TaxTMI 
TaxTMI 
TaxTMI 
2015 (3) TMI 986
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.... 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 sub-Section (9), the following sub-Section shall....
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....ion 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 Section 37 of the Finance (No.2) Act, 2009. 8. The benefits given in terms of ....
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....unt 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 Region and has begun or begins commercial production of mineral oil before the 1st day of April 1997; (i....
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....uses 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 the New Exploration Licensing Policy announced by the Government of India vide Resolution No.O-19018/22/95-ONG.DQ.VL dated 10th ....
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....erm "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 as an "undertaking" for the purpose of claiming deductions under Section 80-IB(9) of the Act. In the Hazira block, the Petitioner commenced commercia....
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.... 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 unreasonable and is liable to be struck down as being ultra vires to Article 14. 25.1 The other contentions of the learned Senior Counsel for the Petitioner are set....
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.... 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 Petroleum in any part of India on or after 1st April, 1997 shall be entitled to claim deduction of 100% of their profits and gains derived from such businesses for initial ....
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....o 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 Income Tax, West Bengal, Calcutta (1977) 2 SCC 368, the Apex Court has laid down the principles of what constitutes an "undertaking". Manufacture of production of articles yie....
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....t 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 any person under a statute. S. Sundaram Piliai and others v. V. R. Pattabiraman and others (1985) 1 SCC 591. (iv) An insertion of an Explanation which is really clariflcatory in nature ....
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....ppels, 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 of seven years from the date of commencement of commercial production. The NELP does not make reference to commercial production from a well or cluster of wells while referring to the tax holiday. The N....
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....rpretation 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 well or cluster of wells do not constitute an "undertaking". The learned Senior Counsel contended that the position of the Petitioner with regard to "undertaking" is not unambiguous since, interchangeably a ....
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....g 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 factors which are generally considered in determining whether a retrospective amendment is so unreasonable or confiscatory that it violates are (i) the context in which retrospectivity is contemplated (ii) the period of such retrospectivity ....
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.... 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 amendment made in the Act retrospectively is a valid piece of legislation and does not suffer from any infirmity nor it violates any constitutional provision. The amendment made by Finance (No.2) Act 2009 is liable to be upheld. He further relied on ....
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....e 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 legislative competence of the State to enact laws on natural gas in terms of Entry 25 of List II of the Seventh Schedule of the Constitution. Union of India contended that the exclusive domain power and competence to legislate on natural gas is available only to the Pa....
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....ch 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 varies greatly. Consequently, no single composition of petroleum can be defined. It is not surprising that the composition varies, since the local distribution of plant, animal and marine life is quite varied and, presumably, was similarly varied when the petroleum precursors were formed. 28. A....
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.... 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 condition in strata, whether or not it has undergone any processing; but does not include coal or bituminous shales or other stratified deposits from which ail can be extracted by destructive distillation." 39. Petroleum has been variously defined in different Acts, noted herein below :- "Petroleum (Production)....
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....te, 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, naphtha, distillate gasoline, kerosene, bitumen, asphalt and tar, waste oil, blended gasoline, lubricating oil, blends or mixture of oil with one or more liquid products or by products derived from oil or gas and blends or mixtures of two or more liquid products or byproducts derived from oil condensate and gas or petroleum hydrocarbons not specified here....
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....bers 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 oil under Section 80-IB of the Act, any reference to mineral oil in its natural, commercial and technical sense will include petroleum products and natural gas. The decision rendered by the Apex Court in Association of Natural Gas case would squarely apply. In the absence of the definition under Section 80-IB of the Act, if reliance has to be placed on allied enact....
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....t 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 introduce such deeming provisions. The ratio and findings of Constitution Bench judgment apply squarely to the controversy in this case. The judgment conclusively covers the issue and we have no hesitation in concluding that the term "mineral oil" in the Section 80-IB of the Act, takes within its purview both petroleum products and natural gas. 35.12 Before parting with this i....
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....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 assessment year - (i) in which the commercial production under a production sharing contract has first started; or (ii) in which the refining of mineral oil has begun. It is proposed to insert a new proviso in subsection (9) of section 80-IB so as to provide that no deduction under this sub-section shall be allowed to an undertaking engaged in refining of mineral oil if it begins refining o....
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....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 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." 35.17 Notes on clauses to Finance (No.2) Bill 2009: "Clause 37 of the Bill seeks to amend Section 80-IB of the Income Tax Act, which relates to deductio....
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....l 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 substituted with effect from the 1st day of April, 2000, namely :- '(9) The amount of deduction to an undertaking shall be hundred per cent 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 Region and has begun or begins commercial production of mineral oil before the 1st day of A....
