JUDGMENT
D.R. Dhanuka, J.
1. The Income-tax Appellate Tribunal has referred the following questions for the decision of this court under section 256(1) of the Income-tax Act, 1961 :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to claim deduction under section 80-O of the Income-tax Act, 1961, in respect of the amount received by it from the State Development Corporation of Negeri Sembilan, Malaysia ?
2. If the answer to question No. 1 is in the affirmative, whether the Tribunal was right in directing the Income-tax Officer to allow deduction under section 80-O with reference to the gross amount of Rs. 2,43,813 and not with reference to the net amount after deduction of Rs.1,72,438 being the expenses relevant thereto ?”
The relevant facts are as under :
(a) The reference relates to the assessment year 1971-72. The corresponding previous year ended on September 30, 1970.
(b) On July 16, 1970, the assessee entered into an agreement with the Negeri Sembilan State Development Corporation of Malaysia, a Corporation formed under an enactment dated March 22, 1969, entitled the Negeri Sembilan Corporation Enactment Act, 1969. The assessee prepared a sugar project report for the said foreign company and received a sum of Rs. 2,43,813 to wards the technical fees in consideration of the services rendered by it. The assessee claimed tax concession in respect of the said amount of technical fees in its income-tax return for the assessment year 1971-72 under section 80-O of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). Section 80-O of the Act stipulates several conditions for grant of relief thereunder, one of such conditions being that the agreement must be approved by the prescribed authority. The said section would be analysed in the later part of the judgment to the extent necessary for disposal of this reference.
(c) On May 13, 1971, the assessee made an application to the Secretary, Government of India. Ministry of Food and Agricultural, for approval of the said agreement as required by section 80-O of the Act. The said application was transferred by the Central Government to the Central Board of Direct Taxes (hereinafter referred to as “the Board”) on April 20, 1972, in view of the amendment to section 80-O of the Act Correspondence ensued between the Board and the assessee. The Board declined to approve the said agreement. By its letter dated January 4, 1974, the Board rejected the application of the assessee for approval of the said agreement under section 80-O of the Act. On September 18, 1974, the assessee made a representation to the Board for reconsideration of its decision. On February 4, 1975, the Board sent its routine reply to the assessee to the effect that the representation made by the assessee was receiving attention. By its letter dated February 27, 1976, the Board rejected the representation of the assessee. Ultimately, the Board informed the assessee, by its letter dated February 23, 1977, reiterating that it saw no reason to reconsider its earlier decision, i.e., the decision recorded in letter dated January 4, 1974, refusing to approve the said agreement.
(d) Thus, the said agreement dated July 16, 1970 was not approved by the Board. The assessee did not challenge the decision of the Board by filing a writ petition or adopting a valid legal proceeding, but merely continued to make representation to the Board for reconsideration of its decision, the representation made by the assessee were disposed of by the Board by its letters dated February 27, 1976, and February 23, 1977, by which time the assessment proceedings right up to the stage of the second appeal were already concluded, as stated hereinafter.
(e) On September 27, 1971, the Income-tax Officer passed his assessment order in respect of the income of the assessee for the assessment year 1971-72. The Income-tax Officer came to the conclusion that the claim of the assessee for deduction of the gross income received by the assessee towards technical fees for the services rendered to the abovereferred foreign enterprise was not maintainable as the said agreement was not yet approved by the Central Government and the assessee could not avail of the relief under section 80-O of the Act until all the conditions prescribed by the said section were satisfied.
(f) By his order dated July 27, 1974, the Appellate Assistant Commissioner also rejected the claim of the assessee in view of the said agreement dated July 16. 1970, having not been approved by the Central Board of Direct Taxes, the approval of the agreement by the prescribed authority being the condition precedent to the grant of tax concession under the said section.
(g) By its order dated August 29, 1975, the Income-tax Appellate Tribunal held that the assessee was entitled to relief in respect of receipt of the gross amount of Rs. 2,43,813 on account of technical fees from the said Malaysian party even though the said agreement was not approved by the Board. The Board has repeatedly declined to grant its approval to the said agreement i.e., by its letters dated January 4, 1974, February 27, 1976, and February 23, 1977. The Tribunal interpreted the correspondence between the assessee and the Board to mean that the Board had agreed to reopen the matter of approval of the agreement and thereafter kept quiet in spite of reminder. During the course of its order, the Tribunal observed that the prescribed authority was guilty of delay and inaction in respect of consideration of the application for approval of the agreement and the assessee could not be denied the benefit of tax concession under section 80-O of the Act merely because of non-approval of the agreement as taking such a view would amount to permitting the Revenue to take advantage of its own wrong. For all practical purposes, the Tribunal dispensed with the statutory requirement of “approval of the agreement” by the prescribed authority and proceeded to grant the tax concession to the assessee under section 80-O of the Act even though the Board had declined to approve the said agreement and the Board’s decision was not quashed and is still operative. The Tribunal had no jurisdiction to dispense with the statutory requirement of approval of the agreement.
