Holding

Section 80‑0's "technical services" includes professional services, and the agreement satisfies the provision; thus the CBDT's refusal was erroneous.

Summary

Oberoi Hotels (India) Pvt. Ltd. entered into a comprehensive agreement with a Nepalese hotel enterprise to provide technical, professional and other services for operating the hotel. The company sought approval of the agreement under Section 80‑0 of the Income‑Tax Act, 1961, but the Central Board of Direct Taxes (CBDT) refused without stating reasons. The Delhi High Court set aside the refusal twice, directing fresh consideration, but the CBDT again declined. The Supreme Court held that the term "technical services" under Section 80‑0 includes "professional services" and that the agreement, when read as a whole, satisfied the statutory ingredients, so the CBDT erred in denying approval. However, because the matter was over 28 years old, the Court did not remand it for fresh appraisal. The appeal by the CBDT was dismissed and the High Court's judgment affirmed.

Issues considered

The agreement between Oberoi Hotels and the foreign enterprise falls within the scope of Section 80‑0 of the Income‑Tax Act, 1961.
Whether the expression "technical services" under Section 80‑0 includes "professional services".
Whether the CBDT acted within its statutory discretion in refusing approval of the agreement.
The appropriate exercise of judicial review over the CBDT's decision.

Legislation cited

Income Tax Act, 1961s. 119, s. 80-0

Subjects

Section 80-0technical servicesprofessional servicesincome tax deductionCBDT approvaljudicial reviewforeign exchange earningshotel management agreementstatutory interpretation

Judgment

CENTRAL BOARD OF DIRECT TAXES AND ORS. A
v.
OBEROI HOTELS (INDIA l PVT. LTD.

MARCH 30, 1998

[SUJATA V. MANOHAR AND D.P. WADHWA, JJ.] B

Income-Tax Act, 1961 Section 80-0 -Technical or Professional
Service-Interpretation of-Respondent, an Indian Company entered into
agreement with foreign enterprise for rendering of technical services as well
as for providing professional and also other services for operating hotel- C
Held, CBDT erred in not granting approval to respondent's agreement even
though the agreement satisfied the ingredients of Section 80-0 of the Act.

Remand-CBDT erred in not approving the respondent 's agreement
under Section 80-0 Holl'ever, as the matter is 28 years old, Supreme Court D
declined to remand the matte" to CBDT for fi'esh appraisal.

Technical or Professional Service-/11/e111retation of-Technical Services
include professional services as well.

Administrative Lm1~Judicial Review-Power of-Courts to see that
the authority acts within the scope of its power and exercise it in reasonable E
manner keeping in view the object which the statute seeks to achieve.

The respondent sought approval of agreement with a foreign enterprise
for rendering technical, professional services etc., for operating a hotel, as
per Section 80-0. It was declined by CBDT without communicating the F
grounds. The Respondent filed a Writ Petition against the order of CBDT
and it was allowed by the High Court. CBDT was directed to consider the
matter afresh and give decision after hearing the respondent. Again on
representation by the respondent, CBDT declined to grant approval but this
time communicated the decision to the respondent. However, High Court
again reversed CBDT's order. G
It was contended on behalf of the appellants that the agreement was
basically for the respondent to manage and run the entire hotel for a foreign
enterprise which was not in any way rendering technical services to foreign
enterprise and would not fall within the purview of Section 80-0 of Income-
Tax Act. H
501
+
502 SUPREME COURT REPORTS [ 1998] 2 S.C.R.

A Referring to circular No. 187 dated 23.12.1975 of CBDT, the
Respondent contended that the agreement squarely satisfied the ingredients
of Section 80-0. The respondent further submitted that construction which
benefited the assessee should be adopted and the circular should receive
liberal interpretation keeping in view the object of introduction of Section
80-0 in the statute.
B
Dismissing the appeal, this Court

HELD : I. The term "technical services" included "professional
services". The agreement entered with foreign enterprise by the respondent
C provides for rendering of technical services and also professional services
for operating the hotel of a foreign enterprise. CBDT erred in not granting
approval of the agreement to the respondent under Section 80-0 of the Act
even though the agreement satisfied the ingredients of Section 80-0 of the
Ac!.1526-GI

D Col1fi11e11ta/ Construction ltd. v. Commissioner of Income-Tax, (1992)
1995 ITR 81 SC, relied on.

I.I. The CBDT fell into error in considering particularly the clause
in the agreement which provided for operation of the Hotel by the respondent.
The agreement has to be seen as a whole and so examined it is quite apparent
E that it provided for rendering of not only technical services for operating the
Hotel of the foreign enterprise but also providing for professional and other
services in connection with operating of the hotel. Section 80-0, was enacted
with the twin objects of encouraging the expert of Indian technical know-now
and augmentation of foreign exchange resources of the country. Therefore,
considering the scope of the agreement and the width of Section 80-0, it
F could be said that the agreement provides for "information concerning t· ...
industrial, commercial or scientific knowledge, experience or skill made
available" by the respondent to the foreign enterprises for running of the
Hotel. !525-G-H; 526-A-CI

G 1.2. The view that remuneration obtajned by running or managing a
foreign· company would be in the nature of profits with Section 80-0
deliberately restricts itself to income by way of royalty, commission or fees
and included other types of remuneration would not be tenable as the royalty,
commission or fees can be in terms of percentage of profits earned by the
foreign enterprise on account of services rendered by the Indian company.
H It is substance of the case which matters and not the name. Further Circular
CENT. BO. OF DIRECT TAXES v. OBEROI HOTELS (P). LTD. 503

No. 187 dated December 23, 1975 of the CBDT may perhaps require certain A
changes so as to be in conformity with Section 80-0 of the Act. 1526-D-E)

J K. (Bombay) ltd. v. Central Board of Direct Taxes and another,
(1979) 118 ITR 312 (Del), overruled.

2. The legislative intention of Section 80-0 is the spread by an Indian B
assessee of any patent, invention, model, design, secret formula or process,
or similar property right, or information concerning !ndustrial, commercial
or scientific knowledge, experience or skill of the assessee for use outside
India and in that process to receive income to augment the foreign exchange
resources of the country. The assessee can also make availab.le to foreign C
enterprise technical and professional services expertise of which it possesses
for earning foreign exchange for the country. 1526-H; 527-A-BI

3. In exercising the power of judicial review courts are to see that the
authority acts within the scope of its power and exercise it in reasonable
manner keeping in view the object which the statute seeks to achieve. The D
decision of CBDT in not grating approval to the agreement was in good faith
~ ~ and it is the latest development of law both on the scope of judicial review
and interpretation of Section 80-0 that the dedsion has to be reversed. As
law stands today with reference to Section 80-0, CBDT took into account the
consideration which were not relevant or germane to the real issue. In this
view of the matter there is no ground for interference of the impugned E
judgment of the High Court. 1527-C-D)

4. Even though the impugned judgment of High Court was right still
the matter is not remanded to CBDT for fresh appraisal as the matter was
28 years old. 1527-EJ
F
~ -t God.re} and Boyce Mfg. Co. Ltd. v. SP. Points, Chief Commissioner of
Income-Tax and others, (1993) 203 ITR 947 (Bombay), approved.

JK. (Bombay) ltd. v. Central Board of Direct Taxes and another,
(1979) 118 ITR 312 (Del), overruled.
G
Continental Construction Ltd. v. CIT, (1992) 195 ITR 81 and HMT Ltd.
v. Central Board of Direct Taxes and another, (1991) 188 ITR 457
(Karnataka), referred to.

