TaxTMI 
TaxTMI 
2015 (3) TMI 986
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...." (for short the PSC) with the Government of India for exploration, development and production of "mineral oil". The PSC specifies the area over which the Petitioner has been given such rights. PSC defines the Contract Area as a Block. One such PSC was entered into on 23rd September, 1994 and another on 17th July, 2001 for the exploration, development and production of mineral oil in the Hazira and Surat block respectively. The Petitioner has been producing crude oil and natural gas from such Blocks. 2. The Petitioner has been claiming benefit of deduction of 100% of the profits and gains from the production of mineral oil and natural gas under Section 80-IB(9) as it stood prior to an amendment to Section 80-IB(9) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') which was introduced by the Finance (No.2) Act 2009. In these proceedings the constitutional validity of the amendment to sub-Section (9) of Section 80-IB and Explanation added to it under the Act by the Finance (No.2) Act, 2009, has been challenged. 3. The relevant portion of the amendment in the present proceedings read as under:- "37. In Section 80-IB of the Income-tax Act, - (a) for....
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....nation seeks to define the meaning of the term "undertaking". This Section provides for deduction, from the gross total income of any assesses, 100% of the profits and gains of an undertaking engaged in commercial production of "mineral oil". This deduction is available to the assessees for a period of seven consecutive assessment years, including the initial assessment year in which an undertaking commences commercial production, provided the undertaking has commenced commercial production of mineral oil on or after 1st April 1997. 6. The second part of the amendment is the introduction of a new sub clause (iv) to Section 80-IB(9) by which the benefits of the deduction under 80-IB(9) have been conferred to persons engaged in commercial production of ''natural gas" In blocks licensed under the VIIIth Round of bidding under the New Exploration and Licensing Policy (NELP) and who begin commercial production of natural gas on or after 1st day of April 2009. This amendment is effective from 1.4.2010 i.e. for Assessment Year 2010-11 onwards. 7. We shall now deal with the first part of the amendment namely, insertion of the Explanation to Section 80-IB(9) of the Act by Sect....
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....mputing the total income of the assesses, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this Section." Sub-clause(9) : The amount of deduction to an undertaking which begins commercial production or refining of mineral oil shall be hundred percent of the profits for a period of seven consecutive assessment years, including the initial assessment year: Provided that where the undertaking is located in North-Eastern.......and where is located in any part of India, it begins commercial production of mineral oil on or after the 1st day of April 1997" 11. Section 80-IB (9) was amended by Finance Act 2008 but that amendment is not relevant for present proceedings. 12. The Section was further amended by Finance (No.2) Act, 2009 with effect from 1.4.2000, and as amended, the said Section reads as under :- "Sub-clause (9) : The amount of deduction to an undertaking shall be hundred percent of the profits for a period of seven consecutive assessment years, including the initial assessment year, if such undertaking fulfills any of the following, namely:- (i) is located in North-Eastern Re....
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..... This definition of "undertaking" will be applicable both in relation to mineral oil and natural gas." 15. Notes on clauses to the Finance (No.2) Bill, 2009 provide as under :- "It is further proposed to provide by way of an Explanation that for the purposes of claiming deduction under this sub-Section, all blocks licensed under a single contract which is, awarded under the New Exploration Licensing Policy announced by the Government of India vide Resolution No.O-19018/22/95-ONG.DO.VL. dated 10th February 1999 or has been awarded in pursuance of any law for the time being in force or has been awarded by the Central or State Government in any other manner, shall be treated as a single ''undertaking". This amendment will take effect retrospectively from 1st April, 2000 and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years." 16. Explanation added to Section 80-IB(9) by the Finance (No.2) Act, 2009 (reproduced above) with retrospective effect from 1.4.2000, reads as under :- "Explanation :- For the purposes of claiming deduction under this sub-Section, all blocks licensed under a single contract, which has been awarded under....
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....rofits and gains derived from such business for initial seven years commencing from the first year of Commercial Production.'' The term "Commercial Production" is defined as under in the Petroleum Tax Guide :- "Commercial Production" means production of Petroleum (excluding any production for testing purposes) from a field and delivery of the same at the relevant delivery point under a programme of regular production and sale. The date of commencement of commercial production will be the date when commercial production commences from a field and the date of commencement of commercial production shall be intimated by the contractor to the Government of India in writing." 19. The word "undertaking" has not been defined in either Section 80-IA or Section 80-IB of the Act and the principles and attributes of what constitutes an "undertaking", for the purposes of these Sections have been laid down in a series of judgments of the Apex Court and other High Courts of the country starting from Textile Machinery Corporation Limited, Calcutta v. the Commissioner of Income Tax, West Bengal Calcutta (1997) 2 SCC 368. 20. The Petitioner has treated each well/cluster of wells ....
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....ther grounds. 23. We have heard Mr. S.N. Soparkar, learned Senior Counsel assisted by Mr. Tanvish Bhatt, learned counsel appearing for M/s. Wadia Ghandy and Company for the Petitioner in Special Civil Application No.13134 of 2009 with learned counsel Mrs. Swati Soparkar and Mr. Bandish S. Soparkar appearing for Petitioner in Special Civil Application No.10903 of 2009, Mr. Mihir Joshi, learned Senior Counsel assisted by Mr. Nitin K. Mehta appearing for the respondent No.2 in Special Civil Application No.13134 of 2009 with Mr. Sudhir M. Mehta, learned counsel appearing for respondent No.2 in Special Civil Application No.10903 of 2009 and Mr. Shakeel A. Qureshi, learned Central Government Standing Counsel appearing for respondent No.1 in both the writ petitions. 24. Though we have heard both the petitions together, but for convenience, we have treated Special Civil Application No.13134 of 2009 to be the leading writ petition. 25. Mr. S. N. Soparkar, learned Senior Counsel for the Petitioner has contended that this amendment is not merely clarificatory in nature, but is a substantive retrospective amendment and inasmuchas it takes away vested rights, it is arbitrary and unreas....
