Holding

The assessee is entitled to deduction under Section 80‑0 for assessment years before 1983‑84, but for AY 1983‑84 the receipts are fully covered by Section 80‑HHB, which prevails, precluding any Section 80‑0 relief.

Summary

Continental Construction Ltd., a civil engineering firm, entered into several overseas construction contracts, notably the Karkh Water Supply project in Iraq, and sought deductions under Section 80‑0 of the Income‑Tax Act for payments received as royalties, fees or similar. The Central Board of Direct Taxes (CBDT) approved the contracts for Section 80‑0 but limited the approval to the assessment year 1982‑83, referring later assessments to the newly inserted Section 80‑HHB. The Assessing Officer denied any deduction under both sections for AY 1983‑84, and the Commissioner of Income Tax (Appeals) upheld this, directing a fresh consideration under Section 80‑HHB. The Supreme Court held that the assessee was entitled to Section 80‑0 relief for years prior to 1983‑84, but for AY 1983‑84 the receipts fall squarely within Section 80‑HHB, whose provisions prevail over Section 80‑0. Consequently, no deduction under Section 80‑0 was available for that year, and the appeal was dismissed.

Issues considered

Whether income from the foreign contracts is governed by Section 80‑0 or Section 80‑HHB of the Income‑Tax Act.
Whether CBDT approval under Section 80‑0 extends to assessment years beyond 1982‑83 and can override the operation of Section 80‑HHB.
Whether a composite contract can be bifurcated so that part of the consideration qualifies for Section 80‑0 and the remainder for Section 80‑HHB.

Legislation cited

Finance Act, 1982s. Insertion of Section 80-HHB
Income Tax Act, 1961s. 119(1), s. 40A(5), s. 40(c), s. 80-0, s. 80-HHB, s. 9(1)(vi), s. 9(1)(vii)

Subjects

Income TaxSection 80‑0Section 80‑HHBForeign contractsTechnical servicesBoard approvalTax deductionComposite contractApportionment

Judgment

CONTINENTAL CONSTRUCTION LTD. A

COMMISSIONER OF INCOME-TAX, CENTRAL-I

JANUARY 15, 1992

[S. RANGANATHAN, V. RAMASWAMI AND N. D. OJHA, JJ.] B

Income-Tax Act, 1961 : Ss. 9(1)(vi), (vii), 119(1), 80-0, 80-HHB :

Assessee-Engineering and Construction Company-Undertaking of
foreign projects-Approval by Central Board of Direct Taxer-Payments in
respect of consideration for supply of technical information for use outside C
India and rendering Technical Services to foreign Government Enterprise--
Whether 'similar' to 'royalty', 'Commission' or 'fee' etc.-Deductions-
Scope of-Assessee-Whether entitled to relief under S. 80-0 for assessment
years earlier to 1983-84-Whether eligible for deductions under s. 80-HHB
for assessment years 1983-84 onwards.
D
Assessee Company-Foreign contracts-Execution of-Construction of
dam and i"igation project, water supply project etc.-Services involving
specialised knowledge, experience and skill in constructional operations--
Whether are technical services.

"Technical Services"-Whether can be rendered through medium of E
employees, skilled and unskilled.

Foreign projects of 'composite' activities-Activities falling partly
under S. 80-0 and partly under S. 80-HHB-Whether relief can be granted
under each sections separately. F
>--" Activities of foreign contract falling under S. 80-0 as well as Section
80-HHB--Deductions-Whether can be computed under S. 80-HHB only.

Central Board of Direct Taxe~irculars No. 187 dated 23.12.1975 &
253 dated 30.4.1979. Letters dated 28.10.83 and 31.7.1985-Boar<f s power G
to grant approval to foreign contracts-Purpose and scope of: Guidelines for
approval nature of: Approval once grante"'Whether to continue for subse-
quent assessment years for the same agreement.

Words and Phrases:
H
57
58 SUPREME COURT REPORTS (1992] 1 S. C.R.

A 'business of execution of a foreign project', 'profits derived', 'royalty',
'similar', 'technical services'-Meaning of.

Section 80-0 of the Income Tax Act, 1961 provides for a deduction
in computing the total income, in respect of royalty, commission, fees, or
any similar payment received by the assessee from the Government of a
B 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, commer-
cial or scientific knowledge, experience or skill made available or pro-
vided or agreed to be made available or provided to such Government
or enterprise by the assessee or in consideration of technical services
c rendered or agreed to be rendered outside India to such government or
enterprise by the assessee ·under an agreement approved by the Central
Board of Direct Taxes in this behalf.

The appellant-assessee, a civil construction company, describing
itself as Engineers and Contractors, executed projects overseas and in
D India. It undertook certain contracts for construction, inter alia, of a dam
and irrigation project, a fibre-board factory and a huge water supply •
project in foreign countries. One of its projects, called the Karkh
Project, which constituted a major portion of its gross total income was
with the Iraqi ~overnment through the Baghdad Water Supply Admini-
stration (BWSA). The contract was for the design, manufacture, deliv-
E ery, supply, construction and installation for the first stage of Karkh
Water Supply Scheme. Since tenders had been called for from consortia
the assessee associated with the State Contracting Company for Water
and Sewerage Projects, Baghdad (SCC) and formed a consortium and
the said consortium entered into an agreement on 17.12.1980 with the
Iraqi Government. The terms of the consortium between the assessee
F and SCC were set out in another agreement dated 18.12.1980 dividing
the area~ of responsibility (the packages) under the contract between the
two.

The assessee applied to the Central Board of Direct Taxes (CBDT)
G for latter's approval to the contracts ''for the supply of Civil construction
know-how to the Government of Iraq" under Section 80-0 of the
Income-Tax Act, 1961. In para S(a)(ii) of the proforma of the application
prescribed for the purpose, the assessee indicated that "information
concerning industrial, commercial, or scientifac knowledge or skill" was
being made available outside India; and in Column S(b) thereof it
H mentioned that technical services would be rendered by the assessee to
;f-.
CONTINENTALCONSTRUCTION v. C.l.T. 59

BWSA, Government of Iraq through its Indian Engineers, Scientists, A
technicians and semi-skilled labours to be inducted for that purpose.

Meanwhile, by the Finance Act, 1982, section 80-HHB was inserted
to the Act with effect from 1.4.1983, providing for 25% deduction from
the profits and gains derived from the business of execution of a foreign
project undertaken by the assessee with the government of a foreign B
State/enterprise. Sub-section (5) of section 80-HHB provided that not-
withstanding any provision in Chapter VIA of the Act, no part of any
.-onsideration or of the income comprised in the consideration payable to
the assessee for execution of a foreign project shall qualify for deduction
for any assessment year under any such other provision.

The CBDT accorded its approval on 28.10.1983. However, with
c
respect to Karkh and Diwaniyah projects, the approval was granted for
the assessment year 1982-83, stating that for the subsequent period
section 80-HHB, which came into force w.e.f. 1.4.1983, would be opera-
tive.
D
The assessee claimed and obtained deduction under section 80-0 in
respect of some of the contracts in some assessment years between 1976-
77 to 1980-81.

For the year 1983-84, the assessee returned a gross total income of
Rs. 72,67,45,938 but as against this it claimed a deduction of E
Rs. 89,16,19,198 : of this, the deduction claimed in respect of Karkh and
Diwaniyah projects came to Rs. 77,84,29,446 and Rs. 6,36,85,436 respec-
tively. As Board's approval under section 80-0 in respect of these two
contracts was limited to the assessment year 1982-83, the Inspecting
Assistant Commissioner (IAC) declined to grant the assessee any deduc-
tion under section 80-0 not only in respect of these two projects but also F
for the others, holding that section 80-HHB, and not section 80-0,
applied to the agreements. However, relief was not granted even under
~ section 80-HHB on the ground that conditions for exemption specified
thereunder were not fulfilled. The IAC determined assessee's total
income at Rs. 89,41,35,103 raising a tax demand of Rs. 66,07,72,982.
G
On appeal, the Commissioner oflncome Tax (Appeals) agreed with
the IAC to the extent that the assessee was not entitled to relief under
section 80-0 because : (1) the approval of the CBDT for three of the
contracts did not extend to assessment year 1983-84; (2) all the contracts
u~dertaken by the assessee were in the nature of 'foreign projects'
within the meaning of section 80-HHB; and (3) notwithstanding the H
~
SUPREME COURT REPORTS [1992] 1 s. c. R.

A approval of the CBDT section 80-HHB (5) ruled out the grant of relief
under section 80-0 for any of the projects. He, however, set aside the
assessment and directed tlie IAC to reQppraise assessee's claim for
exemption under section 80-HHB holding that the assessee, being under
a bona fide belief all through that it was entitled to relief under section
80-0, did not have a proper opportunity of putting forth its claim for
B relief under section 80-HHB.

The assessee appealed to the Income Tax Appellate Tribunal
(ITAT). During the pend~ncy of the appeal before ITAT, the CBDT by
its letter dated 31.7.1985 modified the original letter of approval dated
28.10.1983 and made the approval operative even for years subsequent
C to assessment year 1982-83.

The IT AT affirmed the order of the C.I.T. but, at the request of the
assessee, made a reference to the High Court. The High Curt answered
the reference against the assessee holding that the execution of the work
by the assessee fell under section 80-HHB and not under section 80-0; ,
D the receipts of the assessee from the contracts did not fall within the
category of.receipts for which deduction is provided in section 80-0; that
the Board's approval was a qualified one which fully authorised and em-
powered the officer to determine whether all the conditions of the section
were fulfilled as well as the amount, if any, which could be deducted
under section 80-0.
E
In the assessee's appeal tO this Court, it was contended by the
Revenue that (1) the receipts of the assessee under the contract were
profits and gains or its business or execution of foreign projects under
sub-clauses (i) and (ii) of clause (b) of s. 80-HHB and did not qualify for
deduction under section 80-0 as the receipts did not fall under any of the
::F categories .either or royalty, commission, fees or 'any similar payment',
and the assessee either made any information available nor rendered any
technical service to its foreign clients; (2) the contract for Karkh Water
Supply Project was in the nature of a turnkey project as the client
wanted tt.e project to be executed by the consortium complete in all
respects and handed over to it, and the client was neither interested in
the details of the information possessed or the services rendered by the
contractor nor was the assessee as per consortium agreement, concerned
with any part of the contract other than the "civil works"; (3) the
assessee neither rendered any technical service nor made such informa-
tion available either to the consortium or to the foreign government, but
the information possessed by it and the services rendered in these
IH respects by its engineers and other employees were utilised by the
CONTINENTAL CONSTRUCTION v. Cl.T. 61

assessee itself; (4) the contract being an integral indivisible one, it was A
-( not permissible to the assessee to dissect the consideration as attributable
to its several ingredients and apportion a part of it as being payment for
information made available or technical services rendered to the foreign
government; (5) even assuming that the whole or atleast a part of the
consideration payable to the assessee falls under section 80-0, still as per
sub-section (S) of section 80-HHB the assessee would be eligible for de- B
duction under section 80-HHB only; and (6) even if the assessee's case
falls under section 80-0 it will be entitled to relief not on the entire
profits derived by it but only to that portion of the receipts as can be
described as having the character enumerated in section 80-0.

