M/S J.B. BODA AND CO. PVT. LTD. versus CENTRAL BOARD OF DIRECT TAXES, NEW DELHI

Citation: [1996] SUPP. 8 S.C.R. 145 · Decided: 30-10-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Appeal(s) allowed

Judgment (excerpt)

MIS J.B. BODA AND CO. PVT. LTD. 
A 
v. 
CENTRAL BOARD OF DIRECT TAXES, NEW DELHI 
OCTOBER 30, 1996 
[B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.] 
B 
Income Tax Act, 1961: Section 80-0. 
Income Tax-Deduction in respect of royalties etc. from foreign 
enterprises-Ays 1982-83 to 1984-85-Indian reinsurance-Broker C 
Company arranged for reinsurance by foreign companies of a portion of 
risk covered by Indian insurance companrThe said company received as 
brokerage a percentage of premium received by foreign companies-After 
receiving premium in rupees, the said Indian broker, under agreement with 
foreign company remitted amount of net premium to foreign company after 
deducting its brokerage-However, Central Board a/Direct Taxes (CBDT) D 
refused to approve such agreement for purpose of S.80-0 of IT Act-Held: 
brokerage retained by Indian broker amounted to receipt of income in 
convertible foreign exchange-To insist that entire amount be first remitted 
and then to receive commission in foreign currency would be empty 
formality-Hence, CBDT's order refusing to approve agreement for purpose 
of S.80-0 of IT Act improper and illegal-Further, CBDT circular No. 731 E 
dated 20-12-95 was binding on CBDT. 
The appellant was a private company engaged in brokerage 
business as reinsura11ce brokers. In respect of insurance risk covered 
by Indian or foreign insurance companies, appellant arranged for F 
the reinsurance of a portion of risk with various reinsurance companies 
either directly or through foreign brokers. In return for the above 
services, the appellant-company received a percentage of the 
premium received by the foreign companies as its share of brokerage. 
In the instance case Oil and Natural Gas Commission insured all 
their off shore oil and gas exploration and production operation with G 
the United India Insurance Company. In respect of this insurance 
risk, the appellant contacted Mis. Sedgwick Offshore Resources Ltd., 
London who were brokers in London for placement of reinsurance 
business. The appellant entered into an agreement with the said foreign 
company for supply of know-how and, while remitting the reinsurance 
premium, the appellant retained its fee in dollars for technical services H 
145 
146 
SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R. 
A rendered. The appellant stated in the Assessment Years 1982-83 to 
1984-85 that the reinsurance brokerage way retained in India under 
the agreement with the said foreign company and so it would amount 
to receipt of income in terms of foreign exchange as per Section 80-0 
of the Income Tax Act, 1961 and sought approval of the respondent-
Central Board of Direct Taxes (CBDT). The CBDT, however, refused 
B to approve the agreement for the reason "that income under the 
agreement is generated in India and is not received in convertible 
foreign exchange as required under the provisions of Section 80-0". 
The High Court upheld the order of the CBDT. Being aggreived the 
appellant preferred the present appeal. 
C 
On behalf of the appellant it was contended that the transaction 
D 
contemplated by Section 80-0 of the Act need not necessarily be 
achieved by the form of external remittance followed by internal 
remittance; and that the CBDT circular No. 731 dated 20-12-1995 
clarified the real scope and impact of Section 80-0 of the Act and was 
binding on the respondent. 
Allowing the appeal, this Court 
HELD : I.I. Circular No. 731 dated 20-12-1995 promulgated 
by the Central Board of Direct Taxes (CBDT) is relevant and affords 
E guidance in understanding the purport of Section 80-0 of the Income 
Tax Act, 1961. The said circular which seeks to declare and clarify the 
real scope and impact of Section 80-0 of the Act, is certainly binding 
on the respondent which issued it. [156-B, 157-E) 
1.2. The entire transaction effected through the media of the 
F Reserve Bank of India is expressed in foreign exchange and in effect 
the retention of the fee due to the appellant is in dollars for the services 
rendered. This is receipt of income in convertible foreign exchange. 
To insist on a formal remittance to the foreign reinsurers first 
and thereafter to receive the commission from the foreign 
G reinsurer, will be an empty formality and a meaningless ritual, on 
the facts of this case. On a perusal of the nature of the transaction 
and in particular the statement of remittance filed in the Reserve 
Bank of India regarding the transaction, it is not possible to up

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