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Saturday, July 4, 2015

correct purport and effect of exemption notification bearing No.GSR 307(E) dated 31.03.1983 issued under Section 24AA of the Surtax Act. = Section 24-AA of the Surtax Act was brought into the statute book by Act 16 of 1981 i.e. Finance Act, 1981 with effect from 1.4.1981. The explanatory notes on the provisions of Finance Act [Paragraph 11(4) and 26(1)] clearly goes to show that the legislative intent behind inclusion of Section 24-AA is to encourage foreign companies to enter into participating contracts with the Union Government in the business of oil exploration or production. The further legislative intent was to seek greater participation of foreign companies in the matter of providing services including supply of ships, aircrafts, machinery or plant in connection with business of extraction or production of mineral oils. The aforesaid legislative intent which is two-fold is manifested by the two limbs of sub- section 2 of Section 24AA of the Surtax Act to which the power of exemption was intended to operate i.e. sub-section 2(a) and 2(b) of Section 24AA. If out of the two limbs where the power of exemption was intended to operate, the repository of the power i.e. Central Government, had consciously chosen to grant exemption in one particular field i.e. foreign companies covered by sub-section 2(a) of Section 24-AA, the scope of the grant cannot be enhanced or expanded by a judicial pronouncement which is what the arguments made on behalf of the appellants intend to achieve. Any such interpretation must, therefore, be avoided. Consequently, we see no reason to depart from the basic principles of interpretation, as already noticed, that should govern the present issue. We, accordingly, do not find any merit in any of the appeals under consideration. The same are, therefore, dismissed, however, without any order as to costs. The orders of the High Court, under challenge in the appeals are affirmed.


REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL  NO. 730 OF 2007


OIL & NATURAL GAS CORPORATION LIMITED         ...APPELLANT (S)



                                   VERSUS

COMMISSIONER OF INCOME TAX & ANR.            ... RESPONDENT (S)


                                    WITH

                         CIVIL APPEAL NO.728 OF 2007
                         CIVIL APPEAL NO.732 OF 2007
                         CIVIL APPEAL NO.734 OF 2007
                         CIVIL APPEAL NO.735 OF 2007
                         CIVIL APPEAL NO.739 OF 2007
                         CIVIL APPEAL NO.742 OF 2007
                        CIVIL APPEAL NO.4140 OF 2007
                        CIVIL APPEAL NO.4785 OF 2007
                        CIVIL APPEAL NO.4787 OF 2007
                        CIVIL APPEAL NO.4790 OF 2007
                        CIVIL APPEAL NO.6009 OF 2007
                        CIVIL APPEAL NO.6010 OF 2007
                        CIVIL APPEAL NO.6014 OF 2007
                        CIVIL APPEAL NO.6015 OF 2007
                        CIVIL APPEAL NO.6017 OF 2007
                        CIVIL APPEAL NO.6018 OF 2007
                        CIVIL APPEAL NO.6019 OF 2007
                        CIVIL APPEAL NO.6022 OF 2007
                        CIVIL APPEAL NO.2009 OF 2008
                        CIVIL APPEAL NO.4315 OF 2008
                        CIVIL APPEAL NO.4316 OF 2008
                        CIVIL APPEAL NO.4318 OF 2008
                        CIVIL APPEAL NO.4319 OF 2008
                        CIVIL APPEAL NO.4320 OF 2008
                        CIVIL APPEAL NO.4322 OF 2008


                               J U D G M E N T

RANJAN GOGOI, J.

A short and precise question which  is  common  to  all  the  appeals  under
consideration has arisen in the present group of appeals instituted  by  the
Oil and Natural  Gas  Corporation  (ONGC)  which  has  been  assessed  as  a
representative assessee within the meaning of Section 160-A  of  Income  Tax
Act, 1961. The assessments in question have been made under  the  provisions
of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as  the
‘Surtax Act’).

The question posing for an answer  revolves  around  the  true  and  correct
purport and effect of exemption notification  bearing  No.GSR  307(E)  dated
31.03.1983 issued under  Section  24AA  of  the  Surtax  Act.  For  a  quick
understanding of the question that arise for consideration,  the  provisions
of Section 24-AA of the Surtax Act and  the  contents  of  the  notification
bearing No.GSR 307(E) may be extracted below :

“24AA. Power to make exemption, etc., in relation to  participation  in  the
business of prospecting for, extraction, etc., of mineral oils.


