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TMI Blog2002 (5) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... here exists any illegality, irrationality or procedural impropriety in the decision. This court is not concerned with the merits of the decision. - - - - - Dated:- 31-5-2002 - Judge(s) : S. B. SINHA., A. K. SIKRI. JUDGMENT The judgment of the court was delivered by S.B. SINHA C.J.-The first-petitioner is a public limited company. It carries on business of manufacture of petrochemicals. The first-petitioner sought for permission to raise external commercial borrowings (in short "ECBs") amounting to US $ 300 million to finance their projects wherefor they filed an application before the second-respondent on March 15, 1993. On that application "in-principle" approval was issued by a letter dated June 5, 1995. The first and second approvals were issued for a sum of US $ 150 million each 1-258-10 bearing Nos. 6(50) of 1993-ECB and 6(358) of 1995 ECB by the second-respondent in terms of their letter dated July 19, 1995, and August 22, 1995, respectively. Pursuant to and in furtherance thereof the first petitioner entered into a syndicated loan agreement with foreign lenders to the tune of US $ 150 million. It raised balance against US $ 150 million through a bond issue. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second-respondent for raising the balance ECBs of US $ 342 million on or about September 13, 1996, in response whereto particulars regarding utilisation of ECBs by the first petitioner were elicited by the first-respondent. The first-petitioner requested that the expenditure incurred by it prior to such approvals the draw down of the ECBs should be treated as part utilisation of ECB proceeds in response whereto the second-respondent by its letter dated November 26, 1996, contended (i) The foreign currency expenditure of US $ 25.47 million, reported to be incurred prior to June 21, 1993, may not be eligible expenditure for utilisation of ECB unless this expenditure has been incurred after March 15, 1993. You are therefore requested to clarify how much of this expenditure was incurred after March 15, 1993. (ii) The second tranch of US $ 150 million from the initial ECB of US $ 300 million approved to you was drawn on September 22, 1995, whereas prior to this date, you have reported expenditure aggregating to US $ 324.61 million. Out of this expenditure, expenditure up to US $ 300 million can be adjusted against the ECB approved to you. In this regard, you are required to submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... longer required for the specified end-uses as the projects, for which the borrowings were made, have all been implemented with rupee resources. In this situation, there being no avenue left for utilisation of the off-shore ECB proceeds for the specified end-uses, RIL seeks approval for permission to utilise the same for prepayment/buyback of its outstanding ECBs of $ 1.3 billion." However, the second-respondent referred to all the approvals granted to it and stated: "Please refer to your letter No. RIL: DLH: 305(a) dated April 21, 1998, and letter dated December 16, 1998, on the abovementioned subject for payment of 20 per cent. and 100 per cent. of outstanding ECBS, respectively, by utilising ECB proceeds parked abroad. The matter has been examined. Since the above requests for the repayment from ECB proceeds held abroad were not found to be in conformity with the existing guidelines, these cannot be acceded to. 2. Further, it has been noted that the ECB funds raised above had not been utilised for the specified end-uses which is one of the essential terms of the ECB approval for availing relevant exemptions under section 10(15)(iv)(f) of the Income-tax Act, 1961. You are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g were made have all been implemented with rupee resources.' 5. Thus, there has been a breach of the condition of the ECB approvals by you. 6. Accordingly, the Government proposes to withdraw tax exemption granted to you under section 10(15)(iv)(f) of the Income-tax Act, 1961." The petitioner filed a detailed reply thereto on June 29, 2001, and also prayed for a personal hearing. The impugned order by the second-respondent was passed on February 5, 2002, holding: "One of the requirements for granting the tax exemptions under section 10(15)(iv)(f) of the Income-tax Act, 1961, is that the borrowing company would comply with terms and conditions of the loan approval conditions stipulated in the approval letters issued by this Department and those by RBI which create 'a continuing obligation' on the part of the borrowing company to comply with them in order to avail themselves of the benefit of tax exemption under section 10(15)(iv)(f) of the Income-tax Act, 1961. Therefore, utilisation of ECB funds for specified end-uses is one of the essential terms of ECB approvals for availing relevant exemption. 