# JOSHI TECHNOLOGIES INTERNATIONAL INC v. UNION OF INDIA & ORS

- **Citation:** [2015] 6 S.C.R. 1042
- **Court:** Supreme Court of India
- **Decided:** 2015-05-14
- **Case number:** Civil Appeal No. 6929 of 2012
- **Bench:** A. K. Sikri, R. F. Nariman
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/joshi-technologies-international-inc-v-union-of-india-ors-30866
- **Pages:** 66

## Headnote

Income Tax Act, 1961:
s.42 - Deduction - If Production Sharing Contract
(PSC) between the government and the assessee does not
contain any stipulation providing for allowance uls.42 then
assessee is not entitled to benefit under the said section -
0
By virtue of this section, it is the PSC which governs the
field, as without it, such deductions are not permissible under
the Act - When benefit of deduction u/s.42 was wrongly
granted in initial years of commencement of commercial
production in the oil fields, it would not amount to a wrong
E act on part of income tax authorities and would not enure to
the benefit of assessee in subsequent assessment years.
s.42 -
Whether Model Production Sharing Contract
(MPSC) can be read as part of and incorporated in the PSCs
F - Held: It is not permissible for assessee to take aid of MPSC
or the clauses contained therein while construing the terms
of PSCs.
s.42 - Whether there was any intention between the
contracting parties, namely, the MoPNG and the appellant
G for giving benefit of deductions u/s. 42 of the Act - Held: In
the instant case, PSC between the parties categorically
provided that the contract shall not be amended, modified
varied or supplemented in any respect except by an
H instrument in writing signed by all parties, which shall state
1042
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1043
UNION OF INDIA & ORS.
the date upon which the amendment or modification shall A
become effective - MoPNG had requested MoF to give its
nod for amending the contract by incorporating provision of
s.42 which was allegedly left out inadvertently - However,
no authorisation came from MoF - Therefore, question of
any intention to give benefit of deduction uls.42 between
B
the parties would not arise.
s.42 - Non-inclusion of provision in the contract -
Held: Cannot be treated. as accidental and intentional
omission - A contracting party cannot claim to be oblivious C
of the provisions of the law or the contents of the contract at
the time of signing.
s.42- Non-inclusion of provision of s. 42 in the contract
- Whether mandamus can be issued by the Court to the o
parties to amend the contract and incorporate provisions to
this effect - On the facts of the present case, it is not a fit
case where the High Court should have exercised
discretionary jurisdiction u/Article 226 of the Constitution -
First, the matter is in the realm of pure contract - It is, not a E
case where any statutory contract is awarded- The contract
in question was signed after the approval of Cabinet was
obtained- In the said contract, there was no clause pertaining
to s.42 of the Act - The appellant is presumed to have
knowledge of the legal provision, namely, in the absence of F
such a clause, special allowances uls.42 would be
impermissible - Still it signed the contract without such a
clause, with open eyes - No doubt, the appellant claimed
these deductions in its income tax returns which were allowed
by the Income Tax Authorities - Further, no doubt, on this G
premise, it shared the profits with the Government as well -
However, this conduct of the appellant or even the
respondents, was outside the scope of the contract and that
by itself may not give any right to the appellant to claim a H
1044
SUPREME COURT REPORTS
[2015) 6 S.C.R.
A
relief in the nature of Mandamus to direct the Government
to incorporate such a clause in the contract, in the face of
the specific provisions in the contract to the contrary as noted
above, particularly, Article 32 thereof - It was purely a
contractual matter with no element of public law involved
B thereunder.
Constitution of India, 1950:
Art.226- Writ jurisdiction - Contractual obligation -
c Contracts entered into by State/Public Authority with private
parties - Legal position in different situations relating to such
contracts - Enumerated.
Art.226 - Invocation of - Held: In pure contractual
0
matters extraordinary remedy of writ under Article 226 or
Article 32 of the Constitution cannot be i

## Text

_Characters 0–39,949 of 120,147. This is a partial read: ask again with offset=39949 for what follows._

[2015) 6 S.C.R. 1042
A
JOSHI TECHNOLOGIES INTERNATIONAL INC.
B
c
v.
UNION OF INDIA & ORS.
(Civil Appeal No. 6929 of 2012)
MAY 14, 2015
[A. K. SIKRI AND R. F. NARIMAN, JJ]
Income Tax Act, 1961:
s.42 - Deduction - If Production Sharing Contract
(PSC) between the government and the assessee does not
contain any stipulation providing for allowance uls.42 then
assessee is not entitled to benefit under the said section -
0
By virtue of this section, it is the PSC which governs the
field, as without it, such deductions are not permissible under
the Act - When benefit of deduction u/s.42 was wrongly
granted in initial years of commencement of commercial
production in the oil fields, it would not amount to a wrong
E act on part of income tax authorities and would not enure to
the benefit of assessee in subsequent assessment years.
