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Oil & Natural Gas Corp. Ltd. v. Commissioner of Income Tax

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 730 of 2007)Decided 1 Jul 2015
Civil Appeal No. 730 of 2007
Justice Ranjan Gogoi · Justice Pinaki Chandra Ghose

Background

ONGC, acting as a representative assessee for various foreign companies, had entered into agreements with those companies to supply services, ships, aircraft, machinery or plant for use in oil prospecting and extraction. The tax authorities held that a 1983 government notification exempting certain foreign companies from "surtax" did not cover these service-type agreements, only agreements involving direct participation in oil prospecting/extraction itself. The Appellate Commissioner and Income Tax Appellate Tribunal had sided with ONGC, but the High Court of Uttarakhand reversed that and ruled for the Revenue, prompting ONGC's appeal to the Supreme Court in this lead case and 24 connected appeals raising the identical question.

Decision Breakdown

The Supreme Court held that Section 24-AA of the Surtax Act empowered the government to grant exemptions to two distinct categories of foreign companies, those directly participating in oil prospecting/extraction, and those merely providing supporting services or equipment, but the actual 1983 notification's wording granted exemption only to the first category. Applying the settled principle that exemption notifications under a taxing statute must be construed strictly by their plain language, with any ambiguity resolved in favour of the Revenue, the Court held it could not judicially expand the notification's scope to cover the service-providing foreign companies ONGC had contracted with, however reasonable that might seem. All 25 appeals were accordingly dismissed, upholding the High Court's ruling that these were taxable "Service Agreements" outside the exemption's reach.

Lesson Learnt

A tax exemption notification is read strictly as written, not as what the underlying statute could have allowed: if the government chose to grant relief to only one category though it had the power to cover two, courts will not stretch the notification's words to add the second category back in.

Official source (sci.gov.in)View Judgment (PDF)

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