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....tions 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 under contracts entered into prior to VIIIth round of bidding. In view of the decision of the Constitutional Bench of the Apex Court, the term "mineral oil" includes and has always included "natural gas". Whether the Petitioner has any accrued or vested right ? 36. We may now consider the third question as to whether the Petitioner has any accrued or vested right. One of the fundamental principles of a democratic society inherent in all the provisions of the C....
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....:- (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 different from or in excess of the ordinary acceptation of the world as is defined in the General Clauses Act. 36.2 The provision of the General Clauses Act, 1897 which is applicable for the interpretation of the Constitution as provided for under Article 367 (1) itself restricts the applicability of the Act and makes such an application subject to the context as otherwise may require. Section 3 of the General Clauses Act, 1897 itself says that unless there is anything repugnant in the subjec....
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....(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 Comprehensive Dictionary (International Edition) at page 1397, 'vested' is defined as :- Law held by a tenure subject to no contingency; complete; established by law as a permanent right; vested interest.... 21. The word "vest" is normally used where an immediate fixed right in present or future enjoyment in respect of a property is created. With the long usage the said word "vest" has also acquired a meaning as "an absolute or indefeasible right". It had a "legitimate" or "settled expectation" ....
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....he 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. Commissioner of Wealth Tax, Calcutta (1969) 2 SCC 47. 36.9 We may now examine as to whether the Petitioners have any vested right to property of which he is being deprived. A demand for tax under an invalid law would amount to deprivation of property. Coffee Board Bangalore v. Joint Commercial Tax Officer AIR 1971 SC 870. 36.10 The Apex Court relying on the Constitution Bench decision in Deoki Nandan Prasad v. State of Bihar and others, AIR 1971 SC 1409 held that the benefit of pension which accrued to an emp....
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.... 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 given to the Petitioner for enjoying seven years tax holiday on each well/cluster of wells or on each undertaking in the block was an accrued and a vested right which could not have been taken away expressly or by necessary implication. In view of Section 6 (c) of the General Clauses Act, the accrued and vested right of the Petitioner should have been preserved and could not be destroyed by the impugned amendment by adding Explanation to Section 80-IB(9) with retrospective effect. We do not find any material on record which may d....
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....ny 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 amendment operates. 37.3 Article 14 is part of the basic structure of the Constitution and, therefore, cannot be abrogated. The Apex Court in State of A. P. and others. v. Mcdowell & Co. and others (1996) 3 SCC 709, observed that a law made by the Parliament or the Legislature can be struck down by courts on two grounds and two grounds alone, viz., (1) lack of legislative competence and (2) violation of any of the fundamental rights guaranteed in Part-III of the Constitution or of any other constitutional provision. There is no third ground. If....
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....wamy 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 enjoyment of their rights and liberties without discrimination of favouritism. It is a pledge of the protection of equal laws, that is, laws that operate alike on all persons under like circumstances. 39. Article 14 of the Constitution incorporates concept of equality and equal protection of laws. The provisions of Article 14 have engaged the attention of this Court from time to time. The plethora of cases dealing with Article 14 has culled out principles applicable to aspects which commonly arise under this Article. Among those, may be mentioned, th....
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....es 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 the classification may reasonably be regarded as based, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile or discriminating legislation.' 42. In Ram Krishna Dalmia, it was emphasized that (AIR p. 548, para 11) '11. ... the above principles will have to be constantly borne in mind by the court when it is called upon to adjudge the constitutionality of any particular law attacked as discriminatory and violative of t....
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.... 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 not make a classification of the persons or things for the purpose of applying its provisions and may leave it to the discretion of the Government to select and classify the persons or things to whom its provisions are to apply but may at the same time lay down a policy or principle for the guidance of the exercise of discretion by the Government in the matter of such selection or classification. ... (v) A statute may not make a classification of the persons or things to whom their provisions are intended to apply and leave it to the discretion of the Government to select or classi....
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....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 not palpably arbitrary. (4) The principle underlying the guarantee of Article 14 is not that the same rules of law should be applicable to all persons within the Indian territory or that the same remedies should be made available to them irrespective of differences of circumstances. It only means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal laws would have to be applied to all in the same situation, and there should be no discrimination between one person and another if as regards the subject-matter of the legislat....
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....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 offending against the equal protection clause. On the other hand, if the statute itself does not disclose a definite policy or objective and it confers authority on another to make selection at its pleasure, the statute would be held on the face of it to be discriminatory, irrespective of the way in which it is applied. (10) Whether a law conferring discretionary powers on an administrative authority is constitutionally valid or not should not be determined on the assumption that such authority will act in an arbitrary manner in exercising the discretion committed to it. Abuse of power given by law does o....
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...., 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 object sought to be achieved by the statute in question.' 48. In E.P. Royappa, it has been held by this Court that the basic principle which informs both Articles 14 and 16 are equality and inhibition against discrimination. This Court observed in para 85 as under: (SCC p.38) '85. ...From a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and ....