s.42 -
Whether Model Production Sharing Contract
(MPSC) can be read as part of and incorporated in the PSCs
F - Held: It is not permissible for assessee to take aid of MPSC
or the clauses contained therein while construing the terms
of PSCs.
s.42 - Whether there was any intention between the
contracting parties, namely, the MoPNG and the appellant
G for giving benefit of deductions u/s. 42 of the Act - Held: In
the instant case, PSC between the parties categorically
provided that the contract shall not be amended, modified
varied or supplemented in any respect except by an
H instrument in writing signed by all parties, which shall state
1042
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1043
UNION OF INDIA & ORS.
the date upon which the amendment or modification shall A
become effective - MoPNG had requested MoF to give its
nod for amending the contract by incorporating provision of
s.42 which was allegedly left out inadvertently - However,
no authorisation came from MoF - Therefore, question of
any intention to give benefit of deduction uls.42 between
B
the parties would not arise.
s.42 - Non-inclusion of provision in the contract -
Held: Cannot be treated. as accidental and intentional
omission - A contracting party cannot claim to be oblivious C
of the provisions of the law or the contents of the contract at
the time of signing.
s.42- Non-inclusion of provision of s. 42 in the contract
- Whether mandamus can be issued by the Court to the o
parties to amend the contract and incorporate provisions to
this effect - On the facts of the present case, it is not a fit
case where the High Court should have exercised
discretionary jurisdiction u/Article 226 of the Constitution -
First, the matter is in the realm of pure contract - It is, not a E
case where any statutory contract is awarded- The contract
in question was signed after the approval of Cabinet was
obtained- In the said contract, there was no clause pertaining
to s.42 of the Act - The appellant is presumed to have
knowledge of the legal provision, namely, in the absence of F
such a clause, special allowances uls.42 would be
impermissible - Still it signed the contract without such a
clause, with open eyes - No doubt, the appellant claimed
these deductions in its income tax returns which were allowed
by the Income Tax Authorities - Further, no doubt, on this G
premise, it shared the profits with the Government as well -
However, this conduct of the appellant or even the
respondents, was outside the scope of the contract and that
by itself may not give any right to the appellant to claim a H
1044
SUPREME COURT REPORTS
[2015) 6 S.C.R.
A
relief in the nature of Mandamus to direct the Government
to incorporate such a clause in the contract, in the face of
the specific provisions in the contract to the contrary as noted
above, particularly, Article 32 thereof - It was purely a
contractual matter with no element of public law involved
B thereunder.
Constitution of India, 1950:
Art.226- Writ jurisdiction - Contractual obligation -
c Contracts entered into by State/Public Authority with private
parties - Legal position in different situations relating to such
contracts - Enumerated.
Art.226 - Invocation of - Held: In pure contractual
0
matters extraordinary remedy of writ under Article 226 or
Article 32 of the Constitution cannot be invoked - However.
in a limited sphere such remedies are available only when
the non-Government contracting party is able to demonstrate
that its a public law remedy which such party seeks to invoke,
E in contradistinction to the private law remedy simplicitor under
the contract- If the rights are purely of private character, no
mandamus can be issued - Thus, even if the respondent is
a 'State', other condition which has to be satisfied for issuance
of a writ of mandamus is the public duty - In a matter of
F private character or purely contractual field, no such public
duty element is involved and, thus, mandamus will not lie -
Income Tax Act, 1961.
G
Dismissing the appeal, the Court
HELD: 1. Section 42 deals with special provisions
of deductions in the case of business for prospecting,
etc. for mineral oil. Section 42(1)(b) provides for
deductions of expenditure incurred in respect of drilling
H or exploration activities or services or in respect of
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1045
UNION OF INDIA & ORS.
physical assets used in that connection, except for those A
assets on which allowance for depreciation is admissible
under Section-32. Section 42(1 )(c) speaks of allowances
pertaining to the depletion of mineral oil in the mining
· area. In order to be eligible to the deductions, certain
conditions are to be satisfied by the assessees which B
are: (a) it grants such special allowances to those
assessees who carry on business in association with
the Central Government or with any person authorized
by it; (b) business should relate to prospecting for, C
extracting or producing mineral oils, petroleum or
natural gas; (c) there has to be an agreement in writing
between the Central Government and the assessees in
this behalf; (d) it is also a requirement that such an
agreement has been laid on the Table of each House of 0
Parliament; (e) the allowances which are claimed are to
be necessarily specified in the agreement entered into
between the two contracting parties; and (f) allowances
are to be computed and made in the manner specified
in the agreement. From the nature of allowances E
specified in Section 42, it is clear that such allowances
are otherwise inadmissible on general principles, for e.g.
allowances relating to diminution or exhaustion of
wasting capital assets or allowances in respect of
expenditure which would be regarded as on capital F
account on the ground that it brings an asset of enduring
benefit into existence or constitutes initial expenditure
incurred in setting up the profit earning machinery in
motion. It is for this reason this Section itself clarifies
that the provisions of this Act would be deemed to have G
been modified to the extent necessary to give effect to
the terms of the agreement, as otherwise, the other
provisions of the Act specifically deny such deductions.
