Case: Joshi Technologies International Inc Vs. Union Of India

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. It so happened that the appellant had entered into two contracts dated 20.02.1995 with the Union of India, through 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 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 Tax Act, 1961 (hereinafter referred to as the Act). 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, 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.2) The Income Tax Authorities extended the benefit of granting deductions under the aforesaid provisions from the year 2001-02 (assessment years onwards) when the appellant commenced commercial production in the aforesaid two oil fields. 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 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 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) 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 226 of the Constitution of India in the High Court of Delhi with the followingit is most respectfully prayed that this Honble Court may be pleased to issue:-(I) 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 Wavel 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 its communications; and that the petitioner is entitled 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 quashing the impugned order dated 31.12.2007 issued by Respondent No. 1; the notice dated 28.03.2008 for re-opening of the petitioners income-tax assessments for the Assessment Years 2001-2002; 2002-2003 and 2003-2004 and the notice dated 01.05.2008 for re-opening the assessment for the Assessment Year 2004-05; and(iii) Such other writ order or direction as this Honble Court may deem just and proper in the circumstances of the case and in the interest of justice, be passed in favour of theThis writ petition which has been dismissed by the High Court vide impugned judgment dated 28.05.2012 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.

Court's reasoning:
40) In the present case, it is an admitted fact that conditions mentioned in Section 42 of the Act 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 the assessee in the absence of such stipulations, a mandatory requirement, in the PSCs.41) 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. That bring us to the secondis, therefore, impermissible for the appellant 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 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 Yearhave already held above that 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 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 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. We have taken note of the judgment of this Court in Enron Expat Service Inc. (Supra) where the assessee had offered to pay tax under Section 44(BB) of the Act in the earlier years wrongly and the Court held that it would not operate as an estoppel to claim the benefit of DTAA for the Assessment Year in question when it was found that the assessee was otherwise entitled to it. Same principle applies, though it is a converse situation where assessee has not offered to pay tax wrongly [which was the situation in Enron Expat Service Inc. (Supra)] and instead the tax authorities have extended the benefit wrongly to thedo not know whether the High Court is correct in its conclusion as to whether the contents of the three letters are contrary to records and the averments made in para 4 of the counter affidavit are in conformity with the records, in as much as these records have not been produced for our perusal. However, on going through the terms of the PSCs it becomes apparent that such an exercise is not even required.49) It is stated at the cost of repetition that Article 32 of the contract supersedes any understanding between the parties. Thus, even if it is presumed that 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.34. In our opinion, the wide sweep of Art. 14 undoubtedly takes within its fold the impugned circular issued by the State of U.P. in exercise of its executive power, irrespective of the precise nature of appointment of the Government counsel in the districts and the other rights, contractual or statutory, which the appointees may have. It is for this reason that we base our decision on the ground that independent of any statutory right, available to the appointments, and assuming for the purpose of this case that the rights flow only from the contract of appointment, the impugned circular, issued in exercise of the executive power of the State, must satisfy Art. 14 of the Constitution and if it is shown to be arbitrary, it must be struck down. However, we have referred to certain provisions relating to initial appointment, termination or renewal of tenure to indicate that the action is controlled at least by settled guidelines, followed by the State of U.P. for a long time. This too is relevant for deciding the question of arbitrariness alleged in the presentSimilarly, in State of Gujarat v. M.P. Shah Charitable Trust ((194) 3 SCC 552) , this Court reiterated the principles that if the matter is governed by a contract, the writ petition is not maintainable since it is a public law remedy and is not available in private law field, for example, where the matter is governed by a non-statutoryFurther legal position which emerges from various judgments of this Court dealing with different situations/aspects relating to the contracts entered into by the State/public Authority with private parties, can be summarized asAt the stage of entering into a contract, the State acts purely in its executive capacity and is bound by the obligations of fairness.(ii) State in its executive capacity, even in the contractual field, is under obligation to act fairly and cannot practice some discriminations.(iii) Even in cases where question is of choice or consideration of competing claims before entering into the field of contract, facts have to be investigated and found before the question of a violation of Article 14 could arise. If those facts are disputed and require assessment of evidence the correctness of which can only be tested satisfactorily by taking detailed evidence, Involving examination and cross- examination of witnesses, the case could not be conveniently or satisfactorily decided in proceedings under Article 226 of the Constitution. In such cases court can direct the aggrieved party to resort to alternate remedy of civil suit etc.(iv) Writ jurisdiction of High Court under Article 226 was not intended to facilitate avoidance of obligation voluntarily incurred.(v) Writ petition was not maintainable to avoid contractual obligation. Occurrence of commercial difficulty, inconvenience or hardship in performance of the conditions agreed to in the contract can provide no justification in not complying with the terms of contract which the parties had accepted with open eyes. It cannot ever be that a licensee can work out the license if he finds it profitable to do so: and he can challenge the conditions under which he agreed to take the license, if he finds it commercially inexpedient to conduct his business.(vi) Ordinarily, where a breach of contract is complained of, the party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed. Otherwise, the party may sue for damages.(vii) Writ can be issued where there is executive action unsupported by law or even in respect of a corporation there is denial of equality before law or equal protection of law or if can be shown that action of the public authorities was without giving any hearing and violation of principles of natural justice after holding that action could not have been taken without observing principles of natural justice.(viii) If the contract between private party and the State/instrumentality and/or agency of State is under the realm of a private law and there is no element of public law, the normal course for the aggrieved party, is to invoke the remedies provided under ordinary civil law rather than approaching the High Court under Article 226 of the Constitutional of India and invoking its extraordinary jurisdiction.(ix) The distinction between public law and private law element in the contract with State is getting blurred. However, it has not been totally obliterated and where the matter falls purely in private field of contract. This Court has maintained the position that writ petition is not maintainable. Dichotomy between public law and private law, rights and remedies would depend on the factual matrix of each case and the distinction between public law remedies and private law, field cannot be demarcated with precision. In fact, each case has to be examined, on its facts whether the contractual relations between the parties bear insignia of public element. Once on the facts of a particular case it is found that nature of the activity or controversy involves public law element, then the matter can be examined by the High Court in writ petitions under Article 226 of the Constitution of India to see whether action of the State and/or instrumentality or agency of the State is fair, just and equitable or that relevant factors are taken into consideration and irrelevant factors have not gone into the decision making process or that the decision is not arbitrary.(x) Mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirements of due consideration of a legitimate expectation forms part of the principle of non-arbitrariness.(xi) The scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractualKeeping in mind the aforesaid principles and after considering the arguments of respective parties, we are of the view that 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 contract. It is not a case where any statutory contract is awarded.71) As pointed out earlier as well, 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 provision, namely, in the absence of such a clause, special allowances under Section 42 would 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 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 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 as noted above, particularly, Article 32 thereof. It was purely a contractual matter with no element of public law involved thereunder.