Case BriefsForeign Courts

Supreme Court of Pakistan: The Three-Judge Bench of Umar Ata Bandial, Munib Akhtar and Yahya Afridi, JJ. set aside the judgment of High Court of Sindh, Karachi holding that the assessee Oxford University Press (OUP) was not entitled to tax exemption.

The present appeal arose under the Income Tax Ordinance, 1979 and related to different assessment years of OUP in relation to income arising out of its Pakistan operations. OUP claimed tax exemption under Clause (86) of Part I of the Second Schedule, which provided exemption to “any income of any university or other educational institution established solely for educational purposes and not for purposes of profit.”

OUP submitted that it had operations in many jurisdictions, and the question at hand had also arisen in South Africa and India. While exemption was granted in South Africa, a contrary conclusion was arrived at in Oxford University Press v. CIT, (2001) 3 SCC 359 [OUP India case].

The Court stated that principles of interpretation of exemption clauses in fiscal legislation were: (i) onus lies on the taxpayer to show that his case falls within the exemption; (ii) if two reasonable interpretations are possible, one against the taxpayer will be adopted; (iii) but if the taxpayer’s case comes fairly within the scope of exemption then he cannot be denied benefit of the same.

It was observed that the High Court was greatly influenced by the majority view in OUP India case as Section 10 (22) of the Income Tax Act, 1961 which provided tax exemption to “any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit”, was virtually identical to Clause 86.

However, the impugned judgment’s emphasis on Oxford University carrying on educational activities in Pakistan, was wrong as a bare perusal of Clause 86 showed that the words “in Pakistan” were not mentioned therein.

In view of the above, it was held that the impugned judgment (and therefore, by extension, the majority in OUP India case) had taken a wrong approach to the exemption clause and erred materially in introducing an element or requirement that found no mention or expression therein. [Oxford University Press v. CIT, Civil Appeal No. 308 to 326 of 2008, Order dated 17-10-2018]

Case BriefsSupreme Court

Supreme Court: A five-Judge Constitution Bench speaking through N.V. Ramana, J., while invalidating the ratio of Sun Export Corpn. v. Collector of Customs, (1997) 6 SCC 564, laid at rest the controversy regarding the interpretation of an ambiguous provision exempting tax. The Bench comprised of Ranjan Gogoi, N.V. Ramana, R. Banumathi, M.M. Shantanagoudar and S. Abdul Nazeer, JJ.

The present Bench was set up on a reference by a three-Judge Bench to examine the correctness of the ratio in Sun Export case. The question was, “what is the interpretative rule to be applied while interpreting a tax exemption provision when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied?” In the said case, a three-Judge Bench ruled that any such ambiguity must be interpreted so as to favour the assessee claiming the benefit of such exemption. On the other hand, the three-Judge Bench in the present case, while sitting in appeal to interpret Custom Notification No. 20/1999 (provision for concessional rate of duty), noticed the unsatisfactory state of law and opined that the dicta in Sun Export case requires re-consideration by a larger bench. That is how the matter was before the present Bench.

The  Supreme Court, at the outset, noticed that there was distinction between interpreting a charging section and an exempting section. In case of ambiguity in a charging section, the interpretation has to be made in favour of the assessee. For deciding the question as formulated above, the Court referred to a catena of judgments including CCE v. Parle Exports (P) Ltd., (1989) 1 SCC 345 as explained in Union of India v. Wood Papers Ltd., (1990) 4 SCC 256, wherein the Court held that whether  a subject falls in the exemption clause or not has to be construed strictly. The present Bench concurred with the said view as was also elaborated in another Constitution Bench decision in CCE v. Hari Chand Shri Gopal, (2011) 1 SCC 236, and held that any ambiguity in an exemption provision in a taxing statute has to be interpreted in favour of the revenue. The decision of the Bench while answering the reference is summed up hereinbelow:

  • Exemption notification should be interpreted strictly; burden of proving the applicability of such provision is on the assessee/claimant.
  • In case of ambiguity in an exemption notification, the benefit thereof cannot be claimed by the assessee, and it must be interpreted in favour of the revenue.
  • The ratio in Sun Export case was not correct and all the decisions which took similar view stood overruled.

While answering the reference in above terms, the Court directed the appeal to be placed before the appropriate bench for consideration of the matter on merits. [Commr. of Customs v. Dilip Kumar and Co.,  2018 SCC OnLine SC 747, dated 30-07-2018]