Gujarat High Court
Vedanta Ltd. (Erstwhile Cairn India ... vs Income Tax Appellate Tribunal & on 1 August, 2017
Author: Akil Kureshi
Bench: Akil Kureshi, Biren Vaishnav
C/SCA/11027/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 11027 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
==========================================================
1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
==========================================================
VEDANTA LTD. (ERSTWHILE CAIRN INDIA LTD.)....Petitioner(s)
Versus
INCOME TAX APPELLATE TRIBUNAL & 1....Respondent(s)
==========================================================
Appearance:
MR B S SOPARKAR, ADVOCATE for the Petitioner(s) No. 1
MR DEVANG VYAS, ADVOCATE for the Respondent(s) No. 1
MR NITIN K MEHTA, ADVOCATE for the Respondent(s) No. 1
NOTICE SERVED BY DS for the Respondent(s) No. 2
==========================================================
CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
Date : 01/08/2017
Page 1 of 13
HC-NIC Page 1 of 13 Created On Fri Aug 18 07:48:40 IST 2017
C/SCA/11027/2017 JUDGMENT
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. This writ petition is filed by an assessee challenging an order dated 17.01.2017 passed by the Income Tax Appellate Tribunal by which, the Tribunal was pleased to accept the plea of the Revenue and adjourn a bunch of 32 appeals and cross-appeals involving the present assessee and the department sine die.
2. Brief facts are as under:
Petitioner is a company registered under the Companies Act and is engaged in the business of surveying, prospecting, drilling and exploring for, acquiring, developing, producing, maintaining, refining, storing, trading, supplying, transporting, marketing and distributing, importing, exporting and generally dealing in minerals, oils, petroleum, gas and related by- products. As part of the company's ongoing activities, oil explorations and mining has been going on across various oil fields over a period of time. Various issues arising out of the assessee's claim of deduction under section 80IB (9) of the Income Tax Act, 1961 ('the Act' for short) with respect to the income generated from such activity have cropped up between the assessee and the department. For the assessment years 2003- 04 to assessment years 2009-10, such issues are pending before the Income Tax Appellate Tribunal in these appeals and cross-
appeals. The case of the petitioner is that the Tribunal has granted conditional stay against the orders of the Commissioner Page 2 of 13 HC-NIC Page 2 of 13 Created On Fri Aug 18 07:48:40 IST 2017 C/SCA/11027/2017 JUDGMENT (Appeals) to the extent they are adverse to the assessee upon depositing certain percentage of the disputed tax dues. The assessee therefore has been urging the Tribunal to finally dispose of such appeals. The assessee is otherwise in financial crunch and needs the deposited amounts back.
3. Sub section (9) of section 80IB of the Act grants deduction to an undertaking which begins commercial production of refining of mining oil on hundred percent of its profit for a period of seven consecutive assessment years including initial assessment year. Sub-section (9) of section 80IB in its original format, was substituted by the Finance (No.2) Act of 2009 w.e.f. 01.04.2000. The effect of the substituted sub section (9) on the question of deduction where the assessment years involve the periods prior to the date of amendment, came up for consideration before the Division Bench of this Court in case of Niko Resources Ltd. vs. Union of India and anr reported in 374 ITR 369. The case of the petitioners-assessees before the High Court was that some of the changes in the new sub section (9) were clarificatory in nature and in any case, would not disturb the rights of the assessees concerning the period prior to the introduction of the amendment. The Division Bench allowed the writ petition and granted certain reliefs to the petitioners. We would advert to this decision of the High Court at some length later.
4. Against the judgement of the High Court in case of Niko Page 3 of 13 HC-NIC Page 3 of 13 Created On Fri Aug 18 07:48:40 IST 2017 C/SCA/11027/2017 JUDGMENT Resources Ltd. (supra), the department has filed Special Leave Petition before the Supreme Court which has been granted and appeal is admitted. On 20.11.2015, the Supreme Court passed the following interim order:
"As we are entertaining the matter, the High Court (s) where the appeals are pending shall not finalise the same till the matter is dealt with by this Court."
5. The Revenue, believing that the issues, pending before the Tribunal in the said bunch of 32 appeals of the assessee and the department, are those, on which, the decision of the High Court in case of Niko Resources Ltd. (supra) was rendered, filed an application before the Tribunal on 17.01.2017 and submitted as under:
"The above appeals are listed for hearing before your honours on 17.01.2017.
