In M/S Tej Quebcor Printing Ltd v. JCIT, the division bench of the Delhi High Court observed that Department of Economic affairs is a competent authority for approving the benefit of s. benefit of Section 10(15)(iv)(c) of the Income Tax Act.
The assessee, engaged in the business of printing and binding of telephone directories, imported machinery from a foreign supplier i.e. M/s. Quebecor Printing Ltd. Inc., Canada on deferred credit. It sought the benefit of Section 10(15)(iv)(c) of the Income Tax Act by seeking approval of the Central Government. By a letter dated 25.05.1995 the Department of Economic Affairs, Ministry of Finance of the Central Government approved the proposal but advised the assessee at the same time to approach the Reserve Bank of India since the amounts were to be remitted in foreign exchange.
The assessee filed return claiming deduction, which was disallowed by the AO invoking s. 40(a)(ia) and observed that the AO failed to deduct TDS under 195 of the Act. The first appellate authority granted relief to the assessee by observing that 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 the case since the assessee had already obtained the approval of the Department of Economic Affairs and subsequently of the RBI (the latter with respect to the foreign exchange of loan) and most crucially, since the approval referred to in the provision related to the rate of interest, there was compliance with the statutory conditions.
The appeal preferred by the Revenue was allowed by the ITAT by finding that the deduction is not allowable and since the approval of the Department of Revenue was more than a year, the assessee was told that benefits could not be granted in the circumstances of the case.
Before the High Court, the revenue urged that the reference to the Central Government has to be necessarily urged as one meaning the ‘concerned department’, which in this case is none other than the Department of Revenue.
Allowing the appeal, the division bench comprising of Justice S.Ravindra Bhat and Justice Najimi Waziri said that a plain reading of the provision clearly bears the fact that its approval of the Central Government which is necessary – not with respect to the transaction per se but with regard to the rate of interest. “Given this objective factor, and the fact that the Revenue does not appear to have notified any specific agency – i.e. the Department of Revenue/CBDT or any other Department by naming it (unlike Section 10B, Section 35(2)(a)(b) etc.), where either the specific power is granted or the concerned authority/agency itself is mentioned; the particular elusion to the Central Government cannot, in the opinion of the Court in any manner, undermine or render valueless the approval granted by one of the agencies or departments of the Government. This view is more crucially important – given the fact that in the present case, the Department of Revenue did not express any contrary opinion in its approval dated 15.01.1999. In this context, the Court holds the Revenue’s arguments – that the amounts mentioned in the Department of Revenue’s approval do not tally with the approval granted by the Department of Economic Affairs utterly unsubstantial. What the Department of Economic Affairs has approved is the transaction and the rate of interest. That the assessee 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 the Department of Revenue approved an entirely different transaction.”
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