Judgment:
K. Shivashnkar Bhat, J.
1. The question referred to us under section 256(1) of the Income-tax Act, 1961, reads thus :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in confirming the disallowance of the interest of Rs. 10,544 paid by the company to the non-resident in respect of a loan obtained by it for the purchases and import of machinery
2. The assessing authority disallowed the claim of the assessee for deduction under section 10(15)(iv)(c) of the Income-tax Act, 1961, in respect of the interest on the long-term loan obtained from a foreign creditor, on the ground that the loan was not approved by the Central Government under the said provision. The assessing authority opined that the agreement under which the loan was obtained should have been approved by the Central Government for the purpose of section 10(15)(iv)(c). The Commissioner of Income-tax (Appeals) II, Bangalore, reversed this and allowed the claim of the assessee. The Commissioner of Income-tax (Appeal) held that the loan was approved by the Central Government (Ministry of Industry and Supply) on April 26, 1965. The said approval was in connection with the import of machinery for the manufacture of veneers from rosewood. Consequently, importation of plant and machinery valued at Rs. 6,87,500 was agreed to by Government of India from Italy, Germany and France against a long-term loan to be advanced by the foreign collaborators, M/s. Maprinco S. A., Geneva. The approval was subject to the condition that the loan will carry interest at the rate of 5% per annum. This approval was held to be sufficient for the purpose of section 10(15)(iv)(c) by the Commissioner of Income-tax (Appeals).
3. The Revenue preferred an appeal before the Appellate Tribunal. The Tribunal followed the decision of the Delhi High Court in Renusagar Power Co. Ltd. v. Union of India : [1982]137ITR97(Delhi) , wherein it was held (at page 109) :
'The Ministry of Industry could not transact the business relating to the Ministry of Finance (Dept. of Revenue) which along is competent under the rules of business, to transact all question relating to income-tax. The Ministry of Industry, therefore, could not decide the question whether the interest should be taxable or tax-free and this was not so determined in the letter dated January 2, 1961. It only approved the proposal that rate of interest would be 6.5% per annum and the IGE would itself be responsible for the payment of Indian income-tax on the interest income. The question regarding the total income had to be separately decided by the Central Government in the Ministry of Finance when an application for exemption in the prescribed form was made. The Central Government in the Ministry of Finance understood this legal position when it directed in the letter dated February 27, 1965, that the application for exemption of the interest on the long-term foreign loan was to be made by the Indian industrial undertaking in the revised pro forma which was enclosed and again when it fixed 6% per annum as the rate of interest in the two exemption order dated September 3, 1965, and June 7, 1867,'
4. Hence, the assessee has sought this reference since the Appellate Tribunal has negatived the claim of the assessee.
5. The decision of the Delhi High Court is by a learned single judge on a writ petition filed before it. There was a specific approval under section 10(15)(iv)(c) by the Ministry of Finance in the said case for the loan. Certain items were included and, therefore, the petitioner made another application was to the Government for approval of the rate of interest. This applications was to the Ministry of Finance routed through the Ministry of Steel. The exemption order granted earlier was also cancelled retrospectively by the Central Government and the prayer for the approval regarding the rate of interest in respect of some other items was also rejected. It is in that connection that the writ petition was filed. The court had to consider certain approval granted by the Ministry of Industry to the agreement in question and, in that connection,it was observed that such an approval by the Ministry of Industry would not fall within the purview of section 10(15)(iv)(c). The court pointed out that, under the Government of India (Allocation of Business) Rules, 1961, the business of the Government of India is transacted in the Ministries, Departments, Secretariats and Offices specified in the First Schedule to the Rules and the distribution of subjects among the departments is as specified in the Second Schedule to those Rules. The subject of taxation and exemption for the said purpose would not fall within the jurisdiction of the Ministry of Industry and, therefore, for the purpose of section 10(15)(iv)(c), the Central Government would not mean the Ministry of Industry.
6. We do not think that it is necessary for us to examine the question in the manner in which it was considered by the Delhi High Court. The conclusion arrived at by the Appellate Tribunal seems to us be correct, having regard to the language of section 10(15)(iv)(c) of the Act. The relevant provision reads :
'10. 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 money 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 bent and its repayment;' (Explanation omitted)
7. The income that is to be excluded thus is the interest payable on any moneys borrowed in respect of the purchases of raw materials 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. The term, 'in this behalf' is indicative of the idea that the approval of the Central Government should be on behalf of or pertaining to the subject-matter referred to therein. In other words, the Central Government has to approve the rate of interest for the purpose of section 10(15)(iv)(c). The term 'in this behalf' is a terms frequently found in several provisions of the Income-tax Act. In fact, in the very section 10 of the Act, some of the clause use this term. The idea behind section 10 and the requirement of the approval of the Government of India is that the exemption is available only when the Government of India deems it necessary and fit to grant exemption. It is because of this that, wherever specific approval or notification is necessary, the term 'in this behalf' has been used. For example, under clause (10B), the particular notification has to specify the amount 'in this behalf'. Under clause (10C), a similar terminology is used. Several sub-clauses under section 88(2) which require issuance of a notification by the Government also refer to the specification in the notifications 'in this behalf'.
8. From the above, we are of the view that the approval under section 10(15)(iv)(c) by the Central Government will have to be a specific approval concerning the subject stated therein and not a general approval for any other purpose.
9. The letter of the Government of India, Ministry of Industry and Supply, dated April 26, 1965, referred to by the Commissioner of Income-tax (Appeals) expresses an approval for the importation of machinery, etc. It is not an approval with reference to section 10(15)(iv)(c) of the Act at all. Therefore, we cannot agree with the contention of learned counsel for the assessee that it is an approval in regard to that provision.
10. Consequently, our answer to the question is in the affirmative and against the assessee.