(1) If  the  Central  Government  is  satisfied  that  it  is  necessary  or
expedient so to do in the public interest, it may, by  notification  in  the
official  Gazette,  make  in  exemption,  reduction   in   rate   or   other
modification in respect  of  surtax  in  favour  of  any  class  of  foreign
companies specified in sub-section (2) or in regard  to  the  whole  or  any
part of the profits chargeable of such class of companies.


Explanation.-For the purposes, of this sub-section, "foreign company"  shall
have the meaning assigned to it in clause (4) of section 80B of the  Income-
tax Act.


(2)The foreign companies referred to in sub-section (1) are  the  following,
namely:-


(a) foreign companies with whom the  Central  Government  has  entered  into
agreements for the association or participation of that  Government  or  any
person authorized  by that Government in  any  business  consisting  of  the
prospecting for or extraction or production of mineral oils; and


(b) foreign companies providing any services or facilities or supplying  any
ship, aircraft, machinery or plant (whether by  way  of  sale  or  hire)  in
connection  with  any  business  consisting  of  the  prospecting   for   or
extraction or production of mineral oils carried on by  that  Government  or
any person specified by that Government in this behalf  by  notification  in
the official Gazette.


(3) Every notification issued under this section shall be laid  before  each
House of Parliament.


Explanation.-For the  purposes  of  this  section,  "mineral  oil"  includes
petroleum and natural gas.”


“GSR No. 307(E) - Exemption from  surtax  of  foreign  companies  with  whom
Central Government has ente...

Exemption from surtax of foreign companies with whom Central Government  has
entered into agreements for participation in business of prospecting for  or
extraction of mineral oils -Notification issued under sub-section (1)

Whereas the Central  Government  is  satisfied  that  it  is  necessary  and
expedient in the public interest to make an exemption in respect  of  surtax
in favour of foreign companies with whom the Central Government has  entered
into agreements for the association or participation of that  Government  or
any person authorised by that Government in any business consisting  of  the
prospecting for or extraction or production of mineral oils;

Now, therefore, in exercise of the powers conferred by section 24AA  of  the
Companies (Profits) Surtax Act, 1964 (7 of  1964),  the  Central  Government
hereby provides that no surtax shall be payable by such foreign companies.
Explanation : For the purposes of this notification :
 (a) "foreign company" shall have the meaning assigned to it in  clause  (4)
of section 80B of the Income-tax Act, 1961 (43 of 1961);
 (b) "mineral oil" includes petroleum and natural gas.
         Notification : GSR No. 307(E), dated 31-3-1983.”

3.    Section 24-AA of the Surtax Act, as it  would  appear,  vests  in  the
Central Government the power to make exemption, reduction in rate  or  other
modification in respect  of  Surtax  in  favour  of  any  class  of  foreign
companies which are specified in sub-section (2), in regard to the whole  or
any part of the chargeable profits liable to tax under the Surtax Act.  Sub-
section (2) of Section 24-AA refers to two categories of foreign  companies.
The first is foreign companies with whom the Central Government has  entered
into agreements for association or  participation,  including  participation
by any authorized person, in any business consisting of the  prospecting  or
extraction or production of mineral oils. The  second  category  of  foreign
companies mentioned in sub-section (2) is  foreign  companies  that  may  be
providing services or facilities or supplying any ship, aircraft,  machinery
or plant in connection with any business of  prospecting  or  extraction  or
production of mineral oils carried on  by  the  Central  Government  or  any
authorised person. Specifically the Section states that  mineral  oils  will
include petroleum and natural gas.

4.    The exemption notification bearing No.GSR 307(E) dated  31.3.1983,  as
it has been noticed, specifically grants exemption in respect of  surtax  in
favour of foreign companies with whom the  Central  Government  has  entered
into agreements for association or participation of that Government  or  any
authorized  person  in  the  business  of  prospecting  or   extraction   or
production of mineral oils.

5.    In  the  present  appeals,  the  ONGC  had  executed  agreements  with
different foreign companies for services or  facilities  or  for  supply  of
ship, aircraft, machinery and plant, as may be, all  of  which  were  to  be
used in connection with the  prospecting  or  extraction  or  production  of
mineral oils.  Such agreements do not contemplate a  direct  association  or
participation of the ONGC (a person authorized by the Central Government  by
notification dated 2.8.1989) in the prospecting or extraction or  production
of mineral oils but involved the taking of services and  facilities  or  use
of plant or machinery which is connected with the  business  of  prospecting
or extraction or production of mineral oils.