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....mum of 7 years. He further submitted that while the notice inviting offers envisaged production in a phased manner, it is a contradiction to state that the period of 7 years exemption for the entire block, should commence from the time when the first well started commercial production. The learned Senior Counsel further contented that exploration, development and production, are phase-wise for every block and it would not be right to state that the period of seven years for the entire block would commence from the date of commercial production in the very first well, when the other areas of the block were still under exploration or development phase as stipulated in the PSC. The term undertaking, therefore, cannot be construed to mean the entire block to reckon the period of seven years of the tax holiday. 25.4 According to the learned Senior Counsel various clauses of Petroleum Tax Guide define "Commercial Production" to mean production of petroleum from a field in commercial quantities. Provisions of Act which have been set forth in the Tax Guide and in particular in view of the statement under Section 80-IA of the Act, PSC participants who begin Commercial Production of Petro....
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....n, development and production of mineral oil. It was pointed out that the Central Government is not only in majority in the Managing Committee under PSC but also has a veto power. The learned counsel pointed out the fact that in the course of development of the Block and in some cases of the field, Development Plans consisting of either a single well/cluster of wells had been approved. Thus, the Central Government has always been aware that there are more than one undertaking in each Block, has acted on this premise in approving more than one Commercial Discovery in each Development Area of a Block and cannot now introduce by retrospective amendment, the concept that an entire Block would be a single undertaking, and that such an amendment is liable to be struck down as unreasonable and arbitrary. 25.7 The learned Senior Counsel for the Petitioner cited various authorities which are for the purposes of the benefits of the Act defining the term "undertaking'" which, go to show that a Development Area or a Field within a Block with a well/cluster of wells can be considered as a separate undertaking. 25.8 In Textile Machinery Corporation Limited, Calcutta v. Commissioner of ....
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....eseen financial burden, it is liable to be struck down as violative of Article 14. Three factors determining whether a retrospective amendment is so unreasonable or confiscatory that it violates Article 14 and 19 of the Constitution are (i) the context in which retrospectlvity was contemplated, (ii) the period of such retrospectivity, and (iii) the degree of any unforeseen or unforeseeable financial burden imposed for the past period. Avani Exports v. Income Tax (2012) 348 ITR 391. (ii) Only retrospective amendments which are in the nature of a Validating Acts which seek to validate the earlier Acts declared illegal and unconstitutional by the Courts by removing the defect or lacuna and which are not unreasonable and arbitrary are valid and not violative of Article 14 to the extent that such a retrospective amendment which is in the nature of Validating Act is not reasonable and is liable to be struck down. Cawasji & Co. v. State of Mysore 150 ITR 648); Rai Ramakrishna and others v. State of Bihar 50 ITR 171; National Agricultural Cooperative Marketing Federation of India Ltd v. Union of India (2003) 5 SCC 23. (iii) An Explanation cannot take away a statutory right given to a....
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....spectively putting additional financial burden on the Petitioner which was not permissible. 25.13 The learned Senior Counsel for the Petitioner fairly conceded that principles of promissory estoppels, equity and Article 19(l)(g) are not applicable to facts of the case of the Petitioner but in a given case in which provisions of Article 19 can be properly invoked, this would be applicable. 26. On the other hand, Mr. Mihir Joshi, learned Senior Counsel for the Respondent No.2 contended that any legislation cannot be struck down on the basis of Article 14 alone. In this case, there is no vested right whatsoever in the Petitioner and even if the Petitioner had a vested right, it can be taken away by the legislature and the test before the Court can only be whether it is reasonable or not. 26.1 The other contentions of the learned Senior Counsel for the Respondent are set forth below :- 26.2 The Petitioner's contention that assurances have been provided by the Government in the NELP and the Petroleum Tax Guide would be of no assistance to the Petitioner as this do not vest any rights in the Petitioner. The NELP has stated that a tax holiday will be available for a period....
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....rred by the Section for seven years which has not been taken away. 26.3 The Explanation, according to the learned Senior Counsel, has been inserted by the legislature to resolve a dispute regarding interpretation of a provision of law. An explanation such as this cannot be considered to be unreasonable or ultra vires. The Explanation has not modified any charging provision but is a part of the chapter dealing with deductions from profits and gains and was not susceptible to any challenge. The retrospective amendment provides an Explanation which is clarificatory in nature and does not relate to a levy or make a substantive amendment and therefore, there was no question of it being unreasonable. 26.4 The contention of the Petitioner that the Central Government always controlled the exploration, development and production is not correct. The PSC provided discretion to the Petitioner to deal with discoveries, development and working of the Development Area. Under the PSC, the fact that the Petitioner has the right to retain areas rich in mineral oil after the exploration is over is a pointer to the fact that the total area retained by the contractor is an "undertaking" and each ....