A fortiorari, the PSC entered into between the parties
H
1046
SUPREME COURT REPORTS
(2015] 6 S.C.R.
A becomes an independent accounting regime and its
provisions prevail over generally accepted principles of
accounting that are used for ascertaining taxable
income. Thus, by virtue of this Section, it is the PSC
which governs the field as without it, such deductions
B are not permissible under the Act. If PSC also does not
contain any stipulation providing for such allowances,
the Assessing Officer would be unable to give the benefit
of these deductions to the assessee. In the present case,
it is an admitted fact that conditions mentioned in
c Section 42 are not fulfilled. In the two PSCs, no provision
is made for making admissible the aforesaid allowances
to the assessee. It is obvious that the Assessing Officer
could not have granted these allowances/deductions to
0
the assessee in the absence of such stipulations, a
mandatory requirement, in the PSCs. The appellant is
conscious of this position. It is for this reason the attempt
of the appellant was to read the provisions of MPSC into
the agreement. [Paras 37, 38, 40, 41] [1076-F-H; 1077-AE H; 1078-A-C, F-H]
F
G
Commissioner of Income Tax, Dehradun & Anr. v. Enron
Oil and Gas India Limited (2008) 15 SCC 33: 2008
(12) SCR 1168- relied on.
Godhar Electricity Co. Ltd. and Anr. v. State of Gujarat
(1975) 1SCC199: 1975 (2) SCR42; K.N. Guruswamy
v. State of Mysore 1955 (1) SCR 305; GSFC v. Lotus
Hotels Ltd. (1983) 3 SCC 379; Kumari Shrilekha
Vidyarthi v. State of U.P 1991 (1) SCC 212; ABL
International Ltd. v. Export Credit Guarantee Corpn.
(2004) 3 SCC 553:1990 (1) Suppl. SCR 625- referred
to.
2. The intention in the clauses of PSCs dated 20H 02-1995 signed between the Government and the
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
. 1047
UNION OF INDIA & ORS.
appellant is more than apparent, namely, not to look into A
any other document or correspondence which took
place between the parties prior to the signing of this
agreement. Not only this, even the so-called
"understanding" between the parties is to be ignored
as well. It is, therefore, impermissible for the appellant B
to take the aid of MPSC or the clauses contained therein
while construing the terms of PSCs. Therefore, it was
not even open to the Income Tax Authorities to go beyond
the stipulations contained in the PSCs while making the
assessment and had to exclusively remain within the C
provisions of the Agreement. On that touchstone, the
Assessing Officer had no option but to deny the benefit
of deductions/allowances claimed by the appellant in
its income tax returns filed for the Assessment Year 20050
06. [Para 44] [1081-E-H; 1082-A]
3. Article 32.2 of the PSC categorically provides
that this Contract shall not be amended, modified, varied
or supplemented in any respect except by an instrument
in writing signed by all the parties, which shall state the E
date upon which the amendment or modification shall
become effective. The question of any intention to the
contrary between the parties does not arise. It is because
of the reason thatArticle 32 of the Agreement specifically F
supersedes any understanding between the parties prior
to the effective date of this contract. The matter is,
however, compounded by certain acts of respondent no.
1 and made complex to some extent by the Income Tax
Authorities in giving benefit of these allowances/ G
deductions under Section 42 of the Act to the appellant
under these very PSCs in respect of earlier assessment
years. Further, this very state of affairs continued for
few years insofar as giving such a benefit by the Income
Tax Authorities is concerned it may not pose a serious H
1048
SUPREME COURT REPORTS
[2015] 6 S.C.R.
A problem. On proper construction of the provisions of
Section 42 of the Act and application of these provisions
to the instant case, the appellant was not entitled to any
such deductions under the PSCs. Thus, when in law no
such deduction was permissible as per the PSCs in the
B present form, even if such deduction was given wrongly
in the earlier years that would not amount to a wrong
act on the part of the Income Tax Authorities and,
therefore, would not enure to the benefit of the appellant
in the Assessment Year in question as well. The
C appellant cannot say that merely because this benefit is
extended in the previous years; albeit wrongly, this
wrong act should continue to perpetuate. There is no
estoppel against law. The three letters were written by
0 the MoPNG in response to the appellant's
communications seeking its clarification. Undoubtedly,
in these three letters the MoPNG has accepted that
intention between the parties was to give the benefit of
allowances under Section 42 to the appellant. So much
E so, the MoPNG even requested the MoF to give its nod
for amending the contract by incorporating such a
provision which was allegedly left out inadvertently.