2. In all the above appeals, the major issue involved is deduction under section 80IB(9) of the Income Tax Act, 1961.
3. In this connection, your kind attention is invited to letter dated 23.09.2016 of the office of the Pr. Chief Commissioner of Income Tax, Gujarat addressed to the Vice President, ITAT, Ahmedabad (copy enclosed). Vide this letter it has been requested as follows:-
"2. As you aware, vide combined order dated 26/03/2015 in SCA No. 10903 of 2009 (petitioner Gujarat State Petrolium Corporation ) and SCA No. 131314 of 2009 (petitioner Niko Resources Ltd.), the Hon'ble Gujarat High Court had ruled that the amendment to section 80IB(9) by retrospective insertion of Page 4 of 13 HC-NIC Page 4 of 13 Created On Fri Aug 18 07:48:40 IST 2017 C/SCA/11027/2017 JUDGMENT explanation to section 80IB(9) by the Finance Act, 2009 was "ultravires" to the Constitution.
3. The Department filed SLP and the Hon'ble Apex Court, vide admitting SLP in (CC) No. 18370 of 2015, arising out of order passed by High Court of Gujarat dated 26.03.2015 in SCA No. 10903 of 2009, vide order dated 20.11.2015 has ruled out as under:-
"As we are entertaining the matter, the High Court (s) where the appeals are pending shall not finalise the same till the matter is dealt with by this Court."
4. In view of the aforesaid directions of the Supreme court, I am directed to request that matters pertaining to validity of amendment of section 80IB(9) by retrospective insertion of Explanation to 80IB(9) may please be kept in abeyance, in case appeals on such issues are pending before ITAT, Ahmedabad. A copy of the Supreme Court order is enclosed for ready reference."
4. In all the above referred appeals, identical issue is involved. Therefore, in view of the above, it is requested that the above appeals may be adjourned sine die.
5. It is mentioned that in view of direction of Hon'ble Supreme Court as mentioned above, the Hon'ble Gujarat High Court vide order dated 03.10.2016 in Tax Appeals No. 781, 1240, 1246, 1247, 1248, 1249 and 1859 of 2008 in DIT (International Taxation) vs. Niko Resources Ltd. where identical issue is involved, has adjourned the matter sine die (copy enclosed).
I shall be obliged."
6. On this application, the Tribunal passed the impugned order.
Page 5 of 13
HC-NIC Page 5 of 13 Created On Fri Aug 18 07:48:40 IST 2017
C/SCA/11027/2017 JUDGMENT
The Tribunal decided to adjourn all the appeals sine die to be taken up after the adjudication of the pending appeals before the Supreme Court. The Tribunal was of the opinion that the assessee was relying on the judgement of the Tribunal which was carried in appeal before the High Court and the High Court had adjourned the hearing of the appeals sine die because of the said interim order of the Supreme Court. In the present case, if the Tribunal proceeded further, it would lead to further litigation at the instance of either party. This would merely shift the litigation from Tribunal to High Court. Primarily on such grounds, the Tribunal granted the request of the Revenue and, as noted earlier, adjourned the hearing of the appeals sine die.
7. This order of the Tribunal the assessee has challenged in the present petition. Counsel for the petitioner submitted that the main issue decided by the High Court in case of Niko Resources Ltd (supra) was with respect to the validity of the Explanation contained in substituted sub-section (9) of Section 80IB of the Act. This issue does not arise in any of the tax appeals pending before the Tribunal. He further submitted that, in any case, the interim order of the Supreme Court does not preclude the Tribunals countrywide from entertaining tax appeals, even if such appeals involve such a question. While granting stay in favour of the assessee, the Tribunal has imposed a condition of depositing a portion of the tax dues. Counsel further submitted that the applications filed by the Revenue before the Tribunal proceeded on erroneous footing that the effect of the Page 6 of 13 HC-NIC Page 6 of 13 Created On Fri Aug 18 07:48:40 IST 2017 C/SCA/11027/2017 JUDGMENT Explanation contained in sub section (9) of section 80IB of the Act was involved in the Tax appeals. The Tribunal therefore proceeded on erroneous premise. The assessee would, therefore, expect the Tribunal to decide the appeals expeditiously. Counsel lastly contended that in as many as nine appeals out of the said group of 32 appeals, the deduction under section 80IB(9) of the Act is not involved at all. The Tribunal committed an error in postponing the hearing of these appeals along with other appeals.