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....rthy v. State of Orissa AIR 1964 SC 1581. (vii) Legislature is empowered to cure the statute and such curative statute is always valid when there is no finality in the judicial procedure. National Agricultural Co-op Marketing Federation of India v. Union of India (2003) 5 SCC 23. (viii) Even In the case of pending assessment, if the legislature makes explicit what was implicit, then the same is not ultra vires. Escorts Limited and another v. Union of India (1993) 1 SCC 249. (ix) Mere arbitrariness is not sufficient, it requires palpable arbitrariness for the court to intervene. State of Madhya Pradesh v. Rakesh Kohli (2012) 6 SCC 312. (x) A 'declaratory amendment' in the nature of declaring the meaning of an existing statute does not widen the scope of purview of the existing provision and therefore is not susceptible to challenge. Commissioner of Income Tax, Bombay v. Podar Cement Pvt. Ltd. and others (1997) 5 SCC 482. (xi) Retrospectivity is challengeable, only if it is unreasonable i.e confiscatory or extortionate in nature. The Assistant Commissioner of the Urban Land Tax and Others v. The Buckingham and Camatic Co. Ltd. (1969) 2 SCC 55. (xii) The fact....
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....nal in the Petitioner's own case which clarifies that mineral oil as understood always included natural gas. This also creates an anomalous position creating two classes of assessees for the purpose of availing deduction under Section 80-IB(9) i.e., one who is engaged in commercial production of natural gas in Blocks licensed under the VIIIth Round of bidding and begins commercial production of natural gas on or after 1st day of April, 2009 and another who has commenced the commercial production of natural gas in blocks licensed under pre NELP VIII rounds of bidding. Therefore, this amendment is arbitrary and unreasonable and liable to be struck down as being ultra vires to Article 14. 29. Mr. Mihir Joshi, learned Senior Counsel appearing for the Respondent No.2, has forcefully submitted that it has been the consistent position of the Revenue that mineral oil does not include natural gas. He further contended that whenever legislature desired so, it had used the terms mineral oil and natural gas distinct from each other in different provisions in the Act. 30. Learned Central Government Standing counsel for Respondent No.1 Mr. Shakeel A. Qureshi has urged that the impugned....
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....nder 80-IB should be so construed so as not to include natural gas and the explanation under Section 42 cannot be looked at in construing the provisions of Section 80-IB. 34. This contention would merit consideration if mineral oil has either been defined under the Act or has acquired a natural, commercial or interpretative meaning so as to exclude natural gas. Section 80-IB(9)(ii) of the Act provides for the same exemption to undertakings located in any part of India which began commercial production of mineral oil on or after 1st April 1997. Apart from use of the term "undertaking", this provision also uses the term "mineral oil". It is necessary to consider the scope and amplitude of these terms in the context of the provisions of Sections 80-IB particularly in view of the fact that while amending the provisions of this Section in the manner aforesaid, Section 80IB(9)(ii) has remained unamended. 35. The question whether natural gas is encompassed in the term "mineral oil" came up for consideration before a Constitutional Bench of the Apex Court in the case of Association of Natural Gas and others v. Union of India and others, (2004) 4 SCC 489. The question arose as to the ....
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....duced. Gas and petroleum, being less dense than the water present in the rocks, tended to migrate upward until contained under impervious rock barriers. 23. On page 634 of the above Encyclopedia, Natural gas is classified in several broad categories based on the chemical composition, which are; (1) wet gas contains condensable hydrocarbons such as propane, butane, and pentane; (2) lean gas denotes an absence of condensable hydrocarbons; (3) dry gas is a gas whose water content has been reduced by dehydration process; (4) sour gas contains hydrogen sulfide and other sulfur compounds; and (5) sweet gas denotes an absence of hydrogen sulfide and other sulfur compounds. Natural gas sold to the public is described as lean, dry and sweet. 27. In Volume 17 on page 119, it is stated that the term 'petroleum', literally, rock oil, is applied to the deposits of oily material found in the upper strata of the earth's crust. Petroleum was formed by a complex and incompletely understood series of chemical reactions from organic material laid down in previous geological eras. Large deposits have Lean found in widely different parts of the world and their chemical composition var....
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.... in various legislations covering the field of petroleum and petroleum products, either the word 'petroleum1 or 'petroleum products' has been defined in an inclusive way, so as to include natural gas. In Encyclopaedia Britannica, 15th Edn. Vol. 19, page 589 (1990), it is stated that "liquid and gaseous hydrocarbons are so intimately associated in nature that it has become customary to shorten the expression 'petroleum and natural gas' to 'petroleum' when referring to both."The word petroleum literally means 'rock oil'. It originated from the Latin term petra-oleum. (petra-means rock or stone and oleum-means oil). Thus, Natural Gas could very well be comprehended within the expression 'petroleum' or "petroleum product." "37. A survey of the various legislations on the topic would show that the term 'petroleum' or 'petroleum products' has been given a wide meaning to include natural gas and other similar products. 38. In the Pipelines Act, 1962 of the United Kingdom, 'petroleum' has been defined as follows :- "Petroleum includes any mineral oil or relative hydrocarbon and natural gas existing in its natural con....
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....r by a chemical process." 3. (n) "petroleum product" means any commodity made from petroleum or natural gas and shall include refined crude oil, processed crude petroleum, residuum from crude petroleum, cracking stock, uncracked fuel oil, fuel oil, treated crude oil residuum, casing head gasoline, natural gas gasoline, naphtha, distillate, gasoline, kerosene, waste oil, blended gasoline, lubricating oil, blends or mixture of oil with one or more liquid products or by-products derived from oil condensate, gas or petroleum hydrocarbons, whether herein enumerated or not." 5. The Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962, 2. (c) "petroleum" has the same meaning as in the Petroleum Act, 1934, and includes natural gas and refinery gas." 6. The Oil Industry (Development) Act, 1974 2. (h). "mineral oil" includes petroleum and natural gas." 2. (m). "petroleum product" means any commodity made from petroleum or natural gas and includes refined crude oil, processed crude petroleum, residuum from crude petroleum, cracking stock, uncracked fuel oil, fuel oil, treated crude oil residuum, casing head gasoline, natural gas, gasoline, naphth....
