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TMI Blog2011 (9) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... loan to the extent of USD 41.093 million from various banks vide Facility Agreements dated 14.3.2001 and 12.4.2001. The fiscal agent in respect of the said loan was ANZ Investment Bank. Various ECB loans were raised by the Appellant and the approval from Government of India was obtained for taking the loans through following letters: S.No. Letter No. and dated Amount (USD Million) 1. F.No.6(50)/93-ECB, dated 19.7.1995 and subsequent letter dated 22.9.1995 and 15.2.1996 (loan Key No.1995145) 150 2. F.No.6(358)/95-ECB, dated 22.8.1995 and subsequent letter dated 19.2.1997 150 3. F.No.6(578)/95-ECB, dated 28.5.1996 (sanction No.60) 200 4. F.No.6(578)/95-ECB, dated 28.5.1996 superseded by letter dated 30.7.1996 (sanction No.61) 100 5. F.No.6(578)/95-ECB, dated 6.1.1997 and subsequent letter dated 10.2.1997(sanction No.666) 100 6. F.No.6(578)/95-ECB, dated 6.1.1997 and subsequent letter dated 10.2.1997 (sanction No.667) 214 7. F.No.6(49)/97-ECB, dated 21.7.1997 and subsequent letter dated 31.7.1997 for both Tranche-I & II Tranches I:GBP 150 Million. II:USD 150 Million Total not to exceed USD 405 million Subsequently on account of its certain non-p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, for the default committed by the borrowers in India, non-resident lenders cannot be punished. The ld. CIT(A) after referring to the binding nature of the decision of the Tribunal in view of the ratio of the decision in Bank of Baroda v. H.C. Shrivatsava [2002] 256 ITR 385 (Bom.) and Agrawal Warehousing & Leasing Ltd. v. CIT [2002] 257 ITR 235 (MP) and the appellate orders dated 11.5.2007 and 23.5.2007 on the identical issue held that exemption withdrawn by the Central Government holding interest as not exempt u/s 10(15)(iv)(f) is to be ignored and the interest payment by the appellant to the non-resident lenders as per ECB loan approved by the Central Government would continue to be exempt. Accordingly, he held that the interest payment of Rs. 18,90,161/- is not chargeable to tax in India and deleted the addition made by the AO. 4. Being aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us. 5. The common ground taken by the Revenue in appeals in ITA No.2046, 2057, 2058 and 2059/Mum/2008 read as under: "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that exemption withdrawn by the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e referred to the Special Bench. He, therefore, submits that the order passed by the AO be restored. 8. On the other hand, the ld. counsel for the assessee, at the outset, submits that this issue is squarely covered against the Revenue and in favour of the assessee by the following decisions: (i) Asstt. DIT(IT) v. Reliance Industries Ltd. IT Appeal No.901/Mum/2008, (AY-2003-04) dated 29.9.2009. (ii) Asstt. DIT(IT) v. Reliance Industries Ltd. IT Appeal Nos.5407 & 5408/Mum/2007, (AY-2003-04) dated 15.4.2009. (iii) Reliance Industries Ltd. v. Dy. DIT(IT) IT Appeal Nos. 5966, 5968/Mum/2002 & 4118/2003 dated 23.3.2006. (iv) Reliance Industries Ltd. case (supra) He further submits that the Tribunal in the case of Reliance Industries Ltd. (supra) after considering the decision of the Hon'ble Delhi High Court in the case of Reliance Industries Ltd. (supra) wherein it has been observed and held in para 34 that "The question which survives for consideration now is as to whether by reason of the impugned order the Central Government issued any direction to statutory authorities. In the instant case no action had been taken as a result whereof the quasi-judicial authorities became denude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the issue raised before us on proper perusal of the material placed before us. The appellant was aggrieved and the issue arises from an order passed u/s. 195(2) of IT Act dated 13/2/02, relevant portion already reproduced supra, through which the assessee was directed to remit the interest only after deducting withholding tax @ 20%. In fact the appellant has moved an application seeking a "No Objection Certificate" in respect of remittance of interest of US $ 1,05,902.78 to M/s. Deutsche Bank, AG London without deduction of with holding tax at source. This request was rejected by the concerned authority i.e Dy. Director of Income Tax (International Taxation), Mumbai vide impugned order u/s.195(2) of IT Act on the ground that the exemption u/s./10(15)(iv)(f) in respect of interest payment had already been withdrawn by Government of India vide its communication dated 5/2/2000. So the interest was held to be liable to withholding tax in India. The first appellate authority has also dismissed the plea of the assessee and affirmed the action of the A.O in a brief order, relevant portion already reproduced supra. We have also narrated in above paras the facts and figures of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first appellate authority as well as the Tribunal both are competent to decide this issue being duly authorized by the above cited provision of IT Act. 15. Now, we have to answer the first question about the jurisdiction of this Tribunal keeping in view the order of Hon'ble Delhi High Court and the SLP decided by the Hon'ble Apex Court. On careful reading of the order of the Delhi High Court it is implicit that the Court was aware of the fact that vide an order u/s.195(2) dated 13/2/02 the application of the assessee had been rejected. Further the Hon'ble Court was also aware that an appeal had been preferred by the appellant against the said rejection before the first appellate authority