Two oil companies, petitioners here, paid the Government $158 million in return for lease contracts giving them the rights to explore for and develop oil off the North Carolina coast, provided that the companies received exploration and development permission in accordance with procedures set out in, inter alia, the Outer Continental Shelf Lands Act (OCSLA), the Coastal Zone Management Act of 1972 (CZMA), and regulations promulgated pursuant to those Acts. OCSLA, among other things, requires the Department of the Interior to approve a company's Plan of Exploration (Plan) within 30 days of its submission if the Plan meets certain criteria. A company must also obtain an exploratory well drilling permit after certifying under CZMA that its Plan is consistent with each affected State's coastal zone management program. If a State objects, the Secretary of Commerce must override the objection or the certification fails. Interior may grant the permit if Commerce rules against the State. While the companies' Plan was pending before Interior, the Outer Banks Protection Act (OBPA) became law. OBPA prohibited the Interior Secretary from approving any Plan until, inter alia, an OBPA-created Environmental Sciences Review Panel (Panel) reported to the Secretary and the Secretary certified to Congress that he had sufficient information to make OCSLA-required approval decisions. In no event could he approve any Plan for 13 months. Interior told Mobil the Plan met OCSLA requirements but that it would not approve the Plan until the OBPA requirements were met. It also suspended all North Carolina offshore leases. After the Panel made its report, the Interior Secretary made the requisite certification to Congress but stated that he would not consider the Plan until he received further studies recommended by the Panel. North Carolina objected to the CZMA certification, and the Commerce Secretary rejected Mobil's override request. Before the Commerce Secretary issued his rejection, the companies joined a breach of contract lawsuit in the Court of Federal Claims. That court granted them summary judgment, finding that the Government had broken its contractual promise to follow OCSLA, that the Government thereby repudiated the contracts, and that that repudiation entitled the companies to restitution of their payments. In reversing, the Federal Circuit held that the Government's refusal to consider Mobil's Plan was not the operative cause of any failure to carry out the contracts' terms because the State's objection to the CZMA certification would have prevented the exploration.
Held: The Government broke its promise, repudiated the contracts, and must give the companies their money back. Pp. 8-19.
(a) A contracting party is entitled to restitution if the other party "substantially" breached a contract or communicated its intent to do so. Here, the Government breached the contracts and communicated such intent. None of the provisions incorporated into the contracts granted Interior the legal authority to refuse to approve the companies' Plan, while suspending the lease instead. First, such authority does not arise from the OSCLA provision, 43 U. S. C. §1334(a)(1)(A), that permits the Secretary to promulgate regulations providing for suspension of an operation or activity only upon "the request of a lessee." Second, the contracts say that they are subject to then-existing regulations and future regulations issued under OCSLA and certain Department of Energy Organization Act provisions. This explicit reference to future regulations makes it clear that the contracts' catchall provisions referencing "all other applicable ... regulations" must include only statutes and regulations already existing at the time of the contracts. Thus, the contracts are not subject to future regulations promulgated under other statutes, such as OBPA. Third, an OSCLA provision authorizing suspensions in light of a threat of serious harm to the human environment did not authorize the delay, for Interior explained that the Plan fully complied with current legal requirements and cited OBPA to explain the delay. Insofar as the Government means to suggest that OBPA changed the relevant OSCLA standard, it must mean that OBPA in effect created a new requirement. Such a requirement would not be incorporated into the contracts. Finally, when imposing the delay, Interior did not rely upon any of the regulations to which the Government now refers. OBPA required Interior to impose the contract-violating delay and changed pre-existing contract-incorporated requirements in several ways. By communicating its intent to follow OBPA, the Government was communicating its intent to violate the contracts. Pp. 8-14.
(b) The Government's contract breach was substantial, for it deprived the companies of the benefit of their bargain. Under the contracts, the incorporated procedures and standards amounted to a gateway to the companies' enjoyment of their rights to explore and develop oil. Timely and fair consideration of a submitted Plan was a material condition of the contracts, yet the Government announced an OBPA-required delay of 13 months minimum, and the delay turned out to be at least four years. This modification of the procedures was not technical or insubstantial, and it amounted to a repudiation of the contracts. Pp. 15-16.
(c) Although acceptance of a once-repudiated contract can constitute a waiver of the restitution right that repudiation would otherwise create, none of the events that the Government points to--that the companies submitted the Plan to Interior two days after OBPA became law, that the companies subsequently asked the Commerce Secretary to override North Carolina's objection to the CZMA certification, and that the companies received suspensions of their leases pending OBPA-mandated approval delays--amounts to significant postrepudiation performance. Pp. 16-18.
(d) Finally, the Government's argument that OBPA caused the companies no injury because they could not have met the CZMA consistency requirements misses the point: The companies seek not damages for breach of contract but restitution of their initial payments. Because the Government repudiated the contracts, the law entitles the companies to that restitution whether the contracts would, or would not, ultimately have produced a financial gain or led them to obtain a definite right to explore. Pp. 18-19.
177 F. 3d 1331, reversed and remanded.
Two oil companies, petitioners here, seek restitution of $156 million they paid the Government in return for lease contracts giving them rights to explore for and develop oil off the North Carolina coast. The rights were not absolute, but were conditioned on the companies' obtaining a set of further governmental permissions. The companies claim that the Government repudiated the contracts when it denied them certain elements of the permission-seeking opportunities that the contracts had promised. We agree that the Government broke its promise; it repudiated the contracts; and it must give the companies their money back.
A description at the outset of the few basic contract law principles applicable to this case will help the reader understand the significance of the complex factual circumstances that follow. "When the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals." United States v. Winstar Corp., 518 U. S. 839, 895 (1996) (plurality opinion) (internal quotation marks omitted). The Restatement of Contracts reflects many of the principles of contract law that are applicable to this case. As set forth in the Restatement of Contracts, the relevant principles specify that, when one party to a contract repudiates that contract, the other party "is entitled to restitution for any benefit that he has conferred on" the repudiating party "by way of part performance or reliance." Restatement (Second) of Contracts §373 (1979) (hereinafter Restatement). The Restatement explains that "repudiation" is a "statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach." Id., §250. And "total breach" is a breach that "so substantially impairs the value of the contract to the injured party at the time of the breach that it is just in the circumstances to allow him to recover damages based on all his remaining rights to performance." Id., §243.
"A contracts to sell a tract of land to B for $100,000. After B has made a part payment of $20,000, A wrongfully refuses to transfer title. B can recover the $20,000 in restitution. The result is the same even if the market price of the land is only $70,000, so that performance would have been disadvantageous to B." Id., §373, Comment a, Illustration 1.
In 1981, in return for up-front "bonus" payments to the United States of about $158 million (plus annual rental payments), the companies received 10-year renewable lease contracts with the United States. In these contracts, the United States promised the companies, among other things, that they could explore for oil off the North Carolina coast and develop any oil that they found (subject to further royalty payments) provided that the companies received exploration and development permissions in accordance with various statutes and regulations to which the lease contracts were made "subject." App. to Pet. for Cert. in No. 99-253, pp. 174a-185a.