Article 32 of the contract supersedes any understanding
between the parties. Thus, even if it is presumed that
F there was an understanding between the parties before
entering into an agreement to the effect that benefit of
Section 42 deduction shall be extended to the appellant,
that understanding vanished into thin air with the
execution of the two PSCs. Now, for all intent and
G purpose, it is only the PSCs signed between the parties,
which can be looked into. [Paras 45, 46, 47, 49] [10828-H; 1083-A-E; 1084-E-G]
4. The contract in question is governed by the
H provisions of Article 299 of the Constitution. These are
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1049
UNION OF INDIA & ORS.
formal contracts made in the exercise of the Executive A
power of the Union (or of a State, as the case may be)
and are made on behalf of the President (or by the
Governor, as the case may be). Further, these contracts
are to be made by such persons and in such a manner
as the President or the Governor may direct or authorize. B
Thus, when a particular contract is entered into, its
novation has to be on fulfillment of all procedural
requirements. Fact remains that even when MoPNG
requested MoF for giving consent to amend the contract,
no such authorisation came from MoF. Whether, in such C
a case, can the Court issue a Mandamus? The
contention of the respondent is that PSCs are in the
nature of a contract agreed to between the two
independent contracting parties. It is also mentioned that 0
before the signing of the PSCs, the approval of Cabinet
is obtained which reflects that the PSC as submitted to
the Cabinet has the approval of one of the contracting
parties, namely, Government of India in this case. When
it is signed by the other party it means that it has the E
approval of both the parties. Therefore, a contracting
party cannot claim to be oblivious of the provisions of
the law or the contents of the contract at the time of
signing and, therefore, later on cannot seek
retrospective amendment as a matter of right when no F
such right is conferred under the contract. Even the
doctrine of fairness and reasonableness applies only in
the exercise of statutory or administrative actions of the
State and not in the exercise of contractual obligation
and issues arising out of contractual matters are to be G
decided on the basis of law of contract and not on the
basis of the administrative law. No doubt, under certain
situations, even in respect of contract with the State relief
can be granted under Article 226. In pure contractual
matters extraordinary remedy of writ under Article 226 H
1050
SUPREME COURT REPORTS
[2015] 6 S.C.R.
A or Article 32 of the Constitution cannot be invoked.
However, in a limited sphere such remedies are available
only when the non-Government contracting party is able
to demonstrate that it's a public law remedy which such
party seeks to invoke, in contradistinction to the private
B law remedy simplicitor under the contract. If the rights
are purely of private character, no mandamus can be
issued. Thus; even if the respondent is a 'State', other
condition which has to be satisfied for issuance of a
writ of mandamus is the public duty. In a matter of private
C character or purely contractual field, no such public duty
element is involved and, thus, mandamus will not lie.
[Paras 55 to 58] (1086-G-H; 1087-A-H; 1088-B-E]
Andi Mukta Sadguru Shree Muktajee Vandas Swami
D
Suvarna Jayanti Mahotsav Smarak Trust & Ors. v. R.
Rudani & Ors. (1989) 2 SCC 691: 1989 (2) SCR 697 -
relied on.
5. No doubt, there is no absolute bar to the
E maintainability of the writ petition even in contractual
matters or where there are disputed questions of fact or
even when monetary claim is raised. At the same time,
discretion lies with the High Court which under certain
circumstances, can refuse to exercise. It also follows
F that under the following circumstances, 'normally', the
Court would not exercise such a discretion: (a) the Court
may not examine the issue unless the action has some
public law cha~acter attached to it. (b) Whenever a
particular mode of settlement of dispute is provided in
G the contract, the High Court would refuse to exercise its
discretion under Article 226 of the Constitution and
relegate the party to the said mode of settlement,
particularly when settlement of disputes Is to be resorted
H to through the means of arbitration. (c) If there are very
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1051
UNION OF INDIA & ORS.
serious disputed questions of fact which are of complex A
nature and require oral evidence for their determination.
(d) Money claims per se particularly arising out of
contractual obligations are normally not to be
entertained except in exceptional circumstances. [Para
68] [1102-G-H; 1103-A-E]
B
6. On the facts of the present case, it is not a fit
case where the High Court should have exercised
discretionary jurisdiction under Article 226 of the
Constitution. First, the matter is in the realm of pure C
contract. It is not a case where any statutory contract is
awarded. The contract in question was signed after the
approval of Cabinet was obtained. In the said contract,
there was no clause pertaining to Section 42 of the Act.
The appellant is presumed to have knowledge of the legal D
provision, namely, in the absence of such a clause,
special allowances under Section 42 would be
impermissible, Still it signed the contract without such
a clause, with open eyes. No doubt, the appellant claimed
these deductions in its income tax returns and it was E
even allowed these deductions by the Income Tax
Authorities. Further, no doubt, on this premise, it shared
the profits with the Government as well. However, this
conduct of the appellant or even the respondents, was F
outside the scope of the contract and that by itself may
not give any right to the appellant to claim a relief in the
nature of Mandamus to direct the Government to
incorporate such a clause in the contract, in the face of
the specific provisions in the contract to the contrary, G
particularly, Article 32 thereof. It was purely a contractual
matter with no element of public law involved thereunder.
