2014 (3) TMI 588 - HC - Income Tax

Exemption u/s 10(15) - Nature of undertaking - Whether the petitioner was an undertaking which was engaged in mining Held that - The words engaged and mining have not been defined in the Act and have to be read and interpreted as they are understood in normal parlance - The word mining in common parlance means working on mines for ores, oil and other minerals - extracting mineral oil could be covered within the meaning of mining activities - An industrial undertaking having oil fields and excavating or winning oil from oil fields would be engaged in mining. The expression used in the Explanation is that a person who was engaged in mining was treated as an industrial undertaking for the purpose of clause (c) to Section 10(15)(iv) of the Act - It is necessary and important to give wide interpretation while interpreting the expression engaged in .. mining as it would further the legislative intent and the purpose behind enacting Section 10(15)(iv)(c) of the Act - A word or expression used in a legislative provision should be interpreted in the context in which the expression or the word is used to be in consonance and to further the legislative intent - Mining itself is complex and capital intensive and may require inter play and activities by several persons which may be involved in different parts/aspects of mining and accordingly paid for the part played or activities undertaken by them thus, the undertaking would be engaged in mining . Nature of Activity undertaken - whether the activities of the petitioner could be considered to be an integral part of mining Held that - The petitioner had purchased or acquired capital equipment in the form of work over rigs and for this purpose had obtained loan from State Bank of India, Singapore in foreign currency and Indian rupees - the expression engaged in mining would not only include the actual winning or extraction of minerals or oils but also activities which are an integral part of mining Decided in favour of Assessee. Relief of TDS Held that - Petitioner contended that they have already paid tax at source - The petitioner claims that no certificate for tax deducted in Form 16A was issued to the State Bank of India, Singapore - Petitioner in terms of the interim order has given an undertaking that in case the writ petition stands dismissed they would be liable to pay tax due on subsequent installments with interest as per the Act revenue is directed to verify the assessments made in the case of State Bank of India, Singapore and in case the Bank has not taken credit of the tax paid at source, the amount will be refunded to the petitioner with interest @ 8% p.a. from the date of filing of the writ petition till payment Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Whether the petitioner qualifies as an "industrial undertaking" engaged in mining under Section 10(15)(iv)(c) of the Income Tax Act, 1961.
2. Interpretation of the term "engaged in mining" for the purpose of tax exemption.
3. Relief sought by the petitioner regarding tax deducted at source (TDS).

Issue-wise Detailed Analysis:

1. Whether the petitioner qualifies as an "industrial undertaking" engaged in mining under Section 10(15)(iv)(c) of the Income Tax Act, 1961:
The petitioner, a company with limited liability, entered into contracts with ONGC for deploying work over rigs and auxiliary operation services in oil fields. To finance the purchase of these rigs, the petitioner obtained a foreign currency loan and a rupee loan from State Bank of India, Singapore. The petitioner sought exemption under Section 10(15)(iv)(c) of the Income Tax Act, which exempts interest payable by an industrial undertaking in India on money borrowed in a foreign country for the purchase of capital plant and machinery. The Central Board of Direct Taxes (CBDT) initially rejected the application, stating that the petitioner was not an industrial undertaking engaged in manufacturing or processing of goods but was merely supplying equipment for the manufacturing process.

2. Interpretation of the term "engaged in mining" for the purpose of tax exemption:
The court examined whether the petitioner was "engaged in mining" as per the Explanation to Section 10(15)(iv)(c). The term "mining" in common parlance means extracting ores, oil, and other minerals from the earth. The court referred to various legal dictionaries and precedents to interpret the term "engaged." It concluded that "engaged in mining" should include activities that are integral and directly related to mining, even if the undertaking does not itself extract minerals. The court emphasized the need for a broad interpretation to further the legislative intent behind the tax exemption provision. The petitioner's activities, such as repairing oil wells and enhancing production, were considered integral to mining operations, thus qualifying the petitioner as an industrial undertaking engaged in mining.

3. Relief sought by the petitioner regarding tax deducted at source (TDS):
The petitioner had already paid TDS on interest payments to State Bank of India, Singapore, amounting to Rs. 7,56,086/-. The court noted that no certificate for tax deducted in Form 16A was issued to the bank. An interim order had been passed earlier, allowing the petitioner not to deduct TDS on further payments. The court directed the respondents to verify the assessments made in the case of State Bank of India, Singapore, and if the bank had not taken credit of the tax paid at source, the amount should be refunded to the petitioner with interest at 8% per annum from the date of filing the writ petition till payment. The court allowed the writ petition, ruling that TDS would not be deductible on further payments.

Conclusion:
The court concluded that the petitioner qualifies as an industrial undertaking engaged in mining under Section 10(15)(iv)(c) of the Income Tax Act, 1961. The petitioner's activities were integral to mining, warranting a broad interpretation of the term "engaged in mining." The court granted relief to the petitioner regarding the refund of TDS with interest and ruled that no further TDS would be deductible. The writ petition was accordingly disposed of with no costs.