On behalf of the assessee it was contended that since the insertion c
-./.. of section 80-HHB has not resulted in the deletion of section 80-0, the
two sections should be read harmoniously and given effect to together
restricting the operation of section 80-HHB to contracts entered into on
or after l.4.I983 so as not to affect the contracts entered into before that
date and approved by the Board; that even after the insertion of section
80-HHB there is room for applicability of section 80-0 in relation to a D
contract of composite activities and section 80-HHB applies only to con·
struction/installation activity simpliciter; and that once an approval
under section 80-0 is granted (on whatever date it be) the approval
should ensure for the entire period of contract and cannot be restricted
to any particular assessment year or years.
E
On the question whether the assessee is entitled to a deduction
under section 80-0 or section 80-HHB or partly under one or partly
under the other or under neither of the provisions.

Dismissing the assessee's appeal, this Court,
F
HELD : I.I The assessee was entitled to the relief under section
t~ 80-0 for assessment years earlier to I983-84 and the approval granted
·r- by the Board under that section was right and proper. However, for the
assessment year I983-84, the assessee does not qualify for deduction on
the terms or that section as the contract receipts are fully covered by the
provisions of section 80-HHB and the deduction under that section will G
prevail over the relief that might have been otherwise available in view
or the terms of sectibn 80-HHB(S). [p. 116ABJ

I.2 The assessee's claim for exemption under section 80-HHB
deserves to be considered afresh after giving the assessee an opportunity
or being beard, as directed by the CIT (Appeals) and confirmed by the H
ITAT and the High Court. [p. 86BC]
-I,-
62 SUPREME COURT REPORTS [1992] l S. C.R.

A Continental Construction Ltd. v. Commissioner of Income Tax. (1990)
185 ITR 230, affirmed.

2.1 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
B 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 attributed
to the sources indicated in the section. [p. lOOBC]

c 2.2 The receipts by way of royalty, fees, commissions and 'similar
payments' envisaged by section 80-0 may be derived in the course of a
business or profession and constitute part of the profits and gains of such
business or profession. For instance, the fees received by a consulting
scientist, an architect or an engineer for providing tec~nical services to
others will nevertheless be assessable as part of the profits and gains
D from such profession. [p. 90DE]

2.3 The essence of the exemption under section 80-0 lies, not in
consigning the receipt to one of the pigeonholes of 'royalty', 'commis-
sion' or 'fees' but in examining whether the receipt is a payment in
consideration of one of the two situations envisaged in the section : e.g.,
E where the assessee is the owner of a patent or invention, he may
generally permit another to make use of the patent or the invention in
consideration of a 'royalty' payment; or, where the assessee is in posses-
sion of technical know-how, he may be prepared to allow another to
makoe use thereof in consideration of a 'fee' to the ass~ee; or he may
stipulate a consideration in the form of a commission based on the sale5
F of the products the other party is able to manufacture with the aid of
such invention or know-how, or an assessee may have achieved some
speciality and he may agree to.lend bis servkes to·some other person and ..,..
stipulate a consideration therefor which _ , be variously described. \

[p. 92E-G]
G Gestetner Duplicators Pvt. Ltd. v. CJ.T., (1979) 117 I.T.R. 1 (S.C.);
Cloth Traders P. Ltd. v. CJ.T., (1979) 118 ITR 243 & DistribUJOrs (Baroda)
P. Ltd. v. Union, (1985) 155 ITR 120, referred to.

2.4 The word 'similar' occurring in section 80-0 connotes that the
payment made to the assessee need not be in the naiure of royalty, com-
H mission or fees only; it could be any payment of like nature, made in
/

CONTINENTALCONSTRUCTION v. C.l.T. 63

consideration of the use or supply of such an asset, knowledge or services A
in the same manner as royalty, fees or consideration could be. Therefore,
any type of payment received by an assessee will qualify for deduction
under the section so long as it is a payment made in consideration of one
of the two types of transaction referred to in the section. [p. 93AB]

2.5 In column 5 of the applications for approval under section B
80-0 the assessee stated that the payments under the contracts did not
come under category (a) (i) but they did fall under categories a (ii) and
(b) enumerated therein. The finding of the Tribunal in this regard is not
one of fact based on an admission; it proceeds on .an incorrect apprecia-
tion of the contents of assessee's application for approval. [pp. 93G;
94AB] C
3.1 The expression ''technical services" bas a very broad connota-
tion and it has been used in ~ction 9(1) (vii) of the Act also so widely as
to comprehend professional services. [p. 98CD]

3.2 Services involving specialised knowledge experience and skill in D
the field of constructional operations are ''technical services". The Board's
guidelines specifically say so. [p. 98DE]

3.3 Any engineering contract involves technical services more so, a
contract of the nature and magnitude involved in the instant case. Tb~
contract executed by the assessee was no ordinary contract; the activities E
thereunder involved technical and expertise. It was executed jointly with
an enterprise that was nothing but an instrumentality of the foreign
State. [p. 95B-F]

3.4 The assessee bad made available technical information to the
foreign Government for u~ outside India and had also rendered tecbni- p
cal services to the foreign Government of the nature outlined in section
80-0. [pp. 98F; lOOF]

4.1 The assessee is a company and any technical services rendered
by it can only be through the mediUm of its employees, skilled and
unskilled. [p. 97E] G
4.2 In order to say that a person is rendering technical services to
another, it is not necessary that the services should be rendered by the
former personally and not through the medium of others. [p. 98EF]

S.1 Section 80-HHB provides for an exemption in respect of profits H
from a "foreign project" undertaken outside India in the course of
64 SUPREME COURT REPORTS [1992) 1 S. C. R.
•
A 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-
ments and obligations ancillary and incidental thereto and the profits
flowing therefrom. The definition cannot be restricted to the mere
B 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. [p. 102FG]

5.2 Section 80-HHB comes into force on 1.4.1983 and should be
C 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.
[p. USA] • .

D 5.3 Section 80-HHB does not confer an additional benefit; sub-
section (5) in no uncertain terms states that the benefit thereunder will
take away the benefit, if any, under any other provision. This has to be
given effect to. [p. llSF]

5.4 The assessee is entitled to deduction under section 80-0 on the :....
E terms of that section even for 1983-84 and subsequent years. It becomes
disentitled to the relief not because it does not fulfil the requirements of
sectiJn 80-0 but only because section 80-HHB(S) stands in the way and
mandates that in cases to which both provisions apply, relief under
section 80-HHB will alone be available. [p. 114G]

F 5.S The fact that the income in question may qualify for deduction
under section 80-HHB does not necessarily exclude the applicability of I
-(
, the provisions of section 80-0. The language of sub-section (5) of section
80-HHB which gives precedence to a claim under section 80-HHB over
one under any other provision, itself necessarily postulates the possibility
of the whole or part of the consideration payable to an assessee for the
G execution of a foreign project qualifying for deduction under any other
provision as well. [pp. 86G; 87A]

5.6 The statutory interdict 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
H that section as a consequence of section 80-HHB(S). [p. 107BC]
CONTINENTAL CONSTRUCTION v. C.l.T. 65

5.7 The legislature has clearly envisaged the possibility or the same A
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 or Section 80-HHB will prevail over the provisions of
such other provision. [p. 106FG]

5.8 One cannot decline to give effect to the applicability. of a B
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 envis-
ages the possibility of the assessee being also eligible for relief under
another section and makes special provision for that eventuality.
[p. 115BC] C
5.9 The assessee was able to get 100% relief in earlier years only
because the contract 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, it is possible to conceive or
foreign projects wherein the construction and installation aspect and in- D
formation or technical services aspect are kept separate. Equally, there
can be cases falling under section 80-0 which do not at all relate to a
"foreign projecf''as defined under section 80-HHB. In such cases the two
provisions will continue to operate independently. [p. 115F-H]

6.1 The Board was fully justified in considering the receipts of the E
assessee as falling under section 80-0 and in granting approval to the
contract. [p. 105BCJ

6.2 Board's approval for the purpose of section 80-0 cannot be
tentative or provisional or qualified. The Board can neither limit the
relief to certain assessment years only nor can it restrict or enlarge the F
scope of the relief that can be granted under the section. [p. 106AB]

6.3 Once a contract stands approved under section 80-0 in relation
to the first assessment year, the approval enures for the entire duration
of the contract. Section 80-0 does not envisage an application for ap-
proval of the contract every assessment year or the limitation of the G
approval granted by the Board to any particular assessment year. [p.
lOSDE]

Cl.T. v. Institute of Public -Opinion, (1982) 134 I.T .R. 23 (Del.),
referred to.
H
6.4 The Board's approval in respect of assessment years earlier to
66 SUPREME COURT REPORTS [1992] 1 S. C.R.

