval is obtained by fraud or misrepresentation and the guidelines provide for revocation of the approval in case some such situation is found to exist. But, so long as the approval lasts, the assessing officer is bound and cannot challenge tile correctness of the approval or ·take up the position that the

CONTINENTAL CONSTRUCfION v. C.I.T. [RANGANATHAN, J.] 109

... contract itself falls outside .the purview of the section. Apart from this general A -r position, Sri Nariman points out tijat the approval of the Board had been accorded in this case after full and detailed discussions, correspondence and hearings stretching from 3.3.1981 - the date on which the application was made - to 28.10.1983 when approval was given. These show that each and every aspect of the contract was examined. The assessee was questioned as to how it was claiming that no profit was involved in the sale of materials. B Details regarding technical personnel engaged by the assessee and the extent of fees attributable to their recruitment in India were called for. A query was raised as to how the contract can be said to involve the rendering of services to a foreign enterprise within the meaning of section 80-0. The objection that the services under the contract were rendered to self and not to a third party

-- was also raised. These objections were duly answered and it was only after applying its mind and deliberating over the matter that Board approved the contract If there had been any misrepresentation of facts on the basis of c

which the approval had been secured, it was open to the Board to have revoked the approval but this has not been done till today. In the circum- stances, Sri Nariman contends that the Department should not be allowed to take up the stand that the approval of the Board had no value at all and could D be completely ignored by the assessing officer because, in his opinion, it did _not fulfill the requirements of section 80-0.

We have considered the contentions urged on behalf of both parties. Since we have already expressed our conclusion that the contract in the present case does come within the fold of section 80-0 and that the Board E acted 'rightly in granting approval to the contract, it may not be quite necessary for us to express any opinion on this issue. However, since the matter has been fully debated before us, and is of 8ome general importance we may indicate our views on this issue.

At the outset, it may be pointed out that, earlier section 80-0 (and F - 1' certain other sections in the statute) had provided for the approval of the Central Government as a condition precedent for the grant of relief or i- concessions thereunder, where the relief or concession was in relation to a contract with a foreign party. At that stage, it was possible to take a view that the provision was intended only as a safeguard to monitor contracts with G foreigners as such contracts may involve several aspects of policy, finance, foreign exchange and other elements vital to the country's interests. But this power of approval has since been shifted to the Board which is the highest administrative authority under the Act. This is a very significant change. No doubt, even after the change, the approval acts as a safety valve and enables the Government to decline its approval for various reasons the effect of H ....

110 SUPREME COURT REPORTS (1992) 1 S. C.R.

A which, inter alia, would be that no relief be sought for under the relevant provisions. But there is a change in the content and purpose of the approval. The Board has to grant the approval "in this behalf' that is for the purposes of this section. It is true that, even earlier, the approval of the Central Government was to be granted "in this behalf' but when the power is vested in the apex authority under the Income-tax Act, it is clear that the scope of B the Board's powers is more extensive and should bear upon the tenns of the agreement vis-a-vis the claim for relief under the section in relation to which relief is sought. It is also interesting to see that this power of approval has since been de-centralised and vested in the Director-General and Chief Commissioner which are authorities at a lower rung than the Board but at a higher rung than the assessing officer. While, at one time, the Income-tax c Officer was described as the king-pin of thP- tax administration and was the sole repository of all functions pertaining to assessment, the recent tendency has been to vest powers of assessment even in officers above the rank of the Income-tax Officer either because of the amount involved or for other reason. Here again, there is good reason, over and above the general need to have a surveillance over foreign contracts, why the power to grant approval is vested in a higher authority in the Income-tax heriarchy itself. The first is that the Board is considered better equipped, both on considerations of time as well as the technical knowledge needed to examine the ramifications of technical international contracts and decide how far the ·coritract in question and the receipts thereunder are of the nature intended to be covered by the exemption clause; The second is that, with such a provision, the applicant is sure to take steps to obtain necessary approval at a stage earlier to the implementation/of the contract and it will be possible to require the party, if modification or changes are called for, to modify the contract even at the outset so as to bring it within the range of contracts for which relief is intended. The third ·and perhaps and most important reason is that such contracts are generally likely to be long-term contracts and it is of the essence for an applicant to know well beforehand where he stands in the matter of tax exemption and whether he can proceed to execute the contract on the basis that he would be eligible for the relief he feels ·he is eligible for. It would result in chaos if an assessee's contracts were left to be scrutinised at the time of assessments several years after they have been implemented and the availability of an exemption provision which the assessee was banking upon and on the basis of which he had entered into the contract, denied to him for one reason or another whereas, duly forewarned by a disapproval, he could have backed out of the contract, if necessary, and saved his skin. In this situation, we find it difficult to accept the plea of Sri Ahuja that the approval is nothing but a measure for streeniilg. the cases which an assessing officer may have to consider.

