New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (5) TMI 521 - SUPREME COURT

2015 (5) TMI 521 - SUPREME COURT - [2015] 374 ITR 322 (SC), 2015 (6) SCR 1042, 2015 (7) SCC 728, 2015 (5) JT 372, 2015 (6) SCALE 632 - Entitlement to benefit of Section 42 - business for prospecting, etc., for mineral oil. - discrepancy in the agreement - allowances, as stipulated in the Section, were not specifically mentioned in the agreement - Whether benefit under Section 42 was envisaged in the 1992 NIT and in the PSCs, but due to oversight or mistake, the same was not included and mentione .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

realm of pure contract. It is not a case where any statutory contract is awarded. - As pointed out the contract in question was signed after the approval of Cabinet was obtained. In the said contract, there was no clause pertaining to Section 42 of the Act. In the two PSCs, no provision is made for making admissible the aforesaid allowances to the assessee. It is obvious that the Assessing Officer could not have granted these allowances/deductions to the assessee in the absence of such stip .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rnment as well. However, this conduct of the appellant or even the respondents, was outside the scope of the contract and that by itself may not give any right to the appellant to claim a relief in the nature of Mandamus to direct the Government to incorporate such a clause in the contract, in the face of the specific provisions in the contract to the contrary as noted above, particularly, Article 32 thereof. It was purely a contractual matter with no element of public law involved thereunder. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s agree to do so, and not otherwise. Therefore, we are constrained to dismiss the appeal for the reasons given above. - Decided against assessee. - Civil Appeal No. 6929 of 2012 - Dated:- 14-5-2015 - A. K. Sikri And Rohinton Fali Nariman,JJ. For the Petitioner : Mr. Bharat Sangal For the Respondent : Mrs. Anil Katiyar JUDGMENT A. K. Sikri, J. Present appeal impugnes the judgment and order dated 28.05.2012 passed by the High Court of Delhi, thereby dismissing the writ petition which was filed by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ncome generated from the aforesaid production. In the returns, the appellant claimed benefit of Section 42 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). Section 42 is a special provision for deductions in the case of business for prospecting, etc. for mineral oil. It provides for certain additional allowances as are specified in the agreement, details thereof would be taken note of hereinafter. We may, however, point out here itself that such allowances, as stipulat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt for the Assessment Year 2005-06, the Assessing Officer observed that there were no such provisions made in the Agreements which were signed between the Central Government and the appellant and in the absence of such stipulation in the agreement, the appellant was not entitled to the benefit of deductions under Section 42 of the Act. Realising that the Agreements did not contain such a provision, the appellant wrote to the MoPNG stating that though there was such an arrangement agreed to as pe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion of India in the High Court of Delhi with the following prayers. Therefore it is most respectfully prayed that this Hon'ble Court may be pleased to issue:- (I) A writ, direction or order declaring that the petitioner is entitled, in respect of the two Production Sharing Contracts dated 20.02.1995 executed with the petitioner for the Dholka and Wavel Oil Fields in Gujarat, to the benefit of the said deductions (set forth in Article 16 of the MPSC and reproduced in Annexure P1) under Sectio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dent No. 1; the notice dated 28.03.2008 for re-opening of the petitioner's income-tax assessments for the Assessment Years 2001-2002; 2002-2003 and 2003-2004 and the notice dated 01.05.2008 for re-opening the assessment for the Assessment Year 2004-05; and (iii) Such other writ order or direction as this Hon'ble Court may deem just and proper in the circumstances of the case and in the interest of justice, be passed in favour of the petitioner. 3) This writ petition which has been dismis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Contract ( MPSC ), for Development of Oil and Gas Fields from various companies in relation to some selected oil fields in Gujarat and other States. Article 16 of the above-mentioned MPSC contained a specific provision, which provided certain financial benefits and deductions in relation to taxes etc. that would be allowed to contractors/developers, as per the requirements of Section 42 of the Act. 5) The MoF by its Office Memorandum dated 18.06.1992, raised an issue that Section 293-A of the Ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

IT and the MPSC. 6) The Ministry of Law gave its opinion dated 21.07.1992 to the effect that benefit of both Section 293A and Section 42 should be extended to foreign companies in order to make their participation in these oil fields viable. 7) The appellant (along with its erstwhile joint venture partner Larsen and Toubro Ltd., whose stake was also subsequently acquired by the appellant) submitted its bid dated 29.03.1993 in response to the 1992 NIT. 8) The appellant was allotted the Dholka abn .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he MPSC to the prospective bidders were duly included in the above two PSCs. 9) From 2001 the appellant commenced commercial production from the Dholka and Wavel Oil Fields (delayed on account of the UOI's delay in handling over the fields) and availed the benefits of Section 42 Deductions provided in Article 16 of the MPSC, which were duly allowed by the concerned Income Tax Officer at Ahmedabad. The UOI's share of petroleum profit was also determined in accordance with the assumption t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

