Law:

Section:

Section 80-O of the Income-tax Act, 1961-Deductions-Royalties, etc., from foreign companies-Assessee applied on 22-8-1969 to Central Government for approval of agreement under section 80-O which was accorded on 21-5-1971 but retrospectively from relevant assessment year 1969-70-IT denied relief since approval was not accorded before prescribed date of 1-10-1969-Whether ITO justified-Held, no-Whether provisions of. section 80-O requiring Central government's approval to relevant agreement before 1st october of relevant assessment year were merely directory and not mandatory in character-Held, yes Facts In the assessment proceedings for the assessment year 1969-70, the assessee-company claimed relief under section 80-O in respect of certain payments received from a foreign company in consideration of its technical service under a managing agency agreement dated 27-1-1958 approved by the Central Government. Although it applied on 22-8-1969 for statutory approval of its agreement, the Central Government accorded its approval on 21-5-1971 with a stipulation that the same would take effect from the relevant assessment year 1969-70. In view of the, approval not having been accorded before the prescribed date (i.e., 1-10-1969), the ITO disallowed the relief claimed. While the AAC confirmed the disallowance, the Tribunal allowed the claim observing (i) that the reference in section 80-O requiring the Central Government's approval before the prescribed date should be construed merely as a directory and not as a mandatory provision ; and (ii) that the Parliament wanted to give relief and, as such, the subsequent amendment introduced by the Finance (No. 2) Act, 1971, was merely clarificatory or declaratory in character of what was the law prior to the amendment. On reference : Held The object of section 80-O was to afford relief to certain incomes generated from specified types of transactions with a mandatory condition that such transaction should have the Central Governments approval so that the relief was not misused or misapplied. In the instant case, although, the., requisite approval had been accorded beyond the prescribed date, it was effective from the beginning of…

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