[Paras 70, 71] [1106-E-H; 1107-A-C]
Pradeep Kumar Sharma v. U.P. Finance Corporation
(2012) 100 SCC 424; CIT v. Enron Expat Service Inc.
H
1052
A
B
c
SUPREME COURT REPORTS
[2015] 6 S.C.R.
(2010) 327 ITR 626; Bareilly Development Authority v.
Ajai Pal Singh and Ors. (1989) 1 SCR 743; Ramana
Dayaram Sheffy v. Airport Authority of India (1979) llLLJ
217 SC; Divisional Forest officer v. Bishwanath Tea
Co. Ltd. (1981) 3 SCR 662; Kumari Shrilekha Vidyarthi
etc. etc. v. State of U.P. and Ors. AIR 1991 SC 537:
1990 (1) Suppl. SCR 625; State of Gujarat v. M.P. Shah
Charitable Trust (1994) 3 SCC 552; L/C of India v.
Escorts Ltd. (1986) 1 SCC 264: 1985 (3) Suppl. SCR
909 - referred to
Case Law Reference
1975 (2) SCR 42
referred to.
Para 27
1955 (1) SCR 305
referred to.
Para 30
D (1983) 3 SCC 379
referred to.
Para 30
1991 (1) SCC 212
referred to.
Para 30
1990 (1) Suppl. SCR625
referred to.
Para 30
(2012) 100 SCC 424
referred to.
Para 34
2008 (12) SCR1168
relied on
Para 37
E (2010) 327 ITR 626
referred to.
Para 39
1989 (2) SCR697
relied on
Para 58
(1989) 1 SCR 743
referred to.
Para 59
(1979) llLLJ 217 SC
referred to.
Para 59
(1981) 3 SCR 662
referred to.
Para 61
F 1990 (1) Suppl. SCR 625
referred to.
Para 62
G
(1994) 3 SCC 552
referred to.
Para 64
1985 (3) Suppl. SCR 909
referred to.
Para 65
CIVILAPPELLATE JURISDICTION: Civil Appeal No.
6929 of 2012.
From the Judgment and-€)rder dated 28.05.2012 in
Writ Petition No. 5716 of 2008 of the High Court of Delhi.
S. Ganesh, Bharat Sangal, Vinay Navare, Vernika
H Tamar, Daggar Malhotra, I. Abenla Aier for the Appellant.
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1053
UNION OF INDIA & ORS.
Arijit Prasad, Rashmi Malhotra, Anil Katiyar for the A
Respondents.
The Judgment of the Court was delivered by
A.K. SIKRI, J. 1. Leave granted.
2. Present appeal impugnes the judgment and order
dated 28.05.2012 passed by the High Court of Delhi, thereby
dismissing the writ petition which was filed by the appellant.
B
It so happened that the appellant had entered into two
contracts dated 20. 02.1995 with the Union of India, through C
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 0
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 TaxAct, 1961 (hereinafter referred to as the 'Act').
E
Section 42 is a special provision for deductions in the case
of business for prospecting, etc. for mineral oil. It provides
for certain additional allowances as are specified in the
agreement, details thereof would be taken note of hereinafter.
We may, however, point out here itself that such allowances,
F
as stipulated in the Section, are to be specifically mentioned
in the agreement as well, which is entered into with the
Central Government and it is also necessary that such an
agreement has been laid on the Table of each House of
Parliament.
G
3. The Income Tax Authorities extended the benefit
of granting deductions under the aforesaid provisions from
the year 2001-02 (assessment years onwards) when the
H
1054
SUPREME COURT REPORTS
(2015] 6 S.C.R.
A appellant commenced commercial production in the
aforesaid two oil fi'elds. 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
B 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.
Realising that the Agreements did not contain such a
provision, the appellant wrote to the MoPNG stating that
C though there was such an arrangement agreed to as per the
understanding between the two parties, non-inclusion thereof
was an inadvertent omission in the Contracts that were
signed. The MoPNG wrote to Ministry of Finance (MoF)
0
accepting the aforesaid omissions and requested the MoF
to give clarification in this behalf. As no clarification came
from the MoF, the Assessing Officer disallowed the claim for
deduction under Section 42(1 )(b) and 42(1 )(c) of the Act. At
this stage, the appellant preferred writ petition under Article
E 226 of the Constitution of India in the High Court of Delhi
F
G
H
with the following prayers.