things proceeded in the aforesaid manner, it so happened in the case of some other Production Sharing Contracts, which did not specifically contain the fiscal benefits and the deduction envisaged by Article 16 of the MPSC, the Income Tax Authorities questioned the basis on which such assesses had claimed deduction/ allowances under Section 42. This move of the Income Tax Authorities prompted the MoPNG to write OM dated 17.06.2005 to the MoF, Department of Revenue to clarify to the relevant Incom .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uctions were denied in respect of these 13 PSCs. 11) Since the entire dispute pertains to deductions under Section 42 of the Act, at this stage we reproduce the said provisions hereunder: 42. Special provision for deductions in the case of business for prospecting, etc., for mineral oil.-[(1)] For the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central Government has entered into .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nning of commercial production by the assessee; (b) after the beginning of commercial production, to expenditure incurred by the assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except assets on which allowance for depreciation is admissible under Section 32: [Provided that in relation to any agreement entered into after the 31st day of March, 1981, this clause shal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

reement, the other provisions of this Act being deemed for this purpose to have been modified to the extent necessary to give effect to the terms of the agreement: [(2) Where the business of the assessee consisting of the prospecting for or extraction or production of petroleum and natural gas is transferred wholly or partly or any interest in such business is transferred in accordance with the agreement referred to in sub-section (1), subject to the provisions of the said agreement and where th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ure incurred in connection with the business or to obtain interest therein and the amount of such expenditure remaining unallowed, shall be chargeable to income-tax as profits and gains of the business in the previous year in which the business or interest therein, whether wholly or partly, had been transferred: Provided that in a case where the provisions of this clause do not apply, the deduction to be allowed for expenditure incurred remaining unallowed shall be arrived at by subtracting the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

allowed in respect of the previous year in which the business or interest in such business is transferred or in respect of any subsequent year or years: [Provided that where in a scheme of amalgamation or demerger, the amalgamating or the demerged company sells or otherwise transfers the business to the amalgamated or the resulting company (being an Indian company), the provisions of this sub-section- (i) shall not apply in the case of the amalgamating or the demerged company; and (ii) shall, a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he appellant for the Assessment Year 2005-2006 and asked the appellant to justify its claim for the Section 42 deductions. The ITO Wd I(3) also issued another notice to the appellant under Section 142(1) of the Income-Tax Act, seeking various details and data relevant to the said Assessment Year. The case was later transferred to the Assistant Director of Income-Tax (International Taxation), Ahmedabad ( ADIT ). The ADIT also raised the question of applicability of the Section 42 deductions to th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erations are a high risk business and it may not be equitable and fair if companies are not allowed to claim allowances for their expenditure. Besides it would be difficult to justify different standards for different PSCs signed under one regime. (emphasis supplied). A clarification was also sought from the MoF to the revenue authorities that the Section 42 deductions should be uniformly granted irrespective of whether the PSCs contained the relevant clause or not. It is pertinent to note that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ection 42(1)(b) and Section 42(1)(c) of the Income Tax Act, made in the appellant's Income-Tax Return for the Assessment Year 2005-2006, on the ground that a specific reference to the Section 42 deduction has not been made3 expressly in the two PSCs (hereinafter the ADIT's Order ). As a result, the ADIT issued a demand notice under Section 156 of the Income Tax Act to the appellant, demanding payment of ₹ 1,24,45,509.00 (rupees one crore twenty four lakhs forty five thousand five h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Tribunal. 15) In the meanwhile, on 24.12.2007, the appellant required the Union of India, through the MoPNG and the MoF, to issue an appropriate clarification/amendment with respect to the two PSCs executed with the appellant, taking a stance that it was always the intention of the Union of India, at all stages, to give the benefits of Section 42 Deductions of the Income Tax Act, read with Article 16 of the MPSC, to all the entities who had entered into PSCs with it, including the appellant with .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or reopening the appellant's Income Tax Returns for the Assessment Years 2001-2002, 2002-2003, 2003-2004 and 2004-2005. At this juncture, the Secretary, MoPNG, wrote communication dated 28.04.2008 to the MoF pointing about the said accidental omissions again in the contract. The MoF was, accordingly, requested to extend the benefits of Section 42 Deductions to the 13 PSCs (including the appellant's two PSCs) in line with all other signed PSCs. 17) As, in the meantime, the ADIT was going .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

its to the writ petition was filed by the respondent - Authorities taking preliminary objection pertaining to territorial jurisdiction of the High Court of Delhi and also raising the ground of alternate remedies available in the law in the form of appeal before the ITAT which had already been preferred by the appellant. Rejoinder thereto was filed by the appellant. Thereafter, another counter affidavit on merits was filed by the respondent no. 1. In this counter affidavit, stand was taken by the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