CIT, Bombay v. Mis. Gwalior Rayon Silk Manufacturing Co. Ltd.,
1199213 SCC 326; Hotel Balaji & Ors., v. State of A. P. & Ors., 119931 Supp. H
+
504 SUPREME COURT REPORTS [1998] 2 S.C.R.

A 4 SCC 536; CIT Amritsar v. Straw Board Manufacturing Co. Ltd., 119891
Supp. 2 SCC 523; C.B.D.T & Ors. v. Aditya V Bir/a, 119881 Supp. SCC 120;
CIT, Madras v. South Arco/ District Co-operative !'vlarketing Society Ltd, .....
(1989) 76 ITR 117; Keshavji Ravji & Co. & Anr. v. CIT, 119901 2 SCC 231;
CCE, Patna v. Usha Martin Industries, 119971 7 SCC 47; Poulose and
B Mathan v, CCE & Ors., 119971 3 SCC 50; Ghai Lamha Catering cons11/ta111s
Pvt. ltd. v. CBDT & Anr., (1980) 124 ITR; Oberoi Hotels (India) Pvt. Ltd.
v. CBDT, (1982) 135 ITR 257 and Bajaj Tempo Ltd. v. CIT, (1992) 196 ITR
188, New Encyclopedia Britannica, cited.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5750 of
c 1985.
From the Judgment and Order dated 29.5.81 of the Delhi High Court in
Civil Writ Pet. No. 973/80.

K.N. Shukla, Rajiv Nanda and B.K. Prasad for the Appellants.

D D.A. Dave, Ms. Kiran, Ms. Arpita Roy Chaudhary, Sanjay Katiyal and
Vineet Kumar for the Respondent.

The following Judgment of Com1 was delivered by :

D.P. W ADHW A, J. Central Board of Direct Taxes (CBDT) is in appeal.
E It is aggrieved by the judgment dated May 29, 1981 of a Division Bench of
the Delhi High Court quashing its non approval under Section 80-0 of the
Income_ Tax Act, 1961 (for short 'the Act') to an agreement dated November
29, 196? entered into by the respondent with M/s. Soaltee Hotel Pvt. Ltd.
Kathmandu (Nepal) a foreign enterprise. Section 80-0 is as under:

F "80-0, Where the gross total income of an assessee being an Indian
company includes any income by way of royalty, commission, fees or
any similar payment received by the assessee from the Government
ofa foreign State or a foreign enterprise in consideration for the use
outside India of any patent, invention, model, design, secret formula
or process, or similar property right or information concerning industrial,
G
commercial or scientific knowledge, experience or skill made available
or provided or agreed to be made available or provided to such
Government or enterprise by the assessee, or in consideration of
technical services rendered or agreed to be rendered outside India to
such Government or enterprise by the assessee, under an agreement
H approved by the Board in this behalf, and such income is received in
CENT. BD. OF DIRECT TAXES v. OBERO! HOTELS (P). LTD. [D.P. WADHWA, J.] 505
convertible foreign exchange in India, or having been received in A
convertible foreign exchange outside India, or having been converted
into convertible foreign exchange outside India, is brought into India,
buy or on behalf of the assessee in accordance with any law for the
time being in force for regulating payments and dealings in foreign
exchange, there shall be allowed, in accordance with and subject to
the provisions of this section, a deduction of the whole of the income B
so received in, or brought into India in computing the total income of
the assessee;

Provided that the application for the approval of the agreement
referred to in this sub-section is made to the Board before the 1st day C
of October of the assessment year in relation to which the approval
in first sought:

Provided further that approval of the Board shall not be necessary
in the case of any such agreement which has been approved for the
purposes of the deduction under this section by the Central government D
before the I st day of April, 1972, and every application for such
approval of any such agreement pending with the Central Government
immediately before that day shall stand transferred to the Board for
disposal.

Explanation : The provisions of the Explanation to Section SON E
shall apply for the purposes of this Section as they apply for the
purnoses of that section .... ,''

The impugned judgment is reported in (1982) 135 ITR 257 (Del).

As required by Section 80-0, the respondent sought approval of the F
agreement as falling within the purview of the section. CBDT declined to
grant approval. However, it did not communicate any ground as tci on what
basis approval was not granted Respondent filed a writ petition in the Delhi
High Court, it being Civil Writ Petition No. 1301of1975. The writ petition was
allowed by a Division Bench of the Delhi High Court on January 5, 1979 with G
a direction to the CBDT to consider the matter afresh and give a decision after
granting hearing to the respondent. This order of the Division Bench is
reproduced hereunder:

"The impugned order declining to give approval to the agreement
under Section 80-0 of the Income Tax Act, 1961, does not give any H
506 SUPREME COURT REPORTS [1998] 2 S.C.R.

A reasons for the decision. The reasons now stated in the counter
affidavit have become known to the petitioner for the first time. The
petitioner had no opportunity of meeting the same. The impugned .,....._
order is, therefore, set aside and the case is sent back to the Board
for a fresh consideration of the request of the petitioner for the
approval of the agreement under Section 80-0 and the new decision
B by the Board will be given after giving a hearing to the petitioner. The
writ petition is allowed in the above terms. No order as to costs."

After that respondent represented its case before CBDT but again
CBDT did not find any ground under the Section to approve the agreement
C and by order dated February 26, 1980, communicated its decision to the
respondent. We reproduce the relevant portion of this order of CBDT as
•mder : (pages 63-64 of the PB)

"2. The Board have carefully reconsidered the matter in pursuance
of the directions contained in the judgments of the Delhi High Court
D in the Civil Writ Petition Nos. 429 of 1974 and 1301 of 1975, on the
basis of the written and oral arguments advanced by you. It is regretted
that the Board does not consider it necessary to revise the decisions
already communicated to you in the Board's orders referred to above
owing to the following reasons:-

E (I) The services being rendered by you to the foreign party in
both cases are in the nature of managerial services. As observed by
the Delhi High Court in Civil. Writ No. 901 of 1975 (Mis. JK. Bombay
Ltd. v. CBDT and another) the running of a business or the management
of a business does not amount to the rendering of technical services.

F (2) What is being given under the agreements can also not be
;.. ....
viewed as information concerning industrial, commercial or scientific
knowledge or skill. It is not as if some information is bei.ng supplied
by you which is made use of by the foreign parties. Under the two
agreements, you are yourself functioning in the foreign countries.
G
(3) Though your name is being utilised by the two foreign hotels,
and the fee received for the use of your trade name would be covered
by the provisions of Section 80-0 yet the amount relatable to this
aspect of the total services rendered under the two agreements would
be so small that it is not easy to quantity the same for purpose of
H Section 80-0 of the Income Tax Act, 1961''.
CENT. BD. OF DIRECT TAXES v. OBEROI HOTELS (P). LTD. [D.P. WADHWA, J.] 507
This led the respondent to approach the High Court again by filing writ A
. ·~
petition on July 28, 1980 which was allowed by judgment dated May 29, 1981,
which is now impugned before us. In order to appreciate the rival contentions,
it will be appropriate to refer to some of the clauses of the agreement which
the respondent entered into with the foreign enterprise.

