TaxTMI 
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2019 (9) TMI 161
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....rder dated 03.05.2010 of the Appellate Tribunal. The said order was compiled by the Appellants. 4. In order to decide the present appeals, few facts are necessary to be mentioned which are disclosed on behalf of the appellants. (a). In 1983-84 the Appellant Company (HLL) and Lipton India Ltd. (LIL), which was a sister concern, decided that the entire business of manufacture and sale of Vanaspati, which was being carried out by the Appellant company (HLL), would be transferred to LIL. Accordingly, four factories which were only manufacturing 'Vanaspati' were straightaway transferred to LIL. However, in respect of two factories which were manufacturing products other than Vanaspati also, it was decided that till all formalities are completed including transfer of license to import the raw material oil and the Industrial license to manufacture Vanaspati etc., the manufacture of Vanaspati as an interim arrangement would be continued to be carried on by the Appellant Company (HLL), but would be done 'for and on behalf of LIL'. All expenses, profits and losses, were thereafter to be, to the account of LIL in relation to the business of Vanaspati. The present appeals relate to these ....
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....val of RBI as stated in Section cited above. (iii) M/s. Lipton India Ltd. had admitted in its letter dated 13.02.1987 that they had not obtained the permission of the RBI as required under Section 26(7)(i) and 26(7)(ii) of FERA 1973. (iv) Section 26 of FERA, 1973 was enacted to prohibit any transaction wherein foreign exchange was travelling outside the country. The requisites to attract the said Section are: (a) lending or depositing money (b) To a firm or company having more than 40% non-resident share capital. 8. It is submitted on behalf of the respondent that on bare reading of the said provision, it is aptly clear that M/s. Hindustan Lever Ltd. in which the foreign entity had share holding of 51% received money from M/s. Lipton which is an Indian Company. Therefore the lending or deposit will attract any form of money exchanged without the approval of RBI i.e. loan or advance for that matter as the word deposit has been used and even assumed without prejudice to the case of the Department that the sum given was an advance still for that purpose a deposit was made in the account of M/s. Hindustan Lever which satisfies the condition for contravention of 26(7)(i) and 26(7....
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...., by, or for the benefit or, person resident in India; or (d) that more than one-half- (i) of interest payable on its loans and loan capital, if any, or (ii) of the dividends payable on its preference share capital, if any, not being preference share capital, is receivable directly or indirectly, by or for the benefit of, persons resident in India. Explanation II.-Where the identity of the persons by whom, or for whose benefit, any sum assets, interests or dividends are directly or indirectly receivable depends on the exercise by any person resident in India, of a power vested in him in that behalf, the sum, assets, interest or dividends shall, for the purposes of Cl. (b) of Expln. I, be deemed to be receivable directly or indirectly by, or for the benefit of, persons, resident in India. Explanation III.- For the purposes of this Section and Secs. 28,29 and 31, "non-resident interest" means participation in the share capital by, or entitlement to the distributable profits of, any individual or company resident outside in India, or any company not incorporated under any law in force in India, or any branch of such company whether resident outside India or not." 10. It is ....
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.... out therein referring to the interim arrangement, clearly related to 'advances' for carrying out the operating expenses. Apart from the said entry, the only other document which also clearly explains the transaction is the letter dated 13.02.1987 sent by LIL to Dy. Director, ED, in answer to the query raised. This letter also clearly shows that the amount was paid as an 'advance' to meet the expenses under the interim arrangement. Although reliance is placed on this letter, the Special Director has completely ignored the explanation set out therein. On the basis of the said entry, explanatory note and the aforesaid letter dated 13.2.1987, the Special Director ought to have held that the payment in question was only towards 'advances' to meet the operating costs and capital expenditure for running the Vanaspati operation in trust, for and on behalf of LIL. Ignoring this important aspect, which goes to the root of the matter, the impugned order stands vitiated. 14. The meaning and scope of 'loan' is well settled. The Hon'ble High Court of Delhi in the case of Motia Rani Bhatia Vs. The Additional Director of Enforcement & Ors. 23 (1983) DLT 74 has held in para- 25 that- 'what....
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....ase, the monies had been transferred to M/s. Hindustan Lever Limited, for financing a particular operation.' From the aforesaid extracts from para-22 of the impugned order, it is clear that the ingredients of 'loan' as adopted by the Special Director are totally contrary to the law laid down by the Hon'ble Delhi High Court. 17. We are clear in our mind that once it is clear from the material placed on record that the said amount was loan or deposit of money and no permission is sought from RBI, the case of contravention is made out. 18. The Counsel for the Respondent has not denied the factum of relied upon documents on the basis of which the show cause notice was issued. The relevant entries shown in its annual report are reproduced hereunder: B. Due from Hindustan Lever Ltd., a Company under the same management (includes Rs. 951.67 lakhs-Previous Year Rs. 510.59 lakhs- on account of the domestic edibles business operations at HLL's multi-product factories at Shamnagar (West Bengal) and Sewri (Bombay)-refer note 18(i); Maximum amount due at any time during the year Rs. 1038.44 lakhs C. Pursuant to the agreement dated 23rd November, 1983 between the Company and Hindustan Le....