The statutes and regulations, the terms of which in effect were incorporated into the contracts, made clear that obtaining the necessary permissions might not be an easy matter. In particular, the Outer Continental Shelf Lands Act (OCSLA), 67 Stat. 462, as amended, 43 U. S. C. §1331 et seq. (1994 ed. and Supp. III), and the Coastal Zone Management Act of 1972 (CZMA), 16 U. S. C. §1451 et seq., specify that leaseholding companies wishing to explore and drill must successfully complete the following four procedures.
"would probably cause serious harm or damage to life (including fish and other aquatic life), to property, to any mineral ... , to the national security or defense, or to the marine, coastal, or human environment." §1334(a)(2)(A)(i).
Where approval is warranted, Interior must act quickly--within "thirty days" of the company's submission of a proposed Plan. §1340(c)(1).
Second, the company must obtain an exploratory well drilling permit. To do so, it must certify (under CZMA) that its Exploration Plan is consistent with the coastal zone management program of each affected State. 16 U. S. C. §1456(c)(3). If a State objects, the certification fails, unless the Secretary of Commerce overrides the State's objection. If Commerce rules against the State, then Interior may grant the permit. §1456(c)(3)(A).
Third, where waste discharge into ocean waters is at issue, the company must obtain a National Pollutant Discharge Elimination System permit from the Environmental Protection Agency. 33 U. S. C. §§1311(a), 1342(a). It can obtain this permit only if affected States agree that its Exploration Plan is consistent with the state coastal zone management programs or (as just explained) the Secretary of Commerce overrides the state objections. 16 U. S. C. §1456.
Fourth, if exploration is successful, the company must prepare, and obtain Interior approval for, a Development and Production Plan--a Plan that describes the proposed drilling and related environmental safeguards. 43 U. S. C. §1351. Again, Interior's approval is conditioned upon certification that the Plan is consistent with state coastal zone management plans--a certification to which States can object, subject to Commerce Department override. §1351(a)(3).
1. In 1981, the companies and the Government entered into the lease contracts. The companies paid the Government $158 million in up-front cash "bonus" payments.
2. In 1989, the companies, Interior, and North Carolina entered into a memorandum of understanding. In that memorandum, the companies promised that they would submit an initial draft Exploration Plan to North Carolina before they submitted their final Exploration Plan to Interior. Interior promised that it would prepare an environmental report on the initial draft. It also agreed to suspend the companies' annual lease payments (about $250,000 per year) while the companies prepared the initial draft and while any state objections to the companies' CZMA consistency certifications were being worked out, with the life of each lease being extended accordingly.
3. In September 1989, the companies submitted their initial draft Exploration Plan to North Carolina. Ten months later, Interior issued the promised ("informal" pre-submission) environmental report, after a review which all parties concede was "extensive and intensive." App. 179 (deposition of David Courtland O'Neal, former Assistant Secretary of the Interior) (agreeing that the review was "the most extensive and intensive" ever "afforded an exploration well in the outer continental shelf (OCS) program"). Interior concluded that the proposed exploration would not "significantly affec[t]" the marine environment or "the quality of the human environment." Id., at 138-140 (U. S. Dept. of Interior Minerals Management Service, Environmental Assessment of Exploration Plan for Manteo Area Block 467 (Sept. 1990)).
4. On August 20, 1990, the companies submitted both their final Exploration Plan and their CZMA "consistency certification" to Interior.
5. Just two days earlier, on August 18, 1990, a new law, the Outer Banks Protection Act (OBPA), §6003, 104 Stat. 555, had come into effect. That law prohibited the Secretary of the Interior from approving any Exploration Plan or Development and Production Plan or to award any drilling permit until (a) a new OBPA-created Environmental Sciences Review Panel had reported to the Secretary, (b) the Secretary had certified to Congress that he had sufficient information to make these OCSLA-required approval decisions, and (c) Congress had been in session an additional 45 days, but (d) in no event could he issue an approval or permit for the next 13 months (until October 1991). §6003(c)(3). OBPA also required the Secretary, in his certification, to explain and justify in detail any differences between his own certified conclusions and the new Panel's recommendations. §6003(c)(3)(A)(ii)(II).
"[W]e are required to approve an Exploration Plan unless it is inconsistent with applicable law or because it would result in serious harm to the environment. Because we have found that Mobil's Plan fully complies with the law and will have only negligible effect on the environment, we are not authorized to disapprove the Plan or require its modification." App. to Pet. for Cert. in No. 99-253, at 194a (letter from Regional Director Bruce Weetman to the Honorable James G. Martin, Governor of North Carolina, dated Sept. 28, 1996).
But, it noted, the new law, the "Outer Banks Protection Act (OBPA) of 1990 ... prohibits the approval of any Exploration Plan at this time." It concluded, "because we are currently prohibited from approving it, the Plan will remain on file until the requirements of the OBPA are met." In the meantime a "suspension has been granted to all leases offshore the State of North Carolina." Ibid. See also App. 129-131 (letter from Lawrence H. Ake, Minerals Management Service, to William C. Whittemore, Mobil Exploration & Producing U. S. Inc., dated Sept. 21, 1990 (notice of suspension of leases, citing 30 CFR §250.10(b)(7) (1990) as the basis for the suspensions)).
About 18 months later, the Secretary of the Interior, after receiving the new Panel's report, certified to Congress that he had enough information to consider the companies' Exploration Plan. He added, however, that he would not consider the Plan until he received certain further studies that the new Panel had recommended.
7. In November 1990, North Carolina objected to the companies' CZMA consistency certification on the ground that Mobil had not provided sufficient information about possible environmental impact. A month later, the companies asked the Secretary of Commerce to override North Carolina's objection.
8. In 1994, the Secretary of Commerce rejected the companies' override request, relying in large part on the fact that the new Panel had found a lack of adequate information in respect to certain environmental issues.
9. In 1996, Congress repealed OBPA. §109, 110 Stat. 1321-177.
In October 1992, after all but the two last-mentioned events had taken place, petitioners joined a breach-of-contract lawsuit brought in the Court of Federal Claims. On motions for summary judgment, the court found that the United States had broken its contractual promise to follow OCSLA's provisions, in particular the provision requiring Interior to approve an Exploration Plan that satisfied OCSLA's requirements within 30 days of its submission to Interior. The United States thereby repudiated the contracts. And that repudiation entitled the companies to restitution of the up-front cash "bonus" payments it had made. Conoco Inc. v. United States, 35 Fed. Cl. 309 (1996).
A panel of the Court of Appeals for the Federal Circuit reversed, one judge dissenting. The panel held that the Government's refusal to consider the companies' final Exploration Plan was not the "operative cause" of any failure to carry out the contracts' terms because the State's objection to the companies' CZMA "consistency statement" would have prevented the companies from exploring regardless. 177 F. 3d 1331 (CA Fed. 1999).
We granted certiorari to review the Federal Circuit's decision.
