TMI Blog1979 (1) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... weaving plants, the managing agents agreed to act as the managing agents of the foreign companies for certain fixed terms. The managing agents were to be remunerated for their services by payment of 10% of the net profits of the foreign companies. The managing agents were to be responsible for the design, lay out, engineering and initial operation of the plant, for the detailed specifications of the machinery and the procurement thereof and shall make available to the company all technical information and expert industrial, commercial and scientific knowledge, experience and skill to the foreign company. In short, the managing agents were to run these foreign companies by performing the functions of management. The agreements with the foreign companies were submitted by the managing agents for approval to the Central Board of Direct Taxes. By the impugned orders, dated 17th July, 1974, in the present writ petition and 17th March, 1976, in the connected writ petition (No. 570 of 1976), the Board declined to grant its approval to these agreements. The main reason for rejecting the applications was that the role of the managing agents was primarily to manage and run the plant and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of that section. " The total scheme of the provisions of the Act in the context of which s. 80-O has to be construed may first be considered. Chapter VI-A of the Act is entitled " deductions to be made in computing total income ". The object of s. 80-O is apparently to encourage Indian companies to earn foreign exchange in consideration of the use outside India of information concerning industrial, commercial or scientific knowledge, experience or skill made available or in consideration of technical services rendered to a foreign Government or enterprise. The royalty, commission, fees or any similar payment received as such consideration by the assessee would be entitled to be deducted from the total income of the assessee for the purpose of assessment of income-tax in India. For the purpose of construction, the following significant features of s. 80-O may be noted : (1) The provision of deduction applies only to royalty, commission, fees or any similar payment. These payments are received by a company either for supplying information or for rendering technical services. This postulates that the Indian company does not become a part of the foreign enterprise. If the two m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feated by the adoption of such broad construction of these words. It is not the object of s. 80-O that any income made by an Indian company by carrying on business abroad is to qualify for deduction under s. 80-O. If the running of a foreign company is not rendering of technical services, then the management of a foreign company would also not amount to rendering of technical services. The second question that also arises in the construction of s. 80-O is the difference between the mere communication of information and the rendering of technical services. The information may be industrial, commercial or scientific, while the services must be technical and would not, therefore, include commercial services. The difference seems to be deliberate. For, if technical services were to include commercial services, these are the very services which a company would be rendering in running a foreign company or in managing a foreign company. There is hardly any difference between the management of the company and running the company itself. In law the management represents the company. Since the object of s. 80-O seems to be not to qualify, for deduction of profits earned by an Indian compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sciences, special training in applied sciences, technical procedures and skills required for practice of trade or profession, especially those involving the use of machinery or scientific equipment. Technical education may also be distinguished from professional education which places major emphasis upon the theories, understanding, and principles of a wide body of subject-matter designed to equip the graduate to practise in such fields as medicine, law and engineering (21 Encyclopaedia Britannica 746). It would appear that managerial service may be professional service like legal or medical service, but they would not be technical services like engineering service. To sum up, the main reason why the word " technical " in s. 80-O cannot be given a wider meaning to include " managerial " or " commercial " is that the performance of managerial or commercial services by an Indian company for a foreign enterprise would amount to virtually managing or running the foreign company and remuneration obtained by running or managing a foreign company would be in the nature of profits, while s. 80-O deliberately restricts itself to income by way of royalty, commission or fees and excludes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon to interfere. We have shown above that adopting the wider meaning of the word " technical " would defeat the object of s. 80-O by enabling the remuneration for management or running of a foreign company to be eligible for deduction under s. 80-O. On the other hand, the narrower meaning of the word " technical " seems to be more in keeping with the object of the section. It has to be remembered that the word " technology " which has affinity with the word " technical " is concerned with the control of material environment by man. This is done by two means. Firstly, by the use of tools, and, secondly, by the application of reason to the properties of matter and energy (21 Encyclopaedia Britannica 750). It would appear, therefore, that it would be reasonable to think that technical services should include the use of tools and machinery in addition to the use of reason. Managerial services which do not include any use of tools and machinery may not be regarded as technical services. Professor Louis L. Jaffe and Professor Nathaniel L. Nathanson have classified questions which arise for judicial review as questions of fact, questions of law and questions of judgment (Administra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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