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....that the term "petroleum' or "petroleum products" has been given a wide meaning to include natural gas and other similar products. (iii) In para 41, it held "production of natural gas is not independent of the production of other petroleum products; though from some wells natural gas alone would emanate, other products may emanate from sub terrain chambers of the earth, But all oil fields explored for their potential hydrocarbon." (iv) In para 42 it held that the legislative history and the definition of 'petroleum', 'petroleum products' and 'mineral oil resources' contained in various legislations and books and the national interest involved in the equitable distribution of natural gas amongst the States - all these factors lead to the inescapable conclusion that "natural gas" in raw and liquefied form is petroleum product and part of mineral oil resource, which needs to be regulated by the Union of India." 35.7 The Apex Court in unequivocal terms has held that, "natural gas in raw and liquefied form is a petroleum product and part of mineral oil resources." In light of the above judgment, and in absence of any specific definition of mineral oi....
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....ing or rewriting the decision of the Apex court that mineral oil in its natural sense would not include natural gas. On the contrary, para 48 of the judgment uses the expression "all these factors lead to the inescapable conclusion" that natural gas in raw and liquefied form is petroleum product and part of mineral oil resources. 35.10 In fact, there is no dispute or contest on facts between the Union and the States as to what would constitute "natural gas" and its broad categories and chemical compositions. The Apex Court referred to technical literature and the advancement in science in the use of liquefied natural gas. The contention of the State that natural gas do not fall within the genre of petroleum products and mineral oil stood rejected by holding that natural gas in raw and liquefied form is petroleum product and part of mineral oil resources. 35.11 Section 80-IB of the Act has not defined mineral oil nor has it excluded petroleum products and natural gas. It is not alien to tax laws to have scripted definition to suit a particular enactment or introduce deeming provisions. The amendments to Section 80-IB do not define or restrict the meaning of mineral oil or even....
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.... issues relating to Natural Gas which position has been made explicit. 35.14 Sub-clause (iv) to Section 80-IB(9) was introduced by the Finance (No.2) Act 2009 with effect from 1.4.2010. Notes on Clauses to the Finance Bill 2008 and 2009, the actual amendments to Section 80-IB(9) made through Finance Bill 2008 and Finance Bill 2009 along with the statements laid on the floor of the Parliament by the Hon'ble Finance Minister while moving the motion for consideration of Finance Bill 2008 on this subject matter are reproduced below :- "Notes on clauses to Finance Bill 2008 :- "Clause 15 seeks to amend section 80-IB of the Income-tax Act, which relates to deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. Sub-section (9) of the said section provides for deduction in respect of profits and gains derived from commercial production or refining of mineral oil. The term "mineral oil" does not include petroleum and natural gas, unlike other sections of the Act. The deduction under this subsection is available to an undertaking for a period of seven consecutive assessment years including the initial as....
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....e matter. Nothing new has been stated, it is simply a restatement of Department's position which has already placed before the tribunals and the courts. Besides, it is a well settled proposition of law that notes on clauses have no legal effect and are not binding on the courts. I may assure potential bidders for oil exploration blocks that the benefit of Section 80IB(9), as finally interpreted by the courts, will be applicable to all exploration and production contracts, whether obtained through nomination or bidding..." 35.16 Budget speech of the Finance Minister while introducing Finance (No.2) Bill, 2009 :- "102. Madam Speaker, in the context of the geo-political environment, it is necessary for us to create our own faculties for energy security. Accordingly, I propose to extend the tax holiday under Section 80IB(9) of the Income Tax Act, which was hitherto available in respect of profits arising from the commercial production or refining of mineral oil, also to natural gas. This tax benefit will be available to undertakings in respect of profits derived from the commercial production of mineral oil and natural gas from oil and gas blocks which are awarded under the N....
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....ng on or after the 1st day of October, 1998 but not later than the 31st day of March, 2012. This amendment will take effect retrospectively from the 1st April, 2009. It is also proposed to further amend the said sub-section (9) as so substituted and further amended by inserting a new clause (iv) to provide that the benefit of deduction under the said sub-section shall be available if the undertaking is engaged in commercial production of natural gas in blocks licensed under the VIII Round of bidding for award of exploration contracts under the New Exploration Licensing Policy announced by the Government of India vide Resolution No.O- 19018/22/95-ONG.DO.VL dated 10th February, 1999 (hereinafter referred to as "NELP-VIII") and begins commercial production of natural gas on or after the 1st day of April, 2009. This amendment will take effect from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-2011 and subsequent years." 35.18 Amendment to Section 80-IB(9) by Finance (No.2) Act, 2009 :- "37. In Section 80-IB of the Income-tax Act,- (a)for sub-section (9), the following sub-section shall be substituted and shall be deemed to have been....
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....ut the stand of the revenue authorities. This exercise is insufficient to construe that the term mineral oil does not include natural gas or that the benefits of Section 80-IB have been extended to natural gas for the first time with effect from 1.4.2009 by virtue of insertion of sub clause (iv) to Section 80-IB(9). At the best, sub clause (iv) has to be construed to mean that the benefit would also be available for NELP VIII bidders who satisfy the conditions set out in the said sub clause. 35.20 In the absence of specific wordings in the Statute, to draw a conclusion that only undertakings engaged in the commercial production of 'mineral oil" other than "natural gas" will be entitled to deductions of profits and gains under the above mentioned sub-section, is wholly incorrect. 35.21 For the aforesaid reasons, we hold that the insertion of sub clause (iv) to Section 80-IB(9) of the Act by the Finance (No.2) Act, 2009 cannot be interpreted to mean that the term "mineral oil" as used in Section 80-IB does not include natural gas and cannot result in denial of the benefit of deduction under Section 80-IB(9) to undertakings engaged in commercial production of natural gas und....