The record makes clear (1) that OCSLA required Interior to approve "within thirty days" a submitted Exploration Plan that satisfies OCSLA's requirements, (2) that Interior told Mobil the companies' submitted Plan met those requirements, (3) that Interior told Mobil it would not approve the companies' submitted Plan for at least 13 months, and likely longer, and (4) that Interior did not approve (or disapprove) the Plan, ever. The Government does not deny that the contracts, made "pursuant to" and "subject to" OCSLA, incorporated OCSLA provisions as promises. The Government further concedes, as it must, that relevant contract law entitles a contracting party to restitution if the other party "substantially" breached a contract or communicated its intent to do so. See Restatement §373(1); 11 W. Jaeger, Williston on Contracts §1312, p. 109 (3d ed. 1968) (hereinafter Williston); 5 A. Corbin, Contracts §1104, p. 560 (1964); see also Ankeny v. Clark, 148 U. S. 345, 353 (1893). Yet the Government denies that it must refund the companies' money.
This is because, in the Government's view, it did not breach the contracts or communicate its intent to do so; any breach was not "substantial"; and the companies waived their rights to restitution regardless. We shall consider each of these arguments in turn.
The Government's "no breach" arguments depend upon the contract provisions that "subject" the contracts to various statutes and regulations. Those provisions state that the contracts are "subject to" (1) OCSLA, (2) "Sections 302 and 303 of the Department of Energy Organization Act," (3) "all regulations issued pursuant to such statutes and in existence upon the effective date of" the contracts, (4) "all regulations issued pursuant to such statutes in the future which provide for the prevention of waste and the conservation" of Outer Continental Shelf resources, and (5) "all other applicable statutes and regulations." App. to Pet. for Cert. in No. 99-253, at 175a. The Government says that these provisions incorporate into the contracts, not only the OCSLA provisions we have mentioned, but also certain other statutory provisions and regulations that, in the Government's view, granted Interior the legal authority to refuse to approve the submitted Exploration Plan, while suspending the leases instead.
First, the Government refers to 43 U. S. C. §1334(a)(1)(A), an OCSLA provision that authorizes the Secretary to promulgate regulations providing for "the suspension ... of any operation or activity ... at the request of a lessee, in the national interest, to facilitate proper development of a lease." (Emphasis added.) This provision, as the emphasized terms show, requires "the request of a lessee," i.e., the companies. The Government does not explain how this requirement was satisfied here. Hence, the Government cannot rely upon the provision.
Second, the Government refers to 30 CFR §250.110(b)(4) (1999), formerly codified at 30 CFR §250.10(b)(4) (1997), a regulation stating that "[t]he Regional Supervisor may ... direct ... a suspension of any operation or activity ... [when the] suspension is necessary for the implementation of the requirements of the National Environmental Policy Act or to conduct an environmental analysis." The Government says that this regulation permitted the Secretary of the Interior to suspend the companies' leases because that suspension was "necessary ... to conduct an environmental analysis," namely, the analysis demanded by the new statute, OBPA.
The "environmental analysis" referred to, however, is an analysis the need for which was created by OBPA, a later enacted statute. The lease contracts say that they are subject to then-existing regulations and to certain future regulations, those issued pursuant to OCSLA and §§302 and 303 of the Department of Energy Organization Act. This explicit reference to future regulations makes it clear that the catchall provision that references "all other applicable ... regulations," supra, at 9, must include only statutes and regulations already existing at the time of the contract, see 35 Fed. Cl., at 322-323, a conclusion not questioned here by the Government. Hence, these provisions mean that the contracts are not subject to future regulations promulgated under other statutes, such as new statutes like OBPA. Without some such contractual provision limiting the Government's power to impose new and different requirements, the companies would have spent $158 million to buy next to nothing. In any event, the Court of Claims so interpreted the lease; the Federal Circuit did not disagree with that interpretation; nor does the Government here dispute it.
Instead, the Government points out that the regulation in question--the regulation authorizing a governmental suspension in order to conduct "an environmental analysis"--was not itself a future regulation. Rather, a similar regulation existed at the time the parties signed the contracts, 30 CFR §250.12(a)(iv) (1981), and, in any event, it was promulgated under OCSLA, a statute exempted from the contracts' temporal restriction. But that fact, while true, is not sufficient to produce the incorporation of future statutory requirements, which is what the Government needs to prevail. If the pre-existing regulation's words, "an environmental analysis," were to apply to analyses mandated by future statutes, then they would make the companies subject to the same unknown future requirements that the contracts' specific temporal restrictions were intended to avoid. Consequently, whatever the regulation's words might mean in other contexts, we believe the contracts before us must be interpreted as excluding the words "environmental analysis" insofar as those words would incorporate the requirements of future statutes and future regulations excluded by the contracts' provisions. Hence, they would not incorporate into the contracts requirements imposed by a new statute such as OBPA.
The Government points to the OBPA Conference Report, which says that any OBPA-caused delay is "related to ... environmental protection" and to the need "for the collection and analysis of crucial oceanographic, ecological, and socioeconomic data," to "prevent a public harm." H. R. Conf. Rep. No. 101-653, p. 163 (1990); see also Brief for United States 32. At oral argument, the Government noted that the OBPA mentions "tourism" in North Carolina as a "major industry ... which is subject to potentially significant disruption by offshore oil or gas development." §6003(b)(3). From this, the Government infers that the pre-existing OCSLA provision authorized the suspension in light of a "threat of ... serious harm" to a "human environment."
The fatal flaw in this argument, however, arises out of the Interior Department's own statement--a statement made when citing OBPA to explain its approval delay. Interior then said that the Exploration Plan "fully complies" with current legal requirements. And the OCSLA statutory provision quoted above was the most pertinent of those current requirements. Supra, at 3. The Government did not deny the accuracy of Interior's statement, either in its brief filed here or its brief filed in the Court of Appeals. Insofar as the Government means to suggest that the new statute, OBPA, changed the relevant OCSLA standard (or that OBPA language and history somehow constitute findings Interior must incorporate by reference), it must mean that OBPA in effect created a new requirement. For the reasons set out supra, at 10, however, any such new requirement would not be incorporated into the contracts.
Finally, we note that Interior itself, when imposing the lengthy approval delay, did not rely upon any of the regulations to which the Government now refers. Rather, it relied upon, and cited, a different regulation, 30 CFR §250.110(b)(7) (1999), which gives Interior the power to suspend leases when "necessary to comply with judicial decrees prohibiting production or any other operation or activity." The Government concedes that no judicial decree was involved in this case and does not rely upon this regulation here.
We conclude, for these reasons, that the Government violated the contracts. Indeed, as Interior pointed out in its letter to North Carolina, the new statute, OBPA, required Interior to impose the contract-violating delay. See App. 129 ("The [OBPA] contains provisions that specifically prohibit the Minerals Management Service from approving any Exploration Plan, approving any Application for Permit to Drill, or permitting any drilling offshore the State of North Carolina until at least October 1, 1991"). It therefore made clear to Interior and to the companies that the United States had to violate the contracts' terms and would continue to do so.