entitled to benefit of Section 42 of the Act. Rejoinder to these short affidavits was filed by the appellant. Rejoinder was also filed to the supplementary affidavit which has been filed by respondent no. 1. The appellant also filed additional affidavit dated 28.02.2012 giving details of other small sized discovered oil fields PSCs, who were awarded contracts under 1992 NIT, submitting that they were identical to the appellant and in their case clause was inserted giving benefit under Section 42 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rated that even while profit sharing, shares were calculated keeping in view the deductions under Section 42 of the Act thereby giving better and increased profit sharing to the Government as well. 18) The matter was ultimately heard by the High Court which has dismissed the writ petition by passing detailed judgment on 28.05.2012. Before we come to the arguments of the appellant challenging the correctness of this judgment, it may be appropriate to take note of reasons which have been given by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

which was ultimately signed, omitted to include such a clause. Therefore, on account of mistake of the Ministry, which even it admitted in its communications when the dispute regarding admissibility of deduction under Section 42 of the Act arose, the appellant should not be allowed to suffer. More so, when it was not responsible for the said error. 20) It may be pertinent to point out that the High Court did not accept the preliminary objections raised by the respondent and after repelling the s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of benefit under Section 42 of the Act to the appellant, with a further direction that the contract should be laid before the Parliament after incorporating the said clause? 21) Dealing with the first question, High Court rejected the plea of the appellant that 1992 NIT included and referred to the MPSC as incorrect. It is pointed out that the 1992 NIT did not refer to the MPSC and did not stipulate that MPSC shall form part of the tender documents. It is further stated by the High Court that in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Act. The High Court has further observed that written contracts were signed between the appellant and MoPNG in the name of President on 20.,02.1995. Clause 15 of these contracts which pertain to Taxes, Royalties, Rentals, Customs duties etc. though mentions about the applicability of fiscal, there is no reference to Section 42 of the Act in this Clause. 22) The High Court further pointed out that there was no letter or correspondence written by the appellant from 1995 onwards stating that non- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

llant or NIKO Resources Limited. It is further mentioned that these are not contemporaneous letters written at the time when PSCs were signed. 23) The High Court has also commented that though in these letters it is mentioned that Section 42 deductions were omitted by oversight in fact there was no such oversight in as much as the MoPNG itself in its counter affidavit has specifically stated that no such benefit was envisaged, considered or granted at the time when the PSCs were negotiated and a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ated that no such benefit was envisaged, considered or granted at the time Natural Gas to produce the original files relating to preparation and finalization of tender documents. They were produced before us on 21st February, 2012. We examined the original records and found that under the terms and conditions, as well as in the notes, no benefit under Section 42 of the Act was envisaged or was required to be granted. We also recorded the statement of the learned Additional Solicitor General that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

xplanation put forth by the respondents to the effect that these 13 PSCs formed a different class in as much as their contract was in respect of small oil fields which had already been discovered and, therefore, the risk factor was less. On the other hand, other PSCs were in respect of undiscovered oil fields and for this reason benefit under Section 42 had been granted to them. 25) On the aforesaid reasoning, the High Court concluded that appellant was fully aware of Clause 16.2 of MPSC which s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

us above. 26) We would also like to mention that in the penultimate para, the High Court has expressed its displeasure and anguish over the averments made by respondent no. 1 in the additional affidavit dated 23-03-2012 where respondent no. 1 even denied the fact that petroleum profits were not shared between the Government and the appellant after making the calculations with reference to benefit under Section 42 of the Act. In letter dated 11.11.2009 written by the MoF, Department of Revenue t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

two production sharing contracts (PSCs) between the appellant and the Government. He submitted that the claim for the benefit of the aforesaid provision was predicated on the following grounds: (a) The Ministry of Petroleum & Natural Gas (MoPNG) had invited bids for the said oilfields on the basis of a Model Production Sharing Contract (MPSC) which specifically and unequivocally provided that the benefit of Section 42 would be granted. (b) The appellant's bids for the said two oilfields .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ms contained in the MPSC and, therefore, MPSC had to be read into the contract. It was also argued that these facts were specifically confirmed by respondent no. 1 itself in its three letters dated 17-06-2005, 11-04-2007 and 28-04-2008. (d) It was, thus, argued that as held in the case of Godhra Electricity Co. Ltd. And Another v. State of Gujarat (1975) 1 SCC 199, it is the mutual understanding of the parties to a contract which determines the construction that the court will place on it and th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

written opinion given by the Ministry of Law also by themselves clearly established that the intention of the Government from the very beginning was to grant the benefit of Section 42. (g) The I.T. Department itself granted the deductions under Section 42 for several years right upto Assessment Year 2004-05 and then suddenly and unaccountably changed its mind and turned a somersault. (h) The benefit of Section 42 was, in fact, granted to several other small-sized discovered oilfields. The appell .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that the appellant did not ask for the benefit of Section 42 of the Act. 29) He further submitted that strong reliance was placed by the High Court on the contents of a file which was produced by respondent no. 1 relating to the preparation of tender documents. However, this file was not shown to the appellant or its counsel and the appellant was, thus, denied any opportunity of dealing with the same. He pointed out that the appellant had specifically filed an application dated 28-02-2012 prayi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