6.    In the above situation, the primary authority took the view  that  the
agreements executed by  the  ONGC  with  the  foreign  companies  being  for
services to be rendered and such agreements not  being  for  association  or
participation in the prospecting or  extraction  or  production  of  mineral
oils, would not be covered by the exemption notification in  question  which
by its very language granted exemption only to foreign companies  with  whom
there were agreements for participation by the  Central  Government  or  the
person authorized in the business of prospecting, extraction  or  production
of mineral  oils.   The  agreements  in  question,  according  to  assessing
authority, were, therefore “Service Agreements” and hence  covered  by  sub-
section 2(b) of Section 24-AA of the Surtax Act and were accordingly  beyond
the purview of the exemption notification.

7.    The said view was reversed by the learned Appellate  Commissioner  and
upheld by the Learned Income Tax Appellate Tribunal.  In  the  appeal  under
Section 260A of the Act, the High Court of Uttarakhand in the lead case  (CA
No.730 of 2007) overturned the view taken by the Appellate Commissioner  and
the learned Tribunal leading to the institution of  the  present  appeal  by
the aggrieved representative assessee i.e. the ONGC.

8.    We have heard Shri Arvind P. Datar, learned senior  counsel  appearing
for the appellant and Shri Guru Krishna Kumar, learned  senior  counsel  for
the Revenue.

9.    The respective arguments though have been elaborate  the  point  urged
is brief.  Shri Datar would  contend  that  as  the  exemption  notification
contains/uses the same language as found in sub-section 2(a) of Section  24-
AA of the Surtax Act its applicability should be understood  with  reference
to the existence of agreement with the foreign  companies  rather  than  the
immediate purpose of such agreement,  namely,  involvement  of  the  Central
Government or the authorized  person  in  the  business  of  prospecting  or
extraction or production of mineral  oils.  It  is  further  argued  by  the
learned senior counsel that regardless of the  fact  whether  the  agreement
brings about association or participation of the Central Government  or  the
authorized  person  in  such  business  of  prospecting  or  extraction   or
production of mineral  oils  or  such  agreement  results  in  rendering  of
service, so long as the rendering of such  service  is  directly  associated
with the business of prospecting or  extraction  or  production  of  mineral
oils,  Sub-section  2(a)  of  Section  24-AA  of  the  Surtax  Act  must  be
understood to include even such foreign companies with  whom  the  ONGC  had
executed agreements to provide such services or to make available  plant  or
machinery. The exemption notification dated 31.3.1983 must be understood  in
the above light, it is argued. If that be so, according to Shri Datar,  sub-
section 2(b) of Section 24-AA would  only  include  foreign  companies  with
whom the ONGC has no direct agreement  though  such  foreign  companies  may
nevertheless be providing similar services,  may  be,  on  the  strength  of
separate agreements with the  foreign  companies  with  whom  the  ONGC  has
executed an agreement as contemplated in Sub-section 2(a) of  Section  24-AA
of the Surtax Act.

10.   Shri Guru Krishna Kumar, learned  senior  counsel  appearing  for  the
Revenue, has countered the arguments advanced on behalf  of  the  appellants
by contending that the relevant provisions of the Surtax  Act  i.e.  Section
24-AA and the exemption notification must be  construed  by  its  plain  and
unambiguous language which indicate two separate situations  in  respect  of
which power to  grant  exemption  is  conferred  by  section  24-AA.  It  is
contended that though the Central Government  has  also  been  empowered  to
grant exemptions in respect of the situations covered by  sub-section  2(b),
namely, where only services are provided, yet, the Central Government  while
issuing the exemption notification dated 31.3.1983  had  clearly  chosen  to
grant exemption in respect of  situation  covered  by  sub-section  2(a)  of
Section  24-AA,  alone,  namely,  in  respect  of  agreements  with  foreign
companies resulting in direct association or participation  of  the  Central
Government or the authorized  person  in  the  business  of  prospecting  or
extraction or production of mineral  oils.   Situations  where  the  foreign
Company is providing services or making available plant or machinery  though
may be connected in the business of prospecting,  extraction  or  production
of mineral oils are clearly excluded from the purview of  exemption  by  the
notification in question, it is contended.

