1991 (12) TMI 50 - HC - Income Tax

Summary

Issues:
- Interpretation of section 10(15)(iv)(c) of the Income-tax Act for exemption of interest payable on debt incurred in a foreign country for the purchase of raw materials.
- Challenge to the rejection of exemption request by respondent No. 1 under article 226 of the Constitution of India.
- Lack of reasons provided by respondent No. 1 for rejecting the exemption request.
- Requirement for respondent No. 1 to reconsider the matter and provide a reasoned order.

Analysis:
The judgment by the High Court of Delhi involved a dispute regarding the exemption of interest payable on debt incurred in a foreign country for the purchase of raw materials under section 10(15)(iv)(c) of the Income-tax Act. The petitioner, an industrial undertaking engaged in steel production, placed an order for import of nickel contained in ferro nickel. The petitioner sought exemption from income tax on the interest payable on the debt incurred for this import. However, respondent No. 1 rejected the exemption request citing guidelines issued by the Ministry of Finance from 1967 and 1970, without providing reasons for the rejection.

The court noted that respondent No. 1 failed to provide reasons for the rejection of the exemption request, as required under the law. The court highlighted that respondent No. 1 must consider various factors, including the terms of the loan or debt and its repayment, before granting or denying the exemption. The court also referred to an office memorandum from 1981, indicating that departures from previous guidelines could be made in specific cases after consultation with relevant authorities.

Despite respondent No. 1 not filing a counter affidavit or appearing in court, respondent No. 4 argued that the exemption could be granted after considering the relevant factors. The court directed respondent No. 1 to reconsider the matter in light of section 10(15)(iv)(c) of the Income-tax Act, emphasizing the need for a reasoned order and potentially a personal hearing for the petitioner. The court set aside the original order and instructed respondent No. 1 to provide a decision based on proper consideration of all relevant aspects.

In conclusion, the judgment highlighted the importance of providing reasons for administrative decisions, especially in matters concerning tax exemptions. It underscored the need for a thorough evaluation of all relevant factors before granting or denying such exemptions, ensuring transparency and fairness in the process.