Moreover, OBPA changed pre-existing contract-incorporated requirements in several ways. It delayed approval, not only of an Exploration Plan but also of Development and Production Plans; and it delayed the issuance of drilling permits as well. It created a new type of Interior Department environmental review that had not previously existed, conducted by the newly created Environmental Sciences Review Panel; and, by insisting that the Secretary explain in detail any differences between the Secretary's findings and those of the Panel, it created a kind of presumption in favor of the new Panel's findings.
We do not say that the changes made by the statute were unjustified. We say only that they were changes of a kind that the contracts did not foresee. They were changes in those approval procedures and standards that the contracts had incorporated through cross-reference. The Government has not convinced us that Interior's actions were authorized by any other contractually cross-referenced provision. Hence, in communicating to the companies its intent to follow OBPA, the United States was communicating its intent to violate the contracts.
The Government next argues that any violation of the contracts' terms was not significant; hence there was no "substantial" or "material" breach that could have amounted to a "repudiation." In particular, it says that OCSLA's 30-day approval period "does not function as the `essence' of these agreements." Brief for United States 37. The Court of Claims concluded, however, that timely and fair consideration of a submitted Exploration Plan was a "necessary reciprocal obligation," indeed, that any "contrary interpretation would render the bargain illusory." 35 Fed. Cl., at 327. We agree.
We recognize that the lease contracts gave the companies more than rights to obtain approvals. They also gave the companies rights to explore for, and to develop, oil. But the need to obtain Government approvals so qualified the likely future enjoyment of the exploration and development rights that the contract, in practice, amounted primarily to an opportunity to try to obtain exploration and development rights in accordance with the procedures and under the standards specified in the cross-referenced statutes and regulations. Under these circumstances, if the companies did not at least buy a promise that the Government would not deviate significantly from those procedures and standards, then what did they buy? Cf. id., at 324 (the companies bought exclusive rights to explore and develop oil "if they met" OCSLA requirements (emphasis added)).
The Government's modification of the contract-incorporated processes was not technical or insubstantial. It did not announce an (OBPA-required) approval delay of a few days or weeks, but of 13 months minimum, and likely much longer. The delay turned out to be at least four years. And lengthy delays matter, particularly where several successive agency approvals are at stake. Whether an applicant approaches Commerce with an Interior Department approval already in hand can make a difference (as can failure to have obtained that earlier approval). Moreover, as we have pointed out, OBPA changed the contract-referenced procedures in several other ways as well. Supra, at 12-13.
The upshot is that, under the contracts, the incorporated procedures and standards amounted to a gateway to the companies' enjoyment of all other rights. To significantly narrow that gateway violated material conditions in the contracts. The breach was "substantia[l]," depriving the companies of the benefit of their bargain. Restatement §243. And the Government's communication of its intent to commit that breach amounted to a repudiation of the contracts.
The Government argues that the companies waived their rights to restitution. It does not deny that the United States repudiated the contracts if (as we have found) OBPA's changes amounted to a substantial breach. The Government does not claim that the United States retracted its repudiation. Cf. id., §256 (retraction will nullify the effects of repudiation if done before the other party either changes position in reliance on the retraction or communicates that it considers the repudiation to be final). It cannot claim that the companies waived their rights simply by urging performance. Id., §257 (the injured party "does not change the effect of a repudiation by urging the repudiator to perform in spite of his repudiation"); see also 11 Williston §1334, at 177-178. Nor has the Government convinced us that the companies' continued actions under the contracts amount to anything more than this urging of performance. See 2 E. Farnsworth, Contracts §8.22, p. 544 (2d ed. 1998) (citing United Cal. Bank v. Prudential Ins. Co., 140 Ariz. 238, 282-283, 681 P. 2d 390, 433-434 (App. 1983) (urging performance and making "efforts of its own to fulfill the conditions" of the contract come to the same thing)); cf. 11 Williston §1337, at 186-187. Consequently the Government's waiver claim must come down to a claim that the companies received at least partial performance. Indeed, acceptance of performance under a once-repudiated contract can constitute a waiver of the right to restitution that repudiation would otherwise create. Restatement §373, Comment a; cf. Restatement of Restitution §68, Comment b (1936).
The United States points to three events that, in its view, amount to continued performance of the contracts. But it does not persuade us. First, the oil companies submitted their Exploration Plan to Interior two days after OBPA became law. Supra, at 5. The performance question, however, is not just about what the oil companies did or requested, but also about what they actually received from the Government. And, in respect to the Exploration Plan, the companies received nothing.
Second, the companies subsequently asked the Secretary of Commerce to overturn North Carolina's objection to the companies' CZMA consistency certification. And, although the Secretary's eventual response was negative, the companies did at least receive that reply. Supra, at 7. The Secretary did not base his reply, however, upon application of the contracts' standards, but instead relied in large part on the findings of the new, OBPA-created, Environmental Sciences Review Panel. See App. 224, 227, n. 35, 232-233, 239, 244 (citing the Panel's report). Consequently, we cannot say that the companies received from Commerce the kind of consideration for which their contracts called.
Third, the oil companies received suspensions of their leases (suspending annual rents and extending lease terms) pending the OBPA-mandated approval delays. Supra, at 6. However, a separate contract--the 1989 memorandum of understanding--entitled the companies to receive these suspensions. See App. to Brief for United States 2a (letter from Toni D. Hennike, Counsel, Mobil Exploration & Producing U. S. Inc., to Ralph Melancon, Regional Supervisor, U. S. Dept. of Interior Minerals Management Service, dated Feb. 21, 1995 (quoting the memorandum as a basis for the requested suspensions)). And the Government has provided no convincing reason why we should consider the suspensions to amount to significant performance of the lease contracts in question.
We conclude that the companies did not receive significant postrepudiation performance. We consequently find that they did not waive their right to restitution.
repudiation, to refund that money. Restatement §373.
Contract law expresses no view about the wisdom of OBPA. We have examined only that statute's consistency with the promises that the earlier contracts contained. We find that the oil companies gave the United States $158 million in return for a contractual promise to follow the terms of pre-existing statutes and regulations. The new statute prevented the Government from keeping that promise. The breach "substantially impair[ed] the value of the contract[s]." Id., §243. And therefore the Government must give the companies their money back.
For these reasons, the judgment of the Federal Circuit is reversed. We remand the cases for further proceedings consistent with this opinion.
Since the 1953 passage of the Outer Continental Shelf Lands Act (OCSLA), 43 U. S. C. §1331 et seq., the United States Government has conducted more than a hundred lease sales of the type at stake today, and bidders have paid the United States more than $55 billion for the opportunity to develop the mineral resources made available under those leases.1 The United States, as lessor, and petitioners, as lessees, clearly had a mutual interest in the successful exploration, development, and production of oil in the Manteo Unit pursuant to the leases executed in 1981. If production were achieved, the United States would benefit both from the substantial royalties it would receive and from the significant addition to the Nation's energy supply. Self-interest, as well as its duties under the leases, thus led the Government to expend substantial resources over the course of 19 years in the hope of seeing this project realized.
