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2015 (5) TMI 521 - SC - Income TaxEntitlement 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 mentioned in the written contract, and if so, the effect thereof? - Held that - Keeping in mind principles as concluded from situations/aspects relating to the contracts entered into by the State/public Authority with private parties 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. 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 stipulations, a mandatory requirement, in the PSCs. The appellant is presumed to have knowledge of the legal provision, namely, in the absence of such a clause, special allowances under Section 42 would impermissible. Still it signed the contract without such a clause, with open eyes. No doubt, the appellant claimed these deductions in its income tax returns and it was even allowed these deductions by the Income Tax Authorities. Further, no doubt, on this premise, it shared the profits with the Government 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. Having considered the matter in the aforesaid prospective, we come to the irresistible conclusion that the appellant is not entitled to the relief claimed. Though it may be somewhat harsh on the appellant when it availed the benefit of Section 42 for few years and acted on the understanding that such a benefit would be given to it, but we have no option but to hold that PSCs did not provide for this benefit to be given to the appellant and the contract can be amended only if both the parties agree to do so, and not otherwise. Therefore, we are constrained to dismiss the appeal for the reasons given above. - Decided against assessee.
Issues Involved:
1. Entitlement to deductions under Section 42 of the Income Tax Act. 2. Incorporation of Model Production Sharing Contract (MPSC) terms into the Production Sharing Contracts (PSCs). 3. Intention of the parties regarding the inclusion of Section 42 benefits in the PSCs. 4. Whether the non-inclusion of Section 42 benefits in the PSCs was an accidental omission. 5. The Court's power to issue a mandamus to amend the contract. Detailed Analysis: 1. Entitlement to Deductions under Section 42 of the Income Tax Act: The appellant claimed deductions under Section 42 of the Income Tax Act, 1961, for expenses related to oil exploration activities. Section 42 allows for special deductions in the case of business for prospecting, extracting, or producing mineral oils if specified in the agreement with the Central Government and laid before Parliament. The Assessing Officer disallowed these deductions for the Assessment Year 2005-06, stating that the PSCs did not contain provisions for such deductions. The Supreme Court upheld this view, emphasizing that the conditions stipulated in Section 42 were not met as the PSCs did not specifically mention these allowances, making the appellant ineligible for the deductions. 2. Incorporation of MPSC Terms into the PSCs: The appellant argued that the MPSC, which included Section 42 benefits, should be read into the PSCs. However, the Supreme Court found that the PSCs explicitly stated that they superseded any prior agreements or understandings. The PSCs contained clauses indicating that they were the sole repository of terms and conditions, and no external documents, including the MPSC, could be incorporated unless explicitly stated. Therefore, the MPSC terms could not be read into the PSCs. 3. Intention of the Parties Regarding Section 42 Benefits: The appellant contended that there was a mutual understanding with the Ministry of Petroleum and Natural Gas (MoPNG) to include Section 42 benefits in the PSCs. The Supreme Court noted that Article 32 of the PSCs explicitly stated that the contract superseded any previous agreements or understandings. Therefore, any prior intention or understanding was irrelevant once the PSCs were signed, and only the terms within the signed contracts were binding. 4. Accidental Omission of Section 42 Benefits: The appellant and MoPNG claimed that the omission of Section 42 benefits in the PSCs was inadvertent. The Supreme Court, however, found no evidence supporting this claim. The High Court had examined original files and concluded that no such benefit was intended or required to be granted at the time of finalizing the PSCs. The Supreme Court agreed, stating that even if there was an oversight, it was not legally binding due to the explicit terms of the PSCs. 5. Court's Power to Issue a Mandamus to Amend the Contract: The appellant sought a mandamus to direct the Government to amend the PSCs to include Section 42 benefits. The Supreme Court held that such a direction could not be issued as the contract was governed by Article 299 of the Constitution, requiring formal amendments agreed upon by both parties. The Court emphasized that it could not compel the Government to amend the contract, especially when the contract explicitly barred any modifications without mutual consent. The Court also noted that the issue was purely contractual with no element of public law, making it inappropriate for judicial intervention under Article 226 of the Constitution. Conclusion: The Supreme Court dismissed the appeal, holding that the appellant was not entitled to deductions under Section 42 of the Income Tax Act due to the absence of specific provisions in the PSCs. The Court found no basis for incorporating MPSC terms into the PSCs, no evidence of an accidental omission, and no grounds for issuing a mandamus to amend the contract. The decision was based on the explicit terms of the PSCs and the legal principles governing contractual obligations.
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