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....B(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 economy, with expressions of elevating and speeding up her economic development, in which the foreign direct investment is playing a major role in rapid economic growth and we are on the fast track to prosperity. For successful working of the democracy and national economy, it is essential that the public revenue be generated. 39. In Reliance Natural Resources Ltd. v. Reliance Industries Ltd. (2010) 7 SCC 1, the Apex Court observed that in a constitutional democracy like ours, the national assets belong to the people. The Government holds such natural resources in trust. The constitutional mandate is that the natural resources belong to the....
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....ration 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 been given such rights. PSC defines the Contract Area as a Block. He has been producing crude oil and natural gas from Hazira and Surat Blocks. He has been producing crude oil and natural gas from such Blocks. He 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 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 of the Act by the Finance (No.2) Act, 2009, has been challenged. 44. After th....
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....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 PSC envisage an exploration period, followed by development and production period. The exploration period is a maximum of seven years. While the notice inviting offers envisaged production in a phased manner, it is a contradiction to state that the period of seven years exemption for the entire block, should commence from the time when the first well started commercial production. The 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....
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....ial 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 "commercial production" have been defined under Section 80-IB of the Act. The Apex Court had defined and laid down the test as to what would constitute an "undertaking" in the case of Textile Machinery Corporation Ltd. (supra). This was the case relating a claim by the assessee under Section 15C of the Income Tax Act, 1922 and vide paragraph 2, two questions were referred before the High Court as follows:- (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Steel Foundry Division was an industrial undertaking to which Section 15C of the Indian Income-tax Act, 1922 was applied? (2) Whether, on the facts and in the cir....
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....f 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 commercial production of mineral oil that unit would become an undertaking irrespective of the fact it is engaged in production of the very same product, namely, mineral oil. 49.8 It is important to highlight that the expression "undertaking" should not be equated or read as an assessee. This is the essential principle evolved by Courts over a period of time. An assessee is entitled to have more than one undertaking and it can even carry on the same business or distinct business. The test is, the undertaking economically independent and commercially carrying out the activities as a self sustainable unit. 49.9 PSC is a sovereign contract entered into on behalf of the President of In....
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.... 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 part of the Contract Area about which based on Discovery under results obtained from a well or wells drilled in such part, the Contractor is of the opinion that petroleum exists and is likely to be produced in commercial quantities. 49.13 Article 1.51 defines Gas Field means within the Contract Area, a natural gas reservoir or a group of natural gas reservoirs within a common geological structure or feature. Article 1.66 defines an Oil Field means within the Contract Area an oil reservoir or group of oil reservoirs within a common geological structure. Article 1.88 defines Well means a bore hole, made by drilling in the course of petroleum operations but does not include a seismic shot hole. 4....
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....en 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 to light the fact that prior to the insertion of the Explanation, even Government was of the view that each Block can have more than one undertaking in view of the various articles in the PSC as set out above. The usage of the expression "single" in the Explanation would automatically give rise to the legal inference of existence of multiple undertakings for the same assessee within the same Contract Area or Block. The Explanation proceeds to deem multiple undertakings as a single undertaking with reference to the Block licensed. This is the plain and simple meaning and interpretation one can extend to the Explanation. 49.18 Section 80-IB(9)(ii) before the insertion of the Explanation had created a substantive vested ....
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....see 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 does not exist any ambiguity under the Act. 49.21 There is no ambiguity or doubt which needed to be explained by this Explanation, if uniform settled interpretation and meaning needs to be departed, the amendments sought to be carried out, can only be through the process of validation and not through insertion of an Explanation which is not in the nature of validation. Legislative intent for adding by Amendment Explanation to Section 80-IB(9). 50. For the purpose of finding out the legislative intent, it is necessary to examine the reason for enacting Section 80-IB(9) of the Act and what was the provision earlier. For gathering the legislative intent to give retrospectively to the Explanation added by amendment to Section 80....
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....ed 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 Ors. (1985) 4 SCC 608] 39. It is, however, also well settled that the statute must be interpreted keeping in view the words used in it. We must notice that in Virtual Soft Systems Ltd. v. Commissioner of Income Tax, Delhi-I [(2007) 9 SCC 665], a Bench of this Court has held:- "24. Section 271 of the Act is a penal provision and there are well-established principles for the interpretation of such a penal provision. Such a provision has to be construed strictly and narrowly and not widely or with the object and intention of the legislature." 45. We are also not unmindful of the fact that the said decision has been overruled in Commissioner of Income Tax-I, Ahmedabad v. Gold Coin Health Foods Pvt. Ltd. (2008) 9 SCC 622. A bare perusal of the said ....