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....(male or female human being), but also any legal person i.e. an entity that is recognized by law as having or capable of having rights and duties. Ramanlal Bhailal Patel v. State of Gujarat, (2008) 5 SCC 449. The word "person" includes a corporation or a company as well as a natural person. Unless there is something to the contrary, it ought to be held to include both. 36.1 The expression "person" has been defined in Section 2 (31) of the Income Tax Act, 1961 as under:- (31) "person" includes - (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. The term "person" is not defined in the Constitution. But Article 367 of the Constitution provides that definitions contained in the Section 3 (42) of General Clauses Act, 1897, apply for the interpretation of the Constitution. The definition of "person" in the General Clauses Act, would not restrict the power of the State Legislature to define a "person" and adopt a meaning diffe....
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....ntity, not necessarily a human being, to which rights or duties may be attributed. Under the Act, and Article 300A the expression "person" includes a company, an association of persons or a body of individuals, whether incorporated or not and every artificial juridical person. Therefore, the Petitioners would be "person" covered under Article 300A of the Constitution. 36.5 The Apex Court had the occasion to consider as to what is accrued vested right in J. S. Yadav v. State of U.P and another (2011) 6 SCC 570 in paragraph 20 to 22 which is extracted as under:- "20. The word 'vested' is defined in Black's Law Dictionary (6th Edition) at page 1563, as vested; fixed; accrued; settled; absolute; complete. Having the character or given the rights of absolute ownership; not contingent; not subject to be defeated by a condition precedent. Rights are 'vested' when right to enjoyment, present or prospective, has become property of some particular person or persons as present interest; mere expectancy of future benefits, or contingent interest in property founded on anticipated continuance of existing laws, does not constitute vested rights. In Webster's Compreh....
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....ce with law. In Ramanatha Aiyar's The Law Lexicon, Reprint Ed. 1987 at p.1031, it is stated that the property is the most comprehensive of all terms which can be used, inasmuch as it is indicative and descriptive of every possible interest which the party can have. The term "property" has a most extensive signification, and, according to its legal definition, consists in free use, enjoyment, and disposition by a person of all his acquisitions, without any control or diminution, save only by the laws of the land. In Dwarkadas Srinivas case, this Court gave extended meaning to the word property. Mines, minerals and quarries are property attracting Article 300A. Jilubhai Nanbhai Khachar and others v. State of Gujarat and another 1995 Supp (1) SCC 596. 36.8 "Property" is a term of the widest import and subject to any limitation, which the context may require, it signifies every possible interest which a person can clearly hold or enjoy. If the property rights are taken away by the Act, are such that would render the rights illusory and practically valueless, than in effect and substance, the property of the person has been taken away by the Act. Ahmed G. H. Ariff and others v. C....
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....on of property within the meaning of Article 300A, must take place for public purpose or public interest. Any law, which deprives a person of his property has to be justified upon the purpose and object of the statute and the policy of legislation otherwise it will be unlawful and unfair and undermines the rule of law and can be subjected to judicial review. 36.15 Requirement of public purpose, for deprivation of a person of his property under Article 300A, is a pre-condition. The legislation providing for deprivation of property under Article 300A must be "just, fair and reasonable" as understood in terms of Articles 14 of the Constitution. 36.16 The Petitioners are carrying on business of mineral oil. When they entered in contract with the Government they were enjoying seven years tax holiday on multiple undertakings in the block. They were entitled to 100% exemption on their profits and gains under the Act. They acquired a vested right on their 100% exemption on their profits and gains which was the property of the Petitioners. By the Amendment in the Act they are being deprived of vested right of property by amending the Act retrospectively. In our opinion, the right give....
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....led to claim protection of their rights under Article 14 of the Constitution. It would be relevant to examine whether the respondents have committed breach of Article 14 or any other Constitutional provision which may render the Amendment Act ultra vires to Article 14 of the Constitution of India. 37.2 The power and competence of the Parliament to amend any statutory provision with retrospective effect cannot be doubted. Any retrospective amendment to be valid must however be reasonable and not arbitrary and must not be violative of any of the fundamental rights guaranteed under the Constitution. The mere fact that any statutory provision has been amended with retrospective effect does not by itself make the amendment unreasonable. Unreasonableness or arbitrariness of any such amendment with retrospective effect has necessarily to be judged on the merits of the amendment in the light of the facts and circumstances under which such amendment is made. In considering the question as to whether the legislative power to amend a provision with retrospective operation has been reasonably exercised or not it, becomes relevant to enquire as to how the retrospective effect of the amendmen....
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....ss administrative orders -- if such conferment is without any guidance, control or checks, it is violative of Article 14 of the Constitution. The Court also needs to be mindful that a legislation does not become unconstitutional merely because there is another view or because another method may be considered to be as good or even more effective, like any issue of social, or even economic policy. It is well settled that the courts do not substitute their views on what the policy is. 37.6 The Constitution Bench of the Apex Court in Subramaian Swamy v. Director, Central Bureau of Investigation and another (2014) 8 SCC 682 after considering catena of decisions on Article 14 has held in paragraphs 38 to 48 as under :- "38. ...The first part of Article 14, which was adopted from the Irish Constitution, is a declaration of equality of the civil rights of all persons within the territories of India. It enshrines a basic principle of republicanism. The second part, which is a corollary of the first and is based on the last clause of the first section of the Fourteenth Amendment of the American Constitution, enjoins that equal protection shall be secured to all such persons in the enjo....
