2015 (7) TMI 90 - SC - Income Tax

Purport and effect of exemption notification bearing No.GSR 307(E) dated 31.03.1983 issued under Section 24AA of the Surtax Act - Held that - Section 24-AA of the Surtax Act was brought into the statute book by Act 16 of 1981 i.e. Finance Act, 1981 with effect from 1.4.1981. The explanatory notes on the provisions of Finance Act Paragraph 11(4) and 26(1) clearly goes to show that the legislative intent behind inclusion of Section 24-AA is to encourage foreign companies to enter into participating contracts with the Union Government in the business of oil exploration or production. The further legislative intent was to seek greater participation of foreign companies in the matter of providing services including supply of ships, aircrafts, machinery or plant in connection with business of extraction or production of mineral oils. The aforesaid legislative intent which is two-fold is manifested by the two limbs of sub-section 2 of Section 24AA of the Surtax Act to which the power of exemption was intended to operate i.e. sub-section 2(a) and 2(b) of Section 24AA. If out of the two limbs where the power of exemption was intended to operate, the repository of the power i.e. Central Government, had consciously chosen to grant exemption in one particular field i.e. foreign companies covered by sub-section 2(a) of Section 24-AA, the scope of the grant cannot be enhanced or expanded by a judicial pronouncement which is what the arguments made on behalf of the appellants intend to achieve. Any such interpretation must, therefore, be avoided. Consequently, we see no reason to depart from the basic principles of interpretation, as already noticed, that should govern the present issue.

Summary

Issues Involved:
1. Interpretation of Section 24-AA of the Companies (Profits) Surtax Act, 1964.
2. Applicability and scope of exemption notification No.GSR 307(E) dated 31.03.1983.
3. Classification of agreements executed by ONGC with foreign companies.
4. Judicial interpretation of fiscal statutes and exemption notifications.

Issue-Wise Detailed Analysis:

1. Interpretation of Section 24-AA of the Companies (Profits) Surtax Act, 1964:
Section 24-AA vests the Central Government with the power to grant exemptions, reductions in rate, or other modifications in respect of surtax for certain foreign companies. Sub-section (2) specifies two categories of foreign companies:
- Those with whom the Central Government has agreements for association or participation in the business of prospecting, extraction, or production of mineral oils (sub-section 2(a)).
- Those providing services, facilities, or supplying equipment in connection with such business (sub-section 2(b)).

2. Applicability and Scope of Exemption Notification No.GSR 307(E) dated 31.03.1983:
The notification grants exemption from surtax to foreign companies with whom the Central Government has agreements for association or participation in the business of prospecting, extraction, or production of mineral oils. The language of the notification mirrors sub-section 2(a) of Section 24-AA, thereby restricting the exemption to the first category of foreign companies.

3. Classification of Agreements Executed by ONGC with Foreign Companies:
ONGC executed agreements with foreign companies for services, facilities, or supply of equipment related to the prospecting, extraction, or production of mineral oils. These agreements did not involve direct association or participation in the business but were categorized as "Service Agreements." The primary authority ruled that these agreements fell under sub-section 2(b) and were thus outside the scope of the exemption notification. This view was initially reversed by the Appellate Commissioner and upheld by the Income Tax Appellate Tribunal but was later overturned by the High Court.

4. Judicial Interpretation of Fiscal Statutes and Exemption Notifications:
The court emphasized that fiscal statutes and exemption notifications must be strictly construed. The language of the statute should be read as it is, without adding or subtracting words. The court cited the principles of interpretation from previous judgments, emphasizing that exemptions must be clearly established by the claimant and any ambiguity should favor the state. Specifically, the court noted that the exemption notification's plain language restricted its scope to agreements involving direct association or participation, as per sub-section 2(a), and did not extend to service agreements under sub-section 2(b).

Conclusion:
The court concluded that the exemption notification No.GSR 307(E) dated 31.03.1983 was intended to apply only to foreign companies with agreements for direct association or participation in the business of prospecting, extraction, or production of mineral oils. The agreements executed by ONGC for services or facilities did not qualify for the exemption. The appeals were dismissed, affirming the High Court's decision and maintaining the strict interpretation of the exemption notification in line with the legislative intent and statutory language.