He further submitted that the Court should not have disregarded the letters of the respondent no. 1 on the ground that they were not contemporaneous letters. His submission was that right upto the year 2005, the benefit of Section 42 was extended to the appellant and, therefore, there was no occasion for the appellant to approach respondent no. 1 to ask for such a clarification. He further submitted that reliance placed by the High Court on certain paras of the counter affidavit of respondent no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t controverted those averments. He submitted that apart from the plea, 13 oil fields (which included the appellant) all other oil fields, whether large, medium or small sized, and whether discovered or exploratory, were given the benefit of Section 42 of the Act. Therefore, the respondents had acted in a grossly arbitrary and discriminatory manner. 30) Last submission of Mr. Ganesh was that the issue regarding Mandamus to be issued to the respondents for amending the contract and including the c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o the following judgments: (i) K.N. Guruswamy Vs. State of Mysore 1955 (1) SCR 305 (ii) GSFC Vs. Lotus Hotels Ltd. (1983) 3 SCC 379 (iii) Kumari Shrilekha Vidyarthi Vs. State of U.P. (1991) 1 SCC 212 (iv) ABL International Ltd. Vs. Export Credit Guarantee Corpn. (2004) 3 SCC 553 31) Mr. Arijit Prasad, Advocate, who appeared for all the respondents countered the aforesaid submissions emphatically and passionately. He argued that insofar as income tax department is concerned it could extend the be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he order of the Assessing Authorities in tune with legal provisions. He further submitted that in any case the appeal of the appellant was pending before the ITAT and it was for the ITAT to go into the submissions made by the appellants on the admissibility of deduction under Section 42 of the Act. 32) In respect of the three letters which were written by the respondent no. 1, his submission was that no reliance could have been placed on those letters and the matter had to be examined on the bas .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed, there was a deliberate decision not to extend such a benefit. He also argued that in any case plea of discrimination could not be taken in the matters of contract in private law field. 34) Reacting to the relief of mandamus sought by the appellant seeking directions against Respondent No. 1 to amend the contract, his plea was that such a prayer, in the realm of contractual relationship between the parties, was inadmissible. He pleaded that PSCs are in the nature of contract agreed to be betw .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

seeking retrospective amendment as a matter of right when no such right is conferred under the contract. In support of his submission that the doctrine of fairness and reasonableness applies only in the exercise of statutory or administrative actions of a State and not in the exercise of a contractual obligation and that the issues arising out of contractual matters will have to be decided on the basis of the law of contract and not on the basis of the administrative law, he referred to and reli .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ble under Section 42 of the Act. In fact, as is clear from the prayers made by the appellant in the writ petition, the very first direction which the appellant sought was to declare that the appellant is entitled to such deductions in terms of the two PSCs dated 20-02-1995. Incidental issues, while deciding the aforesaid primary issue, which arises relate to the construction of the terms of the said PSCs and also the nature of the contracts which the parties intended to. Another issue relates to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s part of and incorporated in the PSCs? (iii) Whether there was any intention between the contracting parties, namely, the MoPNG and the appellant for giving benefit of deductions under Section 42 of the Act? (iv) If so, whether non-inclusion of such a provision in the contract can be treated as accidental and unintentional omission. (v) If the answer to question no. (iv) is in the affirmative, whether mandamus can be issued by the Court to the parties to amend the contract and incorporate provi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Section 42 of the Act on the basis of which he is to decide as to whether deductions mentioned in the said provision are admissible to the assessee who is claiming those deductions. In other words, the Assessing Officer is supposed to find out as to whether the assessee fulfills the eligibility conditions in the said provision to be entitled to such deductions. We have already reproduced the language of Section 42, which deals with special provisions of deductions in the case of business for pro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hich allowance for depreciation is admissible under Section 32. Section 42(1)(c) speaks of allowances pertaining to the depletion of mineral oil in the mining area. In order to be eligible to the deductions, certain conditions are stipulated in this very section which have to be satisfied by the assessees. As is clear from the reading of this Section, these conditions are as under: (a) it grants such special allowances to those assessees who carry on business in association with the Central Gove .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