A 1983-84 will enable the assessee to claim like relief under section 80-0
for all subsequent years too. But, after the insertion of Section 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. [p. 106BC)

6.5 The Board's decision of 31.7.1985 extending the approval
B beyond 1982-83 cannot be given effect to in the same way as its earlier
approval letter of 28.10.1983 for the reasons : (1) the jurisdiction of the
Board is to grant approval to a contract only for the purpose 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, cannot bind the Officer, (2) the relief under
c section 80-HHB is not dependent on the approval of the Board and is for
a totally different type of transaction; (3) the letter of 31.7.1985 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; (4) the Board in the 1985 letter only stated, and rightly,
D that the approval under section 80-0 would enure for 1982-83 onwards,
for the approval of the Board is to the contract and so long as the
contract subsists the relief should be granted on the terms of section 80-
0; and (5) 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. [pp. l14D-G; 115B]
E
6.6 The reasons to vest power of approval in the Board are that it
is considered better equipped, both on considerations of time as well as
the technieal knowledge needed to examine the ramifications of technical
international contracts and decide how far the relevant contract and the
receipts thereunder are of the nature intended to be covered by the
F exemption clause and that the applicant is sure to take steps to obtain
necessary approval at a stage earlier to the implementation of the
contract and he can know well before-hand where he stands in the
matter of tax exemption. [p. llOC-F]

6.7 After the power of approval was vested in the Board, elaborate
G guidelines, as provided, inter alia, in Board's Circular No. 187 dated
23.12.1975 and Circular No. 253 dated 30.4.79, were drawn up which
clearly envisage a detailed examination, by the Board, of the terms of the
contract submitted to it for scrutiny from all angles relevant for a
decision as to eligibility for exemption under section 80-0. These guide-
lines have also since attained statutory recognition as the proforma
H earlier prescribed by the Board has virtually been incorporated in Rule
CONTINENTAL CONSTRUCTION v. C.I.T. 67

llE and Form prescribed thereunder. The proforma calls for details of A
....,.
the analysis of the receipts under the contract. [pp. lllAB; 113BCJ

6.8 The Board has chalked out for itself, quite legitimately and
properly, a very detailed and dominant rule as to the availability of ex-
emptions under section 80-0. The guidelines are of general nature, fully
sanctioned by the provisions of section 119(1) of the Act and, being in- B
structions enuring to the benefit of the assessee, cannot be gone back
upon by the Departmental Officers subordinate to the Board, particu-
larly 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. [p.112 FGJ

Navnitlal Javeri' s case (1965) 56 I.T.R. 198(SC), relied on.
c
6.9 While granting the approval under Section 80-0, the Board has
not only the jurisdiction but also the responsibility of examining the
agreement submitted for approval from all angles relevant to the deduc-
tion provided for under section 80-0 and it is not competent to the D
Dep~rtment 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. [p.113DEJ

6.10 However, the assessing officer is not deprived of his functions.
He has to satisfy himself that (i) the amounts in respect of which the E
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 Board; (ii) 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) the receipts
(before the 1975 amendment) were duly certified by an accountant or F
that, thereafter, the amounts have been received in or brought into India
r- in convertible foreign exchange within the specified period. The second
,,, of these functions is particularly important as the approval for exemp-
tion granted in principle has to be translated into concrete figures for the
purposes of each assessment. Neither the introduction of the words "in
accordance with and subject to the provisions of this section" nor the G
various "conditions" outlined in the letter of approval add anything to or
detract anything from the scope of the approval. [p.113E-H]

7.1 For purposes of income tax, a principle of apportionment has
always been applied in different contexts. Consolidated receipts and
expenses have always been considered apportionable in the contexts; (a) H
of the capital and revenue constituents comprised in them; (b) portions
68 SUPREME COURT REPORTS [1992) 1 S. C. R.

A of expenditure attributa~le to business and non"business purposes; (c) of -r-
places of accrual or arisal and (d) of agricultural and non-agricultural
elements in such receipts or payments. [p.IOODE]

Kanga & Palkhivala on the Law and Practice of Income-tax (Vol. I
Eighth Edition), referred to.
B
7.2 Contracts of the type envisaged by section 80-0 are usually
very complex ones and cover a multitude of obligations and responsibili-
ties. 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. [p. lOOCD]
c 7.3 If, a contract obliges 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 assessee
to see that the consideration paid under the contract legitimately attrib-
utable to such information and services is apportioned and the assessee
D given
. the benefit of the deduction available under the section .to the
extent of such consideration. [p.lOOFG]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3458 of
1990.

Appeal by Certificate from the Judgment and Order dated 24.5.1990 of
E the Delhi High Court in I.T.R No. 110 of 1987.

F.S. Nariman, Srinivasan, Bishamber Lal Khanna, Harish Salve, Subhash
Shanna, D.N. Sawhney, Ms. Geetanjali Mohan and Vineet Kumar for the
Appellant
F S.C. Manchanda, Ms. A. Subhashini and B.B. Ahuja for the Respon-
dents. -.;
-:
The Judgment of the Court was delivered by -1

RANGANATHAN, J. This is an appeal preferred by M/s. Continen-
G tal Construction Ltd. (hereinafter called 'the assessee') from the judgment of
the Delhi High Court in I.T.R. 110 to 112 of 1987 (reported in 1990-185
I.T.R. 178) answering, against the assessee, the following questions of law
referred to it under section 256 of the Income Tax Act, 1961 ('the Act') :

1. "Whether on the facts and in the circumstances of the case the
H Tribunal is right in holding that the income arising from the
).
CONTINENTAL CONSTRUCTION v. C.I.T. [RANGANATHAN, J.) 69

--r' activities pursuant to the seven agreement with foreign govern- A
ments/ enterprises, etc. are governed by the provisions of section
80-HHB of the Income-Tax Act, 1961 and not of section 80-0 of
that Act?"

2. "Whether on the facts and in the circumstances of the case, the
Tribunal was right in holding that notwithstanding the approvals B
granted by the Board to the seven agreements for the purpose of
section 80-0, for the purpose of assessment for assessment year
1983-84, the income arising from these contracts have to be
brought under section 80-HHB of the Income-tax Act, 1961?"

3. "Whether on the facts of the case, the Tribunal is right in c
holding that the income from the entire activities under the seven
agreements cannot be bifurcated and is wholly covered under
section 80-HHB of the Income Tax Act, 1961?"

4. "Whether on the facts and in the circumstances of the case, the
Tribunal is right in holding that the assessee company is not an D
'industrial company' as defined in the Finance Act, 1982?"

The first two Income-Tax References were made to the High Court at
the instance of the assessee which was dissatisfied with the decision of the
Income Tax Appellate Tribunal on these questions : there were two refer-
ences because the above questions arose out of two cross-appeals before the E
Tribunal - one by the assessee and the other by the Department. This appeal
by the assessee, CA. 3458 of 1990 is disposed by the present judgment.

The third reference (l.T.R. 112/87) was made by the Tribunal at the
instance of the Department on a totally different question which related to the
interpretation of sections 40(c) and 40A(5) of the Act. The High Court F
answered all the three references in favour of the assessee and the aggrieved
'~
r Commissioner of Income Tax (C.I.T.) has preferred an appeal to this Court
r from that part of the judgment being C.A. 3458-A of 1990. But that question
has no connection with the other four· questions set out earlier. We have,
therefore, delinked the appeal by the C.I.T. for separate hearing. Also, of the
four questions posed above in the assessee's appeal, counsel for the appellant G
has stated that he is not pressing question No. 4 before us. We, therefore, do
not express any opinion on it and merely dismiss the appeal in so far as this
question is concerned. In the result, we confine this judgment to the
assessee' s appeal and to the first three of the four questions set out above.

The questions arise out of the assessee's assessment to income tax for H
70 SUPREME COURT REPORTS [1992) 1 S. C. R.

- A the assessment year 1983-84 (the calendar year 1982 being the relevant r
previous year). ·Section 80-0 of the Act, under which the assessee claimed
deductions, provides for a deduction, in computing the total income, in
respect of royalties etc. from certain foreign enteiprises. This topic was
originally dealt with by section 85-C. Section 80-0 was substituted in its
place w .e.f. April 1, 1968. The section has since undergone amendments
B from time to time. As on 1.4.83, the provision, in so far as is relevant for our
pUIJ>Oses, was in the following terms :

Section 80-0 Deduction in respect of royalties etc. from certain
·foreign enterprises.
A._
c "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 of a 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,
D or information concerning industrial, commercial or scientific
knowledge, experience or skill made available or provided or
agreed to be made available or provided to such Government or
enteiprise by the assessee, or in consideration of technical serv-
ices rendered or agreed to be rendered outside India to such
Government or enteiprise by the assessee, under an agreement
E approved by the Board in this behalf and such income is received
in convertible foreign exchange in India, or having been received
in convertible foreign exchange outside India, or having been
converted into convertible foreign exchange outside India, is
brought into India, by or on behalf of the assessee in accordance
with any law for the time being in force for regulating payments
F 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 such income so received in, or brought -4
into India, in computing the total income of the assessee.

During the currency of this provision, the Finance Act, 1982 introduced
G a new Section 80-HHB w.e.f. 1.4.1983. This provision reads thus :

Section 80-HHB Deduction in respect of profits and gains
from projects outside India -

(1) Where the gross total income of an assessee being an Indian
H company or a person (other than a company) who is resident~ ,,..
India includes any profits and gains derived from the business of-
CONTINENTALCONSTRUCTIONv.C.I.T. [RANGANATHAN, J.] 71

(a) the execution of a foreign project undertaken by the assessee A
in pursuance of a contract entered into by him, or

,(b) the execution of any work undertaken by him and forming
part of a foreign project undertaken by any other person in
pursuance of a contract entered into by such other person,

with the Government of a foreign State or_ any statutory or other
B
public authority or agency in a foreign State, or a foreign
enterprise, there shall, in accordance with and subject to the
provisions of this section, be allowed, in computing the total
income of the assessee, a deduction from such profits and gains
of an amount equal to twenty five per cent thereof : c
Provided that the consideration for the execution of such project
or, as the case may be, of such work is payable in convertible
foreign exchange.

(2) For the purposes of this section -
D
(a) "convertible foreign exchange" means foreign exchange
which is for the time being treated by the Reserve Bank of
India as convertible foreign exchange for the purposes of
the Foreign Exchange Regulation Act, 1973 (46 of 1973),
and any rules made thereunder :
E
(b) "foreign project" means a project for -

(i) the construction of any building, road, dam, bridge or other
structure outside India;

(ii) the assembly or installation of any machinery or plant F
outside India;

(iii) the execution-of such other work (of whatever nature) as
may be prescribed.

(3) The deduction under this section shall be allowed only if the G
following conditions are fulfilled, namely :-

(i) the assessee maintains separate accounts in respect of the
profits and gains derived from the business of the execution
of the foreign. project, or, as the case ·may be, of the work
forming part of the foreign project un-dertaken by him and, H
72 SUPREME COURT REPORTS [1992] 1 S. C.R.

