Case Law Details

Case Name : Oil & Natural Gas Corporation Vs CIT (Supreme Court of India)
Appeal Number : Civil Appeal no. 730/2007
Date of Judgement/Order : 01/07/2015
Related Assessment Year :
Courts : Supreme Court of India (998)

Issue before Court:

Whether certain govt. agencies (ONGC) in agreement with foreign companies would entitle for the exemption of surtax under notification no. GSR 307 (E) dated 3.1983.

Brief facts:

  • ONGC (A person authorised by central govt. by notification dated 02.08.1989) had executed agreements with different foreign companies for services or facilities or for supply of ship, aircraft, machinery and plant, as may be, all of which were to be used in connection with the prospecting or extraction or production of mineral oils.
  • Such agreements do not contemplate a direct association or participation of the ONGC 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 primary authority, competent to frame assessment, took the view that the agreements executed by the ONGC with the foreign companies being for services to be rendered and such agreements not being for association or participation in the prospecting or extraction or production of mineral oils, would not be entitled for exemption under notification GSR 307 (E).
  • The agreements in question, according to assessing authority, were, “Service Agreements” and hence covered by sub-section 2(b) of Section 24-AA of the Surtax Act and were accordingly beyond the purview of the exemption notification.
  • The said view taken by primary authority was reversed by CIT (A) which was upheld by ITAT later on. On appeal by revenue Hon’ble High Court of Uttrakhand overturned the view of CIT (A) & ITAT.
  • Section 24-AA of the Surtax Act vests in the Central Government the power 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.

Contention of the revenue:

  • Section 24-AA and the exemption notification must be construed by its plain and unambiguous language which indicates two separate situations in respect of which power to grant exemption is conferred by section 24-AA.
  • Central Government has also been empowered to grant exemptions in respect of the situations covered by sub-section 2(b), namely, where only services are provided.
  • Central Government while issuing the exemption notification dated 31.3.1983 had clearly chosen to grant exemption in respect of situation covered by sub-section 2(a) of Section 24-AA, alone, namely, in respect of agreements with foreign companies resulting in direct association or participation of the Central Government or the authorized person in the business of prospecting or extraction or production of mineral oils.
  • Situations where the foreign Company is providing services or making available plant or machinery though may be connected in the business of prospecting, extraction or production of mineral oils are clearly excluded from the purview of exemption by the notification.

Contention of the assessee:

  • The exemption notification contains/uses the same language as found in sub-section 2(a) of Section 24-AA of the Surtax Act.
  • Its applicability should be understood with reference to the existence of agreement with the foreign companies rather than the immediate purpose of such agreement, namely, involvement of the Central Government or the authorized person in the business of prospecting or extraction or production of mineral oils.
  • It is further argued that regardless of the fact whether the agreement brings about association or participation of the Central Government or the authorized person in such business of prospecting or extraction or production of mineral oils or such agreement results in rendering of service.
  • Rendering of such service is directly associated with the business of prospecting or extraction or production of mineral oils, Sub-section 2(a) of Section 24-AA of the Surtax Act must be understood to include even such foreign companies with whom the ONGC had executed agreements to provide such services or to make available plant or machinery.

Held by the court:

  • Reading the notification No. GSR 307(E) dated 31.3.1983 it clearly appears that the exemption has been granted only to foreign companies with whom the Central Government had executed agreements for direct association or participation by the Central Government or the persons authorized by it (ONGC) in the prospecting or extraction or production of mineral oils.
  • In other words, the exemption notification 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.
  • There is no merit found in this case. Hon’ble High Court have correctly overturned the decision of ITAT.

Conclusion:

Meaning of the notification should be strictly understood as per its language. The scope of the grant cannot be enhanced or expanded by a judicial pronouncement which is what the arguments made on behalf of the appellants intend to achieve.

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