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.... individual may be treated as a class by himself; (b) that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles; (c) that it must be presumed that the legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds; (d) that the legislature is free to recognize degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest; (e) that in order to sustain the presumption of constitutionality the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation; and (f) that while good faith and knowledge of the existing conditions on the part of a legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the court on which t....
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....he discretion of the Government to select and classify persons or things to whom its provisions are to apply. In determining the question of the validity or otherwise of such a statute the court will not strike down the law out of hand only because no classification appears on its face or because a discretion is given to the Government to make the selection or classification but will go on to examine and ascertain if the statute has laid down any principle or policy for the guidance of the exercise of discretion by the Government in the matter of the selection or classification. After such scrutiny the court will strike down the statute if it does not lay down any principle or policy for guiding the exercise of discretion by the Government in the matter of selection or classification, on the ground that the statute provides for the delegation of arbitrary and uncontrolled power to the Government so as to enable it to discriminate between persons or things similarly situate and that, therefore, the discrimination is inherent in the statute itself. In such a case the court will strike down both the law as well as the executive action taken under such law. ... (iv) A statute may no....
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.... the earlier decisions of this Court in Budhan Choudhry, Ram Krishna Dalmia, C.I. Emden, Kangsari Haldar, Jyoti Pershad and Shri Ambica Mills Ltd., in the majority judgment the then Chief Justice Y.V. Chandrachud, inter alia, exposited the following propositions relating to Article 14 : (Special Courts Bill, 1978, In re, SCC pp.424-26, para 72) '(1) * * * * (2) The State, in the exercise of its governmental power, has of necessity to make laws operating differently on different groups or classes of persons within its territory to attain particular ends in giving effect to its policies, and it must possess for that purpose large powers of distinguishing and classifying persons or things to be subjected to such laws. (3) The constitutional command to the State to afford equal protection of its laws sets a goal not attainable by the invention and application of a precise formula. Therefore, classification need not be constituted by an exact or scientific exclusion or inclusion of persons or things. The courts should not insist on delusive exactness or apply doctrinaire tests for determining the validity of classification in any given case. Classification is justified if it is....
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....cessary is that there must be a nexus between them. In short, while Article 14 forbids class discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed, it does not forbid classification for the purpose of legislation, provided such classification is not arbitrary in the sense above mentioned. (9) If the legislative policy is clear and definite and as an effective method of carrying out that policy a discretion is vested by the statute upon a body of administrators or officers to make selective application of the law to certain classes or groups of persons, the statute itself cannot be condemned as a piece of discriminatory legislation. In such cases, the power given to the executive body would import a duty on it to classify the subject- matter of legislation in accordance with the objective indicated in the statute. If the administrative body proceeds to classify persons or things on a basis which has no rational relation to the objective of the Legislature, its action can be annulled as ....
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....will have to be struck down. With regard to due process clause in the American Constitution and Article 14 of our Constitution, this Court referred to Anwar Ali Sarkar, and observed that the due process clause in the American Constitution could not apply to our Constitution. The Court also referred to A.S. Krishna wherein Venkatarama Ayyar,J. observed (AIR p.303, para 13) 'The law would thus appear to be based on the due process clause, and it is extremely doubtful whether it can have application under our Constitution.' 47. In D.S. Nakara, the Constitution Bench of this Court had an occasion to consider the scope, content and meaning of Article 14. The Court referred to earlier decisions of this Court and in para 15, the Court observed: (SCC pp.317-18) '15. Thus the fundamental principle is that Article 14 forbids class legislation but permits reasonable classification for the purpose of legislation which classification must satisfy the twin tests of classification being founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group and that differentia must have a rational nexus to the o....
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....nder certain circumstances. If such deductions are withdrawn with retrospective effect, surely there would be a case of providing for a tax which was till then not known. 37.9 When a tax law or amendment made therein is impugned under Article 14, the Court is to decide whether the amendment in tax law is palpably so arbitrary or unreasonable that it must be struck down. The word 'arbitrary' is used in the sense of being discriminatory. An act which is discriminatory is liable to be labeled as arbitrary. 37.10 If from a bare reading of the provisions of the Act or the amended Act by which Explanation has been added to Section 80-IB(9), it is clear that new tax is being levied with retrospective effect confers arbitrary, uncancalised, unbridled, unrestricted power without recording any reasons and without adhering to the principles of equality as envisaged in Article 14 of the Constitution, 38. Before coming to the main question, we deem it necessary to state that India has already begun its process of globalization by opening up world trade. We may call it liberalization, privatization and globalization policy to ensure that India is in the process of restructuring her econ....
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....gislature had taken adequate measure in framing a genuine policy for exploring mineral oil and gases for purely commercial purpose in national interest by inviting parties internationally to make investments by offering tax-holiday. The genuine intention of the Parliament or the Legislature inviting investments has to be recognized and honored. The tax planning was legitimate and the petroleum policy and the provisions of the Income-tax Act, 1961, were within the framework of law. 43. The Government invited foreign company to India including domestic companies by issuing global tender by opening up foreign direct investment, in the field of exploration of mineral oil and gases, under the PSC, where the Petitioner was to carry on the exploration, development and production of mineral oil and natural gas. The Petitioner is subject to Income Tax law in India. He has been awarded the right to explore, develop and produce mineral oil in various blocks. For this purpose, the Petitioner has entered into Production Sharing Contract (PSC) with the Government of India for exploration, development and production of "mineral oil". The PSC specifies the area over which the Petitioner has bee....