A where the assessee is a person other than an Indian com-
y
pany or a co-operative society, such amounts have been
audited by an accountant as defined in the Explanation
below sub-section (2) of section 288 and the assessee
furnishes, along with his return or income, the report of
such audit in the prescribed form duly signed and verified
B by such accountant :

(ii) an amount equal to twenty five per cent of the profits and
gains referred to in sub-section (1) is debited to the profit
and loss account of the previous year in respect of which
the deduction under this section is to be allowed and
c credited to a reserve account (to be called the "Foreign '
·'°'~
Projects Reserve Account") to be utilised by the assessee
during a period of five years next followiiig for the pur-
poses of his business other than for distribution by way of
dividends or profits;

D (iii) an amount equal to twenty. five per cent of the profits and
gains referred to in sub-section (1) is brought by the
assessee in convertible foreign exchange into India, in
accordance with the provisions of the Foreign Exchange
Regulation Act, 1973 (46 of 1973), and any rules made
thereunder, within a period of six months from the end of
E the previous year referred to in clause (ii) or, where the
Chief Commissioner or Commissioner is satisfied (for rea-
sons. to be recorded in writing) that the assessee is, for
reasons beyond his control, unable to do so within the said
period of six months, within such further period as the
Chief Commissioner or Commissioner may allow in this
F behalf:
-~
Provided that where the amount credited by the assessee to the
Foreign Projects Reserve Account in pursuance of clause (ii) or '
-I
the amount brought into India by the assessee in pursuance of
clause (iii) or each of the said amounts is less than twenty five
G per cent of the profits and gains referred to in sub-section (1), the
deduction under that sub-section shall be limited to the amount so
credited in pursuance of clause (ii) or the amount so brought into
India in pursuance of clause (iii) whichever is less.

(4) If at any time before the expiry of five years from the end of
H the previous year in whkh the deduction under sub-section (1) is
,._
CONTINENTAL.CONSTRUCTION v. C.I.T. [RANGANATHAN, J.] 73

allowed, the assessee utilises the amount credited to the Foreign A
-( Projects Reserve Account for distribution by way of dividends or
profits or for any other purpose which is not a purpose of the
business of the assessee, the deduction originally allowed under
sub-section (1) shall be deemed to have been wrongly allowed,
and the Income-tax Officer may, notwithstanding anything con-
tained in this Act, recompute the total income of the assessee for B
the relevant previous year and make the necessary amendment;
and the provisions of section 154 shall, so far as may be, apply
thereto, the period of four years specified in sub-section (7) of
that section being reckoned from the end of the previous year in
which the money was so utilised.
./..
c
(5) Notwithstanding anything contained in any other provision of
this Chapter under the heading "C-Deductions in respect of
certain incomes", no part of the consideration or of the income
comprised in the consideration payable to the assessee for the
exeeution of a foreign project referred to in clause (a) of sub-
section (1) or of any work referred to in clause (b) of that sub- D
section shall qualify for deduction for any assessment year under
any such other provision."

The three questions which ar~ now for consideration before us raise the
issue whether the assessee is entitled to a deduction under section 80-0 or
section 80-IDIB or partly under one and partly under the other or, indeed, E
under neither of the provisions. We shall now proceed to set out the factual
background in which the issues arise.

The assessee is a civil construction company which describes itself as
Engineers and Contractors. It has executed a large number of projects
overseas and in India. In India, its projects include dams, irrigation and hydel
F
projects, water supply and sewerage plants, marine and harbour works,
t- airports etc:The assessee entered into eight contracts for the construction,
r- inter alia, of a dam and irrigation project in Libya, a fibre-board factory at
Abu Sukhair in Iraq and the huge Karkh Water Supply Project in Baghdad
which was of the total value of 534 million dollars. For these contracts the G
assessee obtained the approval of the Central Board of Direct Taxes ('Board'
or 'C.B.D.T. ')in terms of section 80-0. A broad outline of these projects can
be gathered from the following table :

/; H
74 SUPREME COURT REPORTS [1992] 1 S. C. R.

A s. Name of Date of Name of the Date of Period of
No. Project agreement other contract- approval approval as per
ing party by Board Board's letter
1. Abu Sukhair 6.9.75 State Organisation of 11.8.76 For assessment years
Project Industrial Design & 1976-77 to 1978-79
Construction, Ministry
B of Industry & Minearls,
Baghdad (Iraq)

2. Wadi Ghan 8.8.77 · Socialist People's Lib- 31.8.78 For the assessment
Dam yan Arab Jamahiriya, years 1978-79 and
Secretariat of Dams onwards
c and Water Resources,
Tripoli, (Libya)

3.Amara 153.78 State Contracting Co. 22.2.79 "Assessment years
Project for Water and Sewer- 1979-80 to 1982-83"
age Projects, Ministry
of Municipalities, Re-
D public of Iraq

4. Nassiriyah 14.12.78 Ministry of Housing & 7.2.80 "Assessment years
Project Construction, Govt. of 1980-81 and onwards"
Iraq

E S. Sulaimaniyah 10.10.79 Ministry of Housing & 31.5.80 "Assessment years
Project Construction, Govt. of 1980-81 and onwards"
Iraq

6. West Bank 12.4.80 Baghdad Sewerage 23.7.80 "Assessment years
Project Board, Govt of Iraq 1981-82 and onwards"
F 7. Karkh 17.12.80 Amanat Al-Asima, 28.10.83 "For the assessment
Project Baghdad Water Supply year 1982-83. For the ~
Administration, Govt. subsequent period your ·-l
of Iraq, Baghdad attention is invited to
the provision of s. 80
HHB which are opera-
G tive w.e.f. 1.4.83"

8. Diwaniyah 10.1.81 Water & Sewerage 28.10.83 -do-
Project Projects, Baghdad

H
CONTINENTAL CONSTRUCTION v. CJ.T. [RANGANATHAN, J.] 75

-I In the light of these approvals, the assessee claimed and obtained de- A
duction under section 80-0 in respect of the receipts from the first six of the
contracts in some of the assessment ·years between 1976-77 to 1980-81.

For the assessment year 1983-84, the assessee returned a gross total
income of Rs. 72,67 ,45,938 but, as against this, it claimed a deduction of Rs.
89,16,19,198 in respect of seven of the above contracts, the eight having been B
completed much earlier. Of this, the deduction claimed in respect of the
Kaikh'and Diwaniyah projects came to Rs. 77,84,29,446 and Rs. 6,36,85,436
respectively. As pointed out above, the letter of approval of the Board under
section 80-0 in respect of these two contracts dated 28.10.83 was limited to
the assessment year 1982-83. The Inspecting Assistant Commissioner (l.A.C.),
Sri Harl Narain, who completed the assessment on 26.3.1984 declined to c
grant the assessee any deduction under section 80-0 not only in respect of
these two contracts but also in respect of the other five. He was of opinion
that it was section 80-HHB that applied to these agreements and not section
80-0. However, he declined to grant any relief to the assessee even under
section 80-HHB as the conditions for exemption specified in that su~section
were not fulfilled. In the result. he determined the assessee's total income at D
Rs. 89,41,35,103 as against the NIL income returned by the assessee, thus
raising a tax dem~d of Rs. <XJ,07,72,982.

On appeal, the Commissioner of Income-tax (Appeals) gave the assessee
partial relief. He agreed with the IAC that the assessee was not entitled to
relief pnder section 80-0 because : (1) the approval of the CBDT for three E
of the contracts did not extend to assessment year 1983-84; (2) all the
contracts undertaken by the assessee were in the nature of 'foreign projects'
within the maning of section 80-HHB; and (3) even where the contracts had
the approval of the CBDT the non-obstante provisions of section 80-HHB(5)
ruled out the grant of relief under section 80-0 for any of the projects. He,
however, felt that as the assessee had been under a bona fuie belief all F
'r through that it was entitled to relief under section 80-0, it had not had a
proper opportunity of putting forth its claim for relief under section 80 HHB.
t He, therefore, set aside the assessment to enable both sides to marshall their
evidence and to enable the IAC to reappraise the assessee's claim for
exemption under that section. The order of the CIT was dated 26.3.85.
G
The Income-tax Appellate Tribunal (ITAT) agreed with the CIT. Its
conclusion, set out succinctly in para 48 of its order was thus :

"To conclude this point. we would hold that the income and con-
sideration received by the assessee in the execution of all the
seven contracts in general and the Karkh work in particular fell H
)<
76 SUPREME COURT REPORTS (1992] 1 S. C.R.

A under the provisions of section 80-HHB as the contracts were for
execution of foreign projects. We further hold that in view of the
provisions of section 80-HHB (5) the claim of the assessee under
section 80-0 cannot be considered inspite of the approval orders
of the Board. This ground in the assessee's appeal has, therefore,
to be rejected and the wnclusion arrived at by the learned
B Commissioner of Income-Tax (Appeals) is upheld."

It may be mentioned here that, before the appeal was heard by the
ITAT, the CBDT on a representation made by the assessee and after some
enquiry and correspondence, issued on 31.7.85 a letter modifying the original
letter of approval of 28.10.83 in respect of the Karkh and Diwaniyah
C contracts. By this letter, the CBDT directed the substitution of the following '.~
words in place of the word quoted in the last column of the table set out
earlier:

"Assessment years 1982-83 and onwards".

In other words, the CBDT lifted its earlier limitation of approval only
D to assessment year 1982-83 and made it operative even for sub~quent
assessment years. There has been some criticism, on behalf of the assessee,
of the manner in which the Department has sought to get over the effect of
modification letter attributing it to some misunderstanding or confusion. One
of the assessee's principal grievances is that the ITAT has erred in accepting
this explanation, treating the approval of 28.10.1983 as a qualified one and
E
. ignoring the letter of 31.7.85. We shall discuss this aspect later.

The ITAT, at the request of the assessee, referred the four questions of
law which we have set out earlier for the decision of the High Court. The
High Court came to the conclusion that the receipts of the assessee from the
contracts did not fall within the category of receipts for which deduction is
F
provided in section 80-0. It was of the view that the Board's approval was
a qualified one which fully authorised and empowered the officer to deter-
mine whether all the conditions of the section are fulfilled as well as the
amount, if any, which could be deducted under section 80-0. The Court also
came to the conclusion that the execution of the work by the assessee, in the
G present case, fall under section 80 HHB and not section 80-0. In the result,
questions I to ~ were answered against the assessee and in favour of the
Revenue. The assessee, has, therefore, preferred these appeals.