8. On the other hand, learned counsel Mr. Nitin Mehta for the department opposed the petition contending that in majority of the appeals, the question of deduction under section 80IB(9) of the Act is involved. This in fact, is the predominant issue in such pending appeals. The remaining issues involve much lesser tax effect. The Supreme Court in its interim order dated 20.11.2015 has clearly directed that no High Court shall finalize the appeals pending before itself which involve issues similar to those decided by the High Court in case of Niko Resoruces Ltd. The Tribunal, therefore, correctly desisted from proceeding further in the appeals. The issue involved before the Tribunal is one of applicability of clause (iv) of sub-section (9) of section 80IB of the Act which was also considered by the High Court in case of Niko Resources Ltd. (supra).
9. To appreciate the controversy, we may peruse the decision of the High Court in case of Niko Resources Ltd. (supra) more Page 7 of 13 HC-NIC Page 7 of 13 Created On Fri Aug 18 07:48:40 IST 2017 C/SCA/11027/2017 JUDGMENT minutely. As noted, prior to its substitution by the Finance (No.2) Act of 2009 sub-section (9) of section 80IB granted deduction to an undertaking which begins commercial production or refining of mineral oil by hundred per cent of the profit for a period of seven consecutive assessment years including the initial assessment year. This was subject to certain conditions to be fulfilled as laid down in the further proviso. This sub-section (9) of section 80IB was substituted by Finance (No. 2) Act of 2009 but w.e.f. 01.04.2000. While retaining the benefit of hundred percent deduction on the profit of an undertaking for seven consecutive assessment years including the initial year certain significant changes were made. The conditions to be fulfilled by such eligible undertaking were laid down in clauses (i) to (v). Clause (iv) thereof which was not there in the original sub-section (9) reads as under:
"[(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 fulfils any of the following, namely:--
[(iv) is engaged in commercial production of natural gas in blocks licensed under the VIII Round of bidding for award of exploration contracts (hereafter referred to as "NELP-VIII") under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. O-19018/22/95- ONG.DO.VL, dated 10th February, 1999 and begins commercial production of natural gas on or after the 1st day of April, 2009."
10.An explanation was introduced at the end of sub-section (9) which was not there earlier and which reads as under:
Page 8 of 13HC-NIC Page 8 of 13 Created On Fri Aug 18 07:48:40 IST 2017 C/SCA/11027/2017 JUDGMENT 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 Licencing 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 a State Government in any other manner, shall be treated as a single "undertaking".]
11. According to the Revenue, therefore, in order to be an eligible undertaking, as provided in clause (iv) to sub-section (9), it should be engaged in commercial production of natural gas. By virtue of the explanation, according to the Revenue for the purposes of claiming deduction all blocks licensed under similar contract, would be treated as a single undertaking. One of the oil exploration company Niko Resources Ltd. therefore approached the Gujarat High Court by filing a writ petition and challenged such stand of the Revenue. According to the petitioner therein, the Explanation below sub-section (9) of section 80IB could not have been given retrospective effect since it affected the accrued rights. According to the petitioner clause (iv) was ultra vires the Constitution since it made an artificial distinction. In such petition, the Gujarat High Court considered the following three questions:
"31. We have examined the rival contentions and according to us the following issues fall for consideration in this matter:-Page 9 of 13
HC-NIC Page 9 of 13 Created On Fri Aug 18 07:48:40 IST 2017 C/SCA/11027/2017 JUDGMENT
(i) Whether the insertion of the Explanation to Section 80-
IB(9) of the Income Tax Act, 1961 by Finance (No.2) Act, 2009 with retrospective effect from 1.4.2000 explaining the meaning of the term "undertaking" is unconstitutional and ultra vires to Article 14 of the Constitution of India?