arties; and (f) allowances are to be computed and made in the manner specified in the agreement. 38) From the nature of allowances specified in this provision, it is clear that such allowances are otherwise inadmissible on general principles, for e.g. allowances relating to diminution or exhaustion of wasting capital assets or allowances in respect of expenditure which would be regarded as on capital account on the ground that it brings an asset of enduring benefit into existence or constitutes .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed principles of accounting that are used for ascertaining taxable income (See - Commissioner of Income Tax, Dehradun & Anr. v. Enron Oil and Gas India Limited (2008) 15 SCC 33). Thus, by virtue of this Section, it is the PSC which governs the field as without it, such deductions are not permissible under the Act. IF PSC also does not contain any stipulation providing for such allowances, the Assessing Officer would be unable to give the benefit of these deductions to the assesee. 39) We wou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Enron Oil and Gas India Limited (Supra). 40) In the present case, it is an admitted fact that conditions mentioned in Section 42 of the Act are not fulfilled. In the two PSCs, no provision is made for making admissible the aforesaid allowances to the assessee. It is obvious that the Assessing Officer could not have granted these allowances/deductions to the assessee in the absence of such stipulations, a mandatory requirement, in the PSCs. 41) The appellant is conscious of this position. It is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

He also pointed out that on MPSC, opinion of Law Ministry was solicited vide Memo dated 22-06-1992 and that the Ministry of Law gave its opinion dated 21-07-1997 opining that benefit of both Sections 293(A) and Section 42 of the Act should be extended to the foreign companies in order to make their participation in these oil fields viable. As per the appellant, it was also made abundantly clear by the Ministry of Law that it was in relation to foreign companies to be engaged in exploration, dev .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

order to appreciate this argument, we shall have to traverse through the PSCs dated 20-02-1995 which were ultimately signed between the Government and the appellant. We would like to mention here that when this argument was being advanced by the learned senior counsel for the appellant the Court asked him to produce the copy of PSCs, which were otherwise not brought on the record as the Court wanted to find out as to whether there was any such intention expressed in the agreement, namely, to inc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing clauses in the agreement: (5) The Government has agreed to enter into this Contract with the Companies with respect to the area referred to in Appendices A & B of this Contract on the terms and conditions herein set forth. Article 1 - In this Contract, unless the context requires otherwise, the following terms shall have the meaning ascribed to the then hereunder: xxx xxx xxx Article 1.18 Contract means this agreement and the Appendices mentioned herein and attached hereto and made an in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ies, which shall state the date upon which the amendment or modification shall become effective. 32.3 No waiver by any Party of any one or more obligations or defaults by any other Party in the performance of this Contract shall operate or be construed as a waiver of any other obligations or defaults whether of a like or of a different character. 32.4 The provisions of this Contract shall inure to the benefit of and be binding upon the Parties and their permitted assigns and successors in intere .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r to the signing of this agreement. Not only this, even the so-called understanding between the parties is to be ignored as well. It is, therefore, impermissible for the appellant to take the aid of MPSC or the clauses contained therein while construing the terms of PSCs. Therefore, it was not even open to the Income Tax Authorities to go beyond the stipulations contained in the PSCs while making the assessment and had to exclusively remain within the provisions of the Agreement. On that touchst .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ch the amendment or modification shall become effective. In continuation to what has been observed by us while answering point no. (ii) above, it becomes apparent that the question of any intention to the contrary between the parties does not arise. It is because of the reason that Article 32 of the Agreement specifically supersedes any understanding between the parties prior to the effective date of this contract. 46) The matter is, however, compounded by certain acts of respondent no. 1 and ma .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

these provisions to the instant case, the appellant was not entitled to any such deductions under the PSCs. Thus, when in law no such deduction was permissible as per the PSCs in the present form, even if such deduction was given wrongly in the earlier years that would not amount to a wrong act on the part of the Income Tax Authorities and, therefore, would not enure to the benefit of the appellant in the Assessment Year in question as well. The appellant cannot say that merely because this bene .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

titled to it. Same principle applies, though it is a converse situation where assessee has not offered to pay tax wrongly [which was the situation in Enron Expat Service Inc. (Supra)] and instead the tax authorities have extended the benefit wrongly to the assessee. 47) With this, we come to more crucial aspect, namely, the three letters written by the MoPNG in response to the appellant's communications seeking its clarification. Undoubtedly, in these three letters the MoPNG has accepted tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of oversight or it was unintentional. While undertaking this enquiry, it has side tracked the language of the three letters and instead gone by the stand taken in the counter affidavit filed by respondent no. 1 where, in para 4 of the counter affidavit, respondent no. 1 pleaded to the contrary. Clearly, the said stand taken in the counter affidavit filed in the High Court was contrary to the contents of the three letters dated 17.06.2005, 11.04.2007 and 28.04.2008. Significantly, respondent no. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ving the copies of such records, the High Court had observed that those records would not be seen nut ultimately relied upon these records. We do not know whether the High Court is correct in its conclusion as to whether the contents of the three letters are contrary to records and the averments made in para 4 of the counter affidavit are in conformity with the records, in as much as these records have not been produced for our perusal. However, on going through the terms of the PSCs it becomes .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y the PSCs signed between the parties, which can be looked into. We answer this question accordingly. 50) Undoubtedly, the appellant is also conscious of such a limitation and is aware of the fact that unless there is a clear stipulation in the PSCs for grant of benefit of special allowances under Section 42 of the Act, it would be difficult, nay impossible, for the appellant to sail through. It is for this reason Mr. Ganesh, learned senior counsel for the appellant made a fervent plea that resp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

