A person who claims exemption in respect of Companies (Profits) Surtax Act, 1964 (‘Surtax Act’) has to establish his entitlement to that exemption.
The present set of appeals raises issue arisen from the assessments in question made under the provisions of the Companies (Profits) Surtax Act, 1964 (‘Surtax Act’), that imposes an additional tax, apart from income-tax, on the income of a company. It is a tax on so much of the “chargeable profits” of a company of the previous year as exceeds the statutory deduction at the rate specified in the Act.
In the present set of appeals instituted by the Oil and Natural Gas Corporation (ONGC) a common question of law had arisen for adjudication which revolved around the true and correct purport and effect of exemption as provided for in notification bearing No.GSR 307(E) dated 31.03.1983 issued under Section 24AA of the Surtax Act.
Section 24-AA of the Surtax Act empowers Central Government to make exemption, reduction in rate or other modification in respect of Surtax in favour of any class of foreign companies which are specified in sub-section (2), in regard to the whole or any part of the chargeable profits liable to tax under the Surtax Act. Sub-section (2) of Section 24-AA refers to two categories of foreign companies. The first is foreign company with whom the Central Government has entered into agreements for association or participation, including participation by any authorized person, in any business consisting of the prospecting or extraction or production of mineral oils. The second category of foreign company is that company which may be providing services or facilities or supplying any ship, aircraft, machinery or plant in connection with any business of prospecting or extraction or production of mineral oils carried on by the Central Government or any authorized person. The Section specifically states that mineral oils will include petroleum and natural gas.
The exemption notification bearing No.GSR 307(E) dated 31.3.1983 specifically granted exemption in respect of surtax in favour of foreign companies with whom the Central Government has entered into agreements for association or participation of that Government or any authorized person in the business of prospecting or extraction or production of mineral oils.
In the present appeals, ONGC had executed agreements with different foreign companies for services or facilities or for supply of ship, aircraft, machinery and plant, as may be, to be used in connection with the prospecting or extraction or production of mineral oils. Such agreements did not contemplate a direct association or participation of the ONGC (a person authorized by the Central Government by notification dated 2.8.1989) in the prospecting or extraction or production of mineral oils but involved the taking of services and facilities or use of plant or machinery which is connected with the business of prospecting or extraction or production of mineral oils. The assessing authority took the view that the agreements executed by ONGC with the foreign companies being for services to be rendered and not for association or participation in the prospecting or extraction or production of mineral oils, would not be covered by the exemption notification, which granted exemption only to foreign companies with whom there were agreements for participation by the Central Government or the person authorized in the business of prospecting, extraction or production of mineral oils. The agreements in question were held as “Service Agreements” covered by sub-section 2(b) of Section 24-AA of the Surtax Act, which were beyond the purview of the exemption notification.
The Court took reference of CCE, New Delhi vs. Hari Chand Shri Gopal and Ors., reported as (2011) 1 SCC 236 to understand the issue of grant and claim of exemption. It was held in the above case that, “a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption.”
In the present case it was observed that as per Section 24-AA of the Surtax Act the power to grant exemption by Central Government is two-fold and covers agreements directly associated with the prospecting or extraction or production of mineral oils or contracts facilitating or making services available in connection with such a business. There is nothing in the provisions of the Act which could have debarred the Central Government from granting exemptions to both categories of foreign companies mentioned above or to confine the grant of exemption to any one or a specified category of foreign companies.
The notification in question confines or restricts the scope of the exemption to only one category of foreign companies which has been specifically enumerated in sub-section 2(a) of Section 24-AA of the Surtax Act. The second category of foreign companies that may be providing services as enumerated in sub-section 2(b) of Section 24-AA is specifically omitted in the exemption notification.
The power under Section 24-AA of the Surtax Act is wide enough to include even this category of foreign companies. The omission of this particular category of foreign companies in the exemption notification, notwithstanding the wide amplitude and availability of the power under Section 24-AA, clearly reflects a conscious decision on the part of the Central Government to confine the scope of the exemption notification to only those foreign companies that are enumerated in and covered by sub-section 2(a) of Section 24-AA of the Surtax Act.
Section 24-AA of the Surtax Act was introduced by Finance Act, 1981 with effect from 1.4.1981 with the intent to encourage foreign companies to enter into participating contracts with the Union Government in the business of oil exploration or production. It was also the legislative intent 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. This legislative intent 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. Any such interpretation must, therefore, be avoided.
The appeals filed by ONGC were accordingly dismissed thereby affirming the view adopted by assessing authority.
[Oil & Natural Gas Corporation Limited vs. CIT & Anr.]
(SC, 01.07.2015)
Civil Appeal No. 730 of 2007 & other connected appeals