M/S Tej Quebcor Printing Ltd v. Joint Commissioner Of Income Tax

$~10 *IN THE HIGH COURT OF DELHI AT NEW DELHI %Judgement delivered on:07.02.2017 +ITA 385/2004 M/S TEJ QUEBCOR PRINTING LTD...... AppellantThrough:Dr. Rakesh Gupta, Mr. T.R. Talwarand Ms. Monika Ghai, Advocates. Versus JOINT COMMISSIONER OF INCOME TAX..... RespondentThrough:Mr. Ashok K. Manchanda andMr. Raghvendra Singh, Advocates. ..... Respondent CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE NAJMI WAZIRI S. RAVINDRA BHAT, J. (OPEN COURT):- 1.The questions of law framed in this case on 08.02.2005 are as follows:- "(i) Whether the Tribuna1 was correct in law in holding thaton the facts and in the circumstances of the case, provisions ofSection 40(a)(i) of the Income Tax Act read with the provisionsof Section 10 (15)(iv)(c) were applicable to the assessee’s casein relation to the assessment year 1996-97? (ii)Whether the approval of the Govt. of India, Ministry ofFinance in their letter dated 25.5.95 approving the loanamount, rate of interest and the mode of repayment didconstitute the approval of the Central Govt. in this behalf withregard to the rate of interest, terms of the loan and itsrepayment of purpose of Section10(15)(iv)(c) of the IncomeTax Act?” 2.The assessee was at the relevant time engaged in the business ofprinting and binding of telephone directories. For its business, it importedmachinery from a foreign supplier i.e. M/s. Quebecor Printing Ltd. Inc.,Canada on deferred credit to the tune of Canadian dollars 25,74,537equivalent to `5,94,86,535/-. It sought the benefit of Section 10(15)(iv)(c)of the Income Tax Act, 1961 (hereinafter to be referred as ‘the Act’) byseeking approval of the Central Government. By a letter dated 25.05.1995the Department of Economic Affairs, Ministry of Finance of the CentralGovernment approved the proposal but advised the assessee at the same timeto approach the Reserve Bank of India (‘RBI’) since the amounts were to beremitted in foreign exchange. The RBI granted its approval on 20.12.1995in the following terms:- “With reference to your letter dated 25/04/1995, on the subjectcited above, I am directed to convey the approval of theGovernment or India, Ministry of Finance, Department ofEconomic Affairs, for your obtaining a Supplier's Credit fromM/s. Quebecor Printing Inc., Canada, for financing the importof capital goods, on the following terms and conditions: a) Loan Amount: Canadian Dollar 2,574,536.79/-b) Rate of interest: 8.3359% p.a.b) Rate of interest: 8.3359% p.a. c) Repayment Terms : In 10 equal semi-annual instalmentscommencing from June 1997.commencing from June 1997. 2.No other charges in foreign currency or Indian Rupeeother than those specifically authorized in terms of thissanction will be permitted for payment. 3.You are not permitted to exercise any multi-currencyoption. 4.You are requisite to obtain the approval of the ReserveBank of India, Surcharge Control Deptt., through your bankers under FERA 1973 in order to satisfy the Reserve Bankthat the terms of the Govt. approval are complied with andthat no additional foreign exchange liability, either express orimplied, is being assumed under the arrangements. 5.Kindly note that in case the credit is required to beguaranteed by a Bank/Development Financial Institution(DFI), the same shall be provided by scheduled commercialbank(s) or DFI(s) in India. The counter guarantee from aforeign bank or confirmation of a scheduled bank or DFI'sguarantee by a foreign bank will not be permitted under anycircumstances.The guarantee issuance, however, would besubject to the authorization of Industrial & Export CreditDepartment of Reserve Bank of India under CAS. bankers under FERA 1973 in order to satisfy the Reserve Bankthat the terms of the Govt. approval are complied with andthat no additional foreign exchange liability, either express orimplied, is being assumed under the arrangements. 5.Kindly note that in case the credit is required to beguaranteed by a Bank/Development Financial Institution(DFI), the same shall be provided by scheduled commercialbank(s) or DFI(s) in India. The counter guarantee from aforeign bank or confirmation of a scheduled bank or DFI'sguarantee by a foreign bank will not be permitted under anycircumstances.The guarantee issuance, however, would besubject to the authorization of Industrial & Export CreditDepartment of Reserve Bank of India under CAS. 6.The Reserve Bank of India would be advised to allow youto draw any loan and effect the advance payment/downpayment only after your agreement with the lender is taken onrecord by this Department. You are, therefore, requested tomake available to this Department two executed copies of theagreement immediately, after it is entered into, with referenceto this sanction letter. Please note that if the said executedcopies of the agreement are not made available to thisDepartment within 3 months of the date of issue of thissanctionletter,theapprovalforExternalCommercialBorrowings contained herein shall automatically lapse unlessspecifically extended by this Department. Yours faithfully, Sd/-(D.J. Pandian)Deputy Secretary (ECB)” 3.In these circumstances, the assessee claimed a deduction in its returnsfiled on 30.11.1996. This was disallowed on 22.12.1998. In the meanwhile,it had approached the Department of Revenue of the Central Governmentseeking its approval. On 15.01.1999, the Department of Revenue granted the approval in the following terms:- “I am directed to refer to your letter No.NIL dated23.11.98 on the above cited subject and to convey the approvalof the Central Government to rate of interest, fees and othercharges in respect of the loan/credit taken by you from theforeign party as per details, indicated below for the purpose ofsection 10(15)(iv)(c) of the Income-tax Act, 1961. Foreign LenderAmount of LoanRate of interestArrangement FeeManagement FeeAgency FeeCommitment Fee : M/s Quebecor Printing Inc., Canada: Canadian dollar 2,277,422.77: 8.3359% p.a.: ------------- : ------------- : ------------- : ------------- Please intimate early the date of payment and amount ofpayment of the interest and the country to which the amountwas remitted.” 