2015 (3) TMI 986 - HC - Income Tax

Deduction u/s 80IB - Petitioner is a foreign company based in Canada entered into what is known as Production Sharing Contract (for short the PSC) with the Government of India for exploration, development and production of mineral oil Constitutional - validity of the amendment to sub-Section (9) of Section 80-IB and Explanation added to it under the Act by the Finance (No.2) Act, 2009 challenged - exploration, development and production of mineral oil - Whether the term mineral oil would include Gas? - Petitioner has treated each well/cluster of wells as an undertaking for the purpose of claiming deductions under Section 80-IB(9) - Consequent upon the introduction of the Explanation to Section 80-IB(9) by the Finance (No.2) Act, 2009, defining the term undertaking to mean all blocks licensed under single contract with retrospective effect from 1.4.2000, by an Order dated 7th September 2009, the claim of the Petitioner for the Assessment Year 2006-07 under Section 80-IB(9) was disallowed by the Assessing Officer. Held that - In the absence of specific wordings in the Statute, to draw a conclusion that only undertakings engaged in the commercial production of 'mineral oil other than natural gas will be entitled to deductions of profits and gains under the above mentioned sub-section, is wholly incorrect. For the aforesaid reasons, we hold that the insertion of sub clause (iv) to Section 80-IB(9) of the Act by the Finance (No.2) Act, 2009 cannot be interpreted to mean that the term mineral oil as used in Section 80-IB does not include natural gas and cannot result in denial of the benefit of deduction under Section 80-IB(9) to undertakings engaged in commercial production of natural gas under contracts entered into prior to VIIIth round of bidding. In view of the decision of the Constitutional Bench of the Apex Court, the term mineral oil includes and has always included natural gas . The benefits of deductions under Section 80-IA were expressly made available with effect from 1.4.1999 by amending the then existing Section 80-IA. Later on Section 80-IB(9) was introduced to provide for such benefits. At all times the benefit had been available to an undertaking . Neither Section 80-IA, Section 80-IB nor the provisions of PSC provided that the undertaking would be construed as a whole Block. The Apex Court in Gold Coin Health Food Pvt. Ltd. (2008 (8) TMI 5 - SUPREME COURT ), held that even if the statute does contain a statement to the effect that the amendment is clarificatory or declaratory, that is not the end of the matter. The Court has to analyse the nature of the amendment to come to a conclusion whether it is in reality a clarificatory or declaratory provision. Therefore, the date from which the amendment is made operative does not conclusively decide the question. The Court has to examine the scheme of the statute prior to the amendment and subsequent to the amendment to determine whether amendment is clarificatory or substantive. Same principle would apply where the legislature had made a statement in the statute that it would apply retrospectively. We have examined the history of enactment for mineral oil, the old and the amended provisions. We are satisfied that the Explanation added to Section 80-IB(9) has levied income tax on all wells/cluster of wells and all undertakings, except the first one which commences commercial production for which still seven years tax holiday is available. The legislature or the Parliament had by inserting the Explanation had widened the main Section 80-IB(9) and imposed an altogether new tax by widening the tax net which would be applicable for different periods depending upon the date of starting commercial production would be substantive change in the law with different tax liability. Such substantive provision could only be construed prospective in operation. For the reasons given above, we are of the considered opinion that the amendment made in Section 80-IB(9) by adding an Explanation was not clarificatory, declaratory, curative or made small repair in the Act, but on the contrary takes away the accrued and vested right of the Petitioner which had matured after the judgments of ITAT, therefore, the Explanation added by Finance (No.2) 2009 was a substantive law. We have no hesitation to hold that the Explanation added to Section 80-IB(9) by Finance Act (No.2) of 2009 is clearly unconstitutional, violative of Article 14 of the Constitution of India and is liable to be struck down. Therefore, for the reasons given above, we are of the considered opinion that the Explanation added to Section 80-IB(9) by amendment is substantive law and could not apply retrospectively. The Explanation added to Section 80-IB(9) breaches the rule of law and is arbitrary being violative of Article 14 of the Constitution of India is struck down. In the result, both the writ petitions succeed and are allowed. The Explanation to Section 80-IB(9) of the Act is held to be ultra vires to Article 14 of the Constitution of India. Rule is made absolute. - Decided in favour of assessee.