3. The subject-matter of section 80-O of the Act was originally dealt with by section 85C of the Act. Section 85C was inserted in the Act by the Finance Act of 1966, with effect from April 1, 1966. By the Finance (No. 2) Act of 1967, section 85C of the Act was deleted and in place thereof section 80-O was inserted with effect from April 1, 1968. The said section 80-O incorporated in the Act by the Finance (No. 2) Act, 1967, was submitted by the Finance (No. 2) Act of 1971, with effect from April 1, 1972. The said newly substituted section prescribed the Central Board of Direct Taxes as an authority empowered to approve the agreement. The said section provided for transfer of all pending applications for approval of agreements to the said Board. Section 80-O of the Act as it stood at the material time and prior to April 1. 1972, read as under :
“80-O. Deduction in respect of royalties, etc., received from certain foreign companies. – 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 it from a foreign company in consideration for the use of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to the foreign company by the assessee, or in consideration of technical services rendered or agreed to be rendered to the foreign company by the assessee, under an agreement approved by the Central Government in this behalf before October 1, of the relevant assessment year, there shall be allowed a deduction of the whole of such income in computing the total income of the assessee.”
4. The said section entitles an assessee to claim tax relief in respect of income by way of royalty, commission, fees or similar payment received by the assessee from a foreign company in consideration of rendering of technical know-how and other services under an agreement approved by the Central Government in this behalf before October 1, of the relevant assessment year. The said section 80-O of the Act as enacted by the Finance (No. 2) Act, 1967, conferred a right on the assessee to claim deduction of his entire income so derived in computing the total income of the assessee. By the Finance Act of 1968, the extent of relief granted was reduced to income of an amount equal to sixty per cent. thereof with effect from April 1, 1969.
5. Section 80-O was introduced in the Act with the twin objective of encouraging export of technical know-how and augmentation of the foreign exchange resources of the country. Section 80-O provides for concessional tax treatment in respect of categories of income specified therein, provided all the conditions prescribed by the said section were duly satisfied by the assessee. The assessing authorities including the appellate authorities have no power or jurisdiction to relax any of the mandatory conditions specified in the said section. The application made by the assessee in this case was disposed of by the Board on transfer thereof by the Central Government. The Board has evolved guidelines for grant of approval to agreements made under section 80-O of the Act and announced the same in its Circulars Nos. 4P of 1968 and 72 of 1971. The said guidelines prescribe the criterion for scrutiny of the agreement between the assessee and the foreign company concerned from various points of view. The Board is required to consider as to whether the agreement was bona fide and genuine, whether the remuneration stipulated under the agreement was motivated by extraneous consideration and whether the technical services to be imparted were such that the same would be within the contemplation of section 80-O of the Act, etc., The Board is required to examine the agreement submitted to it and decide whether the assessee satisfied the necessary guidelines. Thus, having regard to the purpose of approval and object of the section in the light of contemporary enunciation of the guidelines and the legislative history of the relevant provisions, it cannot be said that he requirement of obtaining the approval of the Central Government or the Board is a matter merely of procedure or a formality. The above-referred requirement of the statute cannot be considered as directory. The above-referred requirement was prescribed by the Legislature to prevent misuse of the concession. The task of scrutinising the agreement was left by the Legislature to the prescribed authority like the Central Government or the Board and not to the assessing authorities. Neither the assessing authorities nor any of the appellate authorities can exercise the function entrusted to the prescribed authority enjoined to grant to refuse to grant approval to the agreements under the above-referred section.
6. A somewhat similar question arose before the Hon’ble High Court of Calcutta in the case of CIT v. Birla Bros. P. Ltd., . The Hon’ble Mr. Justice Sabyasachi Mukharji (as His Lordship then was), on behalf of the Hon’ble Division Bench of the Calcutta High Court, held that the provision for obtaining the approval of the Central Government as a conditions to grant of relief under section 80-O was mandatory. It was, however, held that the datum-line prescribed by the said section for obtaining of such approval, i.e., October 1, of the relevant assessment year’ was directory. In other words, the assessing authorities were bound to grant relief to the assessee under section 80-O of the Act even if the agreement was approved by the prescribed authority after October 1, of the relevant assessment year. It follows that in the absence of such approval of the agreement by the prescribed authority, no relief could be granted to an assessee under section 80-O of the Act. We are in respectful agreement with the interpretation of section 80-O of the Act as set out in the above-referred judgment. Even independently of the said judgment, we take the view that the requirement of approval of the agreement is mandatory and no relief can be granted by the assessing authority under section 80-O of the Act in the absence thereof.