amendment? (iii) Whether the Court has the power to issue Mandamus or direction to the Government? 52) We have reproduced the prayers made in the writ petition. Obviously, no prayer for issuance of Writ of Mandamus or direction of this nature is specifically made. Prayer clause shows that there are two prayers made in the writ petition. First relates to directing the Authorities to grant benefit under Section 42 of the Act in terms of PSCs dated 22.02.1995, i.e. it is confined within the scope o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2001-02, 2002-03, 2003-04; AND 2004-05 respectively are sought to be re-opened. 53) Mr. Ganesh, however, submitted that such a prayer should be culled out from prayer no. (iii) which is residual in nature. Ordinarily, it would be difficult to read into this prayer clause a relief of substantive nature of issuing the writ of mandamus. However, we find that there are specific averments to this effect in the body of the writ petition as well as in the grounds. More pertinently this relief was spec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

again revert back to Article 32 which has already been reproduced above. Not only prior understanding between the parties stood superseded as mentioned in Article 32.1, Article 32.2 which is crucial to answer this question, bars any amendment, modification etc. to the said contract except by an instrument in writing signed by all the parties. Thus, unless respondents agree to amend, modify or varied/supplemented the terms of the contract, no right accrues to the appellant in this behalf. 55) We .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nto, its novation has to be on fulfillment of all procedural requirements. No doubt, there is an exception to this principle, viz. even in the absence of a contract according to the requirements of Article 299 of the Constitution, doctrine of promissory estoppel can still be invoked against the Government. However, no such case is pleaded by the appellant. To dilate upon the aforesaid proposition further, we take along third facet of this issue as, to some extent, they are over-lapping. Fact rem .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of one of the contracting parties, namely, Government of India in this case. When it is signed by the other party it means that it has the approval of both the parties. Therefore, a contracting party cannot claim to be oblivious of the provisions of the law or the contents of the contract at the time of signing and, therefore, later on cannot seek retrospective amendment as a matter of right when no such right is conferred under the contract. Even the doctrine of fairness and reasonableness appl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

na of judgments of this Court and from the reading of these judgments it would follow that in pure contractual matters extraordinary remedy of writ under Article 226 or Article 32 of the Constitution cannot be invoked. However, in a limited sphere such remedies are available only when the non-Government contracting party is able to demonstrate that its a public law remedy which such party seeks to invoke, in contradistinction to the private law remedy simplicitor under the contract. Some of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a matter of private character or purely contractual field, no such public duty element is involved and, thus, mandamus will not lie. 59) First case which needs to be referred is Bareilly Development Authority Vs. Ajai Pal Singh and others [1989] 1 SCR 743. That was the case where Appellate Authority had undertaken construction of dwelling units for people belonging to different income groups and the cost at which such flats were to be allotted to the allottees. However, it was mentioned that the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pon the judgment of the Supreme Court in the case of Ramana Dayaram Shetty Vs. Airport Authority of India (1979) IILLJ 217 SC allowed the writ petition by observing as under :- "It has not been disputed that the contesting opposite party is included within the term other authority' mentioned under Article 12 of the constitution. Therefore, the contesting opposite parties cannot be permitted to act arbitrarily with the principle which meets the test of reason and relevance. Where an auth .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nstallments. Rate of yearly interest requesting allottees to give their written acceptance and the respondents except respondent No.4 had sent their written acceptance and it was on the basis of the written acceptance that name of first respondent was included in the draw and he was successful in getting allotment of a particular house. The court observed that respondents were under no obligation to seek allotment of house/ flats even if they had registered themselves. Notwithstanding, the volun .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

etty case, there was no concluded contract as in this case. Even conceding that the BDA has the trappings of a state or would be comprehended in 'other authority' for the purpose of Article 12 of the constitution, while determining price of the houses/flats constructed by it and the rate of monthly installments to be paid, the Authority or its agent after entering into the field of ordinary contract acts purely in its executive capacity. Thereafter the relations are no longer governed by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hts are governed only by the terms of the contract, no writ or order can be issued under Article 226 of the Constitution of India so as to compel the authorities to remedy a breach of contract pure and simple Radhakrishna Agarwal Vs. State of Bihar (Supra), Premi Bhai Parmar Vs. Delhi Development Authority and DFO Vs. Biswanath Tea Company Ltd." 61) Next case of relevance is the Divisional Forest officer Vs. Bishwanath Tea Co. Ltd. [1981] 3 SCR 662In that case respondents took on lease cert .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