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....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. 50.4 Statement of the Finance Minister on the floor of the Parliament while moving the motion for the consideration of Finance Bill 2008 :- "...Members are aware, this sub-section allows 100 per cent tax exemption in respect of an undertaking which begins commercial production or refining of mineral oil for a period of seven consecutive assessment years. Now, what is the scope of this Section? It is disputed. The Department has taken a view; the assessees have taken another view. The disputes go back to assessment year 2001-02. The disputes are under adjudication before different tax authorities. In my view, it is not correct to resolve these disputes by debate in Parliament We should allow the disputes to be resolved in the normal course by the tax tribunals and th....
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....s 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 intent is clearly reflected in the action of the legislature in adding Explanation to Section 80-IB(9) by Finance (No.2) Act, 2009 by way of amendment with retrospective effect. It is easily discernible, that the legislature wanted to overcome the decision of the Income Tax Appellate Tribunal wherein it had been held the each well is a separate undertaking entitled for seven years tax holiday on each well. The adding of Explanation to Section 80-IB(9) with retrospection effect by amendment to was aimed to charge income tax from mineral oil contractors who were benefited by 100% tax holiday for seven years. 50.8 To attain welfare state is our constitutional goal as well, enshrined as one of its basic feature, which runs through our Constitution. It is for this reason, specific provi....
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.... 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 held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra and others (2006) 6 SCC 286. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are not confronted with any such situation here. 51.2 In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to Section 113 of the Act i....
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....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 pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law." The above summing up is factually based on the judgments of this Court as well as English decisions. 51.4 A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas & Anr. [(1968) 3 SCR 623], while considering the nature of amendment to Section 29 (2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows :- ....
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.....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 there the revenue, has to be preferred. This is a well established principle of statutory interpretation, to help finding out as to whether particular category of assessee are to pay a particular tax or not. No doubt, with the application of this principle, Courts make endeavour to find out the intention of the legislature. At the same time, this very principle is based on "fairness" doctrine as it lays down that if it is not very clear from the provisions of the Act as to whether the particular tax is to be levied to a particular class of persons or not, the subject should not be fastened with any liability to pay tax. This principle also acts as a balancing factor between the two jurisprudential theories of justice - Libertarian theory on the one hand and Kantian theory along with Egalitarian theory pro....
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....rom 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 takes effect retrospectively from 01.04.2002. Various other amendments also take place retrospectively. The Notes on Clauses show that the legislature is fully aware of 3 concepts :- (i) prospective amendment with effect from a fixed date; (ii) retrospective amendment with effect from a fixed anterior date; and (iii) clarificatory amendments which are retrospective in nature. 51.12 Thus, it was a conscious decision of the legislature, even when the legislature knew the implication thereof and took note of the reasons which led to the insertion of the proviso that the amendment is to operate prospectively. Learned counsel appearing for the assessees sagaciously contrasted the aforesaid stipulation while effecting amendment in Section 113 of the Act, with various other provisions not only in the same Finance Act bu....
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....uris 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 is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively. 36. It is, therefore, evident that by reason of an explanation, a substantive law may also be introduced. If a substantive law is introduced, it will have no retrospective effect." 54. The Petitioner has been claiming a well or a cluster of wells each as a separate undertaking and according to him, in a block, there may be various fields and various undertakings and each undertaking had been granted benefit of deductions under the benefits of deductions under Section 80-IA were expressly made available with effect from 1.4.1999 by amending the then existing Section 80-IA. Later on Section 80-IB(9) was introduced to provide for such benefits. 55. The argume....
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....e 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 in machines manpower etc.. But this was not mentioned either in the PSC or in the petroleum tax guide. 58. The object of the amendment, as it appears from the statements of the Finance Minister while moving the Finance (No.2) Bill 2009, was to define the term "undertaking" in the context of mineral oil which was subject matter of considerable dispute. The assessees who are claiming every well in a block licensed constitutes a single undertaking entitled for tax holiday separately for each well. According to the Finance Minister, the view taken by the assessee were against the legislative intent. What was the legislative intent when 100% tax deduction on profits and gains was granted by the legislature was neither stated nor explained by the Finance Minister. The expression "legislative intent" was used by the Finance Minister in the Bi....
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....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. (supra), held in paragraph 8 that even if the statute does contain a statement to the effect that the amendment is clarificatory or declaratory, that is not the end of the matter. The Court has to analyse the nature of the amendment to come to a conclusion whether it is in reality a clarificatory or declaratory provision. Therefore, the date from which the amendment is made operative does not conclusively 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. Same principle would apply where the legislature had made a statement in the statute that it would apply retrospectively. We have examined the history of enactment for mineral oil, the old and the amended provisions. We are satisfied that the Explanation ad....