From the outset, however, it was apparent that the Outer Banks project might not succeed for a variety of reasons. Among those was the risk that the State of North Carolina would exercise its right to object to the completion of the project. That was a risk that the parties knowingly assumed. They did not, however, assume the risk that Congress would enact additional legislation that would delay the completion of what would obviously be a lengthy project in any event. I therefore agree with the Court that the Government did breach its contract with petitioners in failing to approve, within 30 days of its receipt, the plan of exploration petitioners submitted. As the Court describes, ante, at 3-4, the leases incorporate the provisions of the OCSLA into their terms, and the OCSLA, correspondingly, sets down this 30-day requirement in plain language. 43 U. S. C. §1340(c).
I do not, however, believe that the appropriate remedy for the Government's breach is for petitioners to recover their full initial investment. When the entire relationship between the parties is considered, with particular reference to the impact of North Carolina's foreseeable exercise of its right to object to the project, it is clear that the remedy ordered by the Court is excessive. I would hold that petitioners are entitled at best to damages resulting from the delay caused by the Government's failure to approve the plan within the requisite time.
To understand the nature of the breach, and the appropriate remedy for it, it is necessary to supplement the Court's chronological account. From the time petitioners began discussing their interest in drilling an exploratory well 45 miles off the coast from Cape Hatteras in the fall of 1988, until (and even after) the enactment of the Outer Banks Protection Act (OBPA), §6003, on August 18, 1990, their exploration proposal was fraught with problems. It was clear to petitioners as early as October 6, 1988 (and almost certainly before), that the State of North Carolina, whose approval petitioners knew they had to have under their lease terms in order to obtain the requisite permits from the Department of the Interior (DOI), was not going to go along readily. App. 61-63 (letter from North Carolina Governor James G. Martin to Ralph Ainger, Acting Regional Manager, Minerals Management Service (MMS) (a division of the DOI)). As the Court explains, ante, at 3, without the State's approval pursuant to the Coastal Zone Management Act (CZMA), 16 U. S. C. §1451 et seq., incorporated into the OCSLA by multiple references, no DOI licensing, permitting, or lessee exploration of any kind could ensue, 43 U. S. C. §1340(c).
That is why petitioners pursued multiparty negotiations with the Federal Government and the State to help facilitate the eventual approval of their proposal. As part of these negotiations, petitioners entered into a memorandum of understanding with North Carolina and the Federal Government, and, according to the terms of that agreement, submitted a draft plan of exploration (POE) to DOI and to the State. App. 79-85. The Government also agreed to prepare draft and final environmental impact reports on petitioners' draft POE and to participate in public meetings and hearings regarding the draft POE and the Government's findings about its environmental impact. Id., at 81-82. Among other things, this agreement resulted in the Government's preparation in 1990 of a three-volume, 2,000-page special environmental report on the proposed project, released on June 1 of that year.
the event petitioners claim amounted to (either) an anticipatory repudiation of the lease contracts, or a total breach, Brief for Petitioner in No. 99-244, p. 19 ("[I]n enacting the OBPA, the Government anticipatorily repudiated its obligations under the leases... "); Brief for Petitioner in No. 99-253, p. 21 ("The enactment of the OBPA placed the United States in total breach of the petitioners' leases").
use" in a State's coastal zone, §1340(c)(2); actual permission to proceed had to wait for the State's CZMA certification.) Despite this hard deadline, September 19 came and went without DOI's issuance of approval.
DOI's explanation came two days later, on September 21, 1990, in a letter to Mobil Oil from the MMS's Acting Regional Supervisor for Field Operations, Lawrence Ake. Without commenting on DOI's substantive assessment of the POE, the Ake letter stated that the OBPA "specifically prohibit[s]" the MMS from approving any POE "until at least October 1, 1991." App. 129. "Consequently," Mr. Ake explained, the MMS was suspending operation on the Manteo Unit leases "in accordance with 30 CFR §250.10(b)(7)," ibid., a regulation issued pursuant to the OCSLA and, of course, incorporated thereby into the parties' lease agreement. One week after that, on September 28, 1990, the MMS's Regional Director, Bruce Weetman, sent a letter to Governor Martin of North Carolina, elaborating on MMS's actions upon receipt of the August 20 POE. App. to Pet. for Cert. in No. 99-253, pp. 193a-195a. According to Weetman, the POE "was deemed complete on August 30, and transmitted to other Federal Agencies and the State of North Carolina on that date. Timely comments were received from the State of North Carolina and the U. S. Coast Guard. An analysis of the potential environmental effects associated with the Plan was conducted, an Environmental Assessment (EA) was prepared, and a Finding of No Significant Impact (FONSI) was made." Id., at 193a. Based on these steps taken by the MMS, it concluded that the POE was "approvable" but that the MMS was "currently prohibited from approving it." Thus, the letter concluded, the POE would "remain on file" pending the resolution of the OBPA requirements, and the lease suspensions would continue in force in the interim. Id., at 194a.
In my judgment, the Government's failure to meet the required 30-day deadline on September 19, 1990, despite the fact that the POE was in a form that merited approval, was a breach of its contractual obligation to the contrary.3 After this, its statement in the September 21 Ake letter that the OBPA prohibited approval until at least October 1991 must also be seen as a signal of its intent to remain in breach of the 30-day deadline requirement for the coming year. The question with which the Court is faced, however, is not whether the United States was in breach, but whether, in light of the Government's actions, petitioners are entitled to restitution rather than damages, the usual remedy for a breach of contract.
As the Court explains, ante, at 2, an injured party may seek restitution as an alternative remedy only "on a breach by non-performance that gives rise to a claim for damages for total breach or on a repudiation." Restatement (Second) of Contracts §373 (1979). Whether one describes the suspect action as "repudiation" (which itself is defined in terms of total breach, see ante, at 2) or simply "total breach," the injured party may obtain restitution only if the action "so substantially impairs the value of the contract to the injured party ... that it is just in the circumstances to allow him to recover damages based on all his remaining rights to performance." Restatement (Second) §243. Although the language varies to some small degree, every major statement of contract law includes the same admonition. See, e.g., 5 A. Corbin, Contracts §1104, pp. 558, 562 (1964) ("Restitution is an available remedy only when the breach is of vital importance... . In the case of a breach by non-performance, ... [t]he injured party, however, can not maintain an action for restitution of what he has given the defendant unless the defendant's non-performance is so material that it is held to go to the `essence'; it must be such a breach as would discharge the injured party from any further contractual duty on his own part"). In short, there is only repudiation if there is an action that would amount to a total breach, and there is only such a breach if the suspect action destroys the essential object of the contract. It is thus necessary to assess the significance or "materiality" of the Government's breach.
Beyond this, it is important to underscore as well that restitution is appropriate only when it is "just in the circumstances." Restatement (Second) §243. This requires us to look not only to the circumstances of the breach itself, but to the equities of the situation as a whole. Finally, even if a defendant's actions do not satisfy the foregoing requirements, an injured party presumably still has available the standard contract remedy for breach-- the damages petitioners suffered as a result.