As pointed out earlier, the assessee's claim for deduction relates to
seven coptracts and depends on the terms and conditions of each one of them.
H However, the Karkh Water Supply scheme contracts has been taken as the
CONTINENTAL CONSTRUCTION v. CJ.T. [RANGANATHAN, J.] 77

-l model or specimen for purposes of discussion both because the terms and A
conditions of all the contracts are more or less similar and also because the
deduction claimed in respect of this contract constitutes an overwhelmingly
high precentage of the assessee's total claim. We shall also, therefore,
proceed to discuss the issues raised in the light of the terms and conditions
of this contract and Jhe approval given therefor. Before doing so, we would
like to point out that for the assessment year 1983-84 with which we are B
concerned, a discussion of the relative spheres of section 80-HHB and section
80-0 would be called for and the assessee may get full or partial relief under
either or neither of the sections for the said assessment year; but if, in the
process, we come to the conclusion that the provisions of section 80-0 can
have no application to the contracts in question, such conclusion is bound to
have repurcussion also on the deductions claimed by, and allowed to, the C
assessee under that section in the earlier years in respect of some of the
contracts.

The Baghdad Water Supply Administration (BWSA) invited tenders
from "experienced engineering consortia" to submit tenders "for the design,
manufacture, delivery, supply, construction and installation, complete under D
a single contract of the works required" for the first stage of the Karlch Water
Supply Scheme. The works comprised "a river intake and pumping station on
the west bank of the River Tigris about 30 kms. north of Baghdad; raw water
pumping through twin 1800 mm diameter pumping mains to a nearby
treatment worlcs; treatment comprising essentially pre-settlement, clarifica-
tion and chemical coagulation, rapid gravity sand filtration and disinfection E
with chlorine: treated water storage; treated water pumping through twin
· 2200 mm diameter transmission pipelines to the city area, and distribution
and storage within the west bank part of the city area and within the munici-
palities of Abu Ghraib and Taji". Five volumes of documents containing
instructions, conditions, general specifications and requirements, specifica-
tions for plant and civil works, schedules, and supplementary information and F
a sixth volume containing 99 drawings were issued along with the tender
documents. Since tenders had been called for from Consortia, the assessee
joined hands with the State Contracting Company for Water and Sewerage
Projects, Baghdad (SCC) to form a consortium and was able to bag the
contract and an agreement was entered into on 17.12.80 between the Iraqi
Government and the Consortium. The terms of the consortium between the G
assessee and SCC were set down in an agreement dated 18.12.80 which
divided the areas of responsibility (the packages) under the contract between
the two. Broadly speaking, the SCC was made responsible for the Reservoir
works while the assessee was made responsible for the civil works. The total '
value of the contract was 325,750,000 Iraqi Dinars (ID) of which 65% was H
78 SUPREME COURT REPORTS [1992] 1 S. C.R.

A payable in U.S. dollars, pound sterling or Swiss francs. The value of the
package of the assessee was ID 152,956,253 (75% of which was payable in )--
the said foreign exchange).

On 3rd March, 1981, the assessee applied to the CBDT for according
approval to the contract "for the supply of civil construction know-how urthe
Government of Iraq" under section 80-0 of the Act. A proforma prescribed
B
by the Revenue was filled up and enclosed to the application. Para 5 to 11
of this proforma run as follows :
5. Please state whether the income is
received in consideration for-

(a) the use outside India of
c }..__
(i) any patent, invention model,
design, secret, formula or
process, or similar property
right : No

(ii) information concerning in-
D dustrial, commercial or sci-
entific knowledge, experi-
ence, or skill made avail- Yes
able.
(b) technical services rendered or Technical services will be rendered by us
E agreed to be rendered outside India to Baghdad Water Supply Administration,
(Please also state the arrangements Government of Iraq in accordance with the
available with the appliclillt for said agreement dated 17.12.80. The techni-
rendering such technical services cal know-how and services will be ren-
and the mode of tendering such dered by us through our qualified experi-
services ). enced and skilled Engineers, Scientists and
Technicians, for that purpose, a strength of
F about 1,800 Indian Engineers, Technicians
and semi-skilled labours will be inducted.

6. Does the Agreement provide for The agreement also provides for the supply
supply of technical know-how or use of goods as per details given below :
G rendering of any services other than
those covered by section 80-0 (e.g. Machinery, plant, Equipment, Vehicles
use of trade marks or supply of cement, steel-bars, Sand Aggregate, Bitu-
goods) if so, please specify them men, Fencing-fabric, Shuttering material,
and' also the amount of considera- Steel pipes, Patent items, projection, clad-
tiott receivable/ received in respect ding, ceiling, Joining, Steel Pipes with lining
of them. and ductile iron pipes etc. The cost of
H
CONTINENTAL CONSTRUCTION v. Cl.T. [RANGANATHAN, J.) 79

supply of these items will be determined at A
~

~'
the close of each year as the work pro-
gresses. The total value of the contract is -
ID 152,956,253. After taking out the net
cost of machinery & equipment and other
embedded items, as mentioned above (in
which no profit element is involved), from
the total value of the Contract, the remain- B
ing amount will be the value of technical
know-how and seivices to be rendered by
us under this contract. It is this amount for
which we are seeking exemption u/s 80-0.

7. If technical know-how falls l.Dlder
5(a)(i) above, please indicate.
Not applicable.
c
(a) how the applicant acquired it or
what arrangements he has made Not applicable.
for acquiring it

(b) What are the applicant's own rights Not applicable. D
in respect thereof

(c) Whether its provision to the other
party to the agreement involves :-
;o(

(i) transfer of all or any rights of E
the applicant in respect of it, if Not applicable.
so, please specify the nature
and extent of the right trans-
ferred and the manner of its
transfer ;

(ii) the imparting of any informa-
F
tion concerning its working or
~
use; if so, please specify the Not applicable.
~ information imparted and the
manner of its imparting;

(iii) its use by the other person to G
the agreement if so, please
specify the nature and manner Not applicable.
of the use.

8. If the technical know-how falls un-
der 5(a)(ii) above, please specify H
80 SUPREME COURT REPORTS [1992] 1 S. ".:. R.

A (a) the arrangements available with the We have on our rolls qualified Engineers
applicant for obtaining and impart- and Technicians who have already acquired
ing it the requisite scientific knowledge, experi-
ence and skill for giving such technical
know-how and it is they, who will be
imparting the same to the client by execut-
ing the works at the site in Iraq..
B
(b) the manner of imparting it The Engineers and Technicians will be
working for about 5 years at the site of
construction to impart the technical know-
how and services on behalf of our Com-
pany.
c 9. Has the applicant made any agree-
ment or arrangement with any other
person in India or abroad for obtaining
the technical know-how etc., to be Not applicable.
provided under this agreement or for
rendering technical services? If so,
D please give the following information :

(i) the name and address of such Not applicable.
other person;

(ii) details of the agreement or ar-
E rangement together with a cer- Not applicable.
tified copy of the written agree-
ment, if any.

(iii) the nature, and extent of
applicant's relationship and as- Not applicable.
F sociation with such other per-
son.

10. Please state the nature of the in- Income out of imparting civil construction
i
come in respect of which deduction is know-how and services for the construc-
claimed, viz., tion of work of Karkh Water Supply
Scheme, Baghdad.
G
.
Royalty

Commission

Fees
H
).,
CONTINENTAL CONSTRUCTION v. C.I.T. [RANGANATHAN, J.] 81

Any similar paymenJ A
-(
11. Please indicate the portion/ amount
(alongwith its computation) which is Please see our reply under S. No. 6 of this
eligible for deduction under section form.
80-0 of the Act

On 9.7.81, the C.B.D.T. called upon the assessee to clarify four aspects
B
of -its application : (i) the details of the materials and equipment to be
supplied by the assessee under the contract and the quantum of profit thereon;
(ii) whether any engineers, scientisls and technicians were recruited in India
and there was any fee attributable to such services ; (iii) whether any tests on
materials and workmanship were carried out in India and there was any fee
attributable to such tests; and (iv) the break-up of the fee relating to the
supply of information/know-how and rendering of the technical services. The
c
assessee answered in the following terms on 4.8.1981 :

"As desired, the information/ clarification is furnished below :-

(i) Our contract is for civil construction and know-how. The D
use of materials and equipment is part of these services.
There is no separate supply of mateC::als and equipment. As
such the question of any separate quantum of profit on the
same does not arise. As the material is purchased locally in
_J( Iraq, there is no possibility of making any profit on its con-
sumption in execution of the works. E

(ii) The qualified experienced skilled engineers, scientists and
technicians are our employees and they are sent to Iraq for
executing the work under contract. We do not avail of the
services of any agency for the purpose. As such there are
no recruitment expenses involved. Consequently no fee can F
be attributed on the transfer of our workers to foreign
r country.
t-
(iii) No tests will ever be taken in India because all works will
be executed in Iraq. The question of attributing any fees to
such tests in India, therefore, does not arise. These tests are G
part of the process undertaken to render technical know-
how.

(iv) The profits which will accrue to our Company will be the
gross contracts receipts less expenses incurred in supplying
H
technical know-how and execution of the works. It is
-~
82 SUPREME COURT REPORTS [1992) 1 S. C.R.

A estimated that this will be about 25% of the contract value.
The exact amount may vary and will be known only afcer
the works have been completed."

There was further correspondence, discussion and hearing including a
detailec:l letter of the assessee dated 24.12.1981 and clarificatory letters dated
B 15.2.1982, 17.3.1982, 9.10.1982, some of the contents of which may have to
be referred to later. Eventually, the C.B.D.T. accorded its approval to the
agreements, as already mentioned, on 28.10.1983. The letter of approval has
to be extracted here. It runs :

"I am directed to refer to your application 3.3.1981 received with
c your letter No. 601/IT/80-0 dated 3.3.1981 and to convey the
approval of the {;entral Board of Direct Taxes to the agreement
entered into between you and M/s. Amanat Al-Asima Baghdad
Water Supply Administration, Government of Iraq, Baghdad, on
17.12.1980 for the purpose of section 80-0 of the Income-tax
Act, 1961, for the assessment years 1982-83. For the subsequent
D period your attention is invited to the provision of Sec. 80-HHB
which are operative w.e.f. 1.4.1983.

2. The income allowable as a deduction for the assessment year
1981-82 and onwards would be the income computed after
accounting for expenses incurred in earning such income i.e. net
E income.

3. The actual deduction to be allowed will, however, be such
portion of the income which . has been received in convertible
foreign exchange in India, or having been received in convertible
foreign exchange outside India or having been converted into
F
convertible foreign exchange outside India is brought into India
in accordance with the law for the time being in force for
regulating payment and dealings in foreign exchange.

4. The grant of deduction from the total Income will be subject
G to your fulfilling the other conditions laid down in the Act in this
behalf. The amount eligible for deduction will be determined by
IltC()me-tax Officer af the time of assessment.

