TMI Blog2013 (9) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... hdrawal of exemption was unwarranted - the appellant company was not liable to deduct withholding tax in respect of the interest payment. So the basic question was that once because of the letter or notification the provisions of the statute have been negated or diminished by an executive order then what was the course left to a tax payer - Naturally the answer was that a tax payer had no option but to knock the door of the judiciary - In a plethora of decisions it was unequivocally held that the full effect of the provision had to be given in preference to supporting legislature such as rules, notifications, approvals etc. The Tribunal does have the power to deal with the validity of such rules or notification and by applying the doctrine of “reading down” can strike down such rules if held to be in contradiction with the provisions of the statute itself - the rules were made only for the purpose of carrying out the provisions of the Act which cannot be taken away or whittle down the effect conferred by the statute - ITAT had both the power and duty to deal with such rules or notification and decide whether the same were in agreement with the main provisions of the statute - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee under section 10(15)(iv)(f) of the Income Tax Act, 1961 was withdrawn by the Department of Economic Affairs, Ministry of Finance, Government of India, since the assessee company failed to comply with the conditions as laid down in the approval letter. (b) The order passed by the Assessing Officer under section 201 and 201(1A) of the Income Tax Act, 1961 was only a follow up action after withdrawal of exemption under section 10(15)(iv)(f) of the Act by the Government of India. 2. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the A.O. is restored. 2. At the outset, both the parties fairly agreed that this issue stands covered by series of decisions in the case of the assessee itself. The compilation of which have been filed before us for various assessment years. 3. The relevant facts as culled from the order of CIT(A) are that M/s Reliance Industries Ltd. had raised foreign currency loans of USD 100 million through the issue of 10.5% Foreign Currency notes lead managed by Merrill Llynch Morgan Stanley for the purpose of financing the import of capital goods and services. All payments made under the loan agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue has been decided in a bunch of appeals vide order dated 23-9-2011, passed in ITA Nos.2046, 2057, 2058, 2059/Mum/2008, ITA Nos.5167, 5168, 5193, 5176, 5195 5196/Mum/2008 and further vide order dated 28-9-2011, passed in ITA Nos.824, 825, 1000, 1001 1002/Mum/2008. The relevant findings as given in order dated 28-9-2011 are reproduced herein below :- 8. Having carefully heard the submissions of the rival parties and perusing the material available on record we find that the facts are not in dispute inasmuch as it is also not in dispute that on the identical issue in the case of Reliance Industries Ltd V/s Dy. Director of Income Tax (IT) 2(1) ITA No.516/Mum/2002 dated 8.2.2005; (2005) 98 TTJ (Mum); (2005) 3 SOT 501(Mum.), the Tribunal has decided the matter in favour of the assessee vide finding recorded in paragraphs 13 to 22 of the report which are reproduced as under : 13. We have carefully heard the submissions of both the sides at length and thoroughly examined the factual as well as legal aspect of the issue raised before us on proper perusal of the material placed before us. The appellant was aggrieved and the issue arises from an order passed u/s. 195(2) of IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to make such section. From plain reading of this section there is no ambiguity that an appeal is provided to a person who, having deducted tax and paid the sum, denies his liability to make such deduction. A person who denies liability to deduct tax u/s.195 on the amount payable to a non-resident is entitled to appeal u/s248 and the CIT(A) has the jurisdiction to quantify the amount on which alone the tax is deductible. In the case of CIT vs. Wesman Engineering Co. Pvt. Ltd., 188 ITR 327(SC) it was held that, language of section 248 is wide enough to cover any order passed u/s.195 . In an another decision Hon ble Karnataka High Court in the case of ACIT vs. Motor Industries Co., 249 ITR 141 has also entertained this argument that where an assessee was denying the very liability to deduct tax, the Tribunal was justified in entertaining the appeal in respect of the liability u/s.195 of IT Act and appeals relating to levy of interest. These two decisions are sufficient and suffice to state that the first appellate authority as well as the Tribunal both are competent to decide this issue being duly authorized by the above cited provision of IT Act. 15. Now, we have to answer th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision. This court is not concerned with the merits of the decision. (D) After hearing the submissions of both the sides and on threadbare reading of the order of the Hon ble Delhi High Court we find force in the arguments of ld. A.R. Having read the paras of the said order it can be culled out that final direction of the Delhi High Court was that this issue be decided by the assessing authority and the appellate authority who are the quasi-judicial authorities. Due to this reason the Hon ble Court has not shown its concern with the merits of the decision. On a conjoint reading of the two paras it is amply clear that the matter was left open to be decided by quasi-judicial authorities after taking into account the merits of the decision of withdrawal of exemption challenged before the Hon ble Court. So we have to act upon accordingly and following the direction of the Hon ble Court hereby we are authorized as well as empowered to decide this appeal. 