CONTINENTAL CONSTRUCTION v. C.l.T. [RANGANATHAN, J.] 111

We are also reinforced in this conclusion by the manner in which the A 1 provision has been understood and implemented by the Board since its introduction. The Board had issued circulars earlier when the relief had been introduced originally by the insertion of section 85-C and, again, later in

1972. But, after the power of approval was vested in the Board, elaborat~ guidelines were drawn up as pointed out by Sri Nariman. These guidelines clearly envisage a detailed examination, by the Board, of the terms of the B contract submitted to it for scrutiny from all angles relevant for a decision as to eligibility for exemption under section 80-0. The proforma calls for details of the analysis of the receipts under the contract. An examination whether the receipts can be said to be by way of royalty, commission, fee or similar payment is undertaken. The receipts are analysed •mder the three headings, _....._ as earlier referred to us, set out in paras 5(a)(i), 5(a)(ii) and 5(b) of the c proforma. Even the situation where the contract is a composite one has been dealt with by the guidelines and this may be referred to here in a little greater detail. In the circular of 23.12.75 (supra), the Board decided that it would decline approval in cases where the consolidated consideration could not be legitimately attributed to know-how, services etc. envisaged in the section but that in cases where such apportionment was considered permissible, it would grant approval to the agreement and have the quantification of the exemption to be decided by the assessing officer. It said :

~ "(ix) In the case of a composite agreement specifying a consoli- dated amount as consideration for purposes which include mat- ters outside the scope of section 80-0 (e.g. use of trade marks, supply of equipment etc.) the amount of the consideration relat- ing to the provision of technical know-how or technical services, etc. qualifying for purposes of section 80-0 will have to be determined by the Income-tax Officer separately at the time of ' ~

assessment after due appreciation of the relevant facts. Where, F however, in the opinion of the Board, it will not be possible to t- properly ascertain and determine the amount of the consideration --r relatable to the provisions of the know-how or the technical services, etc., qualifying for section 80-0, the Board may not approve such an agreement for the purposes of section 80-0 of the Act." G It had also taken the view that a consideration for the use of the assessee's tr.ide-mark would be outside the purview of section 80-0. Subse- quently, however, the Board changed its line of approach on these two issues. In itS circular No. 253 dated 30-4-1979, the Board clarified : H ... "Attention is invited to the Board's Circular No. 187 (F. No. 473/

112 SUPREME COURT REPORTS (1992] 1 S. C.R.

A 15n3-FfD) dated 23rd December, 1975 on the above subject laying down the guidelines for the grant of approval under 'r section 80-0. The Board has had occasion to re-examine the aforesaid guidelines and it has been decided to modify the guidelines to the extent indicated below :-

B xxx xxx xxx

(ii) In para (ix) of the said circular, it was mentioned that con- sideration for use of trade mark would be outside the scope of section 80-0. It has now been decided that payment made for the use of trade-marks are of the nature of royalty, c and therefore, fall within the scope of section 80-0. >. (iii) It was also stilted in para 3(ix) of the circular dated 23.12.1975 that in the case of a composite agreement which specified a consolidated amount as consideration for pur- poses which included matters outside the scope of section D 80-0, the Board may not approve such an agreement for the purposes of section "80-0 of the Act if it' was not possible to properly ascertain and determine the amount of the consideration relatable to the provision of the know- how or technical services etc., qualifying for section 80-0. _.. Thus, the benefits of ~lion 80-0 could be denied to the entire amount of royalty, commission, fees etc., receivable under such an agreement. It has since been decided that in such cases approval would be granted by the Board subject to a suitable disallowance for the non-qualifying services after taking into consideration the totality of the agreement so that balance of the royalty/fees etc. which is for the services covered by section 80-0 can be exempted."· ~ It is thus clear that the Board has chalked out for itself, we think quite legitimatly and properly, a very detailed and dominant rule as to the r- availability of exemptions under section 80-0. The guidelines are of general \. G nature, fully sanctioned by the provisions of section 119(1) of the Act and, being instructions enuring to the benefit of the assessee, cannot be gone back upon by the Departmental Officers subordinate to the Board, particularly in a case where no steps have been taken - or even suggested as necessary to be taken - to cancel or revoke the approval already accorded. This is, indeed, a proposition well-settled by the series ·of judicial decisions starting from .H Navnitlal Javeri' s case (1955) 56 I.T .R. 198 S.C. In fact also, the Board has ;...