Given these requirements, I am not persuaded that the actions by the Government amounted either to a repudiation of the contracts altogether, or to a total breach by way of its neglect of an "essential" contractual provision.
I would, at the outset, reject the suggestion that there was a repudiation here, anticipatory or otherwise, for two reasons. First, and most basic, the Government continued to perform under the contractual terms as best it could even after the OBPA's passage.4 Second, the breach-by-delay forecast in the Ake letter was not "of sufficient gravity that, if the breach actually occurred, it would of itself give the obligee a claim for damages for total breach." Restatement (Second) §250, and Comment d; see also 11 W. Jaeger, Williston on Contracts §1312 (3d ed. 1968).
While acknowledging the OBPA's temporary moratorium on plan approvals, the Ake letter to petitioner Mobil states that the Government is imposing a lease suspension--rather than a cancellation or recision--and even references an existing, OCSLA regulatory obligation pursuant to which it is attempting to act. The Weetman letter explains in detail the actions the MMS took in carefully considering petitioners' POE submission; it evaluated the plan for its compliance with the OCSLA's provisions, transmitted it to other agencies and the State for their consideration, took the comments of those entities into account, conducted the requisite analyses, and prepared the requisite findings--all subsequent to the OBPA's enactment. It cannot be doubted that the Government intended to continue performing the contract to the extent it thought legally permissible post-OBPA.
After the State of North Carolina filed its formal CZMA objections on November 19, 1990 (indicating that the State believed a contract still existed), petitioners promptly sought in December 1990--again under statutory terms incorporated into the contracts--to have the Secretary of Commerce override the objections, 43 U. S. C. §1340(c)(1), to make it possible for the exploration permits to issue. In a response explainable solely on the basis that the Government still believed itself to be performing contractually obligatory terms, the Secretary of Commerce undertook to evaluate petitioners' request that the Secretary override the State's CZMA objections. This administrative review process has, I do not doubt, required a substantial expenditure of the time and resources of the Departments of Commerce and Interior, along with the 12 other administrative agencies whose comments the Secretary of Commerce solicited in evaluating the request to override and in issuing, on September 2, 1994, a lengthy "Decision and Findings" in which he declined to do so.
And petitioners were not finished with the leases yet. After petitioners received this adverse judgment from Commerce, they sought the additional lease suspensions described, see App. to Brief for United States 1a (letter from Toni Hennike, Counsel, Mobil Oil, to Ralph Melancon, Regional Supervisor, MMS, Feb. 21, 1995), insisting that "the time period to seek judicial review of the Secretary's decisions had not expired when the MMS terminated the [pre-existing] suspensions," and that "[s]ince the Secretary's decision is being challenged, it is not a final decision and will not be until it is upheld by a final nonappealable judgment issued from a court with competent jurisdiction," id., at 2a. Indeed, petitioners have pending in the United States District Court for the District of Columbia at this very moment their appeal from the Secretary of Commerce's denial of petitioners' override request of North Carolina's CZMA objections. Mobil Oil Exploration & Producing Southeast, Inc. v. Daley, No. 95-93 SSH (filed Mar. 8, 2000).
Absent, then, any repudiation, we are left with the possibility that the nature of the Government's breach was so "essential" or "total" in the scope of the parties' contractual relationship as to justify the remedy of restitution. As above, I would reject the suggestion that the OBPA somehow acted ex proprio vigore to render a total breach of the parties' contracts. See ante, at 16 ("OBPA changed the contract-referenced procedures in several other ways as well"); Brief for Petitioner in No. 99-253, p. 21. The OBPA was not passed as an amendment to statutes that the leases by their terms incorporated, nor did the OBPA state that its terms were to be considered incorporated into then existing leases; it was, rather, an action external to the contract, capable of affecting the parties' actions but not of itself changing the contract terms. The OBPA did, of course, impose a legal duty upon the Secretary of the Interior to take actions (and to refrain from taking actions) inconsistent with the Government's existing legal obligations to the lessees. Had the Secretary chosen, despite the OBPA, to issue the required approval, he presumably could have been haled into court and compelled to rescind the approval in compliance with the OBPA requirement.6 But that this possibility remained after the passage of the OBPA reinforces the conclusion that it was not until the Secretary actually took action inconsistent with his contractual obligations that the Government came into breach.
In rejecting the Government's argument that the breach was insufficiently material, the Court's reliance on the danger of rendering the parties' bargain illusory, see ante, at 15, is simply misplaced. I do not contest that the Government was contractually obliged to give petitioners' POE prompt consideration and to approve the POE if, after that consideration, it satisfied existing OCSLA demands; nor would I suggest that petitioners did not receive as part of their bargain a promise that the Government would comply with the procedural mechanisms established at the time of contracting. But that is all quite beside the point; the question is not whether this approval requirement was part of the bargain but whether it was so "essential" to the bargain in the scope of this continuing contract as to constitute a total breach.
Whether the breach was sufficiently "substantial" or material to justify restitution depends on what impact, if any, the breach had at the time the breach occurred on the successful completion of the project. See E. Farnsworth, Contracts §8.16 (3d ed. 1999) ("The time for determining materiality is the time of the breach and not the time that the contract was made... . Most significant is the extent to which the breach will deprive the injured party of the benefit that it justifiably expected"). In this action the answer must be close to none. Sixty days after the Government entered into breach--from September 19, 1990, to November 19, 1990--the State of North Carolina filed its formal objection to CZMA certification with the United States. App. 141-148. As the OCSLA makes clear, "The Secretary shall not grant any license or permit for any activity described in detail in an exploration plan and affecting any land use or water use in the coastal zone of a State with a coastal zone management program ... unless the State concurs or is conclusively presumed to concur with the consistency certification accompanying such plan ... , or the Secretary of Commerce makes the finding [overriding the State's objection]." 43 U. S. C. §1340(c)(2) (emphasis added); see also §1351(d). While this objection remained in effect, the project could not go forward unless the objection was set aside by the Secretary of Commerce. Thus, the Government's breach effectively delayed matters during the period between September 19, 1990, and November 19, 1990. Thereafter, implementation was contractually precluded by North Carolina.
This fact does not, of course, relieve the Government of liability for breach. It does, however, make it inappropriate to conclude that the Government's pre-November 19 actions in breach were sufficiently "material" to the successful completion of the parties' project to justify giving petitioners all of their money back. At the time of the Government's breach, petitioners had no reasonable expectation under the lease contract terms that the venture would come to fruition in the near future. Petitioners had known since 1988 that the State of North Carolina had substantial concerns about petitioners' proposed exploration; North Carolina had already officially objected to petitioners' NPDES submission--a required step itself dependent on the State's CZMA approval. App. 106-111. At the same time, the Federal Government's own substantial investments of time and resources, as well as its extensive good-faith efforts both before and after the OBPA was passed to preserve the arrangement, gave petitioners the reasonable expectation that the Government would continue trying to make the contract work. And indeed, both parties continued to behave consistently with that expectation.