"Therefore it is most respectfully prayed that this
Hon'ble Court may be pleased to issue:-
(1) A writ, direction or order declaring that the petitioner
is entitled, in respect of the two Production Sharing
Contracts dated 20.02.1995 executed with the
petitioner for the Dholka and Wave! Oil Fields in Gujarat,
to the benefit of the said deductions (set forth in Article
16 of the MPSC and reproduced in Annexure P1) under
Section 42 of the Income-Tax Act, 1961, from the date
of these Production Sharing Contracts, as has been
stated and declared by the respondent no. 1 (i.e., the
Ministry of Petroleum and Natural Gas) in several of
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1055
. UNION OF INDIA & ORS. [A. K. SIKRI; J.]
its communications; and that the petitioner is entitled
A
to the said Deductions on the same footing as all other
contractors who have executed PSCs with the Union
of India;
(ii) A writ, order or direction in the nature of certiorari
B
quashing the impugned order dated 31.12.2007 issued
by Respondent No. 1; the notice dated 28.03.2008 for
re-opening of the petitioner's income-tax assessments
for the Assessment Years 2001-2002; 2002-2003 and
2003-2004 and the notice dated 01.05.2008 for reC
opening the assessment for the Assessment Year 200405; and
(iii) Such other writ order or direction as this Hon'ble
Court may deem just and proper in the circumstances
D
of the case and in the interest of justice, be passed in
favour of the petitioner."
3. This writ petition which has been dismissed by the
High Court vide impugned judgment dated 28.05.2012 E
holding that the appellant is not entitled to any deductions
under Section 42 of the Act in the absence of stipulations to
this effect in the Contracts signed between the parties. This
decision is the subject matter of challenge before us in the
present appeal.
F
4. Now, the facts in detail:
The Union of India ("UOI"), through the MoPNG,
issued a Notice Inviting Tenders in August 1992 ("1992 NIT"),
along with a Model Production Sharing Contract ("MPSC"), G
for "Development of Oil and Gas Fields" from various
companies in relation to some selected oil fields in Gujarat
and other States. Article 16 of the above-mentioned MPSC
contained a specific provision, which provided certain H
1056
SUPREME COURT REPORTS
[2015] 6 S.C.R.
A financial benefits and deductions in relation to taxes etc.
that would be allowed to contractors/developers, as per the
requirements of Section 42 of the Act.
5. The MoF by its Office Memorandum dated
B 18.06.1992, raised an issue that Section 293-A of the Act
would not apply to contracts of the nature mentioned above,
and that benefits under the special provisions of Section 42
of the Act would not be available to foreign companies, such
as the appellant, which enter into such contracts with the
C Central Government. The MoPNG by its Office
Memorandum, dated 22.06.1992 ("OM") referred the issue
to the Ministry of Law, Justice and Company Affairs
specifically seeking its opinion on applicability of Section 42
and Section 293-AoftheAct to the 1992 NIT and the MPSC.
D
E
F
6. The Ministry of Law gave its opinion dated
21. 07. 1992 to the effect that benefit of both Section 293A
and Section 42 should be extended to foreign companies in
order to make their participation in these oil fields viable.
7. The appellant (along with its erstwhile joint venture
partner Larsen and Toubro Ltd., whose stake was also
subsequently acquired by the appellant) submitted its bid
dated 29.03.1993 in response to the 1992 NIT.
8. The appellant was allotted the Dholka abnd Wave I
Oil Fields in Gujarat near Ahmedabad, by the MoPNG. Two
production sharing contracts, each dated 20.02.1995, were
executed by the appellant with the MoPNG for Dholka and
G Wavel Oil Fields, respectively (the "Two PSCs"). According
to the appellant, since no amendments to Article 16 of MPSC
had been suggested nor contemplated by the Union of India,
it was (and is) the belief and legitimate expectation of the
appellant that all the benefits, financial or otherwise, offered
H in Article 16 of the MPSC to the pro~pective bidders were
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1057
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
duly included in the above two PSCs.
A
9. From 2001 the appellant commenced commercial
production from the Dholka and Wave! Oil Fields (delayed
on account of the UOl's delay in handling over the fields)
and availed the benefits of Section 42 Deductions provided
B
in Article 16 of the MPSC, which were duly allowed by the
concerned Income Tax Officer at Ahmedabad. The UOl's
share of petroleum profit was also determined in accordance
with the assumption that, and on the consideration that the
appellant was entitled to the benefit of the Section 42 C
deductions and the UOI consequently also enjoyed a larger
quantum as petroleum profits that it otherwise would have.
The accounts and calculations of the appellant claiming the
Section 42 deductions and passing on the benefit to the UOI
in the form of an increased quantum of petroleum profit in
D
terms of the two PSCs , were duly audited and approved by
the MoPNG's government auditors.
10. While the things proceeded in the aforesaid
manner, it so happened in the case of some other Production
E
Sharing Contracts, which did not specifically contain the fiscal
benefits and the deduction envisaged by Article 16 of the
MPSC, the Income Tax Authorities questioned the basis on
which such assesses had claimed deduction/ allowances
under Section 42. This move of the Income Tax Authorities
F
prompted the MoPNG to write OM dated 17.06.2005 to the
MoF, Department of Revenue to clarify to the relevant
Income-Tax Authorities that the provisions of Section 42 of
the Income-Tax Act would be applicable to all PSCs, including
those thirteen (13) PSCs executed by the Union of India, G
which did not expressly contain these provisions, for the
purpose of computing profits and gains, after allowing the
Section 42 deductions. The appellant's two PSCs are among
these thirteen (13) PSCs referred to by the MoPNG in this H
1058
SUPREME COURT REPORTS
[2015] 6 S.C.R.
