TMI Blog1986 (8) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... on-the English company and Dharamsi Morarji Chemicals Company Limited, on June 15, 1976, and under this agreement, Dharamsi Morarji Chemicals Company Limited was to erect the plant and the English company was to supply technical know-how for running the plant and for manufacture of the product. On December 13, 1976, the petitioner entered into an agreement with Hindustan Lever Limited whereby the petitioner was to render services by way of providing, imparting and operating technical expertise to Hindustan Lever Limited for the manufacture of sodium tripolyphosphate. Section 80MM of the Income-tax Act, 1961, provides for deduction, in computing an Indian company's total income, of 40% of any fees received by the Indian company in consideration for the provision of technical know-how, provided that the agreement under which such fees are received is approved by the Central Board of Direct Taxes. The petitioner, who was to receive fee of Rs. 35 per tonne of sodium tripolyphosphate produced in the plant of Hindustan Lever Limited for a period of ten years from the commencement of the commercial production as per the agreement, applied for the approval of the agreement under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the advantage of section 80MM of the Act was available till the year 1984, the year when the section was deleted by Parliament. Shri Jetly, learned counsel appearing on behalf of the respondents, on the other hand, urged that the refusal of the 1st respondent Board to grant approval to the agreement under section 80MM of the Income-tax Act is perfectly in order. Learned counsel urged that apart from the fact that the agreement between the petitioner and Hindustan Lever Limited did not prescribe for providing technical know-how which is likely to assist in the manufacture of the product, there is grave doubt about the genuineness of the agreement itself. Shri Jetly submitted that perusal of the initial agreement between the petitioner and the English company, the agreement between the petitioner and Hindustan Lever Limited and the tripartite agreement between the English company, Hindustan Lever Limited and Dharamsi Morarji Chemicals Company Limited, would leave no manner of doubt that the agreement between the petitioner and Hindustan Lever Limited was a colourable one or was a mere camouflage to secure the benefit of the provisions of section 80MM of the Act. Shri Jetly conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the plant set up by Hindustan Lever Limited was installed or erected by Dharamsi Morarji Chemicals Company Limited in accordance with the tripartite agreement dated June 15, 1976. The submission of learned counsel is that the petitioner provided technical know-how which is likely to assist in the manufacture of sodium tripolyphosphate. To appreciate the submission of learned counsel, it is necessary to refer to certain provisions of the agreement between the petitioner and Hindustan Lever Limited. Reliance was placed on clauses 1.03 and 2.06 which, inter alia, prescribe the willingness of the Petitioner to render services by providing technical expertise and which also defines the expression " technical expertise ". Clause 3 of the agreement provides that the petitioner will render technical services to Hindustan Lever Limited for a period of ten years from the commencement of the commercial production. Clause 4.01 of the agreement reads as under: " 4.01. Upon the satisfactory completion and commissioning of the plant by HL's contractors, AMP shall, pursuant to its obligations under this agreement, make available to HL not more than three technicians (hereinafter called 'the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enter into an agreement with Hindustan Lever Limited without the consent of the petitioner. With this background, the English company entered into an agreement with Hindustan Lever Limited on June 15, 1976, and this agreement prescribes that Hindustan Lever Limited would be provided with technical know-how for installation and erection of plant and installation will be carried out by Dharamsi Morarji Chemicals Company Limited. Clause 7 of the agreement provides for technical assistance after commercial operation of the plant and clause 7.01 prescribes for the English company giving Hindustan Lever Limited all technical information required for better operation of the plant. Clause 7.02 provides that the English company will give to Hindustan Lever Limited for a period of ten years from the date of commencement of commercial production all such help, assistance and advice as may be required, necessary or proper for the smooth, proper and efficient implementation of the plant and, in particular, for removing or avoiding any bottlenecks or other problems or difficulties that may arise in the day-to-day running of the plant. Clause 10 deals with technical information to be furnished b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian conditions and that was agreed to be supplied to Hindustan Lever Limited under the agreement. It is difficult to hold that the agreement between the petitioner and Hindustan Lever Limited is a real and genuine one under which any technical know-how was to be supplied and which was likely to assist in the manufacture of the product. The entire technical know-how was agreed to be supplied by the English company and the agreement between Hindustan Lever Limited and the petitioner does not seem to be real, but a colourable one to cover some other transactions. Secondly, even assuming that some technical know-how was to be provided by the petitioner to Hindustan Lever Limited, it was conceded by Shri Dalvi that such technical know-how was not enough or sufficient to enable Hindustan Lever Limited to manufacture the product. It was accepted that in the absence of technical know-how to be supplied by the English Company, Hindustan Lever Limited would not be in a position to manufacture the end product. In other words, the submission is that if there are several stages in the manufacture of the end product, then, furnishing technical know-how for some of the stages is enough to attra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany was furnishing technical information, assistance and advice that was required for the smooth, proper and efficient operation and implementation of the plant. It further recites that under the agreement between the petitioner and Hindustan Lever Limited, only services of three technicians for the operation of the plant were provided and the agreement does not involve the provision of technical know-how within the meaning of subsection (2) of section 80MM of the Act. Shri Jetly submits, and in my judgment with considerable merit, that what the member of the 1st respondent Board desires to convey was that the agreement between the petitioner and Hindustan Lever Limited was an empty one and apart from the fact that it did not clearly spell out what was the technical know-how to be supplied and how it was likely to assist in the manufacture of the end product, it was not a real and genuine agreement but was a colourable transaction probably with a view to secure the benefit of the deduction under this section. It is true that the communication does not state in clear terms that the agreement between the petitioner and Hindustan Lever Limited was not a real and genuine one, but that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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