The Court also asserts, without support, that "[w]hether an applicant approaches Commerce with an Interior Department approval already in hand can make a difference (as can failure to have obtained that earlier approval)." Ibid. Although the Court thereby implies that the Secretary of Commerce's handling of petitioners' CZMA override request was somehow tied to the DOI's failure to issue the required approval, there is record evidence that petitioners' CZMA appeals were not "suspended, impeded, or otherwise delayed by the enactment or implementation of the ... OBPA... ." App. 187 (declaration of Margo E. Jackson, Conoco Inc. v. United States, No. 92-331-C (Fed. Cl., Apr. 6, 1994) (Commerce Department supervisor in charge of handling Mobil's appeals)). Whether or not the Secretary's decision was influenced by OBPA-required findings is, of course, a question of fact that, despite the Court's assertion, ante, at 17, none of the lower courts in this action decided. Regardless, there is certainly no contractual basis for the proposition that DOI's approval is a condition precedent or in any respect material to overcoming a state-filed CZMA objection. That objection, petitioners most certainly knew, was coming whether or not DOI approved the submitted POE.
In the end, the Court's central reason for finding the breach "not technical or insubstantial" is that "lengthy delays matter." Ante, at 15. I certainly agree with that statement as a general principle. But in this action, that principle does not justify petitioners' request for restitution. On its face, petitioners' contention that time was "of the essence" in this bargain is difficult to accept; petitioners themselves waited seven years into the renewable 10-year lease term before even floating the Outer Banks proposal, and waited another two years after the OBPA was passed before filing this lawsuit. After then accepting a full 10 years of the Government's above-and-beyond-the-call performance, time is now suddenly of the essence? As with any venture of this magnitude, this undertaking was rife with possibilities for "lengthy delays," indeed "inordinate delays encountered by the lessee in obtaining required permits or consents, including administrative or judicial challenges or appeals," 30 CFR §250.10(b)(6) (1990). The OBPA was not, to be sure, a cause for delay that petitioners may have anticipated in signing onto the lease. But the State's CZMA and NPDES objections, and the subsequent "inordinate delays" for appeals, certainly were. The Secretary's approval was indeed "a gateway to the companies' enjoyment of all other rights," but the critical word here is "a"; approval was only one gateway of many that the petitioners knew they had to get through in order to reap the benefit of the OCSLA leases, and even that gate was not closed completely, but only "narrow[ed]," ante, at 16. Any long-term venture of this complexity and significance is bound to be a gamble. The fact that North Carolina was holding all the aces should not give petitioners the right now to play with an entirely new deck of cards.
The risk that North Carolina would frustrate performance of the leases executed in 1981 was foreseeable from the date the leases were signed. It seems clear to me that the State's objections, rather than the enactment of OBPA, is the primary explanation for petitioners' decision to take steps to avoid suffering the consequences of the bargain they made. As a result of the Court's action today, petitioners will enjoy a windfall reprieve that Congress foolishly provided them in its decision to pass legislation that, while validly responding to a political constituency that opposed the development of the Outer Banks, caused the Government to breach its own contract. Viewed in the context of the entire transaction, petitioners may well be entitled to a modest damages recovery for the two months of delay attributable to the Government's breach. But restitution is not a default remedy; it is available only when a court deems it, in all of the circumstances, just. A breach that itself caused at most a delay of two months in a protracted enterprise of this magnitude does not justify the $156 million draconian remedy that the Court delivers.
Together with No. 99-253, Marathon Oil Co. v. United States, also on certiorari to the same court.
Conoco, Inc. v. United States, 35 Fed. Cl. 309, 315, n. 2 (1996); see also U. S. Dept. of Interior, Minerals Management Service, Mineral Revenues 1999, Report on Receipts From Federal and American Indian Leases 35 (reporting more than $64 billion in royalties from federal offshore mineral leases from 1953-1999).
The Federal Water Pollution Control Act, 86 Stat. 816, 33 U. S. C. §1251 et seq., requires lessees to obtain a National Pollutant Discharge Elimination System (NPDES) permit from the Environmental Protection Agency (EPA) before lessees may move forward with any exploration plan that includes discharging pollutants into the ocean, §§1311(a), 1342(a). The EPA cannot issue an NPDES permit, however, before the lessee has certified to the State's satisfaction that the discharge would comply with the State's CZMA requirements. Unless the Secretary of Commerce overrides any state objection arising during this process, 16 U. S. C. §1456(c)(3), lessees will not receive the necessary permit.
It is incorrect, in my view, to assert that the Government failed to give the proposal "timely and fair consideration," ante, at 15, because, as the Weetman letter establishes, the Government did engage in such an evaluation process even after the enactment of the OBPA. It was in failing to issue the approval on the heels of that evaluation that the Government ran afoul of its obligations.
My rejection of the repudiation theory, of course, encompasses a rejection of the notion that the very enactment of the OBPA itself constituted an anticipatory repudiation of the parties' contract. Brief for Petitioner in No. 99-244, p.19. Repudiation, as the Court explains, is in the first instance a " `statement by the obligor to the obligee indicating that the obligor will commit a breach.' " Ante, at 2 (quoting Restatement (Second) §250). Except in some abstract sense, the enactment of legislation is not typically conceived of as a "statement" of anything to any one party in particular, for it is, by its nature, addressed to the public at large. To the extent this legislation was directed to anyone in particular, it was to the Secretary of the Interior, directing him to take or not take certain actions, not to particular lessees. Finally, while it surely imposed upon the Secretary obligations inconsistent with the Secretary's existing duties under the leases, the OBPA itself contemplated that the parties to the lease contracts would continue, after a delay, to operate under the OCSLA-based contractual scheme. The Secretary was, within the confines of the newly enacted requirements, to continue to take steps to "carry out his responsibilities under the Outer Continental Shelf Lands Act with respect to authorizing the activities described in subsection (c)(1) [(i.e., approve exploration, development and production plans for lessees, or grant an application for permit to drill; permit drilling)]." §6003(d) 104 Stat. 557.
See App. 170-171 (letter from Leslie Burton, Senior Counsel for Mobil Oil, to Bruce Weetman, Regional Director, MMS, Sept. 23, 1992); see also App. to Brief for United States 1a (letter from Toni Hennike, Counsel, Mobil Oil, to Ralph Melancon, Regional Supervisor, MMS, Feb. 21, 1995) (requesting reinstatement of lease suspensions).
The result of such a proceeding may well have been the issuance of a judicial decree enjoining the Secretary's actions. Ironically, the Secretary would then have been authorized under the regulatory provisions expressly incorporated into the parties' contracts to suspend the leases. 30 CFR §250.10(b)(7) (1990) ("The Regional Supervisor may also direct ... suspension of any operation or activity, including production, because ... (7) [t]he suspension is necessary to comply with judicial decrees prohibiting production or any other operation or activity, or the permitting of those activities ... "). Indeed, this was the very provision the DOI relied on in explaining why it was suspending petitioners' leases. App. 129-130.