i.e. Ld. CIT (A) vide para-13 the Hon'ble Court in the said order has clearly mentioned about these facts. Being fully aware of the entire situation and the circumstances under which the exemption was withdrawn resulting into direction of 20% deduction of tax the Hon'ble Court at page-159 placitum "H" has observed as follows: "The question which survives for consideration now is as to whether by reason of the impugned order the Central Government issued any direction to the statutory authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of jurisdiction whether lies with the Tribunal, or not, in above para, still we deem it proper to consider a step further that whether the Tribunal has jurisdiction to look into the question as whether the decision of the Central Government and withdrawal of exemption was correct. In this connection an argument was placed before us that an Act is the supreme considering the hierarchical levels i.e the supreme is the Act then comes the rule made there under, next is the position of notification and the last is letters or approvals. It was argued with supporting case laws that the rules must be sub-servient to the provisions of the section enacted in a statute. In the case of CIT v. New Citizen Bank of India, 58 ITR 468 the Hon'ble Bombay High Court has also observed, "when a rule is made under a particular section it is the section which controls and governs the rule and the rule must be construed in the light of the decision and not vice-versa". So the basic question is that once because of the letter or notification the provisions of the statute have been negated or diminished by an executive order then what is the course left to a tax payer. Naturally the answer is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esulting in an anomalous situation. The primary and the only object of the income-tax Act is to tax, tax and tax the income. If the legislature in its wisdom grants a concession and by creating a concession a reciprocal right or privilege is vested in a assessee, such a reciprocal right cannot be wildly dealt with so as to negate its usefulness by making a rule which cannot be reconciled with the main statutory provision. The object of the subordinate legislature is to carry out the statutory provisions effectively and not to neutralize or contradict them. The rules made under the rule-making power should strictly conform with the intendment of the main provisions of the statute and can be consistent therewith...................................." (iv) CIT v. Bombay State Transport Corporation, 118 ITR 399 (Bom.), wherein vide page 405 observed as under: "It would appear to us that there is much to be said in favour of the view that it is not within the competence of the rule-making authority. To put it in other words the rule made in this manner which provides for a nil percentage of depreciation on a certain class of asset, or in class of cases, to use the language of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion but an impermissible attempt to rewrite the section. The last condition imposed by the said notification is that the deduction shall be spread out equally over a period of five years commencing with the assessment year relating to the previous year in which the amount was paid. This too is in "condition" but a provision super added to the section which does not contemplate any such distribution of the deduction. Under the section the deduction is available in the assessment year relating to the previous year in which the payment was made and it must be so granted. The second and third conditions aforesaid are not valid". 17. The purpose of above discussion by reproduction of relevant extracts of certain precedents is to ascertain whether the Tribunal has its role in deciding the issue cropped up on account of a rule or notification or any such decision taken by sub-ordinate quasi-judicial authority. On careful reading of the above decisions it is implicit that the Tribunal does have the power to deal with the validity of such rules or notification and by applying the doctrine of "reading down" can strike down such rules if held to be in contradiction with the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed authority before approving the loan. The company has raised foreign currency loan in the past as an External Commercial Borrowings (ECB). In this regard several correspondence has been made with the Government of India and the loan was approved by the Director (ECB), Department of Economic Affairs, Ministry of Finance, North Block, New Delhi. As far as the approval of loan and the sanctioning of agreement is concerned the same is not in dispute and it is an admitted fact supported by several correspondence and letters written may back since 1993 onwards. There is a reference of such correspondence in the above paras of this order and the paper book contains the copies of all those letters and approvals. To finance its project of Jamnagar Petro Chemical Complex, External Borrowings were made in terms of the policy of Government of India granting permission for ECB to be utilized by industrial undertakings in India. Under this plan the company had made several application to Government of India from time to time and obtained permission to raise ECB loans in foreign exchange. Further an application was moved to raise the loans upto US $ 4.25 million. In this regard Dy. Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleaded that once a loan agreement was approved them it was obligatory in law to grant exemption to such interest which became payable as a result of a loan agreement. It is also stressed before us that not only the exemption was withdrawn but in the mid way a condition of end use of ECB proceeds was arbitrarily and illogically imposed. Arguments in this regard was that there was no such condition of specific end use of ECB proceeds in the provisions of the statute. As there was no such condition laid down in the statute itself, then a rule or any such direction should not be imposed which happened to be in contradiction of the main governing section, in this regard several case laws were cited. The provision of the statute provides in an unambiguous terms to grant exemption in respect of interest payable to an international investor who has lent money to industrial undertaking in India under a loan agreement as approved by the Central Government. The Counsel from the side of the appellant has emphasized the phase "having regard to the need for industrial development in India" used in the said provision. The Government of India has properly regarded the need for industrial developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the change of the rule was in respect of a game already played to alter its outcome. A retrospective or ex post facto change in such a manner is an arbitrary approach having no legal sanctity. 20. Nevertheless, on merits as well it was argued that the funds were rightly utilized as prescribed under the scheme. While discussing the arguments of ld. A.R in above paras we have noticed that an explanation was offered about the utilization of ECB. In these paras we have noted that ld. A.R has referred certain letters addressed to the Dy. Director (ECB) giving details of the utilization of ECB. For the same of brevity there is no need to reiterate again the submissions in this regard. On page-40 of the compilation there is a letter dated 26/11/96 issued by Ministry of Finance seeking details of utilization of ECB proceeds and therein para (ii) was specifically mentioned, verbatim reproduced herein above, through which it was indicative that the authorities were aware about the utilization of ECB by adopting two modes i.e funding through foreign currency and also utilization of own resources. In para (i) of the said letter dated 26/11/96 the Dy. Director (ECB) has indicated the utilizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical services rendered. The Supreme Court upheld the contention of the assessee and held that two way traffic was unnecessary. To insist on a formal remittance to the foreign reinsurers first and thereafter to receive the commission from the foreign reinsurer would be an empty formality and a meaningless ritual. The statement of remittance having been filed with the Reserve Bank of India, in effect the income was received in convertible foreign exchange in a lawful and permissible manner. 21. On relying upon these decisions the alternate plea as made before us is that even assuming that end user restriction could have been imposed by the Central Government ex post facto even then the appellant company had in fact invested or utilized far more foreign currency in US dollar for capital goods and services in respect of the Jamnagar Petro Chemical Complex. To establish the total utilization of funds certain facts and figures in the form of charts have been placed before the concerned authorities and it was argued that the figures shown were not in dispute. It is also argued that the undisputed and unchallenged factual position was that the total utilization of funds was much mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge the same in appropriate proceedings if permissible in law. Following the view expressed by Their Lordship in the said judgment the appellant company has thereafter approached the quasi-judicial and judicial authorities step by step. All such attempts of redressal remained unsuccessful so the issue has now reached upto the stage of second appeal i.e before us. In other words, an order u/s. 195(2) was passed which was challenged by invoking the provisions of section 248 before the first appellate authority i.e. ld. CIT (A) and on rejection of appeal the matter was carried further, so the jurisdiction of the Tribunal does lie to adjudicate upon this appeal. An ancillary issue of withdrawal of exemption was raised and it was necessary to first settle that issue to arrive at a right conclusion to get this appeal decided. As we have already observed the executive has changed the rules of the scheme in mid-way which had already been followed as well as acted upon and the change was such to alter its outcome altogether. As we have observed supra the issue of utilization of ECB funds was for the first time raised when the entire scheme was at its fag end. According to the company the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 966, 5967 & 5968/Mum/2002 & ITA No.4118/2003, dated 23.3.2006. We further find that the Revenue has challenged the above orders of the Tribunal before the Hon'ble Jurisdictional High Court and the High Court has also dismissed the Revenue's Notice of Motion vide decision dated 20.6.2011. 11. The Hon'ble Supreme Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321 has held (head note, page 322): "Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 12. For the reasons as discussed above and in the absence of any contrary decision brought on record by the Revenue and keeping in view the consistency, we respectfully following the decision of the Tribunal and Hon'ble Supreme Court (supra) uphold the order of the ld. CIT(A) in allowing the appeals of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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