Rathi Alloys And Steel Ltd. vs Under Secretary To The Government ...
1991 Latest Caselaw 798 Del

JUDGMENT

Mrs. Sunanda Bhandare, J.

1. Petitioner No. 1, Rathi Alloys and Steel Ltd., which is engaged in the manufacture of steel ingots/billets and stainless steel ingots in its mini steel plant an order on 8th of August, 1986, with M/s. Billiton Metal and Ores., International B. V., Netherlands, for import of 352/40 M. T. nickel contained in ferro nickel as US dollars 1.9495 per lb nickel, c. i. f. Bombay plus US dollars 0.078 per lb nickel extra towards interest for 180 days credits from the date of the bill of lading (the interest rate calculating to approximately 7.5% p.a.). M/s. Billiton Metals and Ores, International B. V. accepted the order subject to the condition are borne by the petitioner. The petitioner, by its letter 10(15) (iv) (c) of the Income-tax Act for according approval to the exemption of interest payable on debt incurred in a foreign country for supply of raw material. Respondent No. 1, vide order dated October 30, 1986, rejected the request on the ground that it was not covered in terms of the relevant guidelines to grant such an exemption. The petitioner has challenged this order of respondent No. 1 dated October 30, 1986, by way of this petition under article 226 of the of the Constitution of India.

2. It was submitted by learned counsel for the petitioner that, under section 10(15)(iv)(c) of the Income-tax Act, as applicable now, the petitioner is entitled to exemption from income-tax on the interest payable by the petitioner in foreign exchange to the extent the interest is exempted by respondent No. 1. However, responded No. 1 appears to have relied on the guidelines issued by the Ministry of Finance dated September 11, 1967, and August 6, 1970, and rejected the request because the period of loan is for a short term. In fact, it is submitted that in the impugned order, no reasons have been stated nor has respondent No. 1 indicated the guidelines on which it relies for refusing the request.

3. Respondent No. 1 has not chosen to file a counter affidavit or put in appearance in the court despite notice of this petition to respondent No. 1. However, a counter affidavit has been filed by respondent No. 4 and it is stated that the income-tax exemption can be granted provided respondent No. 1 gives such an exemption as provided under section 10(15)(iv)(c) of the Income-tax Act. According to respondent No. 4, the exemption can be given by respondent No. 4 after taking into consideration the rate of the interest and the terms of the loan or debt and its repayment. In fact, it is submitted by learned counsel for respondent No. 4 that no action under section 195 of the Income-tax Act has been insisted upon by the Department against the petitioner. Further, the foreign company, i.e., the supplier has also not been subjected to income-tax in India on the interest earned. Thus, it is submitted that the petitioner has no present grievance which needs to be redressed by this court.

4. Section 10(15)(iv)(c) of the Income-tax Act, relevant for consideration, reads as under :

"10. Incomes not included in total income. - In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included -

(15) (iv) interest payable - ...

(c) by an industrial undertaking in India on any moneys borrowed or debt incurred by it in a foreign country in respect of the purchase outside India of raw materials or components or capital plant and machinery, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or debt and its repayment."

5. Thus, it is clear that respondent No. 1 has to pass a specific order granting exemption to the petitioner from payment of certain interest if it so considers appropriate after taking into consideration the rate of interest having regard to the terms of the loan or debt or its repayment. In fact, another office memorandum was issued by the Government of India, Ministry of Finance, dated June 22, 1981, which has also been placed on record by the petitioner which indicates that even if repayment of the loan/debt incurred is not spread over a period of five years or more and a departure is to be made from the guidelines dated September 11, 1967, and August 6, 1970, in a particular case, respondent No. 1 could do so after consulting the Department of Economic Affairs, Ministry of Finance. We find that in the impugned order respondent No. 1 has not indicated whether they have considered the question of grant of exemption of interest after taking into consideration all the factors including the conditions of the loan or debt and the terms of repayment because no reasons whatsoever have been given in the said order. Respondent No. 1 has also not indicated the guidelines on which they have relied. Whether the respondents will ultimately pass any order under section 195 of the Income-tax Act or not is not for consideration before us today. However, certainly if the petitioner is entitled to exemption he must get an order now and if he has to be denied that exemption then respondent No. 1 must give reasons for the same. In the circumstances, we set aside the order dated October 30, 1986, and direct respondent No. 1 reconsider the matter in the light of section 10(15)(iv)(c) of the Income-tax Act by giving a reasoned order and, if necessary, by affording a personal hearing to the petitioner.

6. The petition stands disposed of in the above terms. There is no order as to costs.