Foreign enterprise owned and operated in Kathmandu (Nepal) a hotel B
under the name and style of Soaltee and a restaurant at Tribhuvan Airport,
--...; Kathmandu. This foreign enterprise wanted to construct and add to its hotel
approximately 190 more rooms and also wanted to obtain contracts for various
airlines catering operating at Tribhuvan Airport. Respondent had a name and
worldwide reputation in the hotel field and was experienced and had the
technical skill for providing professional, architecture, engineering and
c
decorating services and was qualified to assist in planning, designing,
constrncting, furnish;ng and equipping of hotels and was also engaged in the
development, leasing and operation of hotels under the name "Oberoi Group"
in the interest of facilitating international travel and trade. In view of the name
and tradition, experience and skill of respondent in hotel industry for profitable D
> operation of hotels and for bringing the hotel to international stanaards and
"" for ensuring better operational results and promotion of business of Hotel,
foreign enterprise desired that its operations be taken over by the respondent
with effect from December 1, 1969 on terms and conditions set out in the
agreement. Parties agreed (formulated from the agreement):
E
(I) During the term of the agreement hotel of the foreign enterprise shall
be known and designated as the Hotel Soaltee Oberoi.

(2) Agreement will remain in force for fifteen years. It could be extended
for a further period of five years at the option of the respondent on the same
. .( terms and conditions .
F

(3) Respondent would recruit and train the requisite staff of the hotel
through such training programme including hotel schedule, if any, and other
training techniques, as it shall deem necessary. Respondent shall select suitable
personnel for adequate and proper training in hotel management and operation, G
always giving preference ~owever to Napalese nationals.

~
> (4) Respondent would use its best efforts tc advertise and promote the
business of the hotel through its existing facilities. Soaltee Hotel, the foreign
enterprise, subject to later amortisation and reimbursement as provided in the
agreement shall pay or reimburse the respondent in full for all costs and H
508 SUPREME COURT REPORTS [1998] 2 S.C.R.
A expenses of the said training and for all the costs of advertising, promotion,
literature, travel and business entertainment including celebrations and
ceremonies incurred prior to or concurrently with the beginning of full operation .,.... · ~
of the hotel by the respondent.

(5) Respondent in consultation with foreign enterprise will make available
B for the hotel, its staff of consultants and specialists who were qualified to
provide advice in the various departments and aspects of hotel operations.
The services of the members of respondent staff and of any outside consultants
engaged by respondent on retainer will be. rendered on the basis of
reimbursement by the foreign enterprise through the respondent of the salaries
C of respondent personnel during the time they rendered services directly for
hotel Soaltee and reimbursement of the amounts paid to such consultants
under their retainer plus other expenses incurred by such personnel and
consultants in performing services for the hotel of the foreign enterprise.

(6) Respondent was to provide training and instruction for key personnel
D for the hotel Soaltee in order to prepare them to serve the hotel in the
capacities for which they would be trained. Such key personnel to be trained
will be placed in existing hotels of the respondent and will be instructed and
supervised by the Management of such hotels and progress reports will be
made to the Board on such personnel. Travelling and other expenses of the
trainees shall be borne by the foreign enterprise though the respondent shall
E make arrangement for their boarding and lodging at its own costs and also
pay suitable pocket allowances to them.

(7) Respondent to use the hotel Soaltee solely for the operation of a
first class hotel on international standards and all activities in connection
therewith which are customary or usual for such operation. It is understood
F
that respondent shall have within the term and provisions of the agreement,
absolute. discretion in the operation of the hotel but the same shall always
be and be deemed to be owned by the foreign enterprise exclusively.

(8) Foreign enterprise and the respondent shall be entitled to 85% and
G 15% respectively of the Gross Operating Profits as defined under the terms
of the agreement. The agreement prescribed as to how payments of their
respective shares would be met for each financial year.

(9) The respondent to maintain full and adequate books of accounts and
other records reflecting the results of the operation of the hotel in accordance
H with the uniform system of accounts for hotels though not inconsistent with
CENT. BO OF DIRECT TAXES 1·. OBEROI HOTELS (P) LTD. [D.P. WADHWA, J] 509
the provisions of law applicable in Nepal. A
• -""( (I 0) Provision to be made as to how the amount received during the
operation of the hotel shall be deposited in the bank account and how that
account had to be operated. Respondent was to submit monthly budget of
estimated income and expenditure in detail and the Gross Operating Profits
in terms of the agreement to the foreign enterprise. The agreement contained B
details as to how allocation was to be made for meeting different expenses
and for payment of taxes etc. Gross Operating Profits and Gross Operating
Losses were defined. Limit was put on expenses to be incurred for advertisement
etc. which could not be more than 3% of the total sales.

( 11) For worldwide promotion of the hotel, foreign, enterprise desired
c
that respondent shall, in any manner it regards fit and proper, make necessary
arrangements with any company or companies, agency or agencies in any one
or more countri.:s for specialised hotel services and worldwide reservation
facilities.
D
(12) At the time of taking over the operation of the Hotel Soaltee,
respondent to purchase the existing stock of food and beverages etc. and the
foreign enterprise shall be paid the cost thereof. The amount paid by
respondent to the foreign enterprise sliall be payable to the respondent out
of the revenue of the hotel before the expiry of one year.
E
(13) There is provision for repairs, maintenance, alterations, structural
repairs and changes in the hotel.

(14) Respondent to deliver to the foreign enterprise on or prior to the
end of each month a profit and loss statement showing the results of the
operation of the hotel for the preceding calendar month and year to-date and F
containing other details.

(15) Respondent to have due representation in the Board of Directors
of the foreign enterprise and at least one person nominated by respondent
which always would represent it in all the meetings, deliberations any decisions
arrived therein in connection with the hotel business. G
These are some of the main terms of the agreement which according to
the appellant did not satisfy the requiremrnt of Section 80-0 of the Act.

High Court in the impugned judgment, after examining the term of the
agreement in detail, observed that it could not be disputed that the running H
510 SUPREME COURT REPORTS [1998] 2 S.C.R.

A of a modern hotel required highly specialised management techniques, i.e.,
combination of scientific management and highly specialised inn-keeping and
that the modern system of preparation of food and beverages also involved
considerab)e technical skill and know-how. High Court. however, negatived
the plea of the respondent that it was making available to the foreign enterprise
B the information concerning industrial, commercial or scientific knowledge,
experience or skill as High Court did not find any such provision in the
agreement. High Court was, therefore, of the opinion that the respondent was
rendering technical services to the foreign enterprise and would in any case
fall within the purview of Section 80-0 of the Act.

C Mr. Shukla, learned counsel for CBDT, contended that since the High
Court did not agree with the respondent that it was giving any information
to a foreign company as there was no provision in the agreeme!1t, it was only
the first part of$ection 80-0 which this Couit was to examine ifthe agreement
was in consideration of technical services rendered or agreed to be rendered
out side India by the respondent that it could claim deduction of the Income
D received in India or abroad in computing the total income of the respondent
which is received by way of royalty, commission fee or any other similar '( .. _
payment. We do not think, however, that we can debar the respondent from
bringing its case in the first part of Section 80-0 which provides for similar
payment received by the assessee in consideration for use outside India,
E information concerning industrial, commercial and scientific knowledge,
experience or skill made available or provided or agreed to be made available
or provided to a foreign enterprise by the assessee. Respondent can certainly
support the agreement as falling under Section 80-0 on any ground ·on which
it had approached the High Court in its writ jurisdiction. We, therefore, have
to examine ifthe agreement in question falls within the purview of Section 80-
F 0 on any of the conditions stipulated therein entitling the respondent to claim
J... ..
deduction. Mr. Shukla referred to the guidelines issued by the CBDT to
examine if the agreement provides for technical services or managerial services
or both. He also referred to circular No. 187 dated December 23, 1975 of the
CBDT. The circular is reproduced in (1976) 102 !TR 83 (Statutes). TI1e circular
also sets out the form of the application for approval of the agreement under
G Section 80-0 of the Act. We may reproduce relevant part of the circular as
under:

"Circular No. 187, dated December 23, 1975.