11. Your attention is invited to your letter No. RIL: DLHL: 305(a), dated D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been allowed to be set off against the own resources of the petitioner, thus, the question of violation of any terms of the approval would not arise. In any event, learned counsel would contend that since money was fungible it was neither possible nor proper to allocate expenditure incurred on import of capital goods and services at Patalganga, Hazira and Jamnagar, as originating from different funding sources. It was submitted that section 10(15)(iv)(f) of the Act is a "stand alone" provision and keeping in view the fact that the assessing authorities in relation thereto are to exercise their quasi-judicial powers, the first-respondent had no jurisdiction to issue the impugned order. Reliance, in this connection, has been placed on Orient Paper Mills Ltd. v. Union of India, AIR 1969 SC 48; Orient Paper Mills Ltd. v. Union of India [1970] 3 SCC 76; AIR 1970 SC 1498 and Sirpur Paper Mill Ltd. v. CWT [1970] 77 ITR 6 (SC). The expression used in section 10(15)(iv)(f) is absolutely clear submits Mr. Desai and by reason thereof, an implied jurisdiction in the Central Government cannot be read. Reliance, in this connection, has been placed on Hansraj Gordhandas v. H. H. Dave, AIR 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and Health Care Pvt. Ltd. v. Union of India [1997] 1 SCC 759; AIR 1997 SC 1623. The petitioner, the learned Attorney-General, would submit, having obtained the exemption and having not questioned its authority at any point of time now cannot be permitted to approbate and reprobate. Strong reliance has been placed on New Bihar Biri Leaves Co. v. State of Bihar [1981] 1 SCC 537; AIR 1981 SC 679. It has been pointed out that the petitioners have also not questioned the order passed by the Revenue authorities in this regard. Section 10 of the said Act occurs in Chapter III of the Income-tax Act. It deals with incomes which do not form part of the total income. Clause 10(15)(iv)(f) of the Act reads thus: "10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--... (15)(iv) interest payable--... (f) by an industrial undertaking in India on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government having regard to the need for industrial development in India, to the extent to which such interest does not exceed the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter contains the terms and conditions, some of which are: "3. One of the requirements for granting the tax exemptions under section 10(15)(iv)(f) of the Income-tax Act, 1961, is that the borrowing company would comply with terms and conditions of the loan approval. Conditions stipulated in the approval letters issued by this Department and those of RBI create 'a continuing obligation' on the part of the borrowing company to comply with them in order to avail themselves of the benefit of tax exemption under section 10(15)(iv)(f) of Income-tax Act, 1961. Therefore, utilisation of ECB funds for specified end-uses is one of the essential terms of ECB approvals for availing relevant exemption. 6. Accordingly, the Governor proposes to withdraw tax exemption granted to you under section 10(15)(iv)(f) of the Income-tax Act, 1961." It may not be necessary for us to refer to each one of the applications for grant of approval of the ECBs as also the order of approval passed thereupon. The petitioners are not correct in contending that they were compelled to approach the Government only because in one of the letters which was addressed to a wrong authority, the petitioner had been aske ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mic activity in the country. * Higher raw material costs, on account of depreciation of the rupee. * Inelasticity of demand, leaving no room to pass on increased costs to consumers. * Unfair competition (dumping) from Asia Pacific producers, as a result of negative demand growth in their respective countries. * Increased competitiveness of Asia Pacific producers, owing to sharpen relative depreciation of their respective currencies. The Asian economic crisis of the past 18 months has also provided many important lessons. The strongest of petrochemicals companies in the region, in the countries such as Thailand, Indonesia and South Korea, having run into severe financial difficulties, and virtually become insolvent. Their underlying weakness has been their large FX exposures arising from borrowings made in hard currencies, to create domestic assets and no subsequent mechanism to cover FX risks/exposures. RIL's ability, to not just survive, but grow, in this challenging environment reflects the soundness of its decision to implement its projects with rupee resources, and not carry open FX exposures. Proposal for utilisation