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                                                                          REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL  NO. 730 OF 2007

OIL & NATURAL GAS CORPORATION LIMITED         ...APPELLANT (S)

VERSUS

COMMISSIONER OF INCOME TAX & ANR.  ... RESPONDENT (S)

WITH

CIVIL APPEAL NO.728 OF 2007 CIVIL APPEAL NO.732 OF 2007 CIVIL APPEAL NO.734 OF 2007 CIVIL APPEAL NO.735 OF 2007 CIVIL APPEAL NO.739 OF 2007 CIVIL APPEAL NO.742 OF 2007 CIVIL APPEAL NO.4140 OF 2007 CIVIL APPEAL NO.4785 OF 2007 CIVIL APPEAL NO.4787 OF 2007 CIVIL APPEAL NO.4790 OF 2007 CIVIL APPEAL NO.6009 OF 2007 CIVIL APPEAL NO.6010 OF 2007

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CIVIL APPEAL NO.6014 OF 2007 CIVIL APPEAL NO.6015 OF 2007 CIVIL APPEAL NO.6017 OF 2007 CIVIL APPEAL NO.6018 OF 2007 CIVIL APPEAL NO.6019 OF 2007 CIVIL APPEAL NO.6022 OF 2007 CIVIL APPEAL NO.2009 OF 2008 CIVIL APPEAL NO.4315 OF 2008 CIVIL APPEAL NO.4316 OF 2008 CIVIL APPEAL NO.4318 OF 2008 CIVIL APPEAL NO.4319 OF 2008 CIVIL APPEAL NO.4320 OF 2008 CIVIL APPEAL NO.4322 OF 2008

J U D G M E N T

RANJAN GOGOI, J.

1. A  short  and  precise  question  which  is  common  to  all  the

appeals  under  consideration  has  arisen  in  the  present  group  of

appeals instituted by the Oil and Natural Gas Corporation (ONGC)

which has been assessed as a representative assessee within the

meaning  of  Section  160-A  of  Income  Tax  Act,  1961.  The

assessments in question have been made under the provisions of

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the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as

the ‘Surtax Act’).

2. The question posing for an answer revolves around the true

and  correct  purport  and  effect  of  exemption  notification  bearing

No.GSR 307(E) dated 31.03.1983 issued under Section 24AA of the

Surtax Act. For a quick understanding of the question that arise for

consideration, the provisions of Section 24-AA of the Surtax Act and

the  contents  of  the  notification  bearing  No.GSR  307(E)  may  be

extracted below :

“24AA. Power to make exemption, etc., in relation to participation  in  the  business  of  prospecting  for, extraction, etc., of mineral oils.  

(1) If the Central Government is satisfied that it is necessary  or  expedient  so  to  do  in  the  public interest,  it  may,  by  notification  in  the  official Gazette,  make  in  exemption,  reduction  in  rate  or other modification in respect of surtax in favour of any  class  of  foreign  companies  specified  in sub-section (2) or in regard to the whole or any part of the profits chargeable of such class of companies.

Explanation.-For  the  purposes,  of  this  sub-section, "foreign company" shall have the meaning assigned to it in clause (4) of section 80B of the Income-tax Act.

(2)The foreign companies referred to in sub-section (1) are the following, namely:-

(a)  foreign  companies  with  whom  the Central  Government  has  entered  into

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agreements  for  the  association  or participation  of  that  Government  or  any person authorized  by that Government in any business consisting of the prospecting for or extraction or production of mineral oils; and

(b)  foreign  companies  providing  any services or facilities or supplying any ship, aircraft,  machinery  or  plant  (whether  by way of sale or hire) in connection with any business consisting of the prospecting for or extraction or production of mineral oils carried  on  by  that  Government  or  any person  specified  by  that  Government  in this  behalf  by  notification in the official Gazette.

(3) Every notification issued under this section shall be laid before each House of Parliament.

Explanation.-For  the  purposes  of  this  section, "mineral oil" includes petroleum and natural gas.”

“GSR No. 307(E) - Exemption from surtax of foreign companies  with  whom  Central  Government  has ente...  