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....ing Offers under the NELP, where under the heading "Main Features of the Terms Offered", it was stated that "Income Tax Holiday" for seven years from the start of commercial production" will be available and further that "To facilitate investors, a Petroleum Tax Guide (PTG) is in place". A gas basin comprises of a huge area and each basin may comprise of a number of blocks with delineated areas. Each block may have one or more gas or oil fields where hydrocarbons had been discovered. Every field may have one or more wells, depending on the extent of the mineral oil reserve driven by technical requirements. Once a discovery is announced and declared to be a "commercial discovery", an elaborate process has been laid down in the PSC not only for approving it as a commercial discovery, but right down to the number of wells which the contractor was to drill. For this purpose, a separate development plan for development of each field is prepared by the contractor and is approved by a body known as the Management Committee in which the Government has the veto power. Each of such wells/cluster of wells is a separate and independent undertaking. Moreover, the notice inviting offers and the ....
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....Section 80-IB(9) before the insertion of the Explanation, which reads as under :- "Section 80-IB(9)(ii). The amount of deduction to an undertaking shall be hundred percent of the profits for a period of seven consecutive assessment years, including the initial assessment year if such undertaking fulfills any of the following namely,...is located in any part of India and has begun or begins commercial production of mineral all on or after 1st day of April 1997". 49.1 Three conditions need to be satisfied cumulatively to derive benefit under Section 80-IB(9). Firstly, the undertaking should be located in any part of India. Secondly, it has begun or begins commercial production of mineral oil and thirdly on or after 1st day of April 1997. 49.2 In other words, one hundred percent of profits of an undertaking on its commercial production of mineral oil would secure deduction of the profits and gains for seven consecutive years from the year of commencement of commercial production. Consequently, an undertaking for the purpose of Section 80-IB(9) has to be understood as one engaged in commercial production of mineral oil, Neither of the expressions, namely, "undertaking" or "com....
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.... can exist even after cessation of the principal business of the assessee and vice versa. It does not matter whether the new activity produces the same commodity of the old business or distinct marketable commodity or even commodities which may feed the old business. What is relevant is that the new undertaking must be an integrated unit by itself capable of its own production. It would be a new undertaking if there is no transfer of any asset from the old business. If the results achieved are commercially tangible and undertakings can be carried out separately without losing its identity in the old business, it would constitute a new undertaking. Maintenance of separate books of accounts and discernible profits would also aid the conclusion. 49.6 In short, an undertaking is one which on a standalone basis is an economically independent unit. As long as this test is satisfied, it is immaterial whether the undertaking carries out the same business or different business. Economically independent units doing the same business would constitute separate undertakings. 49.7 Applying the above law laid down by the Apex Court, the sole test is if a unit is able to conduct or perform c....
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....f these from the Contract Area (excluding production for testing purposes) and delivery of the same at the relevant delivery point under a programme of regular production and sale. 49.11 Contract Area is the whole area under the PSC. A Commercial Discovery when made from any part of the Contract Area would qualify to become a Development Area. Article 1.31 of the PSC defines Development Area means "part of the Contract Area which encompasses one or more Commercial Discoveries and any additional area that may be required for the proper development of such Commercial Discoveries and established as such in accordance with the provisions of the Contract. Article 1.34 defines Development Plan means "submitted by the Contractor for the development of a Commercial Discovery, which has been approved by the Management Committee or the Government pursuant to Article 10 or Article 21. 49.12 Article 1.37 defines Discovery means the finding during petroleum operations of a deposit of petroleum not previously known to have existed which can be recovered at the surface in a flow measurable by conventional petroleum industry testing methods. Article 1.38 defines Discovery Area means that par....
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....Area/Field qualifies as an undertaking being standalone and economically independent unit in terms of the principles laid out by the Apex Court in Textile Machinery Corporation Ltd. Case, followed without deviation by various courts subsequently. Accordingly, a Block or a Contract Area can have more than one undertaking since it involves more than one Commercial Discovery, Development Area, Development Plan and execution of the commercial production on an independent standalone basis. 49.17 The Explanation inserted by the Finance (No.2) Act 2009 in 80-IB(9) is reproduced below:- "Explanation.- For the purposes of claiming deduction under this sub-section, all blocks licensed under a single contract, which has been awarded under the New Exploration Licensing Policy announced by the Government of India vide Resolution No.O-19018/22/95-ONG. DO. VL dated 10th February, 1999 or has been awarded in pursuance of any law for the time being in force or has been awarded by Central or a State Government in any other manner, shall be treated as a single "undertaking"." The expressions "shall be treated as a "single" undertaking in the Act by inserting Explanation would evidently bring....
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....t has to resort to the process known to and approved by law. The explanation introduced by Finance Act (No.2) of 2009 is a departure from the settled interpretative meaning given by Courts to the expression 'Undertaking". Any departure, therefore, has to be through the process of validation which has to be notwithstanding any law or decision. The Explanation is not a nonobstante clause, notwithstanding any law or decision, it proceeds under the presumption that an existing ambiguity is sought to be clarified when, in reality, there is none. In fact, the usage of the expression "single" before the term 'undertaking' in the explanation evidences the legal understanding that the undertaking is not synonymous to assessee and an assessee can have more than one undertaking doing the same or distinct business as long as they are independent stand alone units. When, clearly there can be separate commercial discoveries for every Development Area/Field which may consists of one well or cluster of wells which makes each Development Area an "Undertaking" and this is as per the Production Sharing Contract (PSC) entered into between the Petitioner and the Central Government, there do....
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....There cannot be any doubt whatsoever that speech of the Hon'ble Finance Minister in the House of the Parliament may be taken to be a valid tool for interpretation of a statute. It was so held in K.P. Varghese v. Commissioner of Income-tax, Ernakulam and another [(1981) 4 SCC 173 at 184], in the following terms:- "8. ... Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. [See also Commissioner of Wealth Tax, Punjab, J & K, Chandigarh, Patiala v. Yuvraj Amrinder Singh and Or....