16. At this juncture, even after deciding the issue of jurisdiction whether lies with the Tribunal, or not, in above para, still we deem it proper to consider a step further that whether the Tribunal has jurisdiction to look ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 282(Mad) wherein at page 88 observed as under: The role of subordinate or delegated legislation and the part it could play as an ancillary body to the primary legislative authority is very well channalised by rules of interpretation. Any such delegated power being essentially subordinate in its nature, is limited by the terms of the enactment where under it is delegated. It is, therefore, necessary that the delegated authority must be exercised strictly in accordance with the powers creating it and in the light and spirit of the parent or enabling statute. It cannot be postulated that the right of delegation can be unlimited in its scope .. All rules or forms which are creatures of such rules, prescribed for the purpose of effectuating the policy of the statute, must be read in the light of the statutory provisions in the main enactment under which they are made and therefore, such rules or forms cannot contradict or create an irreconcilable position resulting in an anomalous situation. The primary and the only object of the income-tax Act is to tax, tax and tax the income. If the legislature in its wisdom grants a concession and by creating a concession a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we must invoke the doctrine of reading down and apply the principle enunciated by the Supreme Court in the above referred case. We may refer to the following observation of the Supreme Court (p.48). It is true that the Tribunal s powers in dealing with the appeals are of the widest amplitude and have, in some cases been held similar to, and identical with the powers of an appellate court under the Civil Procedure Code. (vi) CIT vs. Sirpur Paper Mills, 237 ITR 41(SC), as per the head notes relevant observation of the Hon ble Court is as follows. The section states that the deduction shall be wholly allowed. It permits the Board to specify conditions but these conditions cannot have the effect of curtailing the scope of the deduction granted by the section. The amplitude of the deduction permitted by the section cannot be cut down under the guise of imposing a condition . In fact, this is not a condition but an impermissible attempt to rewrite the section. The last condition imposed by the said notification is that the deduction shall be spread out equally over a period of five years commencing with the assessment year relating to the previous year in which the amount was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment in this behalf, having, regard to the terms of the loan and its repayment. On plain reading of this section it is clear that certain conditions are required to be fulfilled for availing the tax exemption such as, firstly the person taking the loan must be an industrial undertaking, secondly the loan must be in foreign currency from sources outside India, thirdly the loan agreement must be approved by the Central Government having regard to the need for industrial development in India and lastly the rate of interest payable on the said loan should not exceed the rate approved by the Central Government having regard to the terms of the loan and its repayment. While considering the arguments of ld. A.R. Supra, we have examined the procedure adopted by the appellant as well as the prescribed authority before approving the loan. The company has raised foreign currency loan in the past as an External Commercial Borrowings (ECB). In this regard several correspondence has been made with the Government of India and the loan was approved by the Director (ECB), Department of Economic Affairs, Ministry of Finance, North Block, New Delhi. As far as the approval of loan and the sanct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected or withdrawn, however, the Dy.Director (ECB) had decided to withdraw the exemption. The consequence of the said withdrawal was that the assessee company wanted to remit interest to a foreign bank, already mentioned above, without deduction of tax at source. That application was rejected by the impugned order u/s.195(2) dated 13/2/02 and it was directed to deduct tax @ 20%. The pertinent question which is to be answered is whether it was justifiable on the part of the Dy.Director (ECB) to change the rules in midway when the entire scheme was near to its completion and the appellant company had sought permission of pre-payment. The plea before us is that once the Government had granted the approval and there was no change in the conditions prescribed then it is functous officio. It was pleaded that once a loan agreement was approved them it was obligatory