Subject : Section 80- 0 of the Income-tax Act, 1961 -Guidelines for
H approval of agreements.
CENT. BD. OF DIRECT TAXES v. OBEROI HOTELS (P). LTD. [D.P. WADHWA, l] 511
With the twin objectives of encouraging the export of Indian A
technical know-how and augmentation of the foreign exchange
resources of the Country, Section 80-0 of the Income-tax Act, 1961,
provides for concessional tax treatment in respect of income by way
of royalty, commission fees or any similar payment received from a
foreign Government or a foreign enterprise, subject to the satisfaction B
of certain conditions laid down in the said section.

2 One of the conditions for availability of the tax concession under
Section 80- 0 is that the agreement should be approved by the Central
Board of Direct taxes in this behalf. The application for the approval
of the agreement is required to be made to the Central Board of Direct C
Taxes before the !st day of October of the assessment year in relation
to which the approval is first sought. The form of application for this
purpose has been standardised and a specimen is given in the
Appendix.

3. The object of the provision when it was first introduced as Section D
85C in the Income-tax Act, 1961, was stated in Board's Circular No.
4P (LXXVI- 61) of 1966, to be to encourage Indian companies to export
their technical know-how and skill abroad and augment the foreign
exchange resources of the country. This was reiterated in Board's
Circular No. 72 explaining the changes introduced by the Finance
(No.2) Act, 1971. Keeping in view the purpose behind this tax incentive E
and the requirements of the statutory provisions, the Board have
evolved the follo~ing guidelines for the grant of such approval:-

{i) ....

(ii) An agreement which is in very general or broad terms or is either F
vague or does not give sufficient details may Iiot be approved.

(iii) .....

(iv) Information concerning industrial, commercial or scientific
knowledge, experience or skill made available or provided, or G
agreed to be made available or provided, should be information
not merely of a statistical type collected or collated from commercial
or scientific journals or other commonly available sources of
information, but it should be information concerning the industrial,
commercial or scientific knowledge, experience or skill possessed
or developed by the Indian party and which is made available or H
512 SUPREME COURT REPORTS [1998] 2 S.C.R.

A provided to the foreign party under the agreement. Information
regarding trade enquiries or reports regarding the credit or trade
worthiness in individual cases will not qualify for this purpose.

(v) The technical services rendered or agreed to be rendered to the
foreign party should relate to productive fields such as (a) mining,
B or (b) generation or distribution of electricity or any other form of
power, or (c) constructional, industrial or manufacturing operations,
or (d) engineering services. Services such as those relating to
managements, organisation, sales finance and accounts, will not
qualify for this purpose. Technical services which are rendered or
to be rendered in India will also not qualify for this purpose.
c
(vi) Agreements for recruitment or mere supply of technical personnel
from India for service outside India will not be eligible for approval.

(vii) Agreements which provide for participation in business or
management operations abroad simpliciter in return for a specified
D percentage of commission or profit will not be eligible for approval.
(viii) ... ..

(ix) .... ..

(x) .......... ..
E (xi) .............. ..

It may be pointed out that these guide)ines are merely illustrative
and should not be taken as exhaustive. These may be modified or
supplemented in due course in the light of the different types of cases
which come up for approval. Even where the agreement is bona fide
F
and genuine, the Board may refuse approval in appropriate cases
where in the opinion of the Board, grant of approval would not be in
the larger public interest or where it would not further the objectives
underlying the tax concession.

G (4) .......... ..

(5) .......... ..

(6) .......... ..

(7) .............. .

H It was submitted that taking into account the provisions of Section 80-
CENT. BD. OF DIRECT TAXES v. OBEROI HOTELS (P). LTD. [D.P. WADHWA, J.] 5\3

O and the guidelines on the subject, CBDT rightly came to the conclusion that A
the agreement did not justify itself for approval. There was no arbitrariness
or discrimination in the guidelines. Mr. Shukla said that the agreement was
basically for the respondent to manage and run the entire hotel of the foreign
enterprise. He stressed on the recital in the agreement which said that the
agreement was to be run and operate the hotel by the respondent for a period B
of 15 years with an option to extend the agreement for a further period of 5
years. Mr. Shukla referred to other clauses of the agreement relating to
operation, the amount payable, accounts, capital, representation in the Board
of Directors, filing of suits and to defend the same as agents of the foreign
enterprise and also the clauses relating to training of hotel personnel and
providing consulting services and the like clauses. He said·that other clauses C
of the agreement merely provided as to how the agreement was to operate
and what were the rights, duties and obligations of the respondent while
operating the hotel of the foreign enterprise. It was only the expertise of the
respondent in the area of running hotel which it was going to provide. Mr.
Shukla, said that it was, in fact, only the managerial services that were to be
provided under the agreement and that management of hotel of foreign D
enterprise would not fall within the provision of Section 80-0. It was submitted
that it could not be said that CBDT did not consider the terms of the
agreement with reference to Section 80-0 and the guidelines issued by it and
arrived a decision which was unreasonable under the circumstances. He said
that considering the scope of judicial review of administrative decisions
E
which might even be quasi judicial, this Court should set aside the impugned
judgment of the High Court as that court wrongly interfered in exercise of its
power cif judicial review of the decision taken by the CBDT not granting
approval to the agreement. After all, it was the CBDT which was the best
judge to see if the agreement fulfilled the requirements of law as it was the
CBDT which was concerned authority to grant or not to grant approval and F
had the advantage of various agreements which came for its approval by
other assessees. Mr. Shukla said that two earlier judgments of tlie Delhi High
Court in J.K. (Bombay) Ltd. v. Central Board of Direct Taxes & Anr., ( 1979)
118 !TR 312 (Del) and Ghai Lamba Catering Consultants P. Ltd. v. Central
Board of Direct Taxes & Anr. (1980) 124 ITR 30 I (Del) were not correctly G
distinguished by the High Court. In the present case, he said that if the
principles laid down in those two judgments were applied, the agreement
certainly would not come within the scope of grant of approval. Mr. Shukla
said that the respondent took complete charge of running the hotel of the
foreign enterprise as terms of agreement showed and as a matter fact
respondent took over the hotel of the foreign enterprise itself for 20 years. H
514 SUPREME COURT REPORTS [ 1998) 2 S.C.R.
'
A He referred to the decision of the Karnataka High Court in HMT ltd v.
Central Board of Direct Taxes & Anr.. ( 1991) 188 !TR 457 (Kar)]. Finally, Mr.
)'- ·~
Shukla said that one did not have to render services by becoming master. He
said that respondent might be good in hotel management and it might earn
profit and bring the money to the country but then it had to pay taxes as per
the law of this country and that it was not that all agreements entered by any
B assessee with a foreign enterprise must fall under Section 80-0 merely because
the agreements would bring precious foreign exchange to the country.

Mr. Dave, learned counsel for the respondent, submitted that there was

c
no contradiction in the principles laid by the Delhi High Court in its earlier
two decisions and in the present impugned judgment. He referred to the
decision of this Court in Continental Construction Ltd. v. Commissioner of
Income-tax, (1992) 195 !TR 81 SC . Mr. Dave submitted that perception of
-
management had undergone a big change. He said the distinction drawn by
the CBDT was superficial and the agreement squarely satisfied the ingredients
of Section 80-0. What Section 80-0 provided was allowance of a deduction
D of an amount equivalent to 50% of the income received by way of royalty etc.
in consideration of use outside India information concerning industrial, .,.. ...
commercial or scientific knowledge, experience or skill or alternatively payment
received in consideration of technical services made available outside India.
Mr. Dave dwelved at length as to what would be technical services. He
E referred to the dictionary 1~eaning of the terms 'technical assistance' and
'technology'. But then one has to refer to dictionary definition if there is a
dispute if the services rendered are of technical nature or not.

