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TMI Blog1980 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... , negotiations took place and preliminary agreement was entered into between Birla Gwalior Private Ltd. and International General Electric Company (hereinafter referred to as " I.G.E. ") : division of the General Electric Company, U.S.A., according to which Birla Gwalior Private Ltd. agreed to promote a company in India to which I.G.E. agreed to supply a thermal power plant. The terms agreed to were recorded in the agreement dated November 12, 1963 (hereinafter called " the Agreement "). Under the agreement the purchase price was to be paid on deferred term basis and on the unpaid purchase price interest was payable to I.G.E. at 6 1/2 per cent. per annum. The agreement also contained clause (Pt. 1, cl. D-5) reading as follows? " I.G.E. intends to apply to the Government of India for exemption from the payment of taxes levied by the Government of India on the above interest payments. In the event such exemption is granted the rate of interest will be reduced to 6%. In the event such exemption is not granted, all such taxes will be for the account of I.G.E. " The company promoted, in accordance with the agreement, is Renusagar Power Company Ltd., the petitioner in this case. Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 776,058.75, shall be made in accordance with the following schedule of payments, the obligations to make such payments to be evidenced by four series of purchaser's unconditional negotiable promissory notes (labelled series 'A', 'B', 'C' and 'D') dated the contract Government of date. If seller receives an exemption from the Government of India on interest payments made by purchaser to seller, then the interest for that portion of the period from the 16th to the 30th month after the contract effective date remaining after the effective date of the exemption shall be computed at a rate of 6% rather than 6 1/2 per annum. " The last sentence of the said letter dated January 2, 1964, had called upon the petitioner to forward nine copies of the agreement as finally entered into with I.G.E. in due course. By letter dated September 10, 1964, the petitioner enclosed nine copies of the contract entered into with I G.E. as desired. The receipt of nine copies of the same was acknowledged in the letter dated October 8. 1964, when a request for three more copies of the same being furnished was also made. Mr. G. B. Doughnan of I.G.E. applied to the Govt. of India in the Ministry of Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner these items were part of the supply covered by the contract and were within the overall limit of the import, licence and the credit. The petitioner made another application on July 24, 1968, for approval of the rate of interest payable on deferred payment to the foreign supplier under s. 10(l5)(iv)(c) of the Act, on the purchase price of those items. That application was also made to the Govt. of India in the Ministry of Finance routed through the Ministry of Steel, Mines and Metals (which was the concerned Ministry at that time under the rules of business). The prescribed application in duplicate Form B for determining the rate of interest for exemption of interest payable on the debt/deferred payment incurred in a foreign country under s. 10(15)(iv)(c) of the Act, contained full information including the forwarding of the copy of the contract and the Ministry of Industry's (Metal Section) letter dated January 2,1964. The first impugned order dated September 11, 1968, says that the Govt. of India, in the Ministry of Finance, re-examined the entire case and found that the petitioner had been authorised by the Central Govt. to incur the foreign loans on certain specific ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... containing the provisions regarding the payment of interest at 61% taxable or 6% tax-free, if approved by the Government, were placed before the Govt. of India in the Ministry of Finance when the applications for a determination of the rate of interest for the exemption of the interest payable on the debt incurred in a foreign country under s. 10(15)(iv)(c) of the Act, were made. The counsel contends that pointed attention was invited to the terms of repayment for supplies as per art. III of the contract, to the rate of interest on the debt as per agreement and in reply to para. 7 when it was stated that the terms of the debt and its repayment were as per art. III of the contract which had been approved by the Govt. of India, Ministry of Industry, vide letter dated January 2, 1964. The impugned orders are vitiated, says the counsel, by errors apparent on the face of the record. There is no denial of the fact that the petitioner had been authorised by the Govt. of India in the Ministry of Industry in the letter dated January 2, 1964, to incur the foreign loans on certain terms including the term that the rate of interest would be 6 1/2% per annum and I.G.E. would itself be respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Finance records " The facts are as under : 'M/s. Renusagar Power Company had been granted an import licence No. 2076593 dated 26-12-64 for, c.i.f. value of Rs. 6,60,00,000 for the import of certain machinery from USA subject to the terms and conditions specified in Ministry of Industry (Metal Section's) letter No. 4(3)/Met/63 dt. 2-1-64. The terms stated therein are as under (1) 5% of the contract price after signing the formal sales contract. (2) 5% of the contract price against shipping documents. (3) 90% of the total contract price to be paid in sixteen equal consecutive semi-annual payments between 30 and 120 months from the date of formal sales contract. (4) 90% of the total contract price to be paid in sixteen equal consecutive semi-annual payments between 30 and 120 months from the date of formal sales contract. (5) Rate of interest will be 6 1/2 p.a. and General Electric Company, IGE Export Division, will be responsible for payment of Indian incometax on the interest. 2. Contrary to the rate of interest approved by the Ministry of Industry, para. 3 of article III of the contract provides also the rate of interest at 6% provided the Central Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a in the Ministry of Finance that interest at 6 1/2% per annum would be paid by the petitioner to I.G.E. if the incometax thereon was payable by I.G E. and the rate would be reduced to 6% if the Central Govt. approved this rate of tax-free interest for the purpose of s. 10(15)(iv)(c) of the Act. The process of reasoning recorded in the office note reproduced above clearly establishes that the Central Govt. had considered the terms contained in the Ministry of Industry's dated January 2, 1964 and the so-called variation in the rate of interest contained in the contract. The power of the Central Govt. under s. 10(15)(iv)(c) of the Act was confined to approving the rate of interest that would be exempt from income-tax and the Central Govt. approved 6% as the rate of interest exempt from tax in the exemption orders dated September 3, 1965, and June 7, 1967, after a complete appraisal of all the relevant facts and circumstances of the case. The only reason for the cancellation of the exemption orders recorded in the impugned order is that on a re-examination it was found that the Ministry of Industry approved the rate of interest at 6 1/2% per annum and the I.G.E. would itself be respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that order. But the second impugned order dated September 11, 1969, declines to grant the approval under s. 10(15)(iv)(c) of the rate of interest on the long-term loans for the purchase of structural steel and additional spares and accessories raised/debt incurred by the petitioner. It is, therefore, necessary to consider the second main submission for the reason that the application of the petitioner dated July 24, 1968, has to be reconsidered by the Central Govt. now. The submission of the, counsel for the petitioner is that the question regarding the fixation of the rate of tax-free interest had to be separately decided for the purpose of the Act and the decision had to be taken by the Central Govt. in the Ministry of Finance as was in fact done in the two exemption orders dated September 3, 1965, and June 7, 1967. In computing the total income of a previous year of any person, any income falling within any of the clauses under s. 10 of the Act has not to be included. Clause (iv)(c) of sub-s. (15) of s. 1O of the Act, prior to its amendment by the Finance Act, 1964, w.e.f. April 1, 1964, read as follows: "(iv) Interest payable . ...... (c) by an industrial undertaking in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Govt. for the purpose of exemption but by orders not necessarily of the Ministry of Finance. Reliance is placed on CIT v. E. Hiller [1977] 108 ITR 493 (Bom), where the Govt. of India in the Ministry of Commerce approved the appointment for the purposes of s. 10(6)(vii) ( a ). The question that falls for consideration then is whether the Govt. of India in the Ministry of Industry's letter dated January 2, 1964, was for the purposes of s. 10(l5)(iv)(c) of the Act. Under the Govt. of India (Allocation of Business) Rules, 1961, the business of the Govt. of India is transacted in the Ministries, Departments, Secretariats and Offices specified in the First Schedule to the Rules and the distribution of subjects among the departments is as specified in the Second Schedule to those Rules. The Ministry of Industry, now designated as the Ministry of Industrial Development, transacts the business of the Government in relation to the general industrial policy including the administration of the Industries (Development and Regulation) Act, 1951, and also in regard to industries and industrial and technical development for the purpose of planning, development and control of, and ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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