11.   It will not be necessary to traverse the long  line  of  decisions  of
this Court dealing with the fundamental principles of  interpretation  of  a
taxing  statute  or  an  exemption  notification.  The  core  of   aforesaid
principles have been reiterated in  a  recent  decision  of  this  Court  in
Commissioner of Income Tax-III  Vs.  Calcutta Knitwears, Ludhiana[1]. It  is
the aforesaid principles, extracted below, that will have to be  applied  to
the present case and the  correct  meaning  and  purport  of  the  exemption
notification has to be determined on the said basis.

20. Section 158-BD of the Act  provides  for  “undisclosed  income”  of  any
other person. Before we proceed to explain the said provision, we intend  to
remind ourselves of the first or the basic principles of  interpretation  of
a fiscal legislation. It is time  and  again  reiterated  that  the  courts,
while interpreting the provisions of a  fiscal  legislation  should  neither
add nor subtract a word from  the  provisions  of  instant  meaning  of  the
sections. It may be mentioned that the foremost principle of  interpretation
of fiscal statutes in every system of interpretation is the rule  of  strict
interpretation which provides that  where  the  words  of  the  statute  are
absolutely clear and unambiguous, recourse cannot be had to  the  principles
of interpretation other than the literal rule. (Swedish  Match  AB  v.  SEBI
and CIT v. Ajax Products Ltd.)


30. In B. Premanand v. Mohan Koikal this Court has observed as follows:
(SCC p. 273, para 24)
“24. The literal rule of interpretation really means that  there  should  be
no interpretation. In other words, we should read  the  statute  as  it  is,
without distorting or twisting its language. We may mention  here  that  the
literal rule of interpretation is not only followed by Judges  and  lawyers,
but it is also followed by the layman in  his  ordinary  life.  To  give  an
illustration, if a person says ‘this is a pencil’, then he means that it  is
a pencil; and it is not that when he says that the object is  a  pencil,  he
means that it is a horse,  donkey  or  an  elephant.  In  other  words,  the
literal rule of interpretation simply means that we mean what we say and  we
say what we mean. If we do not follow the literal  rule  of  interpretation,
social life will become impossible, and we will not understand  each  other.
If we say that a certain object is a book, then we mean it is a book. If  we
say it is a book, but we mean it is a horse, table or an elephant,  then  we
will  not  be  able  to  communicate  with  each  other.  Life  will  become
impossible. Hence, the meaning of the  literal  rule  of  interpretation  is
simply that we mean what we say and we say what we mean.”

31. Thus, the language of a taxing statute should  ordinarily  be  read  and
understood in the sense in which it is harmonious with  the  object  of  the
statute to effectuate the legislative animation. A taxing statute should  be
strictly  construed;  common  sense  approach,  equity,  logic,  ethics  and
morality have no role to play. Nothing is to be read in, nothing  is  to  be
implied; one can only look fairly at the language used and nothing more  and
nothing less. (J. Srinivasa Rao v.  State  of  A.P.  and  Jagdambika  Pratap
Narain Singh v. CBDT.)

      Specifically, insofar as an exemption notification  is  concerned  the
view expressed in Commissioner of  Central  Excise,  New  Delhi   Vs.   Hari
Chand Shri Gopal and Others[2] would require notice.
29. The  law  is  well  settled  that  a  person  who  claims  exemption  or
concession has to establish  that  he  is  entitled  to  that  exemption  or
concession.  A  provision  providing  for  an   exemption,   concession   or
exception, as the case may be, has to be  construed  strictly  with  certain
exceptions depending upon the settings  on  which  the  provision  has  been
placed in the statute  and  the  object  and  purpose  to  be  achieved.  If
exemption is available on complying with certain conditions, the  conditions
have to be complied with. The mandatory  requirements  of  those  conditions
must be obeyed or fulfilled exactly, though at times, some latitude  can  be
shown, if there is a failure to comply  with  some  requirements  which  are
directory in nature, the  non-compliance  of  which  would  not  affect  the
essence or substance of the notification granting exemption.

30. In Novopan India Ltd.  this  Court  held  that  a  person,  invoking  an
exception or exemption provisions, to relieve  him  of  tax  liability  must
establish clearly that he is covered by the said provisions and, in case  of
doubt or ambiguity, the benefit of it must go to the State.  A  Constitution
Bench of this Court in Hansraj Gordhandas  v.  CCE  and  Customs  held  that
(Novopan India Ltd. case4, SCC p. 614, para 16)
“16. … such a notification has to be interpreted in the light of  the  words
employed by it and not on any other basis. This was so held in  the  context
of the principle that in  a  taxing  statute,  there  is  no  room  for  any
intendment, that regard must be had to the clear meaning of  the  words  and
that  the  matter  should  be  governed  wholly  by  the  language  of   the
notification i.e. by the plain terms of the exemption.”

