2015 Supreme(SC) 433

SUPREME COURT OF INDIA
A.K. SIKRI, ROHINTON FALI NARIMAN, JJ.
JOSHI TECHNOLOGIES INTERNATIONAL INC. – APPELLANT
VERSUS
UNION OF INDIA & ORS. – RESPONDENTS
CIVIL APPEAL NO. 6929 OF 2012
Decided on: 14-05-2015

IMPORTANT POINTS
Requirement of express stipulation in the contract about benefit of section 42 of IT Act is mandatory for availing the benefit.
A legal wrong committed by mistake cannot be perpetuated. There is no estoppel against law.
When a contract is signed with eyes open, parties cannot seek modification with retrospective effect.
Courts’ jurisdiction under Article 226 of the Constitution discussed and applied.

Headnote:(a) Income Tax Act, 1961 – Section 42(1)(b) and (c) – Deductions of expenditure incurred in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except for those assets on which allowance for depreciation is admissible under Section 32 – Such allowances are otherwise inadmissible on general principles – PSC entered into between the parties becomes an independent accounting regime – Its provisions prevail over generally accepted principles of accounting – Stipulation for such allowances in the PSC is mandatory for claiming these deductions – In absence of these stipulations in the PSC the Assessing Officer would be unable to give the benefit of section 42 to the assesee – Instantly this mandatory stipulation is absent in both the PSC – Assessing Officer could not be able to give benefit of section 42 to the assesee. (Para 38, 39, 40)

       (2008) 15 SCC 33; (2010) 327 ITR 626 – Relied upon

       (1955) 1 SCR 305; (1983) 3 SCC 379; (1991) 1 SCC 212; (2004) 3 SCC 553; (2012) 100 SCC 424 – Referred

       (b) Legal interpretation – Contracts – PSCs dated 20-02-1995 – Appellant’s counsel attempting to contend that provisions of Model Profit Sharing Contract were intended to be part of the PSCs actually signed – The agreement making it clear that it is the sole repository of the terms on which it is signed – Nothing outside of it would be looked into for this purpose – Tax authorities rightly ignoring the contention. (Para 43, 44)

       (c) Legal interpretation – Contracts – Allowances/deductions under Section 42, Income Tax Act, 1961 – PSCs dated 20-02-1995 – Article 32.2 – Specifically superseding any understanding between the parties prior to the effective date of the contract – Appellant not entitled to benefits of section 42 – Income Tax authorities wrongly allowing the same for some years – Would not give right to the appellant – There is no estoppels against law. (Para 45, 46, 49)

       (2010) 327 ITR 626 – Relied upon

       (d) Constitution of India – Article 226 and 136 – No specific prayer in the writ petition for issue of writ of mandamus for amendment of the contract to include intention of parties to allow benefits of section 42 of the Income Tax Act, 1961 to the appellant – However High Court entertaining such relief on basis of averments in the petition, respondents not protesting – Therefore, the issue examined by Supreme Court, though reluctantly. (Para 53)

       (e) Constitution of India – Article 299 and Article 32 of PSC – Amendment / modification – Mere letters from MoPNG to MoF showing intention to grant benefits of section 42 of the Income Tax Act, 1961 not enough, more so when MoF did not respond – Contract governed by Article 299 – Parties signing the contract fully aware of the law and the contents – Cannot seek retrospective amendment. (Para 55, 56)

       (f) Constitution of India – Article 226 and 32 – Requirement of fairness and reasonableness applicable to statutory and administrative actions of the State – Not applicable in contractual matters – Exceptions – Non-governmental party must show that it is seeking relief under public law and not private law – Writ of mandamus can be issued only when public duty is involved – Exercise of jurisdiction under Article 226 can be refused in these circumstances – No public law character attached to the issue – The contract provides a particular mode of settlement of dispute – There are disputed questions of fact – Money claims arising out of contractual obligations. (Para 56, 57, 58, 68, 69)

       (1989) 2 SCC 691; [1989] 1 SCR 743; [1981] 3 SCR 662; AIR 1991 SC 537; (1994) 3 SCC 552; (1986) 1 SCC 264 – Relied upon

       (1979) IILLJ 217 SC – Referred

       Facts of the case:

       The appellant had entered into two contracts with the Union of India, through Ministry of Petroleum and Natural Gas (MoPNG) in the year 1992 relating to exploration of certain oil fields which the Union of India had selected in Gujarat and other States. These contracts were on production sharing basis for Dholka and Wavel Oil Fields respectively. It started the production after entering into the contract and filed its income tax return on the income generated from the aforesaid production.

       In the returns, the appellant claimed benefit of Section 42 of the Income Tax Act, 1961.

       The Income Tax Authorities extended the benefit of granting deductions under the aforesaid provisions from the year 2001-02 (assessment years onwards) when the appellant commenced commercial production in the aforesaid two oil fields.

       However, while making assessment for the Assessment Year 2005-06, the Assessing Officer observed that there were no such provisions made in the Agreements which were signed between the Central Government and the appellant and in the absence of such stipulation in the agreement, the appellant was not entitled to the benefit of deductions under Section 42 of the Act.

       The Assessing Officer disallowed the claim for deduction under Section 42(1)(b) and 42(1)(c) of the Act.

       Appellant preferred writ petition in the High Court of Delhi which has been dismissed.

       Finding of the Court:

       It is not a fit case where the High Court should have exercised discretionary jurisdiction under Article 226 of the Constitution.

       Appellant is not entitled to the relief claimed.

       Result: Appeal dismissed.