Centre’s Power to Relax Conditions Under Rule 9C : Delhi High Court Ruling
Discretionary power to relax Rule 9C conditions is limited and guided by specified factors. Courts will not interfere unless the decision is unreasonable or contrary to law. Petitioner’s failure to meet the prescribed production level justified rejection of relaxation.
- Case Overview:
- Case Title: Cargill India Private Limited v. Central Board Of Direct Taxes
- Case No.: W.P.(C) 399/2022
- Petitioner: Cargill India Private Limited
- Respondents: Central Board Of Direct Taxes (CBDT)
Legal Framework & Provisions
- Section 72A of the Income Tax Act, 1962:
- Allows set-off and carry-forward of losses if:
- Amalgamation is for a genuine business purpose.
- The amalgamated company ensures the revival of the amalgamating company’s business.
- Accumulated losses and unabsorbed depreciation of amalgamating companies are deemed to be those of the amalgamated company for the previous year in which the amalgamation was effected.
- Allows set-off and carry-forward of losses if:
- Rule 9C of the Income Tax Rules, 1962:
- Sets out the conditions for availing benefits under Section 72A:
- Achievement of at least 50% of the installed capacity of the industrial undertaking of the amalgamating company.
- Maintaining this production level till the end of five years from the date of amalgamation.
- Sets out the conditions for availing benefits under Section 72A:
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Petitioner’s Plea:
- Four companies were amalgamated with the petitioner.
- Accumulated losses and unabsorbed depreciation of the amalgamated companies amounted to ₹141 crores.
- Three of the four companies met the 50% production condition; one company did not.
- Despite genuine efforts, the fourth company could not meet the threshold due to circumstances beyond its control.
- Relief Sought:
- Relaxation of the production condition from 50% to 40%.
- Extension of the time period for achieving the target by one year.
- Cited Commissioner of Income-tax Bombay v. Mahindra & Mahindra Ltd. (1983) to argue for a liberal interpretation of the relaxation power.
Revenue’s Argument:
- The Central Government has wide discretion in granting relaxation under Rule 9C.
- Relaxation power should be exercised strictly in compliance with the Rules.
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Court’s Findings:
- Nature of Power Under Rule 9C:
- Power to relax conditions is exceptional and discretionary.
- Not ordinarily subject to judicial review unless exercised:
- Arbitrarily
- Mala fide
- Capriciously
- Unreasonably
- Conditions for Relaxation:
- Rule 9C allows relaxation of:
- Capacity utilization level
- Time period for achieving it
- Factors considered:
- Genuine efforts made to attain the prescribed production level.
- Circumstances preventing achievement of the same.
- Rule 9C allows relaxation of:
- Judicial Review Scope:
- Courts can interfere only if:
- The decision is perverse.
- No reasonable authority could reach such a decision.
- Decision based on irrelevant/extraneous factors or disregard of relevant ones.
- Courts can interfere only if:
- Outcome:
- Petitioner failed to satisfy the 50% production condition even within the extended period.
- No grounds for judicial interference found.
- Petition dismissed.
Legal Precedents Cited by Court:
- West Bengal State Electricity Board v. Patel Engineering Co. Ltd. & Ors. (2001) – Power to relax must be exercised strictly in compliance with rules.
Conclusion:
- Discretionary power to relax Rule 9C conditions is limited and guided by specified factors.
- Courts will not interfere unless the decision is unreasonable or contrary to law.
- Petitioner’s failure to meet the prescribed production level justified rejection of relaxation.
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