(ii) Whether the insertion of sub clause (iv) in Section 80- IB(9) of the Income Tax Act, 1961, by Finance (No.2) Act, 2009 conferring the benefit of the deduction under this Section to undertakings engaged in commercial production of natural gas in blocks licensed under VIIIth round of bidding provided such commercial production commenced on or after 1.4.2009 results in denial of the benefit of deduction under 80-IB(9) to undertakings engaged in commercial production of natural gas under contracts entered into prior to NELP VIII on an interpretation thereof that the term "mineral oil" would not include natural gas since the benefit was available only to undertakings engaged in commercial production of "mineral oil" rendered the newly added sub clause (iv) unconstitutional and ultra vires Article 14 of the Constitution of India?
(iii) Whether the Petitioner has any accrued or vested right?"
12. With respect to the first question, the Division Bench held as under:
"63. Therefore, for the reasons given above, we are of the considered opinion that the Explanation added to Section 80- IB(9) by amendment is substantive law and could not apply retrospectively. The Explanation added to Section 80-IB(9) breaches the rule of law and is arbitrary being violative of Article 14 of the Constitution of India is struck down.
64. In the result, both the writ petitions succeed and are allowed. The Explanation to Section 80-IB(9) of the Act is held to be ultra vires to Article 14 of the Constitution of India. Rule Page 10 of 13 HC-NIC Page 10 of 13 Created On Fri Aug 18 07:48:40 IST 2017 C/SCA/11027/2017 JUDGMENT is made absolute. Parties to bear their own costs."
13. Regarding the second question, the Court held as under:
"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".
14. Both sides agreed that the applicability of the explanation below sub-section (9) of section 80IB of the Act is not involved in the tax appeals pending before the Tribunal. However, both sides also agreed that the implication of the clause (iv) of sub-section (9) is one of the important issues involved in large number of such appeals. We have, therefore, proceeded on such basis. In that context, if we peruse the interim order of the Supreme Court, it provides that since the Supreme Court is entertaining the matter, the High Court wherever such appeals are pending, would not finalize the same till the matter is dealt with by the Supreme Court. The intention of the Supreme Court is thus, amply clear and it precludes any High Court from deciding the issues which are presented in the appeal against the judgement of the High Court in case of Niko Resources Ltd. (supra). Such Page 11 of 13 HC-NIC Page 11 of 13 Created On Fri Aug 18 07:48:40 IST 2017 C/SCA/11027/2017 JUDGMENT issue could be one of implication of the Explanation to sub- section (9) of section 80IB or of the interpretation of clause (iv) thereof. In either case, it would not be open for the High Court to proceed further and finalize the issue till the Supreme Court decides the appeal. Effectively therefore, the Supreme Court not only stayed the operation of the judgement of the High Court but has stayed judgement itself.
15. We are conscious that the order of the Supreme Court does not take within its fold any pending appeal before the Tribunal. Strictly speaking therefore counsel for the petitioner may be correct in contending that there is no stay against the Tribunal proceeding further in such tax appeals. However, in the present case, it is not the question of the legality of power on part of the Tribunal, but propriety in proceeding or not proceeding with the appeals. When admittedly one of the issues involved in such tax appeals is of the effect of clause (iv) of newly substituted sub- section (9) of section 80IB of the Act and consequently, the ratio laid down by the High Court in case of Niko Resources Ltd. (supra), the Tribunal cannot be faulted for deciding not to proceed further with the bunch of appeals till the Supreme Court finally cleared the issues. We see no impropriety or legal error in the Tribunal choosing this option.
16. Before concluding, we may recall, according to the counsel for the petitioner there were as many as nine appeals out of the said group in which the question of deduction under section 80IB(9) of the Act was not involved at all. In any case, Page 12 of 13 HC-NIC Page 12 of 13 Created On Fri Aug 18 07:48:40 IST 2017 C/SCA/11027/2017 JUDGMENT the effect of the judgement of the High Court in case of Niki Resources Ltd would not be felt. If that be so, such appeals could certainly be segregated, heard and finally decided by the Tribunal. We request the Tribunal to do so if the Tribunal is convenienced that such segregation is otherwise possible.
17. With these observations, petition is disposed of.
(AKIL KURESHI, J.) (BIREN VAISHNAV, J.) Jyoti Page 13 of 13 HC-NIC Page 13 of 13 Created On Fri Aug 18 07:48:40 IST 2017