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.... in trust for us and costs, expenses and profits for these operations were being transferred to us, we advanced, in the normal course of our business, sums required for these operations to HLL so as to enable them to carry out these operations for our benefit. It would have been unfair for us to expect HLL to finance these operations from their funds apart from the fact that such an approach would have adversely affected the profitability of this business, because of enhanced interest cost we would have to reimburse HLL if they had to finance this operation. Since the money was advanced for working capital needs of the above referred business in the normal course of our operations and was for our own benefit, and not for the benefit of HLL, it was neither in the nature of a 'deposit' nor a 'loan' requiring approval under Sec. 26(7) of FERA and as such no such approval was obtained from RBI. In so far as the amount of Rs. 220.83 lakhs appearing under Sundry Debtors is concerned. It predominantly represents the recoveries due, but not realised, as of 30-06- 86 in respect of service charges for exports of packet teas by HLL and are therefore again not in the nature of loans or depos....
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.... amount was never treated either as a loan or deposit. Only in the heading, such expression is used. 24. With regard to objection on behalf of respondent about the exchange control manual vol.-1 issued by the RBI that the person resident in India include any offence or branch in order to invoke Section 26(7)(i) & (ii) of FERA, apart from establishing that the transaction amounts to 'lending' or 'borrowing', another essential ingredient of the Section is that the alleged 'loan' should be given to a "Person resident in India" as defined in Section 2(p) of FERA. In the present case, since the amount which is alleged to be given as a 'loan' to a 'body corporate' which cannot be a "Person resident in India", the said Sections are inapplicable. "a person resident in India" as defined in Section 2(p) can only relate to an 'individual' and not to a 'body corporate'. 25. The phrase 'A person resident in India' is defined in Section 2(p) of the Act, which is an exhaustive definition. All the 4 clauses (i) to (iv) of Section 2(p) clearly indicate that the said definition only relates to 'individuals', who may either be citizens of India, as specifically referred to in clauses (i), (ii) & (i....
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....ordance with Section 3 of the General Clauses Act, it is pertinent to note that the General Clauses Act is not applicable in the event of repugnancy of the subject or context with any legislation as in the present case, wherein not only is the expression "person resident in India" under FERA different in context/subject than "person" simpliciter under General Clauses Act but has also been defined specifically in FERA. Therefore the General Clauses Act in the present case cannot be used as an aid to interpret "Person resident in India". 30. The interpretation of 'person resident in India' the Special Director has relied upon the clarification set out in the Exchange Control Manual. It purports to indicate that by virtue of clauses (c) and (d) of subsection (1) of section 73 of the Act, any office or branch situated in India of any business, whether carried on by a body corporate, is treated for all purposes of the Act as a 'Person resident in India'. On the basis of this purported clarification, the Spl. Director has held that even a 'body corporate' can be a "Person resident in India". This findings on his issue were not correct. 31. Exchange Control Manual is only in the nature....
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....It is not open to the Revenue to advance an argument or file an appeal contrary to the circulars." 6. In this particular case, the Board's Circular No. 39/99-Cus., dated 25th June, 1999 extends the benefit of Brand Rate of Drawback to compensate exporters for the re-rolled steel products and processed fabrics The High Court has rightly come to the conclusion that the circular issued by the Board are binding on the department. An effort was made by the learned Solicitor General to get this case referred to a larger Bench. We do not accept this contention in view of number of decisions and especially the Constitution Bench decision in Dhiren Chemical Industries (I) (supra).". As such, reference to the "Exchange Control Manual" by the Special Director while passing the impugned order, as if it has a legal binding effect, is contrary to settled law. Section 26(7) cannot be invoked when the transaction of giving and taking money is between two bodies corporate. 34. Even otherwise as the present case clearly relates to 'advances' for carrying out the Vanaspati operation by HLL, in trust and for and on behalf of LIL and the payment made referred to in the entry in question is not fo....
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....8. In view of the factual findings recorded in the impugned order itself (extracted above) and the aforesaid judgments clarifying the meaning and scope of 'loan' and the submissions regarding the meaning and scope of "person resident in India", it cannot be held that the amount given by LIL to HLL in the aforesaid circumstances was not 'bonafide' and that the Company did not act under an 'honest and genuine belief' that it was permissible to do so. Nor can it be said that the company 'acted deliberately in defiance of law' or were 'guilty of conduct contumacious or dishonest' or 'acted in conscious disregard of its obligation'. Assuming without admitting that there is a technical or venial breach, there is no justification for imposition of Penalty. 39. Apart from the bonafide belief of the Appellant that in the facts and circumstances of the case and on proper appreciation of the aforesaid entry read with the explanatory note and the letter dated 13.2.1987 sent by LIL to the Dy. Director, ED, as well as the interpretation of Section 2(p) of FERA dealing with 'person resident in India', the Appellant also sought opinion from Shri M. Hidayatullah (Hon'ble Chief Justice of India....
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....which it is held that - "The Managing Director or the Directors of the Company thus cannot be said to have committed an offence only because they are holders of office." (ii) Ashoke Mal Bafna v. Upper Steel Mfg. and Engg. Company Ltd. - MANU/SC/0836/2017- Paras 8-10. (iii) Saroj Kumar Poddar Vs. State (2007) 3 SCC 693 paras 13 & 14. In para 14 it is held that - " there is no averment in the complaint petition as to how and in what manner the appellant was responsible for the conduct of the business of the company or otherwise responsible to it in regard to its functioning." The complaint was thereupon set aside. (iv) National Small Industries Corp. Ltd. Vs. Harmeet Singh Paintal & Anr. (2010) 3 SCC 330 (paras 13, 15, 17, 18, ) In para 24 reference is also made to the decision in the case of Saroj Kumar Poddar referred to above. 41. One of the Directors Mr. N. Vaghul (Appeal No. 193/91) joined the Board of Directors of the Appellant Company only in 1987 and prior thereto he was working with ICICI. Since the entry relating to the amount given by LIL to HLL, on the basis of which proceedings were initiated in the present case relates to the year 1985-86 before he join....