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TMI Blog2013 (7) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... The judgment of the court was delivered by Sanjiv Khanna J.-Joshi Technologies International Inc., a company incorporated in the United States of America seeks mandamus that they are entitled to the benefit under section 42 of the Income-tax Act, 1961 ("the Act", for short), in respect of the two production sharing contracts ("PSCs", in short) both dated February 20, 1995, for oil fields in Dholka and Wavell, Gujarat. The factual background in brief is that the petitioner along with Larsen and Toubro Ltd. (who subsequently assigned and transferred their rights in favour of the petitioner), were the successful bidders in the notice inviting tender, dated December 31, 1992 ("1992 NIT"). The "petroleum profit" was/is to be shared as per the terms of the production sharing contract between the Government of India, Ministry of Petroleum and Natural Gas and the petitioner. The two production sharing contracts have duration of 18 years from their effective date and have extension provisions. The petitioner in the returns for the assessment years 2001-02, 2003-04 and 2004-05, claimed and was allowed deductions under section 42 of the Act. However, in respect of the assessment year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and made in the manner specified in the agreement, the other provisions of this Act being deemed for this purpose to have been modified to the extent necessary to give effect to the terms of the agreement. (2) Where the business of the assessee consisting of the prospecting for or extraction or production of petroleum and natural gas is transferred wholly or partly or any interest in such business is transferred in accordance with the agreement referred to in sub-section (1), subject to the provisions of the said agreement and where the proceeds of the transfer (so far as they consist of capital sums). (a) are less than the expenditure incurred remaining unallowed, a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of transfer, shall be allowed in respect of the previous year in which such business or interest, as the case may be, is transferred ; (b) exceed the amount of the expenditure incurred remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred in connection with the business or to obtain interest therein and the amount of such expenditure remaining unallowed, shall be chargeabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sharing contract (MPSC, for short), were a part of the 1992 NIT. The terms and conditions of the model production sharing contract served as a basis for bid evaluation process. Article 16 of the model production share contract dealt with taxes, royalties, rental, etc., and article 16.2 provided for the benefits under section 42 of the Act. Thus, the model production sharing contract was a part of notice of the 1992 NIT and was a part of the contracts in questions, i.e., the two production sharing contracts. (b) On June 22, 1992, the Ministry of Petroleum and Natural Gas had sought opinion of the Ministry of Law, Justice and Company Affairs, whether the benefit under section 42 could be availed of and granted under contracts involving public-private participation. The Ministry of Law, Justice and Company Affairs, vide their written opinion dated July 21, 1992, affirmed and stated that the language of section 42 was in pari materia with the language of section 293A and that, vide the production sharing contracts, which involved participation of the Government in the form of share in production, concessions as to tax could be granted under sections 293A and 42 of the Act. (c) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned. The Ministry of Finance was requested to issue necessary clarification. (g) The Ministry of Petroleum and Natural Gas in their letter dated April 28, 2008, had again reiterated that non-failure to refer to section 42 in the 13 production sharing contracts was an oversight in isolated cases, as in all other production sharing contracts signed till then under pre-NELP, included stipulation for the benefit under section 42 of the Act. It was further stated that in the case of seven production sharing contracts, two operated by the petitioner and five operated by NIKO Resources Ltd. located in the State of Gujarat, the Assessing Officer/tax authorities had disallowed the claim/benefit under section 42 of the Act and levied tax. The Ministry of Finance was requested to concur with the suggestion/recommendation of the Ministry of Petroleum and Natural Gas with regard to the applicability of the benefit under section 42 to these 13 production sharing contracts. (h) The requirement under section 42 of the Act is that the contract should be laid before Parliament, as a condition subsequent and is not a prior condition and, therefore, even now the production sharing contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parks and other royal possessions for the purpose of innocent recreation and exercise' it was provided that any rules made in pursuance of the First Schedule to the Act shall be forthwith laid before both Houses of Parliament, if Parliament be sitting, or if not, then within three weeks after the beginning of the then next ensuing session of Parliament ; and if any such rules shall be disapproved by either House of Parliament within one month of the laying, such rules, or such parts thereof as shall be disapproved shall not be enforced and rules for Hyde Park were made and published on September 30, 1872, when Parliament was not sitting and in November 18, 1872, the appellant was convicted under section 4 of the Act for that he did unlawfully act in contravention of regulation 8 contained in the First Schedule annexed thereto by delivering a public address not in accordance with the rules of the said park but contrary to the statute, and it was, inter alia, contended on his behalf that in the absence of distinct words in the statute stating that the rules would be operative in the interval from the time they were made to the time when Parliament should meet next or if Parliament wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in