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