5. This approval is subject to any amendment in the provisions of
the Income-tax Act, 1961, from time to time.
H
CONTINENTAL CONSTRUCTION v. C.l.T. [RANGANATHAN, J.] 83

6. I am further to add that the approval accorded by this letter is A
only for the purpose of section 80-0 of the Income-tax Act, 1961,
and should not be construed to convey the approval of the Central
Government or Central Board of Direct Taxes or any other
statutory authority under the Government for any other pur-
poses."
B
It may be mentioned that even while the assessee's applications for
approval to the Kharkh & Diwaniya contracts were pending, the Finance Act,
1982 had amended the Act to insert section 80-HHB with effect from
1.4.1983.

This amendment compelled the assessee to send a letter to the C.B.D.T. C
on 9.10.82 explaining that this new provision would not stand in the way of
approval being accorded to its contracts under section 80-0. But, despite the
pleas in this letter the C.B.D.T., in para 1 of its letter of approval of
28.10.1983 restricted the approval to assessment year 1982-83. The assessee,
therefore, wrote again in detail on 2.12.1983, urging the Board that the
reference to section 80-HHB in the letter of approval was uncalled for and D
that the approval granted should be made valid for the entire duration of the
contract The material on record shows that this letter was the subject of
careful consideration by the C.B.D.T. which finally issued a clarification in
the following terms on 31.7.1985, more than l:l year and~ half ~ater :

"With reference to your representation dated 2.12.83 on the E
above subject, I am directed to say that for the words and figures
"assessment years 1982-83. For the subsequent period your atten-
tion is invited to the provision of section 80-HHB which are
operative w.e.f. 1.4.83," appearing at the end of para 1 of the
Board's letter F. No. 473/46/81-FID dated 28.10.83, the follow-
F
ing words and figiires may please be substituted :

"assessment years 1982-83 and onwards"

I.t appears that though the above intimation to the assessee was cryptic,
the CBDT had decided to extend the period of operativeness of its approval G
under section 80-0 only after consulting the Attorney General of India
(A.G.). The CBDT had circulated the opinion of the A.G. in this case along
with the statement of case put up to him for opinion to all the officers of the
Departments. On 14.8.1985, the CIT (Central-I), New Delhi wrote a letter to
the concerned member of the CBDT which makes interesting reading. We do
not wish to extract, or comment on, the contents of this letter here. Suffice H
84 SUPREME COURT REPORTS [1992) 1 S. C.R.

A it to say that the writer of the letter was of opinion that the CBDT should not
have reviewed the decision taken by it on 28.10.83. He stated that, on the
strength of the CBDT's letter dated 31.7.85, the assessee was claiming 100%
exemption _and, requested that "clear instructions" should be issued early "on
the complicatiOns" pointed out in the letter. Thereupon, a letter dated
24.9.~985 was addressed by the Deputy Secretary (FfD), Government of
B India, (who, at the time, happened to be Sri Hari Narain, the IAC who hat!
completed the assessment on the assessee) to the C.I.T. (Central), New Delhi
to the following effect :

"Please refer to your D.O. No. 777, dated 14th August, 1985
addressed to Member I.T.(J) on the above subject
c
2. Letter F. No. 473/644/83-FTD dated 31st July, 1985 was only
in recognition of the position that the approval u/s 80-0 is for the
agreement as such and the mention of any time limit therein is
redundant, except for the starting year.

D 3. As would be noticed from all the approval letters themselves,
Board's approval to the agreements is subject to the other condi-
tions of the Act being satisfied. These have to be examined
carefully by, the assessing officers while making the assessments.
If the income does not satisfy the requirements of section 80-0,
it cannot be said that the mere approval would automatically
E entitle the assessee to relief u/s 80-0. The quantum, if any, of the
income which would be entitled to relief under section 80-0 has
necessarily to be detennined by.them on the facts of each case.

4. It would also be noticed from all the approval letters that they ' f ..
are subject to amendments enacted in the Income-tax Act, 1961,
F
from lime to time. Therefore, notwithstanding the approval under
section 80-0 or the words "Assessment year 82-83 and onwards'',
if the project or work falls within the definition given in section
80-HHB(l), the same would be hit by the provision of section 80-
HHB(S).
0
5. Your apprehension that the approval has been modified or that
it ignores the provisions of Section 80-HHB is, therefore, without
any basis.

The position in respect of letter F. No. 473/643/83-FTO dated
H 31.7.1985 for the agreement dated 10.1.81 in respect of the same
assessee is also identical.••

l
CONTINENTAL CONSTRUCTION v. C.I.T. [RANGANATHAN, J.] 85

Nonnally, correspondence of this type would be hardly relevant for A
deciding questions regarding the construction of a section in the statute. But,
apparently, the Department, before the Tribunal, relief upon the letter of
14.9.85 as superseding the effect of the approval granted on 31.7.85. The
Tribunal, in its appellate order, referred to these letters. It observed :

"It is true that in respect of Karkh and Diwaniyah Projects B
confusion which has arisen in this case could have been avoided.
In the first approval letter the Board confined f:!1e approval to the
assessment year 1982~83 and referred to section 80-HHB for the
subsequent years. On representation by the assessee the matter
was considered for almost two years and meanwhile the assess-
ment was also made and the first appellate authority also decided C
the matter. It was only in July, 1985 that the Board rectified their
earlier order removing the reference to section 80HH-B for the
assessment years 1983-84 onwards. The second order was likely
to give an impression that the rectification has been made in view
of the representation made by the assessee about the scope and
application of section 80-HHB. This impression was not only D
created in the minds of the assessee but also led to some
misunderstanding in the mind of the Commissioner. When he
sought a clarification the Board stated that inspite of approval
under section 80-0 if the income does not satisfy the require-
ments of that section, the assessee would not be entitled to such
deduction. In this letter it was also stated that the mention of the E
assessment years in the approval orders was redundant. We...have
referred to this clarification given by the Board only because the
learned counsel for the revenue has adopted the arguments given
in this letter as his own. There is no doubt that the first qualified
approval followed by the modification of that approval coupled
F
with this thinking on the part of the Board as given to the
Commissioner does indicate that the position was not clear in the
mind of the authorities who approved or modified the approval of
the contracts. Be that as it may, we have to consider the matter
from the angle of law as it stands and we cannot decide on the
basis of some misunderstanding or confusion which might have G
been created at some stage."

Learned counsel for the assessee vehemently criticised. the issue of the
letter of "clarification" by the officer who had completed the assessment in
the case. He urged that the Tribunal should not have taken into account the
contents of this letter at all and, in any event, could not have drawn an H
86 SUPREME COURT REPORTS (1992] 1 s·. C.R.

A inference, because of this letter, that the position was not clear in the mind
of the CBDT. He also pointed out that he had sought for a reference of a
"question of law" to the High Court on this aspect which the Tribunal (in his
submission, unjustifiably) declined on the ground that the letter had been
considered only because it was adopted as an argument by counsel for the
Revenue. One aspect which ·1T1ay .need consideration by us is the question
B how for the issue of the l~tter of 14.9.85 affects the assessee's claim for
exemption under section 80-0 in the present case.

There does not seem to be much doubt that the provisions of S. 80-
HHB apply to the contracts in the present-case and that, at the worst, the
assessee's claim for exemption under section 80-HHB deserves to be consid-
c ered afresh after giving the assessee an opportunity of being heard, as
directed by the CIT (Appeals) and confirmed by the C.l.T. and the High
Court (see 1990: 185 ITR 230). It is possible that, with sections 80-HHB and
80-0, as they staild today, it might not make very much difference to the
assessee whether the relief is granted under the one section or the other, as
they both permit a deduction from the gross total income, of fifty per cent,
D of the profits in the one case and of the qualifying receipts in the other.
However, till 1.4.1987, the relief under section 80-HHB was 25% of the
profits whereas the deduction under section 80-0 was 100% of the qualifying
receipts upto assessment year 1984-85. Thereafter the latter was reduced to
50% but the former was raised to 50% only w.e.f. 1.6:1987. This has made
it very material to decide whether the assessce is entitled to the deduction
E. under section 80-0 and the question that really arises for our consideration ·
is whether the relief under that section is available to the assessee. We shall
first discuss this question only the language of section 80-0 without taking
into account t))e insertion of section 80-HHB or the complication introduced
into the case by the approvals of the CBDT referred to earlier.
F The Department's case, urged with great emphasis and vehemence by
Sri B.B. Ahuja, is that a careful reading of section 80-0 will show that the
deduction provided by that section is very limited in nature and not available
to the assessee. He submits, on the other hand, that this case is clearly one
falling under the terms of section 80-HHB being a case of execution of a
G "foreign project" as defined in that section. We shall, however, consider the
two aspects of the· argument separately for t))e -fact that the income in
question may qualify for deductiQn under sectimi" SO-HHB does not necessar-
ily exclude the applicability of the provisions of section 80-0. It is sufficient
to point out that the language of sub-section (5) of section 80-HHB which
gives precedence to a claim· under section 80-HHB over one under any other
H provision, itself necessarily postulates the possibility of the whole or part of
CONTINENTAL CONSTRUCilON v. Cl.T. [RANGANATHAN, J.] 87
-{
the consideration payable to an assessee for the execution of a foreign project A
qualifying for deduction under section 80-HHB falling for consideration also
under any other provision as well.

Sri Ahuja points out that Part C of Ch. VI-A of the Act permits
deductions, from the gross total income of an assessee, of various "species"
of income, which are carefully defined, in section 80H onwards. Sections B
80H to 80-JJA, SOQQ, 80RR and SOS pennit a deduction in respect of the
"profits and gains" or "profits" derived from various types of business,
undertakings or professions, sections SOK to SON and 80Q deal with income
by way of "dividends" and "interest" falling under certain categories; section
80-P, which grants a deduction to cooperative societies, classifies the deduct-
ible income into "profits and gains" from activities in the nature of business c
on the one hand and income falling under other heads such as interest, divi-
dends, income from house property etc. on the other; 80QQA refers to
income derived from a profession but only in the fonn of consideration for
assignment or grant of copyright interests or royalties or copyright fees;,
section SOR and BORRA allow a deduction in respect of "remuneration" : and
section SOT relates to "capital gains". In other ~ords, the scheme of this Part D
of Ch. VI-A is to correlate the deductions to specific heads of income.
Section 80-HHB talks of the profits and gains derived from a business-and
the assessee here is seeking such a deduction - but section 80-0 provides for
a deduction only in respect of an assessee 's receipts from a foreign Govern-
ment or enterprise by way of "royalty, commission, fees or any similar
payment". Not only this; the section also requires that the assessee must have E
derived the receipts falling under the above categories in one of two ways -

(i) in consideration for the use outside India of any patent, invention,
model, design, secret fonnula or process or similar property, right
or infonnation concerning industrial, commercial or scientific
'r-. knowledge, experience o,r skill made available or provided or
F
r ~
agreed to be made available or provided to such Government or
enterprise by the assessee; or

(ii) in consideration of technical services rendered or agreed to be
~ rendered outside India to such Government or enterprise by the G
assessee.

