ROHINTON FALI NARIMAN,J. - (1.) The present appeal has a somewhat chequered history. It arises out of the respondent's floating a tender for two platform facilities for off-shore oil exploration and drilling in October, 1982. The appellant before us submitted two tenders for two such platforms on 13th January and 22nd March of 1983 respectively. Immediately after the submission and acceptance of these tenders, on 31st March, 1983, a Notification was issued by the Government of India extending the Income Tax Act, 1961 to the Continental Shelf and Exclusive Economic Zone of India with effect from 1st April, 1983, in respect of income derived by every person inter alia from prospecting for, or extraction or production of mineral oil in the Continental Shelf or Exclusive Economic Zone of India. Fomal contracts were entered into between the Oil and Natural Gas Corporation Ltd.["ONGC"] and the appellant on 16th December, 1983. For the purpose of this appeal, two clauses are material and are set out below: "13.2.8 The company shall not be responsible/obligated for making any payments or any other related obligations under the Contract to the Contractor's sub-contractor/vendors. The Contractor shall be fully liable and responsible for meeting all such obligations and all payments to be made to its sub-contractors/Vendors and any other third party engaged by the Contractor in any way connected with the discharge of the Contractor's obligation under the Contract and in any manner whatsoever. 17.3 Change of law: In the event of any change or amendment of any law, rule or regulation of any Government in India or public body of the Republic of India which becomes effective after the date of the Tender (the 25th day of March, 1983) and which results in any increased cost to the Contractor shall be indemnified for any such cost by the Company and the Completion Schedule shall be extended as required."
(2.) Some time in 1984, the appellant entered into a sub-contract with M/s McDermott International Incorporated, Panama, wherein a part of the work to be carried out by the appellant was sub-contracted. This back to back contract also had a provision which was similar to Clause 17.3. On 12th May, 1987, Section 44BB was introduced in the Income Tax Act, with retrospective effect from 1st April, 1983. Under this provision, a non-resident assessee engaged in the business of providing services or facilities, or supplying plant and machinery on hire for the prospecting, extraction or production of mineral oil, was notwithstanding anything to the contrary contained in various sections of the Income Tax Act, liable to pay income tax on a sum equal to 10% of the aggregate of the amounts specified in sub-section (2), which were then deemed to be profits and gains of such business chargeable to tax under the head 'profits and gains of business' or profession. To complete the narration of facts, the work under the two contracts was done during the period 1984-85 to 1987-88. As a result of work done in this period, the Income Tax Department taxed the sub-contractor M/s McDermott International Incorporated after reopening its assessments to tax under Section 148 of the Act. As a result, the sub-contractor became liable to pay various amounts by way of tax, both under Section 44BB and otherwise, inasmuch as they opted under a particular Circular of the Government of India dated July, 1987, to pay tax on the basis of the said Circular. Given this fact situation, disputes arose between the appellant and the respondent on the application of Clause 17.3 of the agreement. The appellant and the respondent went to arbitration under the Arbitration Act, 1940, which was before two learned Arbitrators, on the question whether the respondent was liable to reimburse the amounts paid by the appellant to its sub-contractor by way of tax inasmuch as, according to the appellant, a change in law had taken place after 25.3.1983 in that, from 1st April, 1983, Section 44BB was retrospectively brought in to tax various services in connection with off-shore exploration and drilling of mineral oils. Several issues were raised before the two learned Arbitrators, one of which was as to whether there was indeed a change of law, in that, tax had to be paid under Section 44BB for the first time with effect from 1st April, 1983. The two learned Arbitrators were of the opinion that, as the assessment orders indicated tax was indeed payable under Section 44BB, and that, therefore, Clause 17.3 would be squarely attracted on the facts of the case. However, they differed on the application of Clause 13.2.8 of the agreement. Whereas Shri D. Chandrashekhar, learned Arbitrator, by his award dated 10th March, 1999 stated that though Clause 17.3 did apply on the facts of the case, yet Clause 13.2.8 interdicted the payment of any amounts on account of the sub-contractor's liablity. On the other hand, Justice D.M. Rege, learned Arbitrator, by his separate award dated April, 1999 agreed with Shri Chandrashekhar on all points except one, namely, the effect of Clause 13.2.8 on Clause 17.3. According to him, Clause 13.2.8 would not come in the way of ONGC having to pay amounts paid by the sub-contractor by way of tax because of a change in law. The learned Arbitrator held: "Firstly, the said Clause 13.2.8 is a part of Clause 13 dealing with Contract price payment/Discharge Certificate and was not connected with the subject covered by Clause 17.3 of the Contract on which the Claimants' claim is based. Further looking to the fact that Clause 17.3 of the Contract was inserted subsequently only at the request of the Claimants while Clause 13.2.8 was already there, it appears that Clause 17.3 was intended to cover those extra costs incurred by the Claimants due to the change of law which were outside of and not covered by Clause 13.2.8 of the Contract. Even the reading of Clause 13.2.8 itself would show that it does not and would not cover the Claimants' claim for compensation for extra costs under the said Clause 17.3 of the Contract."
(3.) On this limited dispute, the Umpire, Retired Chief Justice Y.V. Chandrachud, delivered his award dated 20th March, 2002. In paragraph 20 of the said award, the learned Umpire stated: "The main question and, indeed, the only question which was pressed before me by learned Counsel for the parties, arises out of the provisions contained in Clause 17.3 of the SH Contract and the extension of the I.T. Act to the Continental Shelf of India and other Exclusive Economic Zones by the Notification dated March 31, 1983, issued by the Government of India, which is referred to in paragraph 9 above.";