A Office Memorandum. The OM noted that it would not be
equitable and fair if Section 42 deductions were denied in
respect of these 13 PSCs.
11.
Since the entire dispute pertains to deductions
B under Section 42 of the Act, at this stage we reproduce the
said provisions hereunder:
c
D
E
F
G
H
"42. Special provision for deductions in the case of
business for prospecting, etc., for mineral oil.-[(1 )] For
the purpose of computing the profits or gains of any
business consisting of the prospecting for or extraction
or production of mineral oils in relation to which the
Central Government has entered into an agreement
with any person for the association or participation 90[ of
the Central Government or any person authorised by it
in such business] (which agreement has been laid on
the Table of each House of Parliament), there shall be
made in lieu of, or in addition to, the allowances
admissible under this Act, such allowances as are
specified in the agreement in relation-
(a) to expenditure by way of infructuous or abortive
exploration expenses in respect of any area
surrendered prior to the beginning of commercial
production by the assessee;
(b) after the beginning of commercial production, to
expenditure incurred by the assessee, whether before
or after such commercial production, in respect of
drilling or exploration activities or services or in respect
of physical assets used in that connection, except
assets on which allowance for depreciation is
admissible under Section 32:
[Provided that in relation to any agreement entered into
after the 31st day of March, 1981, this clause shall have
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1059
UNION OF INDIA & ORS. (A. K. SIKRI, J.]
effect subject to the modification that the words and
A
figures "except assets on which allowance for
depreciation is admissible under Section 32" had been
omitted; and]
(c) to the depletion of mineral oil in the mining area in
B
respect of the assessment year relevant to the previous
year in which commercial production is begun and for
such succeeding year or years as may be specified in
the agreement;
and such allowances shall be computed and made in
the manner specified in the agreement, the other
provisions of this Act being deemed for this purpose to
have been modified to the extent
necessary to
give effect to the terms of the agreement:
((2) Where the business of the assessee consisting of
the prospecting for or extraction or production of
petroleum and natural gas is transferred wholly or partly
or any interest in such business is transferred in
accordance with the agreement referred to in subsection (1 ), subject to the provisions of the said
agreement and where the proceeds of the transfer (so
far as they consist of capital sums)-
(a) are less than the expenditure incurred remaining
unallowed, a deduction equal to such expenditure
remaining unallowed, as reduced by the proceeds of
transfer, shall be allowed in respect of the previous
year in which such business or interest, as the case
may be, is transferred;
.(b) exceed the amount of the expenditure incurred
remaining unallowed, so much of the excess as does
not exceed the difference between the expenditure
c
D
E
F
G
H
1060
SUPREME COURT REPORTS
[2015) 6 S.C.R.
A
incurred in connection with the business or to obtain
interest therein and the amount of such expenditure
remaining unallowed, shall be chargeable to incometax as profits and gains of the business in the previous
year in which the business or interest therein, whether
B
wholly or partly, had been transferred:
Provided that in a case where the provisions of this
clause do not apply, the deduction to be allowed for
expenditure incurred remaining unallowed shall be
C
arrived at by subtracting the proceeds of transfer (so
far as they consist of capital sums) from the expenditure
remaining unallowed.
Explanation.-Where the business or interest in such
o
business is transferred in a previous year in which such
business carried on by the assessee is no longer in
existence, the provisions of this clause shall apply as if
the business is in existence in that previous year;
E
(c) are not less than the amount of the expenditure
incurred remaining unallowed, no deduction for such
expenditure shall be allowed in respect of the previous
year in which the business or interest in such business
is transferred or in respect of any subsequent year or
F
years:
[Provided that where in a scheme of amalgamation or
demerger, the amalgamating or the demerged company
sells or otherwise transfers the business to the
G
amalgamated or the resulting company (being an Indian
company), the provisions of this sub-sectionH
(1) shall not apply in the case of the amalgamating or
the demerged company; and
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1061
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
(i1) shall, as far as may be, apply to the amalgamated
A
or the resulting company as they would have applied
to the amalgamating or the demerged company if the
latter had not transferred the business or interest in
the business.]
[Explanation.-For the purposes of this section,
"mineral oil" includes petroleum and natural gas.]"
B
12. Meanwhile, the Income-Tax Officer, Ward 1(3)
(hereinafter referred to as the "ITO Wd I (3)) issued a notice c
dated 09.06.2006 under Section 143 (2) of the Income Tax
Act to the appellant for the Assessment Year 2005-2006 and
asked the appellant to justify its claim for the Section 42
deductions. The ITO Wd 1(3) also issued another notice to
the appellant under Section 142(1) of the Income-Tax Act, o
seeking various details and data relevant to the said
Assessment Year. The case was later transferred to the
Assistant Director of Income-Tax (International Taxation),
Ahmedabad ("ADIT"). The ADIT also raised the question of
applicability of the Section 42 deductions to the two PSCs E
executed by the appellant for the reason that such a clause
was not specifically included in these two PSCs.