Exemption  from surtax  of  foreign  companies  with whom  Central  Government  has  entered  into agreements  for  participation  in  business  of prospecting  for  or  extraction  of  mineral  oils -Notification issued under sub-section (1)  

Whereas the Central Government is satisfied that it is necessary and expedient in the public interest to make an exemption in respect of surtax in favour of foreign  companies  with  whom  the  Central Government  has  entered  into  agreements  for  the association or participation of that Government or

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any person authorised by that Government  in any business  consisting  of  the  prospecting  for  or extraction or production of mineral oils;  

Now, therefore, in exercise of the powers conferred by section 24AA of  the Companies  (Profits)  Surtax Act,  1964  (7  of  1964),  the  Central  Government hereby provides that no surtax shall be payable by such foreign companies.  Explanation : For the purposes of this notification :  (a)  "foreign  company"  shall  have  the  meaning assigned  to  it  in  clause  (4)  of  section  80B  of  the Income-tax Act, 1961 (43 of 1961);  (b) "mineral oil" includes petroleum and natural gas.

        Notification : GSR No. 307(E), dated 31-3-1983.”

3. Section 24-AA of the Surtax Act, as it would appear, 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.  Sub-section (2) of Section 24-AA refers

to  two  categories  of  foreign  companies.  The  first  is  foreign

companies 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  companies  mentioned  in  sub-section  (2)  is

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foreign companies that  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  authorised

person. Specifically the Section states that mineral oils will include

petroleum and natural gas.

4. The  exemption  notification  bearing  No.GSR  307(E)  dated

31.3.1983, as it has been noticed, specifically grants 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.

5. In the present appeals, the ONGC 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 (a

person authorized by the Central Government by notification dated

2.8.1989) in the prospecting or extraction or production of mineral

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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.  

6. In the above situation,  the  primary authority  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 covered by

the exemption notification in question which by its very language

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, according

to  assessing  authority,  were,  therefore  “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.

7. The  said  view  was  reversed  by  the  learned  Appellate

Commissioner  and upheld  by  the  Learned  Income Tax Appellate

Tribunal.  In the appeal under Section 260A of the Act,  the High

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Court  of  Uttarakhand  in  the  lead  case  (CA  No.730  of  2007)

overturned the view taken by the Appellate Commissioner and the

learned Tribunal leading to the institution of the present appeal by

the aggrieved representative assessee i.e. the ONGC.  

8. We have heard Shri Arvind P. Datar, learned senior counsel

appearing for the appellant and Shri Guru Krishna Kumar, learned

senior counsel for the Revenue.

9. The  respective  arguments  though  have  been  elaborate  the

point  urged  is  brief.   Shri  Datar  would  contend  that  as  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 by

the learned senior counsel 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

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agreement results in rendering of service, so long as the 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.  The  exemption  notification  dated  31.3.1983

must be understood in the above light, it is argued. If that be so,

according to Shri Datar, sub-section 2(b) of Section 24-AA would

only include foreign companies with whom the ONGC has no direct

agreement  though  such  foreign  companies  may  nevertheless  be

providing  similar  services,  may  be,  on  the  strength  of  separate

agreements with the foreign companies with whom the ONGC has

executed  an  agreement  as  contemplated  in  Sub-section  2(a)  of

Section 24-AA of the Surtax Act.   

10. Shri Guru Krishna Kumar, learned senior counsel appearing

for the Revenue, has countered the arguments advanced on behalf

of the appellants by contending that the relevant provisions of the

Surtax Act i.e. Section 24-AA and the exemption notification must

be  construed  by  its  plain  and  unambiguous  language  which

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indicate two separate situations in respect of which power to grant

exemption  is  conferred  by  section  24-AA.  It  is  contended  that

though the 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,  yet,  the  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  in  question,  it  is

contended.  

11. It will not be necessary to traverse the long line of decisions of

this Court dealing with the fundamental principles of interpretation

of  a  taxing  statute  or  an  exemption  notification.  The  core  of

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aforesaid principles have been reiterated in a recent decision of this

Court  in  Commissioner  of  Income  Tax-III   Vs.  Calcutta

Knitwears,  Ludhiana1.  It  is  the  aforesaid  principles,  extracted

below,  that  will  have  to  be  applied  to  the  present  case  and the

correct meaning and purport of the exemption notification has to be

determined on the said basis.  

20. Section  158-BD  of  the  Act  provides  for “undisclosed income” of any other person. Before we proceed to explain the said provision, we intend to remind ourselves of the first or the basic principles of interpretation  of  a  fiscal  legislation.  It  is  time  and again  reiterated  that  the  courts,  while  interpreting the provisions of  a fiscal  legislation should neither add  nor  subtract  a  word  from  the  provisions  of instant meaning of the sections. It may be mentioned that the foremost principle of interpretation of fiscal statutes in every system of interpretation is the rule of strict interpretation which provides that where the words  of  the  statute  are  absolutely  clear  and unambiguous,  recourse  cannot  be  had  to  the principles of interpretation other than the literal rule. (Swedish Match AB v. SEBI and CIT v. Ajax Products Ltd.)