Delhi. Even if a part of the cause of action arises within the jurisdiction of this court, the writ petition is maintainable and can be entertained by this court. The question of forum convenience, in the present case, does not arise, as the issue raised, is limited and substantially arises in Delhi, as the production sharing contracts were executed in Delhi. Further, the two Ministries, the Ministry of Finance and the Ministry of Petroleum and Natural Gas, have been made parties and their files/relevant records are in Delhi. Similarly, preliminary objection that the writ petition should not be entertained, as it relates to a contractual dispute, has to be rejected. The dispute or the cause of action raised pertains to what was allegedly agreed and accepted between the petitioner and the Ministry of Petroleum and Natural Gas. The dispute does not pertain to the interpretation of the two production sharing contracts. The writ courts have jurisdiction to entertain contractual issues when justified and necessary, as per the ratio expounded and explained by the Supreme Court in Kumari Shrilekha Vidyarthi v. State of U. P. [1991] 1 SCC 212 and ABL International Ltd. v. Export Cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er this contract shall be subject to all fiscal legislation in India except where, pursuant to any authority granted under any applicable law, they are exempted wholly or partly from the application of the provisions of a particular law or as otherwise provided herein."Clause 15.3 and 15.4 read as under : "15.3 If any change in or to any Indian law, rule or regulation by any authority dealing with income-tax or other corporate tax, export/import tax, customs duty or tax imposed on petroleum or dependent upon the value of petroleum results in a material change to the economic benefits accruing to the parties after the effective date of the contract, the parties to this contract shall consult promptly to make necessary revisions and adjustment to the contract in order to maintain such expected economic benefits to the parties. 15.4 (a) No customs duties or other import duties are applicable on equipment and materials imported solely for use in petroleum operations in the contract area. (b) The contractor shall not be liable for payment of sales tax on sale of crude oil to the Government/its nominee, which shall be payable by the buyer." There is no reference to section 42 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the petition is for the exploratory blocks offered during the same period and not for the discovered fields as that of the petitioner. It is also submitted that if the position taken by the petitioner is accepted as correct that the model production sharing contract used for purposes of bid evaluation and execution of contract included article 16 and section 42, the petitioner, at the time of negotiating the production sharing contract, should have prevailed upon the Government for including the relevant section in the executed contract, which was not done by the petitioner. It is, therefore, submitted that the petitioner cannot put the onus on the respondent for not including the relevant section of the Income-tax Act in the production sharing contract. It is pertinent to state that the signed production sharing contract did not specifically provide for applicability of section 42 of the Income-tax Act . . . 9. That it is submitted that as against the 1992 NIT, only 13 production sharing contracts for small sized fields were signed, out of which the two production sharing contracts signed with the petitioner are part of these production sharing contracts. The other production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not being given the benefit under section 42 of the Act and other production sharing contracts where the benefit has been given, the respondents have stated that the 13 production sharing contracts were in respect of small oil fields which had already been discovered and, therefore, the risk factor was less. The other production sharing contracts were in respect of undiscovered oil fields, and, therefore, the respondents had agreed and accepted that the benefit under section 42 should be granted. In view of the explanation given by the respondents, it cannot be said that the respondentMinistry of Petroleum or Natural Gas, in the present case, had deliberately withdrawn the benefit, which was initially envisaged but due to an oversight was not recorded or mentioned in the written contract. The respondents have stated that the benefit under section 42 was granted in respect of undiscovered oil fields and not in respect of discovered small oil fields. The petitioner in their affidavit dated August 3, 2009, have tried to controvert the said statement/averments and stated that in 1994-95, production sharing contracts were signed for Rawa Oil Field and Panna Mukta Oil Fields. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st, however, express our displeasure and anguish over the averments made in the additional affidavit dated March 23, 2012, filed by respondent No. 1. It was stated in the additional affidavit that "Petroleum profit" is shared between the Government of India and the petitioner at the rates agreed under article 14.2.1 and it does not include income-tax as a contract cost. This is not fully factually correct as the petitioner has filed before us a copy of the reconciliation and financial statement for the year 2006-07, with and without the benefit under section 42 and it is pointed out that "petroleum profit" has been calculated with reference to the benefit under section 42. Our attention is rightly drawn by the petitioner to the letter dated November 11, 2009, written by the Ministry of Finance, Department of Revenue. In paragraph (I), of the said communication, it is stated that the Government's share of "petroleum profit" may be impacted due to changes in the investment multiple/post tax rate of return but the extent of impact cannot be predicted reliably. The Ministry of Petroleum and Natural Gas should have been careful while filing and making the said averment. Even if the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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