According to learned counsel, the receipts of the present assessee do
not fulfill these requirements.

In support of the contention that the claim for the assessee, on the facts, H
~-
88 SUPREME COURT REPORTS [1992] 1 S. C.R.

)-
A is only for a deduction from the profits and gains of a business carried on by
it and that such a claim is not referable to section 80-0 at all. Sri Ahuja first
draws our attention to the treatment accorded to the receipts by the assessee
in its books of account as well as the claim made in the applications filed
before the CBDT. The balance sheet of the company for the calendar year
1982 accounts for "contract receipts" of Rs. 2,332,490,079 and "other
B receipts" of Rs. 47,000,122. Deducting a total expenditure of Rs. 1,717,751,494
classified under three headings Direct Contract Expenses, management ex-
penses and other expenditure, a "net profit" of Rs. 661,738,707 is arrived at.
While the details of the "direct contract expenses" set out in Schedule I
include an item of "royalties" paid and the details of "other expenditure" set
out in Schedule K include an item of payment of "technical consultation
c fees", there is no similar item under contract receipts or other receipts. The
assessee's balance sheet is thus one of a company carrying on business as
Engineers and Contractors and reflects only the profits derived from such
business. It is then pointed out that the assessee has not been able to identify
~e basis of the deduction claimed by it in the application made to the
C.B.D.T. In para 6 read with para 11 of the application, the assessee explains
D that it is claiming exemption under section 80-0 of the contract on the total
value of the contract less the net cost of machinery, equipment and other
items (on which no profit element is involved (and, obviously, though not
specifically mentioned, all other expenses incurred on the contract). In other
words, the exemption claimed is on the contract receipts less the contract
..,.
expenses : that is to say, on the entire profits from the contract. Paras (i) and
E (iv) of the letter of the assessee to the CBDT dated 4.8.81 also leave no doubt
regarding this. Para 10 of the proforma requires the assessee to give details
of the receipts under the four headings mentioned in section 80-0 but the
assessee side-steps the query with a vague answer. It is, therefore, clear, says
Sri Ahuja, that this is a case in which deduction is claimed of the "profits and
gains" of a "foreign project", a claim squarely falling under section 80-HHB
F
and totally outside-the terms of section 80-0. - --<

Sri Ahuja, in this context, -relied on the observations of this Court in i
Cloth Traders P. Ltd. v. CJ.T., (1979) ll8 ITR 243. There the question
which this Court had to cQnsider was whether the deduction provided for in
G section 80-M of che -Ad was of the gross amount of the inter-corporate
dividend received by an assessee or the net amount thereof arrived at after
deducting the expenses incurred for the earning of such income. The Court
held that the deduction was available for the gross amount of the dividend.
This question does not--concem us but in the course of the discussion, the
Court made the following observations on which Sri Ahuja seeks to rely :
H
.!lo
' .
CONTINENTAL CONSTRUCTION v. C.l.T. [RANGANATHAN, J.] 89
·~

' "Section SOM, sub-section (1), opens with the words "where the A
gross total income of an assessee ...... includes any income by
way of dividends from a domestic company" and proceeds to say
that in such a case there shall be allowed in computing the total
incorrie of the assessee a deduction "from such income by way of
dividends" of an amount equal to the whole of such income or 60
per cent of such income, as the case may be, depending on the B
nature of the domestic company from which the income by way
of dividends is received. Now, the words "such income by way
of dividends" must be referable to the income by way of divi-
dends from a domestic company which is included in the gross
_..j_ total income. The whole of such income, that is, income by way
of dividends from a domestic company or 60 per cent of such c
income, as the case may be, would be deductible from the gross
total income for arriving at the total income of the assessee. The
· words "where the gross total income of an assessee ...... includes
any income by way of dividends from a domestic company" are
intended only to provide that a particular category of income,
namely, income by way of dividends from a domestic company, D
should form a component part of the gross total income. These
words merely prescribe a condition for the applicability of the
section, namely, that the gross total income must include the
category of income described by the words "income by way of
dividends from a domestic company". If the gross total Jncome
includes this particular category of income, whatever be the E
quantum of such income included, the condition would be satis-
fled and the assessee would be eligible for deduction of the whole
or 60 per cent of "such income". Now, if the words "where the
gross total income of an assessee ......... includes any income by
way of dividends from a domestic company" in the opening part
F
r of the section refer only to the inclusion of the category of the
income denoted by the words "income by way of dividends from
.r
a domestic company" and not to the quantum of the income so
included, the words "such income" cannot have reference to the
quantum of the income included, but they must be held referable
only to the category of the income included, that is, income by G
way of dividends from a domestic company. The words "such
income" as a matter of plain grammar must be substituted by the
words "income by way of dividends from a domestic company"
in order to arrive at a proper construction of the section and if
that is done, it would be obvious that the deduction is to be in
respect of the whole or 60 per cent of the "income by way of H
...,<.
90 SUPREME COURT REPORTS (1992] 1 S. C. R.

- A dividends from a domestic company" which can only mean the
full amount of dividends received from a domestic company."

Sri Ahuja is, of course, fully conscious that the decision in Cloth
Traders (supra) has since been overruled by a larger bench of the Court in
Distributors (Baroda) P. Ltd. v. Union, (1985) 155 I1R 120 but he points out
B - and we agree he is right in this - that the latter decision does not affect the
weight of the above observations. We entirely agree with Sri Ahuja is that the
deduction under section 80-0 is in respect of the categories of income
specifically referred to therein and this is an aspect to which we shall advert
later. But we are unable to agree with him that there is an antithesis between
the categories of income so specified and the expression "profits and gains".
c It is no doubt true that, wherever the statute refers to the "profits and gains"
of a business, it has in mind the income chargeable under the Act under that
head - head "D" specified in section 14 of the Act - but the other categories
of income referred to in the various sections are not correlated to the head-
wise classification of section 14. It is well known that items of interest,
dividends and other items of remuneration are not always referable to any
D particular head. They may be assessable as "business" income or income
from other sources. In particular, the receipts by way of royalty, fee,
commissions and similar payments -may be derived in the course of a
business or profession and constitute part of the profits and gains of such
business or profession. For instance, a consulting scientist, architect or
eQgineer might provide technical services to others and receive what is styled
as "fees" from them; the receipts will nevertheless be assessable as part of the
profits and gains from his profession. The mere fact, therefore, that the
assessee is carrying on bdsiness as engineers and contractors and the receipts
in question flow to it in ttle course of its business as such will not necessarily
'preclude relief under sec~on 80-0 if they can be brought within the catego-
,ries of receipts mentioned in the section. The material question, therefore, is
F not whether ihe receipts form part of the business profits of the assessee but
whether the entire receipts, or any part of them, can be brought within the
qualifying words in section 80-0. To this basic question we shall now turn.

Sri Abuja's point on this aspect is two fold. He first points out that the
G contract does not stipulate for any payment labelled under one of these
categories. The expressions royalty, commission and fees have well-known
connotations and the word "any. similar payment", he says, has to be
construed ejusdem generis and the receipts under the contract answer none of
these descriptions. We do not think that the mere fact that the contract does
not specifically assign the nomenclature mentioned' in the section to the
H payments made to the assessee can be conclusive of the assessee's claim to
CONI1NENTAL CONSTRUCTION v. C.I.T. [RANGAN ATHAN, J.] 91

exemption. That apart, of the four expressions referred to in the section three A
are referred to elsewhere in the Act While 'royalty' is generally a considera-
tion paid to the owner of a right or asset - such as copyright patent right,
mining right etc. - for the privilege of using it for one's own purposes, the
other expressions are more comprehensive. The expressions 'royalty' and
'technical fees' have been defined in section 9. Though the definitions are
only for the purroses of clauses (vi) and (vii) of section 9(1) respectively, B
they may be set out here. The definitions read thus :

"S.9(l)(vi) - income by way of royalty payable by -

xxx xxx xxx
c
Explanation 2 : For the purposes of this clause, "royalty" m_eans
consideration (including any lumpsum consideration but exclud-
ing any consideration which would be the income of the recipient
chargeable under the head "Capital gains") for -

(i) the transfer of all or any rights (including the granting of a D
licence) in respect of a patent, invention, model, design,
secret formula or process or trade mark or similar property;

(ii) the imparting of any information concerning the working
of, or the use of, a patent, invention, model, design, secret
formula or process or trade mark or similar property; E

(iii) the use of any patent, invention, model, design, secret
formula or process or trade mark or similar property;

(iv) the imparting of any information concerning te,chnical, in-
dustrial, commercial or scientific knowledge, experience or
F
skill;

(v) the transfer of all or any rights (including the granting of a -
licence) in respect of any copyright, literary, artistic or
scientific work including films or video tapes for use in
G
connection with television or tapes for use in connection
with radio broadcasting, but not inducting consideration for
the sale, distribution or exhibition of cinematographic films;
or

H
92 SUPREME COURT REPORTS (1992] 1 S. C.R.

A (vi) the rendering of any services in connection with the activi-
ties referred to in sub-clauses (i) to (v).

Section 9 (1) (vii) - income by way of fees for technical services
payable by -

B xxx xxx xxx

Explanation (2) : For the purposes of this clause, "fees for
technical services" means any consideration (including any lump
sum consideration) for the rendering of any managerial, technical
or consultancy services (including the provision of services of
c technical or other personnel) but does not include consideration
for any construction, assembly, mining or like project undertaken
by the recipient or consideration which would be income of the
recipient chargeable under the head 'Salaries'.