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....overnment's policy and the tax holidays in regard to production of mineral oil in the country. (i) Prior to 1999, the Government had a policy with respect to exploration, development and production of mineral oil in the country. When private participation was permitted for the first time under the extant policy. (ii) It was under this policy that the Petitioner entered into its first PSC on 23rd September 1994 with the Government of India and the benefit of deductions to an undertaking engaged in commercial production of mineral oil in any part of India on or after the 1st day of April 1997 was first introduced by Finance Act 1998 in Section 80-IA of the Income Tax Act, 1961. (iii) The Government, in order to attract private investments in the mineral oil sector, formulated the New Exploration and Licensing Policy (NELP) which came to be notified in the official gazette on 10th February, 1999. Among other things, the NELP stated that a seven years tax holiday from the date of commencement of commercial production would be available to the contractors under NELP. The NELP also stated that a separate Petroleum Tax Guide would be in place to facilitate the investors. 5....
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....begins and the assessee was entitled to 100% tax deduction on profits and gains the law was amended by the Parliament with retrospective effect, though the Revenue had challenged the judgment of ITAT before High Court in appeals which are still pending. Budget speech of the Finance Minister while introducing Finance (No.2) Bill, 2009:- "102. Madam Speaker, in the context of the geo-political environment, it is necessary for us to create our own faculties for energy security. Accordingly, I propose to extend the tax holiday under section 80IB(9) of the Income Tax Act, which was hitherto available in respect of profits arising from the commercial production or refining of mineral oil, also to natural gas. This tax benefit will be available to undertakings in respect of profits derived from the commercial production of mineral oil and natural gas from oil and gas blocks which are awarded under the New Exploration Licensing Policy-VIII round of bidding. Further, I also propose to retrospectively amend the provisions of the said section to provide that "undertaking" for the purposes of section 80-IB(9) will mean all blocks awarded in any single contract." 50.7 The legislative inte....
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....t. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 51.1 We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India and others v. Indian Tobacco Association (2005) 7 SCC 396, the doctrine of fairness was....
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....the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pr....
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....t be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only." 51.6 In the case of C.I.T., Bombay v. Scindia Steam Navigation Co. Ltd. [1962 (1) SCR 788], this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year, i.e., the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year. 51.7 At the same time, it is also mandated that there cannot be imposition of any tax without the authority of law. Such a law has to be unambiguous and should prescribe the liability to pay taxes in clear terms. If the concerned provision of the taxing statute is ambiguous and vague and is susceptible to two interpretations, the interpretation which favours the subjects, as against the....
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....derstand the principle of all fiscal legislation it is this : If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. 51.11 "Notes on Clauses" appended to Finance Bill, 2002 while proposing insertion of proviso categorically states that "this amendment will take effect from 1st June, 2002". These become epigraphic words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the same notes that few other amendments in the Act were made by the same Finance Act specifically making those amendments retrospectively. For example, clause 40 seeks to amend S.92F. Clause iii (a) of S.92F is amended "so as to clarify that the activities mentioned in the said clause include the carrying out of any work in pursuance of a contract." This amendment tak....
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....decide the question. The Court has to examine the scheme of the statute prior to the amendment and subsequent to the amendment to determine whether amendment is clarificatory or substantive. The Apex Court in paragraph 20 relied on the decision in Zile Singh v. State of Haryana and others (2004) 8 SCC 1 with approval that it is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only - "nova constitutio futuris formam imponere debet non praeteritis" - a new law ought to regulate what is to follow, not the past. 53. The Apex Court in Martin Lottery Agencies Ltd. (supra), in paragraph 19 and 36 held as under:- "19. When the Explanation seeks to give an artificial meaning earned in India and bring about a change effectively in the existing law and in addition ....
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....arted commercial production after two, three or about the end of four years period, the Petitioner would be entitled only to a limited part of tax holiday which may be three or four years which may be available when the commercial production starts in a well, as the period of seven years tax holiday has to be counted from the date the first well started commercial production. 57. The argument of learned counsel for the respondent cannot be accepted. If we take an example that a block consists of 200 square Kms., wherein exploration, discovery and commercial production has to be commenced by the Petitioner within a period of four years. If he discovers a well, wherein commercial production can be commenced within a period of three months or six months from the date he started exploration, then whether he should wait and continue to make investment on exploration and discovery of mineral oil in the entire stretch of 200 square Kms., and start commercial production of all the wells together so that all the well/cluster of wells start commercial production on the same day so that he may avail the tax holiday of seven years on all the wells/cluster of wells by making huge investments....
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....s was a separate undertaking entitled to seven years tax holiday. The Revenue had challenged the decision of the ITAT before the High Court and thereafter, they have a remedy before the Apex Court. But, arbitrarily, the 100% tax deduction benefit could not be withdrawn by the Finance Minister or the legislature by amending Section 80-IB(9) of the Act retrospectively from an anterior date. The amendment in such cases where already benefit had accrued and vested in the assessee could not be taken away by giving retrospective amendment to Section 80-IB(9) which is nothing but a substantive provision inserted by amendment and it can only operate prospectively and not retrospectively. 60. The Constitutional Bench of the Apex Court in Vatika Township Private Limited (supra) has held in paragraph 34 that it would also be pertinent to mention that assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either expressly or by necessary implication retrospective. (See Controller of Estate Duty Gujarat-I v. M.A. Merchant [1989 Supp (1) SCC 499]. 61. The Apex Court in Gold Coin Health Food Pvt. Ltd. ....