12.   Section 24-AA of the Surtax Act vests  power  in  Central  Government,
inter alia,  to grant exemption to foreign companies  with  whom  agreements
have  been  executed  by  the  Central   Government   for   association   or
participation in the prospecting or  extraction  or  production  of  mineral
oils and also to foreign companies who are  providing  support  services  or
facilities or making available plant and machinery in  connection  with  the
business of prospecting or extraction  or  production  of  mineral  oils  in
which the Central Government or  an  authorized  person  is  associated.  In
other words, the power to grant exemption is two-fold and covers  agreements
directly associated with the prospecting or   extraction  or  production  of
mineral oils or contracts facilitating  or   making  available  services  in
connection with such a business. There is nothing in the provisions  of  the
Act  which  could  have  debarred  the  Central  Government  from   granting
exemptions to both categories of foreign companies  mentioned  above  or  to
confine the grant of exemption  to  any  one  or  a  specified  category  of
foreign companies. Reading the notification No.GSR  307(E)  dated  31.3.1983
it clearly appears that the exemption  has  been  granted  only  to  foreign
companies with whom the  Central  Government  had  executed  agreements  for
direct association  or  participation  by  the  Central  Government  or  the
persons authorized  by  it  (ONGC)  in  the  prospecting  or  extraction  or
production of mineral oils.  In  other  words,  the  exemption  notification
confines or restricts the scope of the exemption to  only  one  category  of
foreign companies which has  been  specifically  enumerated  in  sub-section
2(a) of Section 24-AA of the Surtax Act.  The  second  category  of  foreign
companies that may be providing services as enumerated in  sub-section  2(b)
of Section 24-AA is specifically omitted in the exemption notification.  The
power under Section 24-AA of the Surtax Act, as  already  noticed,  is  wide
enough to include even this category of foreign companies. The  omission  of
this  particular  category   of   foreign   companies   in   the   exemption
notification, notwithstanding the wide amplitude  and  availability  of  the
power under Section 24-AA, clearly reflects  a  conscious  decision  on  the
part of the Central  Government  to  confine  the  scope  of  the  exemption
notification to only those foreign companies  that  are  enumerated  in  and
covered by sub-section 2(a) of Section 24-AA of the Surtax Act.

13.   Section 24-AA of the Surtax Act was brought into the statute  book  by
Act 16 of 1981 i.e.  Finance  Act,  1981  with  effect  from  1.4.1981.  The
explanatory notes on the provisions of  Finance  Act  [Paragraph  11(4)  and
26(1)] clearly goes to show that the legislative intent behind inclusion  of
Section 24-AA is to encourage foreign companies to enter into  participating
contracts with the Union Government in the business of  oil  exploration  or
production.  The  further   legislative   intent   was   to   seek   greater
participation of foreign companies  in  the  matter  of  providing  services
including supply of ships, aircrafts, machinery or plant in connection  with
business  of  extraction  or  production  of  mineral  oils.  The  aforesaid
legislative intent which is two-fold is manifested by the two limbs of  sub-
section 2 of Section 24AA of the Surtax Act to which the power of  exemption
was intended to operate i.e. sub-section 2(a) and 2(b) of Section  24AA.  If
out of the two limbs where the power of exemption was intended  to  operate,
the repository of the power i.e. Central Government, had consciously  chosen
to grant exemption in one particular field i.e.  foreign  companies  covered
by sub-section 2(a) of Section 24-AA, the  scope  of  the  grant  cannot  be
enhanced  or  expanded  by  a  judicial  pronouncement  which  is  what  the
arguments made on behalf of the appellants  intend  to  achieve.   Any  such
interpretation must,  therefore,  be  avoided.   Consequently,   we  see  no
reason to depart from the basic principles  of  interpretation,  as  already
noticed, that should govern the present issue. We, accordingly, do not  find
any merit  in  any  of  the  appeals  under  consideration.  The  same  are,
therefore, dismissed, however, without any order as to  costs.   The  orders
of the High Court, under challenge  in the appeals are affirmed.

                                                          …….…………………………...J.
                                               [RANJAN GOGOI]



                                                            …………………………….……J.
                                           [PINAKI CHANDRA GHOSE]

NEW DELHI;
JULY 01, 2015.


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[1]    (2014) 6 SCC 444
[2]     (2011) 1 SCC 236

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