Summary

Issues Involved:
1. Constitutional validity of the retrospective amendment to Section 80-IB(9) of the Income Tax Act, 1961.
2. Whether the term "mineral oil" includes "natural gas."
3. Whether the Petitioner has any accrued or vested right.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Retrospective Amendment to Section 80-IB(9):

The Petitioner, a foreign company engaged in the exploration and production of mineral oil and natural gas in India, challenged the constitutional validity of the retrospective amendment to Section 80-IB(9) of the Income Tax Act, 1961, introduced by the Finance (No.2) Act, 2009. The amendment included an Explanation that all blocks licensed under a single contract shall be treated as a single "undertaking." The Petitioner argued that this amendment was not merely clarificatory but substantive, taking away vested rights, and thus arbitrary and unreasonable, violating Article 14 of the Constitution of India.

The Court examined the legislative history, the original provisions, and the amendment's impact. It noted that the term "undertaking" had acquired a consistent statutory meaning through judicial decisions, indicating that each well or cluster of wells could be considered a separate undertaking. The Court found that the Explanation introduced by the amendment was a departure from this settled interpretation and was not in the nature of a validation. The Court held that the amendment was a substantive change in the law, imposing a new tax liability and could only operate prospectively. The retrospective application of the amendment was deemed unconstitutional, violating Article 14 of the Constitution.

2. Whether the Term "Mineral Oil" Includes "Natural Gas":

The Court addressed whether the term "mineral oil" in Section 80-IB(9) includes "natural gas." The Respondent argued that "mineral oil" should not include natural gas, relying on the Explanation to Section 42 of the Act, which includes both petroleum and natural gas only for that Section. The Court, however, referred to the Constitutional Bench decision in Association of Natural Gas v. Union of India, which held that "natural gas" is a petroleum product and part of mineral oil resources. The Court concluded that in the absence of a specific definition under Section 80-IB, the term "mineral oil" includes both petroleum products and natural gas.

The Court also considered the legislative history and various enactments, noting that the term "mineral oil" has been given a wide meaning to include natural gas. The insertion of sub-clause (iv) to Section 80-IB(9) by the Finance (No.2) Act, 2009, was interpreted to mean that the benefit would also be available for NELP VIII bidders who satisfy the conditions set out in the sub-clause. The Court held that the term "mineral oil" in Section 80-IB includes "natural gas," and the amendment could not be interpreted to deny the benefit of deduction to undertakings engaged in commercial production of natural gas under contracts entered into before NELP VIII.

3. Whether the Petitioner Has Any Accrued or Vested Right:

The Court examined whether the Petitioner had any accrued or vested right to the tax benefits under the original Section 80-IB(9). It noted that a vested right is a legal and enforceable right, which can arise from a contract, statute, or by operation of law. The Court found that the Petitioner had a vested right to the tax benefits, as the benefits were expressly made available with effect from 1.4.1999 by amending Section 80-IA, later becoming part of Section 80-IB(9). The Petitioner had been claiming the benefit of 100% deduction on profits and gains from each well or cluster of wells, which was recognized by the Income Tax Appellate Tribunal (ITAT).

The Court held that the retrospective amendment to Section 80-IB(9) by adding the Explanation took away the vested right of the Petitioner, which had matured after the ITAT's judgments. The amendment was not clarificatory but substantive, imposing a new tax liability and could only operate prospectively. The Court concluded that the amendment was arbitrary, unreasonable, and violative of Article 14 of the Constitution, and thus struck it down.

Conclusion:

The Court allowed the writ petitions, holding that the Explanation to Section 80-IB(9) of the Income Tax Act, introduced by the Finance (No.2) Act, 2009, was unconstitutional and violative of Article 14 of the Constitution of India. The term "mineral oil" in Section 80-IB includes "natural gas," and the Petitioner had a vested right to the tax benefits, which could not be taken away retrospectively. The Court struck down the Explanation added to Section 80-IB(9) as it breached the rule of law and was arbitrary.