Mr. Dave referred to us the judgment of the Delhi High Court in J.K.
(Bombay) 's case and Ghai Lamba 's, case and said that these judgments
F considered a very narrow concept of "technical services" or the "managerial
services". He said there was a qualitative difference in the agreements in ... •
those two cases and the subject matter of the agreement in the present case.
The statement in J.K. Bombay's, case (1979) 1 18 !TR 312, that the management
as a process is practised throughout in every organisation from top
management through middle management to operational management and, on
G the other hand, technical services occupy a much narrow field than the field
occupied by the management was explained in the case of Continental
Construction Company's case by the Supreme Court Judgment of this Court
in Continental Construction Company's case widened the scope of term used
in Section 80-0.
H Mr. Dave referred to the "New Encyclopedia Britannica" where the term
CENT. BD. OF DIRECT TAXES v. OBEROJ HOTELS (P) LTD. [D.P. WADHWA . .I.] 515
"technical assistance" had been considered. It states that technical assistance A
may involve sending experts into the field to teach skills and to help solve
problems in their areas of specialization, such as irrigation, agriculture, fisheries,
education, public health, or forestry. Jn "New Webster's Dictionary of the
English Language'' the word "technical" means what is characteristic of
particular art, science. profession, or trade and the word "technology" means B
the branch of knowledge that deals with the industrial arts and sciences;
utilisation of such knowledge; the knowledge and means used to produce the
material necessities of a society. It is submitted that the term "technical"
should receive broad interpretation tc include professional services as well.
The term "professional" was added in Section 80-0 w.e.f. April I, 1992 by
amending the section. This court in Continental Construction Company's C
case had stated that the insertion of the term "professional" in Section 80-
0 was merely of clarificatory nature and "technical services" always included
in it "professional services". Reference was then made to CBDT circular No.
72 dated January 6, 1972 which dealt with the scope and effect of amendment
of Section 80-0 which was substituted in place of earlier one by finance (No.2)
Act, 1971 w.e.f. April I, 1972. According to this circular, the objective of this D
... '!' provision is to encourage Indian companies to develop technical know-how
and make it available to foreign companies so as to augment our foreign
exchange earnings and establish a reputation for Indian te.chnical know-how
in foreign countries and further in this concessions which were earlier available
to companies only are now available in all cases where the technical know- E
how or technical services are provided to a foreign Government or a foreign
enterprise, regardless of whether the foreign enterprise is a corporate body
or not. Referring to the later circular No. 187 dated December 23, 1975 of the
CBDT, Mr. Dave said that the case of the respondents squarely fell within
clause (iv) and he said that Clause (v) might even require reconsideration by
the CBDT in view of the judgment of this Court in Continental Construction F
Company's case. He also referred to clause (vii) of circular No. 187. lt was also
the submission of Mr. Dave that construction which benefited the assessee
should be adopted and that circular should receive liberal interpretation
keeping in view the object of introduction of Section 80-0 in the statute. In
this context, he referred to certain decisions of this Court. In CIT, Bombay v. G
Mis. Gwalior Rayon Silk Manufacturing Co. Ltd, [ 1992) 3 SCC 326 this Court
said that the words in the taxing statute should be given liberal interpretation.
Nothing is to be read in, nothing is to be implied; one can only look fairly
at the language used and nothing more and nothing less. It went on to add
that it was settled law that the expressions used in a taxing statute would
ordinarily be understood in the sense in which it was harmonious with the H
516 SUPREME COURT REPORTS [ 1998] 2 S.C.R.

A object of the statute to effectuate the legislative animation.
In Hotel Balaji and others v. State of A.P. and others, [1993] Supp 4 )"--~
SCC 536 this Court observed as under:

"Though the Central Sales Tax is levied and collected by the
B Government of India, Article 269 of the Constitution provides for
making over the tax collected to the States in accordance with certain
principles. Where, of course, the sa!e is an export sale within the
meaning of Section 5(1) of the Central Sales Tax Act (export sales) the
State may not get any revenue but larger national interest is served
thereby. It is for these reasons that tax on the purchase of raw material
C is waived in these two situations. Thus, there is a very sound and
consistent policy, underlying the provision".

In Commissioner of Income Tax, Amritsar v. Straw Board manufacturing
Co. Ltd., [ 1989] Supp 2 SCC 523 the assessee had claimed concessional rates
of income tax, development rebate at higher rate and deduction under Section
D 80-E of the Income Tax Act, 1961 on the ground that the manufacture of straw
board was a priority industry. The question before this Court was whether '!' •
straw board could be said to fall within the expression "paper and pulp"
mentioned in the Schedule. The Income-tax Authority held that the assessee
could not be described as priority industry and the manufacture of straw
E board was not covered by the words "paper and pulp"

"This Court said:

''We have no doubt in our minds that it does. The expression has
been used comprehensively. It is necessary to remember that when a
provision is made in the context of a law providing for concessional
F rates of tax for the purpose of encouraging an industrial activity a
liberal construction should be put upon the language of the statute.
From the material before us, which we have carefully considered, that
is the only reasonable conclusion to be reached in these cases."

In Central Board of Direct Taxes and others v. Aditya v. Bir/a, (1988]
G Supp sec 120, this Court was considering the scope of the term "remuneration"
as appeared in Section 80-RRA of the Act. Under this Section assessee was
entitled to certain relief in respect of remuneration received by him in foreign
currency from any employer for any service rendered by him outside India if
he is a technician and the terms and conditions of his service outside India
H are approved in this behalf by the Central Government or the prescribed
CENT BD. OF DIRECT TAXES v. OB ERO! HOTELS (P). LTD. [D.P. WADHWA, J] 5J7

authority. Various !erms like foreign currency, foreign employer, technician are A
defined in the section. The question involved in the appeal before this Court
was whether any remuneration was received by the respondent in foreign
currency from his employer, being a foreign employer for service rendered by
him outside India. It was the contention of the revenue that construction of
the term "remuneration" should be confined to deduction to be given only B
in the case of remuneration given to an employee and not the fees paid to
a consultant or a technician. This court did not accept this contention and
said that there was nothing to warrant a restricted construction as canvassed
by the revenue. The Court said that it was significant that Section 80-RRA
of the Act used the expression "remuneration" and not salary to be entitled
to deduction and that there was no warrant to restrict the meaning of the C
expression "remuneration" to a salary received by an employee abroad.

In Commissioner of Income-tax, Madras v. South Areal District Co-
operative Marketing Society Ltd., (1989) 176 ITR 117, this Court was
considering if certain amount described as a commission received by the
assessee from the Madras Government under an agreement for stock and D
• Y distribution of ammonium sulphate was exempted under Section 14(3)(iv) of
the Income Tax Act, 1992. This Court observed as under:

"We have considered the matter carefully and to our mind, it seems
clear that the Appellate Tribunal and High Court were right in the
view adopted by them. As was observed by the Gujarat High Court E
in C!Tv. Ahmedabad Maskati Cloth Dealers Co-operative Warehouses
Society Ltd., ( 1986) 162 ITR j 42, while considering the analogous
provision of Section 80P 2(e) of the Income-tax Act, 1961 the provision
for exemption was intended to encourage cooperative societies to
construct warehouses which were likely to be useful in the development F
of rural economy and exemption was granted from income-tax in respect
of income derived from the letting of such warehouses for the storage
of fertilisers and other related commodities concerned with cooperative
marketing. Having regard to the object with which the provision has
been enacted, it is apparent that a liberal construction should be
given to the language of the provision and that, therefore, in the G
circumstances of the present case, it must be regarded that what the
assessee did was to let out its godowns for the purpose of storing
the ammonium sulphate handed over to it by the State Government."

