Case: Petron Engineering Construction Pvt.Ltd. &amp; Another Vs. Center Board Of Direct Taxes &amp; Others

2. By two agreements, one dated April 5, 1980, and the other dated August 14, 1980, entered into between theand Toyo Engineering India Ltd. (for short Toyo India) theagreed to render technical services in respect of Iraqi Storage Terminal Project Installations in consideration of payment to it by way of fees payable under the said agreements. In the said agreement dated April 5, 1980, it is stated, inter alia, that Toyo India has been engaged by Toyo Engineering Corporation (for short TEC), a company organised and existing under the laws of Japan having its registered office at Tokyo, Japan, for the project of Storage Terminal of State Organisation for Oil Project, a public organisation organised and existing under the laws of Iraq. Toyo India has, in its turn, engaged theto perform certain construction and related services by theof the project work as set out in the saidny by its letter dated October 23, 1980, requested respondent No. 1, the Central Board of Direct Taxes, for the approval of the said agreements under Sectionof the Act. Respondent 1, after giving the appellants a hearing, by its order dated January 5, 1982, refused to approve the said agreements for purposes of Sectionof the Act inasmuch as, in the view of respondent 1, the essential conditions laid down in Sectionwere not satisfied. Respondent No. 1, in its said order pointed out, inter alia, that, according to the said agreements, the contract price was received by thefrom Toyo India, an Indian company. In other words, income by way of royalty, commission, fees, etc., had not been received by thefrom the Government of a foreign State or a foreign enterprise and the agreements had been entered into by thewith Toyo India, an Indian company, and not with a foreign State or a foreign enterprise. Further, it was stated by respondent 1, that as there was no privity of contract between theand the foreign enterprise, it could not be said that the income had been received by thein consideration of the use outside India of patents, inventions, etc., made available or provided or agreed to be made available or provided to a Government of a foreign state or to a foreign enterprise or in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by theBeing aggrieved by the said order dated January 5, 1982, of respondent 1, refusing to approve the said two agreements, the appellants filed a writ petition before the Bombay High Court challenging the said order. A learned single judge of the Bombay High Court, by his judgment dated June 23, 1986, dismissed the writ petition on the ground, inter alia, that the payment was not received by thefrom the Government of a foreign State or a foreign enterprise and, as such, it was not entitled to any relief under Section>5. On appeal by the appellants against the judgment of the learned single judge, the Division Bench of the High Court held that in order to attract the provision of Sectionthe payment must be received by an Indian company from the Government of a foreign State or a foreign enterprise, and that the words "foreign enterprise" must take colour from the words "Government of a foreign State" and must be read to mean an enterprise of a foreign national or foreign ownership. Further, the words "foreign enterprise" could not be held to apply to an establishment or undertaking or branch or unit of an Indian company in a foreign country. Such establishment, undertaking, branch or unit might well be an enterprise, but not a foreign enterprise within the meaning of the said words. In that view of the matter, the Division Bench of the High Court, as stated already, upheld the judgment of the learned single judge and dismissed the appeal preferred by the appellants. Hence this appeal by special leave

Reasoning: In our view, it is difficult to regard such branch, unit or establishment as a "foreign enterprise" within the meaning of sectionof the Act. The interpretation of a term should be such as to be consistent with the things or objects that are included within it. In other words, the meanings of the expression cannot be different for different objects included in the expression. If an Indian company having a branch, unit or establishment in a foreign country cannot be regarded as a foreign company, then, for the same reason, a branch, unit or establishment of an Indian company situate in a foreign country or doing business in such foreign country cannot be included within the meaning of the expression "foreignour opinion, the expression "foreign enterprise" admits of only one interpretation. The interpretation which learned counsel for the appellants wants to put on the expression will not be full and complete and will render the meaning of the expression inconsistent with the objects included within it, having regard to the change effected by the Legislature from "foreign company" to the present expression "foreign enterprise", as has been already noticed. We, are, therefore, unable to accept the interpretation of the expression as submitted on behalf of theWe are also unable to accept the contention of the appellants that as the provision of Sectionis an exemption provision, it should be construed liberally and, upon such liberal construction, it should be held that Toyo India is a foreign enterprise. It is true that an exemption provision should be liberally construed, but this does not mean that such liberal construction should be made by doing violence to the plain meaning of such exemption provision should be liberally construed, but this does not mean that such liberal construction should be made doing violence to the plain meaning of such exemption provision. Liberal construction can be made whenever it is possible to be made without impairing the legislative requirement and the spirit of the provision. In our opinion, to construe "foreign enterprise" in Sectionas including within it an Indian company or a branch or unit of such company simply because it is located in a foreign country would be against the plain meaning of the term and the legislativeIn the instant case, no such agreement has been entered into by thewith the Government of a foreign State or a foreign enterprise. In that respect also, thedoes not fulfil another condition of Sectionwhich is also very material. The agreements which have not been approved by the Central Board of Direct Taxes have been, as already noticed, entered into between theand Toyo India which is not a foreign enterprise but an Indian company. In view of the facts stated above, the Central Board of Direct Taxes was justified in not approving the agreements inLastly, it is argued on behalf of the appellants that Sectionshould be construed as permitting canalisation and if so construed, thewill be entitled to the benefit of the section. On the other hand, it is the contention of Dr. Gauri Shankar that in view of the specific mandate of Sectionthat the income of the assessee shall be directly received from the foreign enterprise, the question of canalisation does not arise. In other words, it is submitted that canalisation is not contemplated by SectionIn reply to the contention of Dr. Gauri Shankar, Mr. Rajagopalan submits that it is a lacuna on the part of the Legislature in not providing for canalisation in fulfilment of the objectives referred to above. In support of his contention, much reliance has been placed by him on the observation of Lord Denning in the decision in Seaford Court Estates Ltd. v. Asher ((1949) 2 KB 481, 499) In that case, Lord Denning observed asjudge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else, laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity. It would certainly save the judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears, a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from the language of the statute, but also from a consideration of the social conditions which gave rise to it, and of the mischief which it was passed to remedy, and then he must supplement the written word so as to give "force and life" to the intention of theThe above observation of Lord Denning does not, in our opinion, help the appellants. The entire observation is based on a defect appearing in the provision of a statute. In our view, there is no defect in the provision of SectionIt may be that the legislature has not provided for canalisation, but that cannot be said to be a lacuna or a defect in the provision. Whether canalisation should be permitted or not is absolutely a matter for the legislature. It is not incumbent on the Legislature to provide for canalisation, although it has been frankly conceded by Dr. Gauri Shankar that canalisation is desirable and a reasonable one. In the circumstances, in view of the plain language of the section, we do not think that we can construe the section as providing for canalisation, that is to say, that income by way of royalty, commission, etc., need not be received directly from the Government of a foreign State or a foreign enterprise, but through another Indian company. This is not the intention of the legislature