payable on timber so cut and removed. Respondent company paid the amount of royalty under protest and filed writ petition under Article 226 of the Constitution in the High Court alleging that upon a true construction of the relevant clauses of the Grant as also proviso to Rule 37 of the Settlement Rules, it was entitled to cut and remove timber without payment of royalty and, therefore, the recovery of royalty being unsupported by law, the appellant was liable to refund the same. A preliminary o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

le. Following observations may usefully be quoted:- "8. It is undoubtedly true that High Court can entertain in its extraordinary jurisdiction a petition to issue any of the prerogative writs for any other purpose. But such writ can be issued where there is executive action unsupported by law or even in respect of corporation there is a denial of equality before law or equal protection of law. The Corporation can also file a writ petition for enforcement of a right under a statute. As point .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mand and collect royalty from the respondent. This is nothing but enforcement of a term of a contract of lease. Hence, the question whether such contractual obligation can be enforced by the High Court in its writ jurisdiction. 9. Ordinarily, where a breach of contract is complained of, a party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed, or the party may sue for damages. Such a suit would ordinarily be cogni .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

State of U.P. had issued Government order dated 6.2.1990 whereby appointments of all Government Counsels (Civil, Criminal, Revenue) in all the Districts of the State of U.P. were terminated w.e.f. 28.2.1990, irrespective of the fact whether the term of the incumbents had expired or was subsisting. Validity of this G.D. was challenged by many of these Government Counsels whose appointments were terminated and one of the issues to be determined by the court was as to whether writ petition was mai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pugned circular would be liable to be quashed if it suffers from the vice of arbitrariness. However, his argument is that there is no such vice. In the ultimate analysis, it is the challenge of arbitrariness which the circular must challenge of arbitrariness withstand in order to survive. This really is the main point evolved for decision by us in the present case". 63) The Court then examined the nature of appointment of the Government counsel in the Districts with reference to the various .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ment Counsel by the State Government is only a professional engagement like that between a private client and his lawyer, or that it is purely contractual with no public element attaching to it, which may be terminated at any time at the sweet will of the Government excluding judicial review. We have already indicated the presence of public element attached to the 'office' or post of District Government Counsel of every category covered by the impugned circular. This is sufficient to att .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

length with the scope of judicial review permissible in such cases since several nuances of that ticklish question do not arise for consideration in the present case. 19. Even otherwise and sans the element so obvious in these appointment and its concomitants viewed as purely contractual matters after the appointment is made, also attract Art. 14 and exclude arbitrariness permitting judicial review of the impugned state action. This aspect is dealt with hereafter. 20. Even apart from the premise .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hold to the making of a contract in exercise of the executive power being beyond dispute, can it be said that the State can thereafter cast off its personality and exercise unbridled power unfettered by the requirements of Art. 14 in the sphere of contractual matters and claim to be governed therein only by private law, principles applicable to private individuals whose rights flow only from the terms of the contract without anything more ? We have no hesitation in saying that the personality of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

us and opportunity. Every State action must be aimed at achieving this goal. Part IV of the Constitution contains 'Directive principles of State Policy' which are fundamental in the governance of the country and are aimed at securing social and economic freedoms by appropriate State action which is complementary to individual fundamental rights guaranteed in part III for protection against excesses of State action, to realise the vision in the preamble. This being the philosophy of the c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

scheme to accept the argument of exclusion of Art. 14 in contractual matters. The scope and permissible grounds of judicial review in such matters and the relief which may be available are different matters but that does not justify the view of its total exclusion. This is more so when the modern t rend is also to examine the unreasonableness of a term in such contractual where the bargaining power is unequal so that these are not negotiated contracts but standard from contracts between unequal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tions and impress with this character the contracts made by the State or its instrumentality. It is a different mater that the scope of judicial review in respect of disputes scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. However, to the extent, challenge is made .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the claimant of the guarantee under Art. 14 of non-arbitrariness at the hands of the State in any of its actions. xx xx xx 34. In our opinion, the wide sweep of Art. 14 undoubtedly takes within its fold the impugned circular issued by the State of U.P. in exercise of its executive power, irrespective of the precise nature of appointment of the Government counsel in the districts and the other rights, contractual or statutory, which the appointees may have. It is for this reason that we base our .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

te that the action is controlled at least by settled guidelines, followed by the State of U.P. for a long time. This too is relevant for deciding the question of arbitrariness alleged in the present case" 64) Similarly, in State of Gujarat v. M.P. Shah Charitable Trust (194) 3 SCC 552, this Court reiterated the principles that if the matter is governed by a contract, the writ petition is not maintainable since it is a public law remedy and is not available in private law field, for example, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