13. A Joint Secretary of the MoPNG vide his
communication dated 11.04.2007 wrote to the MoF F
specifically admitting that in 11 PSCs, a reference to Saction
42 deductions had been omitted by oversight. It was also
stated that contracts signed in respect of other fields at the
same time contained the provision for Section 42 deductions.
It was specifically stated that "Petroleum operations are a G
high risk business and it may not be equitable and fair if
companies are not allowed to claim allowances for their
expenditure. {3esides it would be difficult to justify different
standards for different PSCs signed under one regime."
(emphasis supplied). A clarification was also sought from H
1062
~UPREME COURT REPORTS
[2015] 6 S.C.R.
A the MoF to the revenue authorities that the Section 42
deductions should be uniformly granted irrespective of
whether the PSCs contained the relevant clause or not. It is
pertinent to note that in this letter, the appellant was listed
by the MoPNG as having the provision for Section 42
B deductions in its two PSCs, which though factually incorrect,
again underscores the bona fide belief of the UOI through
the MoPNG that the appellant had been granted the Section
42 deductions in respect of its two PSCs.
C
14. However, MoF did not issue any such clarification.
In the absence of such a clarification from the Ministry of
Finance, the ADIT disallowed appellant's claim for deduction
under Section 42(1 )(b) and Sc:::t::::;-, 42(1 )(c) of the Income
Tax Act, made in the appellant's Income-Tax Return for the
D Assessment Year 2005-2006, on the ground that a specific
reference to the Section 42 deduction has not been made3
expressly in the two PSCs (hereinafter the "ADIT's Order").
As a result, the ADIT issued a demand notice under Section
156 of the Income Tax Act to the appellant, demanding
E payment of Rs. 1,24,45,509.00 (rupees one crore twenty
four lakhs forty five thousand five hundred and nine only) by
way of additional tax, interest and penalty. The appellant
preferred an appeal against the ADIT's order before the
F relevant Commissioner of Income Tax (Appeals) in
Ahmedabad and deposited the sum of Rs.40,00,000/-
(rupees forty lakhs only), as required by ADIT, while himself
staying the demand raised by Assessment Order. This
appeal has been dismissed by the Commissioner of Income
G Tax (Appeals) and a further appeal is now pending before
the Income Tax Appellate Tribunal.
15. In the meanwhile, on 24.12.2007, the appellant
required the Union of India, through the MoPNG and the
H MoF, to issue an <'piJropriate clarification/amendme111 with
JOSHI TECHNOLOGIES INTERNATIONAL INC. v.
1063
UNION OF INDIA & ORS. [A. K. SIKRI, J.]
respect to the two PSCs executed with the appellant, taking A
a stance that it was always the intention of the Union of
India, at all stages, to give the benefits of Section 42
Deductions of the Income TaxAct, read with Article 16 of the
MPSC, to all the entities who had entered into PSCs with it,
including the appellant with the plea that the non-inclusion
B
of this provision in the two PSCs signed with the appellant
was a clerical error/oversight. This was followed by reminder
dated 19.3.2008 again requesting the Union of India, through
the MoPNG and the MoF, to issue an appropriate clarification/
amendment with respect o the two PSCs executed with the C
appellant.
16. No such clarification came forward. On the other
hand, the ADIT issued notice dated 28.3.2008 to the
appellant under Section 148 of the Income Tax Act for D
reopening the appellant's Income Tax Returns for the
Assessment Years 2001-2002, 2002-2003, 2003-2004 and
2004-2005. At this juncture, the Secretary, MoPNG, wrote
communication dated 28.04.2008 to the MoF pointing about
the said accidental omissions again in the contract. The E
MoF was, accordingly, requested to extend the benefits of
Section 42 Deductions to the 13 PSCs (including the
appellant's two PSCs) in line with all other signed PSCs.
17. As, in the meantime, the ADIT was going ahead
F
with the proceedings pursuant to the notice under Section
148 of the Act deciding to reopen the assessment of the
appellant in respect of assessment years 2001-02 to 2004-
·05, the appellant sent one more representation dated
23.06.2008 on the same lines on which it had been making G
•the similar representations earlier. No positive response was,
!however, received. Exasperated, the appellant approached
lthe High Court by way of writ petition under Article 226 of
lthe Constitution. Counter affidavits to the writ petition was H
1064
SUPREME COURT REPORTS
[2015) 6 S.C.R.
A filed by the respondent - Authorities taking preliminary
objection pertaining to territorial jurisdiction of the High Court
of Delhi and also raising the ground of alternate remedies
available in the law in the form of appeal before the ITAT
1 vhich had already been preferred by the appellant. Rejoinder
B thereto was filed by the appellant. Thereafter, another counter
affidavit on merits was filed by the respondent no. 1. In this
counter affidavit, stand was taken by the respondents that
MPSC would not apply to appellant's two PSCs.