7. In the above-referred case, the assessee claimed relief under section 80-O of the Act in respect of a sum of Rs. 4,66,858 received by it during the relevant assessment year from a foreign company in lieu of technical services rendered by it. The Central Government delayed the grant of approval to the said agreement. The Central Government accorded its approval by a letter dated May 21, 1971, to the assessee with effect from the assessment year 1969-70. The Income-tax Officer held that, in view of the language of section 80-O, the assessee-company was not entitled to the relief under the section since the approval of the Central Government was not accorded before October 1, of the relevant assessment year. The Tribunal held that the date, October 1, of the relevant assessment year, prescribed under the section, was directory. Relying on the said judgment, we hold that only the datum-line prescribed under the section for obtaining the approval of the Central Government is directory, we hold that the provisions regarding obtaining the approval of the Central Government or the Board is mandatory and, in the absence of such approval, the assessing authority or the appellate authorities cannot grant relief to the assessee in terms of section 80-O of the Act. In case the prescribed authority illegally and wrongfully refuses to accord its approval to the agreement relied on by the assessee, the assessee is not helpless as the assessee can seek a writ of certiorari as well as mandamus against the Central Board of Direct Taxes in an appropriate case. The law reports are full of cases where the Hon’ble High Court have granted necessary relief to the assessee concerned in appropriate cases. In our judgment, the assessing authorities including the appellate authorities are not entitled to grant relief under section 80-O of the Act in the face of non-approval or disapproval of agreement put forward by the assessee as the requirement of approval of agreement is a condition precedent to the grant of relief and it cannot be waived or relaxed by the assessing authority or the appellate authority concerned. In the instant case, the assessee did not file any writ petition impugning the refusal of the Board to approve the said agreement.
8. The Central Board of Direct Taxes is a statutory functionary under the Act. The assessing authorities are bound to apply the provisions of the Act as they stand. The assessing authorities have no jurisdiction to dispense with the jurisdictional condition of approval of the agreement by invoking the theory that the Revenue was trying to take advantages of its own wrong. If the Board had refused to approve the agreement illegally or arbitrarily, the Tribunal could not set aside the decision of the Board or sit in appeal over it or ignore the same even if the action or inaction of the Board appeared to be erroneous to the Tribunal. The fact remains that the agreement in the instant case was not approved by the Board and the Board had communicated its decision of rejection to the assessee by its letter dated January 4, 1974. It is not correct to state that the Board had agreed to reopen the matter and was thereafter guilty of inaction by keeping quiet over the matter of for a long time. With respect, the Tribunal misinterpreted the letter dated January 4, 1975. It appears to us that the order of the Tribunal is totally erroneous both on the facts and in law. We disagree with the conclusion of the Tribunal, the Tribunal had no jurisdiction to direct the Income-tax Officer to grant relief in terms of section 80-O of the Act unless the decision of the Board rejecting the agreement was quashed and the Board positively approved the agreement.
9. At our request, Mr. Dilip Dwarkadas, learned counsel for the assessee, has produced a file containing copies of the decisions given by the Board on the application for approval of the agreement dated July 16, 1970. Mr. Jetley, learned counsel for the Revenue, has no objection to our considering the letters forwarded by the Board to the assessee. It appears from the said correspondence file that, by the letter dated January 4, 1974, the Board had informed the assessee that the Board regretted its inability to accord approval to the said agreement under section 80-O of the Act. Thus, the Board rejected the assessee’s Application for approval of the said agreement. The said order of rejection is operative. It was never set aside or quashed. No writ petition was filed by the assessee so as to impugn the said order. In view of the repeated representations made by the assessee, the Board addressed further letters dated February 27, 1976, and February 23, 1977, to the assessee stating in substance that the Board saw no reason to reconsider its earlier decision. In this view of the matter, it is not quite correct to state, on the facts of this case, that the Board was guilty of inaction by not deciding the assessee’s application one way or the other. If the decision of the Board was erroneous, the assessee had its remedy to impugn the decision of the Board by filing a writ petition. Learned counsel for the assessee submitted in the alternative that, in case we decide the reference against the assessee, the assessee would perhaps challenge the decision of the Board at this stage and we should make appropriate observation in this behalf. It is for the assessee to decide its future line of action. We express no opinion on this aspect one way or another. We need not consider in this reference a situation where the Board does not decide an application for approval of an agreement at all and just keeps the application pending for no justification. In this case, the application for approval of the agreement was rejected by the Board rightly or wrongly and the Income-tax Officer and the Appellate Assistant Commissioner rightly refused to grant relief to the assessee in terms of section 80-O of the Act. In our judgment, the Tribunal was in error in granting relief to the assessee and proceeding on the footing as if the requirement of approval of the said agreement was not mandatory or as if the Tribunal could grant relief under the said section in the absence of approval of the agreement. The said requirement is mandatory. Accordingly, we are of the view that the judgment of the Tribunal is not correct.
10. Mr. Dwarkadas, learned counsel for the assessee, has submitted that, in a given case, the Tribunal or other appellate authorities are entitled to presume approval of the agreement on the part of the Board if the Board does not decide the application within a reasonable time in case the Tribunal or the other authority comes to the conclusion that the other conditions for relief prescribed under section 80-O are satisfied. There is no question of “presumed approval”. Law requires specific approval of the agreement by the Board and if the Board is guilty of passing an erroneous order or of inaction, the remedy of the assessee lies elsewhere, that is by invoking the writ jurisdiction of the High Court. We need not pursue this aspect any further.
11. In view of the above discussion, we answer question No. 1 in the negative and in favour of the Revenue. In this view of the matter, question No. 2 does not survive and is not answered.
12. There shall be no order as to costs.