OIL & NATURAL GAS CORP. LTD. vs. COMMNR. OF INCOME TAX

1 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 JUDGMENT 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 Page 1 2 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 JUDGMENT RANJAN GOGOI, J. 1. 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 Page 2 3 the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as the ‘Surtax Act’). 2. The question posing for an answer revolves around the true

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

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“GSR No. 307(E) - Exemption from surtax of foreign companies with whom Central Government has ente... JUDGMENT 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 Page 4 5 any person authorised by that Government in any business consisting of the prospecting for or extraction or production of mineral oils;

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 JUDGMENT 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 Page 5 6 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

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 JUDGMENT 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 Page 6 7 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.

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 JUDGMENT 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 Page 7 8 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

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 JUDGMENT 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 Page 8 9 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

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 JUDGMENT 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 Page 9 10 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

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 JUDGMENT 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 Page 10 11 aforesaid principles have been reiterated in a recent decision of this Court in Commissioner of Income Tax-III Vs. Calcutta 1 Knitwears, Ludhiana . It is the aforesaid principles, extracted

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.) JUDGMENT 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 1 (2014) 6 SCC 444 Page 11 12

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.) JUDGMENT Specifically, insofar as an exemption notification is concerned the view expressed in Commissioner of Central Excise, New 2 Delhi Vs. Hari Chand Shri Gopal and Others would require notice. 2 (2011) 1 SCC 236 Page 12 13

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 4 and Customs held that (Novopan India Ltd. case , SCC p. 614, para 16) JUDGMENT “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 Page 13 14 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

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 JUDGMENT 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 Page 14 15 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

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 JUDGMENT 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 Page 15 16 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

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 JUDGMENT 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, Page 16 17 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

…….…………………………...J. [RANJAN GOGOI] …………………………….……J. [PINAKI CHANDRA GHOSE] NEW DELHI; JULY 01, 2015. JUDGMENT Page 17