As to what is the scope of a circular issued by the CBDT, reference was
made to a decision of this Court in Keshavji Ravji and Co. and Anr. v. H
518 SUPREME COURT REPORTS [1998] 2 S.C.R.

A Commissioner of Income-tax, [ 1990] 2 sec 231, wherein this Court was
considering the contention that circular of 1965 of the Central Board of Direct
Taxes was binding on the authorities under the Act and should have been
relied upon by the High Court in support of the court's construction of
Section 40(b) to accord with the understanding of the provision made manifest
in the circular.
B
This Court held as under:

"This contention and the proposition on which it rests, namely, that
all circulars issued by the Board have a binding legal quality, incurs,
quite obviously, the criticism of being too broadly stated. The Board
c cannot pre-empt a judicial interpretation of the scope and ambit of a
provision of the 'Act' by issuing circulars on the subject. This is too
obvious a proposition to require any argument for it. A circular cannot
even impose on the tax payer a burden higher than what the Act itself
on a true interpretation envisages. The task of interpretation of the
D laws is the exclusive domain of the courts. However, - this is what Sri
Ramachandran really has in mind -circulars beneficial to the assessee
and which tone down the rigour of the law issued in exercise of the
statutory power under Section 119 of the Act or under corresponding
provisions of the predecessor Act are binding on the authorities in
the administration of the Act. The Tribunal, much less the High Court,
E is an authority under the Act. The circulars do not bind them. But the
benefits of such circulars to the assessees have been h1~ld to be
permissible even though the circulars might have departed from the
strict tenor of the statutory provision and mitigated the rigour of the
law. But that is not the same thing as saying that such circulars would
either have a binding effect in the interpretation of the provision itself
F
or that the Tribunal and the High court are supposed to interpret the
law in the light of the circular. There is, however, support of certain
judicial observations for the view that such circulars constitute e,;temal
aids to construction.

G In State Bank o/Travancore v. CIT, however, this Coun referring
to certain circulars of the Board Said: (SCC p.51para43: !TR p. 139)

" ... The earlier circulars being executive in character cannot alter
the provisions of the Act. These were in the nature of concessions
and could always be prospectively withdrawn. However, on what lines
H the rights of the parties should be adjusted in consonance with
CENT. BD. OF DIRECT TAXES" OBEROI HOTELS (P) LTD. [D.P. WADHWA, J.] 519
justice in view of these circulars is not a subject matter to be adjudicated A
by us and as rightly contended by counsel for the revenue, the
circulars cannot detract from the Act."

The expression 'executive in character' is, presumably, used to
distinguish them from judicial pronouncements. The circulars referred
to in that case were also of the Central Board of Direct Taxes and B
were, presumably also, statutory in character.

However, this contention need not detain us, as it is unnecessary
to examine whether or not such circulars are recognised, legitimate
aids to statutory construction. In the present case, the circular of 1965
broadly accords with the view taken by us on the true scope and C
interpretation of Section 40(b) insofar as the quantification of the
interest for purposes of Section 40(b)."

On Board Circular Collector of Cenrraf Excise, Patna v. Usha .'vfartin
Industries, (1997] 7 SCC 47, this Court was considering the binding effect of
a circular issued by the central Board of Excise and Customs under Section D
' "( 37-B of the Central Excise Act 1944. The Court observed that there were
catena of decisions of this Court holding that the revenue could not be
permitted to take a stand contrary to the instructions issued by the Board and
that it was a different matter that an assessee could contest the validity or
legality of a departmental instruction. But that right could not be conceded E
to the Department, more so when others had acted according to those
instructions. It was observed that of course the appellate authority was also
not bound by the inierpretation given by the Board but the assessing authority
could not take a view contrary to the Board's interpretation. This Court
referred to its earlier decision in Poulose and Mathen v. Coflector of Central
Excise & Anr.. ( 1997] 3 SCC 50, (l 997) 90 EL T 264, to paragraph 15 therein F
which is as under:

"15. One aspect deserves to be noticed in this context. The earlier
Tariff Advice No. 83 of 198 l on the basis of which Trade Notice No.
220 of 1981 was issued by the Collector of Central Excise and Customs G
is binding on the department. It should be given effect to. There is
no material on record to show that this has been rescinded or departed
from, and even so, to what extent. Even assuming that the later Tariff
Advice No. 6 of 1985 has taken a different view - about which there
is no positive material - the facts point out that the department
concerned itself was having considerable doubts about the matter. H
520 SUPREME COURT REPORTS [1998] 2 S.C.R.

A The position was not free from doubt. It was far from clear. In such
a case, where two opinions are possible, the assessee should be given
the benefit of doubt and that opinion which is in its favour should
be given effect to. In the light of the above, it is unnec.~ssary to
adjudicate the other points involved in the appeal on the merits."

B Mr. Dave then referred to a treatise on the business of hotels by S.
Medlik to contend that to run a hotel skills and techniques are required like
hotel reception, housekeeping, food and drink service and especially food r
preparation and accounting and marketing, personnel management,
maintenance and other specialist functions of a hotel. He also dwelvcd on the
C importance of hotel in modern day life and the role which hotels play in many
countries in providing facilities for the transaction of business, for meetings
and conferences, for recreation and entertainment and as attraction for visitors,
foreign currency earners, employers of labours, outlets for the products of
other industries and as an important source of amenities for local r·~sidents.
We do not think it is necessary for us to go into all these aspects of hotel
D management as we are concerned with the origin of the law in its application
to the agreement in question.

Lastly, Mr. Dave said that use of the name of respondent was not
ordinary matter and it could not be said as held by the appellant in its
impugned order that the fee received for the use of the trade name of
E respondent though covered by the provisions of Section 80-0 yet the amount
relatable to this aspect of the total services rendered would be so small that
it was not easy to quantify the same for the purpose of Section 80-0.

We may now consider the judgments referred to during the course of
arguments in somewhat greater detail.
F
In J.K. (Bombay) Ltd v. Central Board of Direct Taxes and another,
(1979) ll8 !TR 312 (Del) a Division Bench of the Delhi High Court was
considering the question whether services of managing agents rendered by
an Indian company to a foreign company were not "technical services" within
G the meaning of Section 80-0 of the Act. The Court said that managerial service
may be professional service like legal or medical service, but that would not
be technical services like engineering service. After examining the provisions
of Section 80-0 and the relevant Board Circular No. 187 dated 23rd December,
1975, the High Court held as under:

H "To sum up, the main reason why the word 'technical' in s.80-0 cannot
CENT. BD. OF DIRECT TAXES v. OBEROI HOTELS (P). LTD. [D.P. WADHWA, J.] 52 J
be given a wider meaning to include 'managerial' or 'commercial' is A
that the performance of managerial or commercial services by an
.·~ Indian company for a foreign enterprise would amount to virtually
managing or running the foreign company and remuneration obtained
by running or managing a foreign company would be in the nature of
profits, while s.80-0 deliberately restricts itself to income by way of
royalty, commission or fees and excludes other types of remunerations."
B

The Court, therefore, held that the petitioner was not entitled to allowance
under Section 80-0 or any payment from the foreign company received by it
towards such services as managing agents.