4 wherein the Court had held that ordinarily in matter relating to contractual obligations, the Court would not examine it unless the action has some public law character attached to it. The following passage from the said judgment was relied upon by the respondents: If the action of the State is related to contractual obligations or obligations arising out of the tort, the court may not ordinarily examine it unless the action has some public law character attached to it. Broadly speaking, the c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ged when performing the action, the public law or private law character of the action and a host of other relevant circumstances. When the State or an instrumentality of the State ventures into the corporate world and purchases the shares of a company, it assumes to itself the ordinary role of a shareholder, and dons the robes of a shareholder, with all the rights available to such a shareholder. There is no reason why the State as a shareholder should be expected to state its reasons when it se .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

medy. This judgment does not lay down that as a rule in matters of contract the court's jurisdiction under Article 226 of the Constitution is ousted. On the contrary, the use of the words "court may not ordinarily examine it unless the action has some public law character attached to it" itself indicates that in a given case, on the existence of the required factual matrix a remedy under Article 226 of the Constitution will be available." 66) Insofar as the argument of the res .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

was not a State or an instrumentality of a State as contemplated under Article 12 of the Constitution, hence, in the normal course, no writ could have been issued against the said industry. But it was the contention of the writ petitioner in that case that the said industry was obligated under the concerned statute to perform certain public functions, failure to do so would give rise to a complaint under Article 226 against a private body. While considering such argument, this Court held that w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f this Court in the case of Kumari Shri Lekha Vidyarthi & Ors. vs. State of U.P.& Ors. [1991] (1) SCC 212] wherein this Court held: The impact of every State action is also on public interest. It is really the nature of its personality as State which is significant and must characterize all its actions, in whatever field, and not the nature of function, contractual or otherwise which is decisive of the nature of scrutiny permitted for examining the validity of its act. The requirement of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the claim of the appellants the first respondent as an instrumentality of the State has acted in contravention of the above said requirement of Article 14 then we have no hesitation that a writ court can issue suitable directions to set right the arbitrary actions of the first respondent." 67) The Court thereafter summarized the legal position in the following manner: 27. From the above discussion of ours, following legal principles emerge as to the maintainability of a writ petition :- ( .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

petition under Article 226 of the Constitution of India, the court should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power [See: Whirlpool Corporation vs. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion thus summarized in the aforesaid principles has to be understood in the context of discussion that preceded which we have pointed out above. As per this, no doubt, there is no absolute bar to the maintainability of the writ petition even in contractual matters or where there are disputed questions of fact or even when monetary claim is raised. At the same time, discretion lies with the High Court which under certain circumstances, can refuse to exercise. It also follows that under the follow .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ans of arbitration. (c) If there are very serious disputed questions of fact which are of complex nature and require oral evidence for their determination. (d) Money claims per se particularly arising out of contractual obligations are normally not to be entertained except in exceptional circumstances. 69) Further legal position which emerges from various judgments of this Court dealing with different situations/aspects relating to the contracts entered into by the State/public Authority with pr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re the question of a violation of Article 14 could arise. If those facts are disputed and require assessment of evidence the correctness of which can only be tested satisfactorily by taking detailed evidence, Involving examination and cross- examination of witnesses, the case could not be conveniently or satisfactorily decided in proceedings under Article 226 of the Constitution. In such cases court can direct the aggrieved party to resort to alternate remedy of civil suit etc. (iv) Writ jurisdi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

it profitable to do so: and he can challenge the conditions under which he agreed to take the license, if he finds it commercially inexpedient to conduct his business. (vi) Ordinarily, where a breach of contract is complained of, the party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed. Otherwise, the party may sue for damages. (vii) Writ can be issued where there is executive action unsupported by law or even i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, the normal course for the aggrieved party, is to invoke the remedies provided under ordinary civil law rather than approaching the High Court under Article 226 of the Constitutional of India and invoking its extraordinary jurisdiction. (ix) The distinction between public law and private law element in the contract with State is getting blurred. However, it has not been totally obliterated and where the matter falls purely in private field of contract. This Court has maintained the position tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

public law element, then the matter can be examined by the High Court in writ petitions under Article 226 of the Constitution of India to see whether action of the State and/or instrumentality or agency of the State is fair, just and equitable or that relevant factors are taken into consideration and irrelevant factors have not gone into the decision making process or that the decision is not arbitrary. (x) Mere reasonable or legitimate expectation of a citizen, in such a situation, may not by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for adjudication of purely contractual disputes. 70) Keeping in mind the aforesaid principles and after considering the arguments of respective parties, we are of the view that on the facts of the present case, it is not a fit case where the High Court should have exercised discretionary jurisdiction under Article 226 of the Constitution. First, the matter is in the realm of pure contract. It is not a case where any statutory contract is awarded. 71) As pointed out earlier as well, the contract .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version