in law to grant exemption to such interest which became payable as a result of a loan agreement. It is also stressed before us that not only the exemption was withdrawn but in the mid way a condition of end use of ECB proceeds was arbitrarily and illogically imposed. Arguments in this regard was that there was no such conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder which derogate or deviate from the provisions of the statute. It is a cardinal principle, as made by several Hon ble Courts that it is the main statute which will govern the rules provided under an Act and not vice versa. As far as the section now for our consideration is concerned it is amply clear that no criteria has been laid down for the end use of the money borrowed. The term used in that section is having regard to the need for industrial development in India , in contrast to the phrase used in other section wherein the utilization as well as the purpose is mentioned and also directed the end use of the monies borrowed. So we can safely state that by imposing a condition by Dy. Director (ECB) during the progress of the scheme was like changing the rules of the game in mid way and the change of the rule was in respect of a game already played to alter its outcome. A retrospective or ex-post facto change in such a manner is an arbitrary approach having no legal sanctity. 20. Nevertheless, on merits as well it was argued that the funds were rightly utilized as prescribed under the scheme. While discussing the arguments of ld. A.R in above paras we have noticed that an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a meaningless ritual on the facts of this case. . In that case the assessee was a reinsurance company. The gross premium was payable in foreign exchange and the assessee retained the commission and then remitted US dollars equal to premium. The broker claimed that the brokerage retained was convertible foreign exchange and the mere fact that it was designated in rupees would not detract from the position that it was in effect foreign exchange. It was contended that the assessee instead of remitting the entire amount to the foreign reinsurers and then receiving remittance in foreign currency from the said reinsurers the commission due to it, entered into an agreement with the foreign reinsurers, that while remitting the reinsurance premium, the assessee would retain the fee due to it for the technical services rendered. The Supreme Court upheld the contention of the assessee and held that two way traffic was unnecessary. To insist on a formal remittance to the foreign reinsurers first and thereafter to receive the commission from the foreign reinsurer would be an empty formality and a meaningless ritual. The statement of remittance having been filed with the Reserve Bank of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the respondents by which their utilization or pre-payment of the ECBs are also restricted, it is open to them to challenge the same in appropriate proceedings if permissible in law. A mere dismissal of SLP does not mean that the judgment of a High Court stands affirmed by the Supreme Court. The effect of dismissal is that no appeal was permitted and not that an appeal against the said judgment was dismissed by the Supreme Court affirming the view of the High Court, nor does it mean that the judgment of High Court has been approved by the Supreme Court on merits as indicated by the Hon ble Apex Court, case laws relied upon are J.K. Charitable Trust vs. WTO 222 ITR 523(All) and CIT (A) vs. Quality, 224 ITR 77 (Pat). Both the Hon ble Courts have expressed that it is open to the appellant company to challenge the same in appropriate proceedings if permissible in law. Following the view expressed by Their Lordship in the said judgment the appellant company has thereafter approached the quasi judicial and judicial authorities step by step. All such attempts of redressal remained unsuccessful so the issue has now reached upto the stage of second appeal i.e before us. In other word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f IT Act as well as reverse the findings of ld. CIT(A). We order accordingly. Here it is necessary to mention that in paragraph 22 of the above referred order, the Tribunal has mentioned the date of order of the Hon ble Apex Court of dismissal of Special Leave Petition as 31.5.2002 whereas as per order of Hon ble Supreme Court the date is 25.2.2003. 9. We further find that the above decision of the Tribunal has been consistently followed by the Co-ordinate Benches of the Tribunal in (i) Assistant Director of Income Tax (IT) 3(1) V/s Reliance Industries Ltd in ITA No.901/Mum/2008, (AY-2003-04) dated 29.9.2009; (ii) Assistant Director of Income Tax (IT) 2(2) V/s Reliance Industries Ltd in ITA Nos.5407 5408/Mum/2007, (AY-2003-04) dated 15.4.2009 and iii) Reliance Industries Ltd V/s Dy. Director of Income Tax (IT) 2(1) in ITA Nos.5966, 5967 5968/Mum/2002 ITA No.4118/2003, dated 23.3.2006. We further find that the Revenue has challenged the above orders of the Tribunal before the Hon ble Jurisdictional High Court and the High Court has also dismissed the Revenue s Notice of Motion vide decision dated 20.6.2011. 10. The Hon ble Supreme Court in Radhasoami Satsang V/s CIT (199 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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