of the ECB proceeds retained abroad were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r letter EC.CO.IMD (II) 2097/03.02.192 (Policy) 1998-99 dated November 30, 1998. Documentary evidence in support of the repatriation of these funds may be submitted to our Mumbai regional office within a period of one month from the date of receipt of this letter. This also disposes of your representation dated December 16, 1998, to the Government of India." The respondent by a letter dated April 12, 1999, inter alia, stated: "Please refer to our letter No. RIL: DLH: 305(a) dated April 21, 1998, and letter dated December 16, 1998, on the abovementioned subject for pre payment of 20 per cent. and 100 per cent. of outstanding ECBS, respectively, by utilising ECB proceeds parked abroad. The matter has been examined. Since, the above requests for the prepayment from ECB proceeds held abroad were not found to be in conformity with the existing guidelines, these cannot be acceded to. 2. Further, it has been noted that the ECB funds raised above had not been utilised for the specified end-uses which is one of the essential terms Of the ECB approval for availing relevant exemptions under section 10(15)(iv)(f) of the Income-tax Act, 1961. You are, therefore, not entitled to any tax be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 10(15)(iv)(f) of the Act in fact clearly indicate that the entire matter concerning the utilisation of the ECB proceeds, is wholly extraneous and irrelevant, for the purposes of granting or disallowing an exemption under that section, and the same is not a condition precedent for the grant of exemption under that section. In other words, approval or grant of an exemption under that section is not conditional upon any particular end-use that the proceeds have to be put to or even conditional on that proceeds being utilised for approved end-use only. Both these conditions operate in totally different spheres." Therein also the authority of the Central Government has not been questioned. The contention of the petitioners that grant of an exemption under that section was not conditional upon any particular end-use that the proceeds have to be put to or even conditional on the proceeds being utilised for approved end-use only would be contrary to the grant of such approvals, inter alia, on the ground that the ECBs had not been substantially utilised for the specified period nor have they been holding any foreign current account in India. The petitioners have also acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch decision, and it said that if sub-section (2) of section 52 was literally construed, as applying to cases where the consideration in respect of the transfer was correctly declared and there was no understatement of consideration, it would result in amounts being taxed which had neither accrued to the assessee nor were received by him and: 'which from no viewpoint can be rationally considered as capital gains or any other type of income. It is a well settled rule of interpretation that the court should as far as possible avoid that construction which attributes irrationality to the Legislature.' It was also found that, so construed, sub-section (2) was violative of the Constitution and the court (page 618): 'must obviously prefer a construction which renders the statutory provision constitutionally valid rather than that makes it void.' The court said in the course of the judgment: 'It is now a well settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even 'do some v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny cost, and the very authority who have granted such certificate of exemption would ensure that the obligation imposed on the persons availing of the exemption notification are being duly carried out and on being satisfied that the said obligations have not been discharged they can enforce realisation of the customs duty from them." Mr. Desai, however, submits that the Supreme Court subsequently in A. P. State Financial Corporation v. Vajra Chemicals [1998] 94 Comp Cas 96; [1997] 7 SCC 76; AIR 1997 SC 3059, has taken a contrary view. The apex court in its later decision clarified that the two different Division Benches had taken contrary views only on one question as has been stated to have not laid down the correct law, i.e., the benefit of exemption notification was extended to the petitioner therein on a wrong premise. The petitioner in the instant case has taken inconsistent and contrary stand. It accepts that it has approached the Government of India and obtained the exemptions. It also accepted that such exemptions had been subject to certain terms and conditions. It, therefore, in our opinion, has rightly been submitted by the learned Attorney General that the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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