Dr. B.P. Saraf, J.

1. The following question has been referred to us by the Income Tax Appellate Tribunal for opinion under section 256(1) of the Income Tax Act, 1961, at the instance of the Revenue :

"Whether, on the correct interpretation of the provisions of section 80-O of the Income Tax Act, 1961, and the agreement entered into on April 25, 1978, with Yuka Investments Ltd., Hongkong, by the assessee, the Tribunal was correct in law in holding that the assessee was entitled to deduction under section 80-O of the Act on the basis of the approval of the government of India dated November 3, 1978, as per their application dated May 1, 1978, in respect of the assessment year 1979-80 for which the assessee claimed the accounting year as ending June 30, 1978 "

2. The assessee-company was incorporated on October 15, 1977, to carry on the business of providing consultancy services in connection with insurance business. The assessees accounts for the first year were closed on June 30, 1978, the relevant assessment year for the same being assessment year 1979-80. The assessee submitted its return of income for the above assessment year on June 27, 1979, disclosing an income of Rs. 104. As per the accounts, the profit was Rs. 58,000. After making necessary adjustments in accordance with the provisions of the Income Tax Act, 1961 ("the Act"), the gross total income for the said assessment year was determined by the assessee at Rs. 59,884. From this amount, the assessee claimed a deduction of Rs. 59,780 under section 80-O of the Act only. The above amount was received by the assessee from one Messrs. Yuka Investments Ltd. of Hongkong (hereinafter referred to as the" Hong Kong company") as consultancy fees under an agreement dated April 25, 1978, for consultancy services in connection with insurance work. The said agreement, though executed on April 25, 1978, was given effect to from November 1, 1977.

3. In terms of the requirements of section 80-O of the Act, the assessee applied to the Central Board of Direct Taxes ("the Board") for approval to the agreement. The approval was accorded by the Board on November 3, 1978. The approval pertained to the assessment years 1979-80 to 1981-82.

4. Despite the approval accorded by the Board to the consultancy agreement between the assessee and the said foreign company for the purposes of section 80-O of the Act, the Income Tax Officer rejected the claim of the assessee for relief under section 80-O of the Act on the ground that the agreement between the assessee and the Hongkong company dated April 25, 1978, did not contain any specific statement that the date of commencement of the agreement was from November 1, 1977, and the services rendered before the execution of the written agreement were also covered by the said agreement.

5. The above order of the Income Tax Officer, on being affirmed by the Commissioner of Income Tax (Appeals), the assessee appealed to the Income Tax Appellate Tribunal. The Tribunal accepted the claim of the assessee for relief under section 80-O of the Act on the basis that the agreement dated April 25, 1978, had been duly approved by the Board for the assessment years 1979-80 to 1981-82. The Tribunal observed :

"............... it is manifest that neither of the two authorities below had doubted the bona fides of the averments made. Both the Income Tax Officer and the Commissioner of Income Tax (Appeals) had proceeded to decide the issue against the assessee on their understanding of the approval as given by the Board. Now, in terms of the approval, it is manifest that the approval governs the assessment for the year 1979-80. All that the approval states in paragraph 2 is that the amount eligible for deduction will be determined by the Income Tax Officer at the time of assessment. This, in our understanding, would not mean that the services rendered by the assessee before the date the agreement was executed can be ignored as manifestly has been done by the Commissioner of Income Tax (Appeals).........."

6. Hence, this reference at the instance of the Revenue.

7. We have herd learned counsel for the Revenue. There is no dispute about the material facts of the case. The agreement in question was executed on April 25, 1978. The agreement specifically refers to the resolutions of the board of directors of both the companies which go to show that the agreement was executed merely to record in writing the terms already settled and acted upon between the parties. In the application filed before the Board for approval of the agreement under section 80-O of the Act, it was stated by the assessee as under :



8. A certified copy of the agreement was also annexed to the application. The Board accorded its approval to the above agreement by its letter dated November 3, 1978. The above letter, so far as it is relevant, reads :

"I am directed to refer to your application received with your letter No................ dated May 1, 1978, and to convey the approval of the Board to the agreement entered into between you and Messrs. Yuka Investments Ltd., Hongkong, on April 25, 1978, for the purposes of section 80-O of the Income Tax Act, 1961, assessment years 1979-80 to 1981-82. . . . . ."

9. It is evident from the above letter that the approval was granted by the Board to the agreement dated April 25, 1978, between the assessee and the Hongkong company for the purposes of section 80-O of the Act for three assessment years including the assessment year under consideration. The approval was given on the basis of the application of the assessee dated May 1, 1978, which contained a specific statement in column 2 thereof, which has been set out above, that the date of commencement of the said agreement was November 1, 1977.

10. That being so, it was not open to the Income Tax Officer or the Commissioner of Income Tax (Appeals) to sit in judgment over the order of approval of the Board and to deny relief to the assessee under section 80-O of the Act. Section 80-O of the Act provides for deduction in respect of royalties, etc., received from certain foreign enterprises. At the material time, this section, so far as relevant, read as follows :

"80-O. Deduction in respect of royalties, etc., from certain foreign enterprises. - Where the gross total income of an assessee, being an Indian company, includes and 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 of the use outside India 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 such government of enterprise by the assessee, or in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, under an agreement 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 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 the income so received in, or brought into, India, in computing the total income of the assessee :

Provided that the application for the approval of the agreement referred to in this sub-section is made to the board before the first day of October of the assessment year in relation to which the approval is first sought : . . . . . . ."

11. From a reading of section 80-O set out above, it is clear that in order to get the relief under this section, "the services rendered or agreed to be rendered outside India should be under an agreement approved by the Board in that behalf". This condition cannot be construed to mean that the agreement should be approved by the Board before the services are rendered by an assessee. It merely contemplates that the agreement under which the services are rendered should be approved by the Board for the purposes of section 80-O of the Act for the particular assessment year. It is also clear from the fact that the application for approval could be made to the board any time before the first day of October of the assessment year in relation to which the approval is first sought. Thus the application can be filed much after the end of the previous year during which the services were rendered. Once the agreement is approved by the Board, the assessee is entitled to get the benefit of deduction under section 80-O of the Act. It is not open to the Income Tax or any other authority under the Act to go into the correctness of the order of approval because none of them acts as an appellate authority over the Board in the matter of grant of approval. The Income Tax Officer is bound to accept the approval accorded to the agreement by the Board on its face value and to act accordingly. In the instant case, the Income Tax Officer and the Commissioner of Income Tax (Appeals) did just the contrary. The Tribunal was, therefore, justified in reversing their orders and accepting the claim of the assessee for relief under section 80-O of the Act. We do not find any infirmity in the above action of the Tribunal.

12. In that view of the matter, we hold that the Tribunal was right in holding that the assessee was entitled to deduction under section 80-O of the Act on the basis of the approval of the Board to the agreement in question in respect of the assessment year 1979-80. The question referred to us is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

13. Under the facts and circumstances of the case, there shall be no order as to costs. Certified copy expedited.