CONTINENTAL CONSTRUCTION v. C.I.T. [RANGANATHAN, J.] 113

followed only its own guidelines. Elaborate reference to the correspondence, A discussions and hearing is unnecessary. The Board has reached its decision to approve the contract and the basis of claim for exemption after full consideration and analysis. We may, in this context, also point out that while the Board, in the present case, simply approved of some of the contracts on the basis of the application filed, it has, in the case of some other contracts modified that basis also. For instance, in regard to the Wadi Khan and Abu B Sukhair projects, the letter of approval states that approval is granted subject to the condition or clarification that only the profits relating to rendering of technical services will qualify for the benefit of section 80-0 of the LT. Act and not the profits relating to the supply of materiaVequipment. These guidelines have also since attained statutory recognition as the proforma earlier prescribed by the Board has virtually been incorporated in Rule I IE C and Form prescribed thereunder.

In fact Sri Nariman wants to utilise certain columns in the statutory form to support his contentions that an approval under section 80-0 is effective even after section 80-HHB was introduced but to this argument, we shall advert a little later. We have, in view of the above discussion, no doubt D at all that, whil~ grf}nting the approval under section '80-0, the Board has not only the jurisdiction but also the resp0nsibility of examining the agreement submitted for approval from all angles relevant to the deduction provided for under section 80-0 and that it is not competent to the Department to question the maintainability of the claim for deduction under section 80-0 in respect of the aspects gone into and decided upon by the Board. E

We should, however, make it clear that our conclusion does not mean the deprivation of all functions of the assessing officer while making the assessment on the applicant. The Officer has to satisfy himself (i) that the amounts in respect of which the relief is claimed are amounts arrived at in accordance with the formula, principle or basis explained in the assessee's application and approved by the Bqard; (ii) that the deduction claimed in the relevant assessment year relates to the items and is referable to the basis on which application for exemption was asked for and granted by the Board; (iii) that the receipts (before the 1975 amendment) were duly certified by an accountant or that, thereafter, the amounts have been received in or brought into India in convertible foreign exchange within the specified period. The second of these functions is, particularly, important as the approval for exemption granted in principle has lo be translated into concrete figures for the purposes of each Rssessment. Neither the introduction of the words "in accordance with and subject to the provisions of this sections" nor the various "conditions" outlined in the letter of approval add anything to or detract anything from the scope of the approval.

114 SUPREME COURT REPORTS (1992] 1 S. C.R.

A As already mentioned, Sri Nariman also contended that, even after t.he insertion of S-HHB, the assessee would be entitled to claim the deduction under section 80-0 in view of the Board's amendment to the letter of approval that the approval will be operative for assessment year 1982-83 onwards, rescinding the qualification in the earlier letter that the provisions of S. 80-HHB will apply for afsessment year 1983-84 onwards. It is true that B the earlier restriction was lifted by the Board after considering the co:iten- tions raised by the assessee in its letter of 2-12-1983 :

(a) that the two sections operate.in different fields for exemption;

(b) that the approval once granted under section 80-0, the exemption c to which the assessee became eligible should ensure for the directions for the entire contract; and

(c) that s. 80-HHB should be restricted to agreements entered into before 1-4-1983.