30. In B. Premanand v. Mohan Koikal this Court has  observed as follows: (SCC p. 273, para 24)

“24. The literal rule of interpretation really means that  there  should  be  no  interpretation.  In  other words, we should read the statute as it is, without distorting or twisting its language. We may mention here that the literal rule of interpretation is not only followed  by  Judges  and  lawyers,  but  it  is  also

1 (2014) 6 SCC 444

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followed by the layman in his ordinary life. To give an illustration, if a person says ‘this is a pencil’, then he means that it is a pencil; and it is not that when he says that the object is a pencil, he means that it is a horse, donkey or an elephant. In other words, the literal  rule  of  interpretation  simply  means  that  we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life  will  become  impossible,  and  we  will  not understand  each  other.  If  we  say  that  a  certain object is a book, then we mean it is a book. If we say it is a book, but we mean it is a horse, table or an elephant, then we will  not be able to communicate with each other. Life will become impossible. Hence, the  meaning  of  the  literal  rule  of  interpretation  is simply that we mean what we say and we say what we mean.”

31. Thus,  the language of  a taxing statute should ordinarily  be read and understood in the sense in which it is harmonious with the object of the statute to  effectuate  the  legislative  animation.  A  taxing statute should be strictly construed; common sense approach, equity, logic, ethics and morality have no role to play. Nothing is to be read in, nothing is to be implied;  one  can  only  look  fairly  at  the  language used  and  nothing  more  and  nothing  less.  (J. Srinivasa  Rao v.  State  of  A.P. and  Jagdambika Pratap Narain Singh v. CBDT.)

Specifically, insofar as an exemption notification is concerned

the  view  expressed  in  Commissioner  of  Central  Excise,  New

Delhi  Vs.  Hari Chand Shri Gopal and Others2 would require

notice.

2  (2011) 1 SCC 236

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29. The law is well settled 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.

30. In  Novopan  India  Ltd. this  Court  held  that  a person,  invoking  an  exception  or  exemption provisions,  to  relieve  him  of  tax  liability  must establish  clearly  that  he  is  covered  by  the  said provisions and,  in  case of  doubt  or  ambiguity,  the benefit  of  it  must  go  to  the  State.  A  Constitution Bench of this Court in  Hansraj Gordhandas v.  CCE and Customs held that  (Novopan India Ltd.  case4, SCC p. 614, para 16)

“16. … such a notification has to be interpreted in the light of the words employed by it and not on any other basis. This was so held in the context of the principle that in a taxing statute, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification i.e. by the plain terms of the exemption.”

12. Section  24-AA  of  the  Surtax  Act  vests  power  in  Central

Government,  inter alia,  to grant exemption to foreign companies

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with  whom  agreements  have  been  executed  by  the  Central

Government for association or participation in the prospecting or

extraction  or  production  of  mineral  oils  and  also  to  foreign

companies  who  are  providing  support  services  or  facilities  or

making  available  plant  and  machinery  in  connection  with  the

business of prospecting or extraction or production of mineral oils

in  which  the  Central  Government  or  an  authorized  person  is

associated. In other words, the power to grant exemption is two-fold

and covers agreements directly associated with the prospecting or

extraction or production of mineral oils or contracts facilitating or

making  available  services  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.  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

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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.  The

power under Section 24-AA of the Surtax Act, as already noticed, 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.  

13. Section 24-AA of the Surtax Act was brought into the statute

book by  Act  16 of  1981 i.e.  Finance  Act,  1981 with  effect  from

1.4.1981. The explanatory notes on the provisions of Finance Act

[Paragraph 11(4) and 26(1)] clearly goes to show that the legislative

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intent  behind inclusion of  Section 24-AA is to encourage foreign

companies  to  enter  into  participating  contracts  with  the  Union

Government in the business of oil  exploration or production. The

further legislative intent was 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.  The aforesaid  legislative

intent  which  is  two-fold  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  which  is  what  the

arguments made on behalf of the appellants intend to achieve.  Any

such interpretation must, therefore, be avoided.  Consequently,  we

see no reason to depart from the basic principles of interpretation,

as  already  noticed,  that  should  govern  the  present  issue.  We,

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accordingly,  do  not  find  any  merit  in  any  of  the  appeals  under

consideration. The same are, therefore, dismissed, however, without

any  order  as  to  costs.   The  orders  of  the  High  Court,  under

challenge  in the appeals are affirmed.       

…….…………………………...J.                   [RANJAN GOGOI]

         …………………………….……J.    [PINAKI CHANDRA GHOSE]

NEW DELHI; JULY 01, 2015.