The word 'commission' has a somewhat different connotation and is
D used differently in different contexts. It has been explained by this Court in
Gestetner Duplicators Pvt. Ltd. v. CJ.T., (1979) 117 I.T.R. 1 (S.C.) in the
context of the definition of 'salary'. Black's Law Dictionary assigns very
wide meaning to these expressions: See, for example, p. 614, 1369 and 1463
of the Sixth Edition (1991). But we do not think that it is necessary to attempt '
any precise definition of each of these expressions or to attempt to discern
E any common thread running through them so as to restrict the meaning of the
words 'any similar payment'. In our opinion, the true clue to the interpreta-
tion of this expression lies not in the preceding three words but really in the
second part of the section. The essence of the exemption lies, not in
consigning the receipt to one of these pigeonholes but in examining whether
the receipt is a payment in consideration of one of the two situations
F envisaged in the section. To illustrate : where the assessee is the owner of a
patent or invention, he may generally permit another to make use of the
patent or the invention in consideration of a 'royalty' payment Or, again,
where the assessee is in possession of technical know-how, he may be
prepared to allow another to make use thereof in consideration of a 'fee' to
G the assessee. He may also stipulate a consideration in the form of a
commission based on the sales of the products the other party is able to
manufacture with the aid of such invention or know-how. Again, an assessee
may have achieved some speciality and he may agree to lend his services to
some other person and stipulate a consideration therefore which may be
variously described. The nature of the asset, right, information or services·
H which can be brought under this provision may be varied and the considera-
,
CONTINENTAL CONSTRUCTIQN v. C.I.T. [RAN GAN ATHAN, J.] 93

-.
,·
tion stipulated for allowing another to avail of the assessee's asset, know-
ledge or services can likewise assume multi-farious forms. The word 'simi-
lar' connotes that the payment made to the assessee need not be in the nature
of royalty, commission or fees only; it could be any payment of like nature
A

i.e. made in consideration of the use or supply of such an asset, knowledge
or servic~ in the same manner as royalty, fees or consideration could be. We
are, therefore, of the view that any type of payment received by an assessee B
will qualify for deduction under the section so long only as it is a payment
made in consideration of one of the two types of transactions referred to in
the section.

Sri Ahuja then draws attention to the finding of the Tribunal in para 41
of its order : C
"Admittedly in the present case, there is no claim under the first
part of the section and the claim was that the assessee company
was receiving payments in consideration of technical services
rendered outside India."
D
He submits that this is a finding of fact based on an admission which
has not been specifically challenged by the assessee in its application for
reference to the High Court and that it is not open to the assessee to go
behind this position at this stage. It seems to us that there has been some
misconception on the part of the Tribunitl. There are aciually two limbs to the
first part of the relevant clause of the section which are clearly brought out E
· in column 5 of the application for approval made to the Board. Col. S(a)
refers to consideration received for the use outside India (i) of any patent,
invention, model, design, secret formula or process or similar property right
and (ii) of information concerning industrial, commercial or scientific knowl-
edge, experience or skill made available by the assessee. The second part of
the clause is dealt with in Col. S(b) which refers to consideration for technical
F
services rendered outside India to the foreign Government or enterprise. If,
in this context, we peruse the applications for approval made by the assessee
to the Board, it will be seen that the assessee had no doubt clearly stated that
the payments received by it did not come under category (a) (i) above
referred to. It was, however, claimed that they did fall under (a) (ii) as well G
as category (b). In the application, this was further elaborated. The second
limb of the first clause of the section (a) (ii) was, it was claimed, attracted
in the manner set out in Col. 8 and the second part of the section was
explained to be attracted set out against sub-para (v) of Col. 5. The Tribunal,
in the paragraph referred to by Sri Ahuja refers only to the first limb of the
first part of the section - which we have referred to as "(a) (i)" - and has H
94 SUPREME COURT REPORTS [1992] 1 S. C.R.

A overlooked the presence of the second limb referred to by us as "(a) (ii)". Sri
Ahuja may not, therefore, be quite correct in asserting that the assessee had
restricted its claim before the Tribunal only to the ground of "technical
services" rendered by the assessee outside India to its client. The assessee's
claim rested both on the second limb of the first part as well as on the second
part of the relevant clause. The finding of the Tribunal in this regard is not
B one of fact based on an admission .as suggested by Sri Ahuja. The finding
proceeds on an incorrect appreciation of the contents of the assessee's
application for approval. There is no basis to put forward a contention that,
though in the application to the Board, the assessee had claimed relief on.two
grounds, it had given up a part of the claim before the Trib1,mal. The word
"Admittedly" used by the Tribunal in the passage relied on by Sri Ahuja does
c not appear to refer to any admission over a~d above that contained in regard
to column 5 (a)(i) of the application for approval. The question is whether the
claim has been substantiated under either of these headings.

Sri Ahuja vehemently argues it has not been. He submits that the
assessee has neither made any information available to the foreign client nor
D has it rendered any technical services to the said client. He contends that the
contract in favour of the two members of the consortium was in the nature
of a turnkey project. This meant that the client was not interested in the
details of the information possessed or the services rendered by the contrac-
tor: all it wanted was that the Water Supply Project, as per the detailed
specifications, designs and drawings furnished by the BWSA should be
E executed by the consortium, complete in all respects, and handed over to it.
Sri Ahuja points out by analysing the provisions of the consortium agreement
that the assessee was not concerned with any part of the contract other than
the "civil works". He says that all the "Reservoir works" which involved the
putting up of the reservoir structures, the trunk pipelines and the mechanical
and electrical plant for the project was the responsibility of the SCC and that
F
the assessee had nothing to do but put up a few buildings and ancillary
pipelines. The assessee was nothing more than an engineering contractor and,
in constructing pump-houses or laying sanitary fittings, he imparted no
information and rendered no technical services. Such information as it
possessed in these respects was utilised by itself and such technical services,
G as were· rendered by its engineers and other employees were rendered to it
and not to either its partner in the consortium or to the foreign Government.

We do not desire to encumber this judgment with a detailed discussion
of the large number of clauses of the contract (tender) document and the
consortium agreement. But it seems io us that while Sri Ahuja seems to be
H right in saying that the assessee was concerned only with the civil works
CONTINENT AL CONSTRUCTION v. C.I.T. [RANGANATHAN, J.] 95

section of the project, he has over simplified the part played by the assessee A
in the execution of the contract It is not necessary to quarrel with Sri Ahuja's
description of the contract as a "tum-key project" which, indeed, was the
description given to it by the assessee itself - in para 19 of the appl!cation to
the Board and in para 2 of the letter dated 17.3.82 - or his consequent
suggestion that the foreign government was not interested in the minute
details or working of the contract but only in the final outcome. Still the fact B
is that the contract executed by the assessee is no ordinary contract. It may
be that a good part of the contract was executed by the SCC. But this cannot
render the assessee's part insignificant. If the State enterprise itself was a
fully expert body capable of completing the entire project on its own, there
would have been no need to call for tenders from experienced consortia. The
part of the contract entrusted to the assessee was therefore no less significant. c
' The value of the assessee's package in the contract was about ID 153 million
•
as against the total value of the contract estimated at ID 326 millions - more
than 40 per cent. The job of the assessee involved survey, soil investigation
design, detailed drawings and construction of all civil works and pipelines
(other than trunk pipelines). Even these activities involve technical knowl-
edge and expertise. It cannot therefore, be doubted that the assessee, under D
· the contract, had to make use, outside India, of its industrial, commercial and
scientific knowledge, experience and skill. Sri Ahuja makes the point that,
even if this be so, the assessee made available no information regarding such
expertise to the foreign Goyernment. 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 E
nature and magnitude involved in the present case. Here again, Sri Ahuja
says, no technical services were rendered by the assessee to the foreign Gov-
ernment; the assessee only made use of the technical knowledge, experience
and skill of its own employees to perform a task undertaken by it.

We think the approach of Sri Ahuja on this issue is narrow and
F
unrealistic. It would be far from accurate to say that no information of a
technical nature was imparted or made available to the foreign Government.
It cannot be forgotten that the contract was executed jointly with an .enter-
prise that was nothing but an instrumentality of the foreign state. The contract
had to be executed in close coordination with the SCC. Every single step in G
the contract was done under the supervision of a Consortium Board and a
Project Management Board on which both the partners of the consortium
were represented. It would be unpragmatic to suggest that this close associa-
tion was not aimed at enabling the foreign state to collect and acquire such
technical knowledge and know-how from the assessee as could be reasonably
acquired in the process of execution of the project. In our view, there is force H
96 SUPREME COURT REPORTS (1992] IS. C.R.

A in the assessee's contention that it would not· be possible to execute the
contract without imparting to the foreign state and enterprise information of
the category specified in the section. The findings of the Tribunal in this
regard, which have not been challenged by the Department, and are contained
in para 42 of the order, are as follows :

B "42. We have already extracted some parts of the contract and the
terms of the agreement and from these extracts it appears that the
contract was for execution of Karkh Water Supply Scheme
contract Stage 1. As already stated above "works" has been given
a defined meaning for interpreting the contract as it means all the
works to be executed in accordance with the provision of the
c contract including the design, manufacture, delivery, supply,
installation, construction, setting to work, commissioning, site
testing, operations and maintenance as ~e case may be. Form of
agreement also makes it clear that the consideration of the
payment to be made by the employer ,to the contractor was for
executing, completing and maintaining works in conformity in all
D respects with the provisions of the contract. The general specifi-
cation of the work to be done gives the details about head-works,
making of the transmission pipelines, reservoir works, trunk-
pipelines etc. The tender document itself had given some geologi-
cal hydrological and other information for assisting the contractor
at the time of tendering but this information was not guaranteed
E by the employer and the contractor had to make use of and
interpret the same on his own responsibilities. The contract
comprised all surveys and site investigation and also detailed ··"'
design, manufacture, supply etc. of all the works including
mechanical plant and services, pipelines and civil and building
works from the point of abstraction at the river Tigris intake to
F the connections of the proposed primary feeder systems to the
exi:;ting distribution networks in the various supply areas. The
surveys, planning, designing and actual construction as well as
installations were part of the whole contract and the assessee
company had to perform all these functions and after completion
G of the work, had to commission it and had to operate the works
for a period of three months after the issue of Certificate of
completion. The various surveys and design reports are contem·
plated as a part of the contract. The contract also contemplated
training the employers personnel for the operation and mainte-
nance of the whole of the work and had also to conduct studies
H on water treatment process to optimise operations.
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
F
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 G
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
F
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 G
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 A
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 B
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 A
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 B
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
D 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
E 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
F
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
G 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 D
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 E
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
F
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
G 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
H 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 A
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 B
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 D
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 E
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
D 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
E 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
F
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
G 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
D 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
E 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
F
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
G 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
H 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 D
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, E
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
E 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
F 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
F
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 G
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 H
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
E 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
F
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
G 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 B
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, C
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 D
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 E
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
F
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 G
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.