D But we are unable to give effect to the Board's decision of 31-7-1985 in the same way as we have given effect to the Board's earlier approval letter of 28-10-1983 for a number of reasons. The first is that the jurisdiction of a Board is to grant approval to a contract only for the purposes of section 80- 0; it has no jurisdiction to pronounce on the availability or otherwise of an exemption under section 80-HHB and the Board's opinion as to this, even if expressly stated by the Board, cannot bind the Officer. The relief under section 80-HHB is not dependant on the approval of the Board and is for a totally different type of transaction. The letter of 3 l. 7.85 is also a decision in an individual case and cannot be treated as a general circular incorporating a policy decision by the Board that in all cases of a particular type governed by both sections relief may be given under section 80-0 in which event perhaps it could have been implemented by applying the principle of the Jhavari case (supra). The second is that the Board, in the 1985 letter, has only stated that the approval under section 80-0 will enure for 1982-83 onwards. This is quite a correct statement of, as we ~ave explained earlier, the approval by the Board is to the contract and so long as the contract subsists the relief should be granted on the term of section 80-0. Thus the assessee is entitled to deduction under section 80-0 on the terms of that section even for 1983-84 and subsequent years. It becomes disentitled to the relief not because it does not fulfill the requirements of section 80-0 but only because section 80-HHB(S) stands in the way and mandates that in cases to which both· provisions will apply relief under section 80-HHB will alone be. H available. The argument that the applicability of section 80-HHB should be

CONTINENTAL CONSTRUCI10N v. C.I.T. [RANGANATHAN, J.] 115

excluded from contracts entered into, or those approved of under section 80- A -1 0, before 1.4.1983, is patently untenable. Section 80-HHB comes into force on 1.4.1983 and should be applicable for assessment year 1983-84 onwards in all cases. It does not contain even a reference to section 80-0 and so its applicability cannot depend on the formation of the contract subsequent to that date or to the date of its approval under the latter section being after that date. Thirdly, the approval which otherwise qualifies the assessee for relief is no doubt still effective but its power to "qualify" for relief is taken away by the new statutory provision. The argument that the assessee could not have anticipated the insertion of section 80-HHB and is put to a hardship if that section is applied is no doubt correct. But one cannot decline to give effect to the applicability of the statutory provision on the ground of hardship or on the ground that it restricts the relief which, but for the insertion of the section, would have been available to the assessee, particularly when the section itself envisages the possibility of the assessee being also eligible for relief under another section and makes special provision of that eventuality.

Sri Nariman submitted that we should not favour the above interpreta- tion as it would lead to an anomalous result. He says that the whole idea of section 80-HHB was to enlarge the benefits to contractors working abroad and earning foreign exchange but that, by reason of our decision, the assessee will now get relief only to the extent of 25% in respect of a contract for which it got 100% benefit in earlier years. On the other hand, the department would no doubt say that our conclusion that the department would no doubt say that our conclusion that the assessee was entitled, in earlier assessment years, to 100% relief on this type of contract is anomalous in the light of the fact that subsequently the legislature specifically provided that only 25% of the earnings on foreign projects should be exempted. In our view, there is no force in these contentions. The anomaly, if it is one, arises because of the specific language of the statute and the nature of the contract we have to consider. S. 80-HHB does not confer an additional benefit; sub-section (5) in no uncertain tenns states that the benefit thereunder will take away the benefit, if any, under any other provision. This has to be given effect to. Equally, the assessee was able to get 100% relief in earlier years only because the contract here is of such nature that it consists only of the rendering of technical services so that the fields of the two exemptions completely overlap. On the other hand, as discussed earlier, it is possible to conceive of foreign projects wherein the construction and installation aspect and information or technical services aspect are kept separate. Equally there can be cases falling under section 80-0 which do not all relate to a "foreign project" as defined in section 80-flHB. In such cases, the two provisions will continue to operate independantly. There is, therefore, no anomaly or absurd- H ity in the conclusion we have reached.

116 SUPREME COURT REPORTS (1992] 1 S. C. R.

A For the reasons djscussed above, we hold that the assessee was entitled to the relief under section 80-0 for assessment years earlier to 1983-84 and that the approval granted by the Board under that section was right and proper. However, for the assessment year 1983-84, the assessee does not qualify for deduction on the terms of that section as the contract receipts are fully covered by the provisions of~. 80-HHB and the deduction under that B section will prevail over the relief that might have been otherwise available in view of the terms of section 80-HHB(5). We, therefore, affirm the conclusion reached by the High Court and dismiss this appeal. We, however, make no order a'\ to cost'\.

R.P. Appeal dismissed.