4.The Assessment Officer (‘AO’) while completing assessment was ofthe opinion that since tax was deductable under Section 195 of the Act, theamounts had to be disallowed under Section 40(a)(i) of the Act andproceeded to do so. The CIT(A), whom the assessee approached, grantedrelief taking a broad view of the matter.The Commissioner was of theopinion that the provision relied upon i.e. Section 10(15)(iv)(c) of the Act,merely talks of the Central Government and that in the circumstances of thecase since the assessee had already obtained the approval of the Departmentof Economic Affairs and subsequently of the RBI (the latter with respect tothe foreign exchange of loan) and most crucially, since the approval referredto in the provision related to the rate of interest, there was compliance withthe statutory conditions. 5.The Income Tax Appellate Tribunal (‘ITAT’), to which the Revenueappealed, upset the order of the CIT(A). The ITAT was of the opinion thatsince the assessee had applied to the concerned Department i.e. theDepartment of Revenue for the first time on 02.04.1997 after filing thereturns, and it had failed to deduct the amounts under Section 195 of theAct, the AO could not be faulted in disallowing the amounts. The ITATalso felt that since the approval of the Department of Revenue was morethan a year, the assessee was told that benefits could not be granted in thecircumstances of the case. 5.The Income Tax Appellate Tribunal (‘ITAT’), to which the Revenueappealed, upset the order of the CIT(A). The ITAT was of the opinion thatsince the assessee had applied to the concerned Department i.e. theDepartment of Revenue for the first time on 02.04.1997 after filing thereturns, and it had failed to deduct the amounts under Section 195 of theAct, the AO could not be faulted in disallowing the amounts. The ITATalso felt that since the approval of the Department of Revenue was morethan a year, the assessee was told that benefits could not be granted in thecircumstances of the case. 6.Learned counsel for the assessee points out that Section 10(15)(iv)(c)of the Act merely talks of approval of the Central Government viz-a-viz therate of interest. Given that the Department of Economic Affairs is also apart of the Central Government and that it had granted such approvalwithout, in any manner, indicating that the Department of Revenue was theconcerned agency but merely cautioned to obtain the RBI’s approval onaccount of the foreign exchange remittance, the denial of relief wasunwarranted. He commended the order of CIT(A) as containing the correctapproach in the facts of the case. Counsel for the Revenue, on the otherhand, urged that the reference to the Central Government has to benecessarily urged as one meaning the ‘concerned department’, which in thiscase is none other than the Department of Revenue. He highlighted the factthat the assessee approached the Department of Revenue after an inordinatedelay though it was asked to do so by the RBI on 22.12.1995. By the time itdid approach, it had already filed the return. Given these circumstances, theinvocation of Section 40(a)(i) of the Act was not unjustified, the assesseewould very well availed its opportunity of approaching the AO under Section 195 of the Act, which it did not at the relevant point of time. 7.Section 10(15)(iv)(c) of the Act reads as follows:- “(15)(iv) interest payable - (c) by an industrial undertaking in India on any moneysborrowed or debt incurred by it in a foreign country in respectof the purchase outside India of raw materials or componentsor capital plant and machinery, to the extent to which suchinterest does not exceed the amount of interest calculated atthe rate approved by the Central Govt. in this behalf, havingregard to the terms of the loan or debt and its repayment.” 8.A plain reading of the provision clearly bears the fact that its approvalof the Central Government which is necessary – not with respect to thetransaction per se but with regard to the rate of interest. Given this objectivefactor, and the fact that the Revenue does not appear to have notified anyspecific agency – i.e. the Department of Revenue/CBDT or any otherDepartment by naming it (unlike Section 10B, Section 35(2)(a)(b) etc.),where either the specific power is granted or the concerned authority/agencyitself is mentioned; the particular elusion to the Central Government cannot,in the opinion of the Court in any manner, undermine or render valueless theapproval granted by one of the agencies or departments of the Government.This view is more crucially important - given the fact that in the presentcase, the Department of Revenue did not express any contrary opinion in itsapproval dated 15.01.1999. In this context, the Court holds the Revenue’sarguments - that the amounts mentioned in the Department of Revenue’sapproval do not tally with the approval granted by the Department ofEconomic Affairs utterly unsubstantial. What the Department of EconomicAffairs has approved is the transaction and the rate of interest.That theassessee availed a lesser amount of credit or loan did not mean that there was no approval. Particularly, because it is not the Revenue’s case that theDepartment of Revenue approved an entirely different transaction.9.In view of the above discussion, the Court is of the opinion that theimpugned order of the ITAT cannot be sustained. It is accordingly set aside.The assessee is held entitled to the benefit of claim of deduction of interestmade by it, in its return. The questions of laws are accordingly answered infavour of the assessee and against the Revenue. The appeal is allowed. S. RAVINDRA BHAT, J.NAJMI WAZIRI, J.FEBRUARY 07, 2017sb