In Ghai Lamba Catering Consultant P. Ltd. v. Central Board of Direct c
Taxes and another, (1980) 124 ITR 301 (Del) Delhi High Court was again
considering the scope and intent of Section 80-0. On the facts of the case the
High Court held that the agreement which the petitioner had entered with a
foreign enterprise was nothing but a joint venture. It noted that under the
agreement the main function of the petitioner was to manage and run the
D
restaurant of Mis. G.L. Restaurant Ltd., an English company, in return for a
• y certain percentage of the profits. The Court held that the agreement did not
in terms state as to what type of technical services were to be rendered by
the petitioner to the foreign company. The Court referred to its earlier decision
in JK. (Bombay) Ltd. v. CBDT, (118 !TR 312) where it had said that if the
Indian Company was in fact running the foreign company it was difficult to E
separate the management function exercised by the Indian company from the
day to day working of the foreign company and that Section 80-0 ppstulated
that the Indian company did not become a part of the foreign enterprise.
Applying those tests, the Court upheld the refusal to grant approval to the
agreement by the respondent under Section 80-0 of the Act.
F
~A In Godrej and Boyce Mfg. Co. Ltd. v. S.P. Potnis, Chief Commissioner
a
ofIncome-tax and others, (1993) 203 !TR 947 (Bombay), Division Bench of
the Bombay High Court (where one of us was a member) held that the order
denying approval under Section 80-0 was not justified. In that case the
petitioner entered into two agreements with the foreign company for
establishing a plant in Indonesia for the manufacture of various products of
G
the petitioner as manufactured by it. One agreement was titled "technical
f.. assistance agreement" . The second agreement titled "management service
agreement" provided for the petitioner to take over the responsibility for the
working and management of the foreign company for a period of twenty-five
years. For this purpose the petitioner was required to loan to the foreign H
522 SUPREME COURT REPORTS [1998] 2 S.C.R.

A company the services of it "fully qualified and experienced managers,
engineers, technicians, production specialists and such other personnel as
may be necessary not only for the setting up of the Company's said plant
but also for the overall working and management of the company". The
agreement also contained wide-ranging provisions for the giving of all
marketing, industrial, manufacturing, commercial and scientific knowledge,
B experience and skill for the efficient working and management of the foreign
company. Petitioner was also required to have control over the "general
management" of the foreign company's business transactions and charge and
custody of all the property, books of account, papers, documents and effects
belonging to the foreign company. While the respondent granted approval to
C the first agreement it denied its approval to the second agreement. Respondent
was of the view that the second agreement did not qualify for approval under
Section 80-0 of the Act since the crux of the management service agreement
was that the petitioners would take over responsibility for the working and
management of the foreign company for a stipulated period and that managerial
services did not amount to "technical services" within the meaning of Section
D 80-0. On this the respondent had relied on the decision of the Delhi High
Court in JK. ;Bombay) Ltd. 's case. Bombay High Court took notice of the ... -
later decision of the Supreme Court in Continental Co11strnc1io11 Ltd. v. CIT
(1992) 195 ITR 81 where this Court took the view that even professional
service, perhaps, amounted to technical service within the meaning of Section
E 80-0 of the Act. Notice was also taken of the impugned decision of the Delhi
High Court in Oberoi Hotels (India) Pvt. ltd. v. CBDT (1982) 135 !TR 257
where Ddhi High Coun strud. somewhat a dim·Lent note to its earlier decision
in .J.K. (Bombay) 's case. The court also noted another decision of this Court
in Bajaj Tempo. Ltd v. C/T(1992) 196 !TR 188 where this Court highlighted
that a provision in a taxing statute granting incentives for promotion of
F growth and development should be construed liberally and that since a
provision for promoting economic growth has to be interpreted liberally, the
restriction on ft too has to be c::mstrued strictly so as to advance the
objectives of the provision and not to frustrate it. Keeping in view this
principle and on the terms of the agreement the High Court was of the view
G that when the respondent did not grant approval it was not having the benefit
of the decision of the Supreme Court in Continental's case. The Court said
that it was not possible to postulate, as a general proposition of law, that all
managerial services must necessarily be nontechnical services and that it
depended on the nature of the expertise required for rendering the managerial
services. The Court, therefore, held that the respondent took somewhat rigid
H view of the matter in refusing to grant approval to the second agreement. It,
CENT. BD. OF DIRECT TAXES v. OBEROI HOTELS (P). LTD. [D.P. WADHWA, J] 523
therefore, quashed the order of the respondent refusing to grant approval to A
~·'(
the second agreement. The application of the petitioner for grant of approval
was sent back to the respondent for reconsideration in accordance with the
law.

In HMT Ltd. v. Central Board of Direct Taxes and another, (1991) 188
!TR 457 (Karnataka) the petitioner had entered into an agreement with Nigerian B
Government and sought approval of the agreement under Section 80-0 of the
Act. The agreement consisted of various types of passing of technical
information, know-how, designs, trade mark, logo and also training of Nigerian
personnel in India among other matters. On the question of training of Nigerian
personnel in India and technical fee paid thereof, the respondent stated that
the training of Nigerian personnel in India would mean a service rendered in
c
India and therefore, the fee receivable in that respect would not be entitled
to the benefit of Section 80-0 of the Act. The High Court upheld the view of
the respm1dent and this is how the Court dealt with the matter:

"I will proceed on the basis that the service rendered by the petitioner D
#i: in imparting training to the Nigerian personnel in India is not a technical
service for the purpose of this case. It is not necessary to decide
whether such imparting of know ledge also falls within the expression
of "rendering of technical service". The petitioner gives training to
the personnel of the Nigerian Government in India. Section 80-0. of the
Act provides that, where any consideration is received in respect of
E
any patent, invention, model, design, secret formula or process or
similar property right, or information concerning industry, commerce
or scientific knowledge, experience or skill made available or provided
or agreed to be made available or provided to such enterprises by the
~ assessee for use outside India, the deduction would be attracted. It F
is clear from a reading of this clause that imparting of scientific
knowledge, experience or skill made available shall be of the assessee
as the latter clause "by the assessee" clearly controls the earlier
expressions used in this connection. Here, in the present case, the
Nigerian personnel are trained in India and, once they go out of the
G
country, it is their skill that is used outside; it is not the skill of the

-~ assessee that it used outside. Therefore, even assuming for a moment
that the argument of learned counsel for the petitioner is right, that
does not come within the expression "technical service", and as such
service is not rendered by the assessee outside India, by imparting
training to the personnel of the Nigerian Government, it cannot be H
524 SUPREME COURT REPORTS [1998) 2 S.C.R.

A said that the same would fall within the deduction granted under
Section 80-0 of the Act. Therefore, the view of the Board on this
aspect of the matter appears to be correct."

In Continental Construction Ltd v. commissioner of Income-tax, (1992)
195 !TR 81 SC, one of the questions before this court was if the Appellate
B Tribunal was right in holding that the income arising from the activities of the
petitioner in pursuance to seven agreements for construction of various
projects with foreign Government/enterprise were governed by the provisions
of Section 80HHB and not Section 80-0 of the Act. Petitioner had claimed
deduction under Section 80-0 which provides for a deduction, in computing
C the total income, in respect of royalties etc. from certain foreign enterprises.
The Court noted that this topic was originally dealt with in Section 85-C .
Section 30-0 was substituted in its place with effect from April I, 1968 and
that the section had since undergone amendments from time to time. It is not
necessary for us to analyse this judgment in any detail and as here we are
not concerned only with the interpretation of Section 80-0. What judgment
D lays down for our purposes is:
(I) The job of the assessee involved survey, soil investigation, design,
detailed drawings and c'Jnstruction of all civil works and pipelines (other than
trunk pipe lines). Even these activities involve technical knowledge and
expertise. It cannot, therefore, be doubted that the assessee under the contract,
E had to make use, outside India, of its industrial, commercial and scientific
knowledge, experience and skill.

(I-A) There is equally no doubt that, in executing the contract, the
assessee has rendered technical services. Any engineering contract involves
technical services; more so, a contract of the nature and magnitude involved
F in the present case.

(2) Where a person employs an architect or an engineer to construct a
house or some other complicate type of structure such as a theater, scientific
laboratory or the like for him, it will not be incorrect to say that the engineer,
G in putting up the structure, rendering him technical services even th0ugh the
actual construction and even the design thereof may be done by the staff and
labour employed by the engineer or architect. Where a person consults a
lawyer and seeks opinion from him on some issue, the advice provided by
the lawyer would 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
H another expert in the particular branch of the law.
CENT. BD OF DIRECT TAXES,. OBEROI HOTELS (P). LTD. [D.P. WADI !WA. J] 525

(3) No doubt that ''professional services" have been brought within the A
scope of Section 80-0 only by an amendment by the Finance (No.2) Act, 1991
and that too, with effect from April I. 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
only of a clarificatory nature. The expression "technical services" has a very B
broad connotation.

(4) Firstly, whatever may be the position regarding other "professional
services", there can hardly be any doubt that services involving specialised
knowledge, experience and skill in the field of construttlooal operations are
"technical services" would be "technical services" or not has no impact on C
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 •endered by the former personally and not through the medium of
others.

(5) It is a well-settled principle that exigibility of an item to tax or tax D
~· ~ deduction can hardly be made to depend on the label given to it by the
·parties. As assesse cannot claim C:eduction under section 80-0 in respect of
certain receipts merely on the basis that they are described as royalty, fee or
commission in the contract between the parties. By the same 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 E
attributed to the sources indicated in the section. Contracts of the type
envisaged by section 80-0 are usually very complex ones and cover a multitude
of obligations and responsibilities. It is not always possible or worthwhile for
the parties to dissect the consideration and apportion it to the various
ingredients or elements comprised in the contract. F
There is no gainsaying that running a well equipped modern hotel is no
ordinary affair. One needs a great deal of expertise skill and technical knowledge
for the purpose. If we examine the agreement, it provides for rendering of
technical services and also professional services for obtaining of Hotel Soaltee,
a-.foreign enterprise. CBDT fell into an error in considering particularly the G
clause in the agreement which provided for operation of the Hotel Soaltee by
the respondent. The agreement has to be seen as a whole and so examined
it is quite apparent that it provided "or rendering of not only technical
<;ervices for operating the hotel of the foreign enterprise but also providing
for professional and other services in connection with operating of the hotel.
Section 80-0 was enacted with the twin objects of encouraging the export of H
526 SUPREME COURT REPORTS [1998] 2 S.C.R.

A Indian technical know-how and augmentation of foreign exchange resources
of the country. We have seen above that after the amendment of Section 80-
0 by Finance (No. 2 Act of 1991) the words "'technical or professional services"
have been inserted in place of the words "technical services". But this Court
in Continental r:onstruction ltd. case took the view that the amendment was
B only of clarificatory nature and the term "technical services" always included
within it professional services as well. This Court has gone even to the extent
that when a person consults the lawyer and seeks his opinion on certain iss4e
the advice rendered by the lawyer would be a piece of technical service.
Considering the scope of the agreement and the width of Section 80-0 we are
of the opinion that the agreement provides for "information concerning
C industrial, commercial or scientific knowledge, experience or skill made
available" by the respondent to the foreign enterprise for running of the Hotel
Soaltee. Mr. Dave is right when he submits that in view of the judgment of
this Court in Continental Construction ltd. case Circular No. 187 dated
December 23, 1975 of the CBDT may perhaps require certain changes so as
D it is in confonnity with Section 80-0 of the Act. In J.K. (Bombay) ltd. case
Delhi High Court was of the view that remuneration obtained by running or
managing a foreign company would be in the nature of profits while Section V' -
80-0 deliberately restricted itself to income by way of royalty, commission or
fees and included other types of remunerations. We do not think that this is
a correct statement as the royalty, commission or fees can be in terms of
E percentage of profits earned by the foreign enterprise on account of services
rendered by the Indian Company. It is substance of the case which matters
and not the name. The view taken by the Bombay High Court in Godrej and
Boyce Mfg. Co. ltd. case (203 !TR 947) commends to us. As it is more in
.consonance with the provision of Section 80-0 and the object which it seeks
to achieve. Karnataka High Court in the case of HMT ltd. (188 !TR 457) has
F rather taken a narrow view of the provision of Section 80-0. Applying the
principles of law as laid down by Court in Continental Constri1ction ltd. case
and the term "technical services" which included "professional services" and
the nature of services agreed to be rendered by the respondent to the foreign
enterprise we are of the view that CBDT was not right in not granting
G approval of the agreement to the respondent under Sections 80-0 of the Act.
We have also seen the scope of circulars issued by the CBDT and had these
. are tci be acted upon in various decisions of this Court. In the matter of the
nature as in the present case and the legislative intention to give relief we
have to draw interpretation to the term "technical services" which includes
"professional services" as well. Basic purpose of Section 80-0 is the spread
H by an Indian assessee of any patent, invention, model, design, secret formula
CENT BD. OF DIRECT TAXES v. OBEROI HOTELS (P). LTD. lD.P. WADHWA, J.] 527
or process, or similar property right, or information concerning industrial, A
commercial or scientific knowledge, experience or skill of the assessee for use
outside India and it that process to receive income to augment the foreign
exchange resources of the country. The assessee can also make available to
foreign enterprise technical and professional services expertise of which it
possesses for earning foreign exchange for the country.
B
When exercising power of judicial review, courts have to see that the
authority acts within the scope of its powers and, if discretion is conferred
on the authority, it exercises the same in reasonable manner keeping in view
the object which the statute seeks to achieve. We have no doubt that the
decision of CBDT in not granting approval to the agreement was in good faith C
and it is the latest development of law both on the scope of judicial review
and interpretation of Sections 80-0 that the decision has to be reversed. As
law stands today with reference to Section 80-0, it can be said that CBDT took
into account the considerations which were not relevant or germane to the
real issue. In this view of the matter there is no ground for interference in the
impugned judgment of the High Court. It was submitted by Mr. Shukla that D
~ ~ in view of the decision in Godrej and Boyce Mfg. Co. Ltd., (supra) of the
Bombay High Court, this Court, if it decides to hold that the decision of the
CBDT was not correct, the matter should be again remanded back to CBDT
to grant approval or otherwise of the agreement keeping in view the latest
development in law and the parameters laid down by us in this case. Normally, E
we would have adopted this very course, but in the present case, the matter
relates to the year I 970 we do not find it will be proper for us to interfere in
the impugned judgment of the High Court and sent the matter back to the
CBDT for fresh appraisal.

Accordingly, the appeal is dismissed and the judgment of the Delhi F
High Court is affirmed.

N.J. Appeal dismissed.