The Court's cursory efforts to discount this evidence of continued performance fall far short. In light of the Weetman letter's detailed description of the Government's efforts to evaluate the POE as submitted, the Court's assertion that "in respect to the exploration plan, the companies received nothing," ante, at 17, cannot be correct. The Court itself insists on making an indispensable part of the parties' contract mutual promises to follow certain procedures, ante, at 15; if that is the case, we must credit the Government's efforts to follow those procedures as performance of that promise, and that performance was "received" by petitioners.
The Court also suggests that the Government was obligated to extend the lease suspensions to petitioners under the terms of the parties' separately adopted memorandum of understanding; the Government should therefore, by the Court's logic, receive no credit under the lease contracts for continuing to perform. Ante, at 17-18. Whether or not the Government was separately obligated to extend the suspensions it did (and of course the memorandum agreement only exists because of and as part of the parties' efforts to fulfill the lease contract terms), both the Government in extending the initial suspensions, and petitioners, in requesting additional suspensions, expressly relied upon regulations incorporated into the OCSLA lease contracts, see supra, at 6-7. The Court must stretch to avoid crediting the Government's performance.


text:
1.1	Section 271(1)(c) of the income-tax Act provides for levy of penalty for concealment of income or furnishing inaccurate particulars of income. Clause (iii) to sub-section (1) of section 271 provides for imposition of penalty of an amount which shall not be less than the amount of tax sought to be evaded but which shall not exceed three times the amount of tax sought to be evaded by reason of the concealment of particulars of income or the furnishing of inaccurate particulars of such income.
(iii) In any other case, where difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished.
1.3	As per section 115JB(1), where in the case of a company, the tax payable on the total income as computed under the Act in respect of any previous year relevant to the assessment year commencing on or after 1-4-2012 is less than 18.5 per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of 18.5 per cent. This is known as Minimum Alternate Tax (MAT).
(ii) Tax on total income computed as per normal provisions of the Income-tax Act.
1.4	In the case of companies at the time of assessment tax on income under normal provisions and as per MAT provisions is computed and compared. If the amount of tax payable under the MAT provisions comes higher, then the same is levied on the company. However, there may be some additions to normal income. In such a case, a question arises as to whether concealment penalty under section 271(1)(c) can be levied for the additions so made.
i.	CIT v. Nalwa Sons Investments Ltd. (2010) 327 ITR 543(DEL)(HC). The SLP against the above decision was dismissed by the Apex Court in CIT v. M/s Nalwa Sons Investment Ltd on 4-5-2012 Special Leave to Appeal (Civil) No(s). 18564/2011.
ii.	Unisons Hotels Ltd. vs. DCIT (2013) 40 taxmann.com 237 (Del.)(HC).
1.6	Thus all the courts were unanimous in its decision on the said issue. To overcome these overwhelming judicial precedents, the Finance Bill, 2015 proposes to substitute Explanation 4 to section 271(1)(c) so as to provide that penalty will be levied on additions made under general provisions if they constitute concealment or inaccurate particulars even if the tax is ultimately paid on the Book Profits.
The first proviso provides that where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished on any issue is considered both under general provisions and under the provisions contained in section 115JB or section 115JC, such amount shall not be reduced from total income assessed while determining the amount under item D.
The second proviso further provides that where the provisions contained in section 115JB or section115JC are not applicable, the item (C – D) in the formula shall be ignored.
It is further proposed to provide that where in any case the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, the amount of tax sought to be evaded shall be determined in accordance with the formula contained in clause (a) with the modification that the amount to be determined for item (A – B) in that formula shall be the amount of tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income.
It is also proposed to provide that where in any case to which Explanation 3 applies, the amount of tax sought to be evaded shall be the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under section 148. These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to assessment year 2016-17 and subsequent years.
i)	Problems have arisen in the computation of amount of tax sought to be evaded where the concealment of income or furnishing inaccurate particulars of income occurs in the computation of income under provisions of section 115JB or 115JC of the Act and also under the provisions other than the provisions of section 115JB or 115JC of the Act.
ii)	Further, as pointed out courts have held that penalty under section clause (c) of sub-section (1) of section 271 cannot be levied in cases where the concealment of income occurs under the income computed under general provisions and the tax is paid under the provisions of section 115JB or 115JC of the Act.
iii)	Tax paid under the provisions of section 115JB or 115JC over and above the tax liability arising under general provisions is available as credit for set off against future tax liability. Understatement of income and the tax liability thereon under general provisions results in larger amount of such credit becoming available to the assessee for set off in future years. Therefore, where concealment of income, as computed under the general provisions, has taken place, penalty under clause (c) of sub-section (1) of section 271 should be leviable even if the tax liability of the assessee for the year has been determined under provisions of section 115JB or 115JC of the Act.
Ambiguity in the second proviso.
(ii)	Whether the non-applicability means that where assessee being a company is liable to pay tax under general provisions and not on book profits, then the item (C-D) is to be ignored.
4.2	The implication of the first interpretation is that in the case of a corporate assessee even if the tax is paid under general provisions , penalty u/s. 271(1)(c ) would be levied on adjustments made to book profits by the Assessing Officer i.e penalty u/s. 271(1)(c ) would be levied on both, adjustments made under general provisions as well as adjustments made to book profits even when tax is payable under general provisions.
4.3	The implication of the second interpretation is that in the case of corporate assessee where tax is payable under the general provisions, then no penalty u/s. 271(1)(c) would be levied on adjustments made to book profits by the Assessing Officer.
4.4	It appears that the second interpretation is the correct interpretation as the object and purpose of the amendment is to levy penalty u/s. 271(1)(c) on additions made under general provisions when tax is ultimately payable on book-profits and not vice versa. However, this issue may not be free from controversy and it is important that the same is clarified in the Act or by means of a circular.
The amendment is prospective or retrospective?
(i)	That which lays down the conditions for imposition of penalty.
(ii)	That which provides for computation of the quantum of penalty.
Section 271(1)(c) and clause (iii) relate to the conditions for imposition of penalty, whereas, on the other hand, Explanation 4 to section 271(1)(c) relates to the computation of the quantum of penalty.
4.5.2	Though retrospectivity is not to be presumed and rather there is presumption against retrospectivity, according to Craies (Statute Law, 7th Edn.), it is open for the Legislature to enact laws having retrospective operation. This can be achieved by express enactment or by necessary implication from the language employed. If it is a necessary implication from the language employed that the legislature intended a particular section to have a retrospective operation, the courts will give it such an operation. In the absence of a retrospective operation having been expressly given, the Courts may be called upon to construe the provisions and answer the question whether the Legislature had sufficiently expressed that intention giving the statute retrospectivity. Four factors are suggested as relevant : (i) general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former state of the law; and (iv) what it was the Legislature contemplated.
The present amendment clarifies that the same is remedial in so much so that none of the Courts appreciated the vital aspect that as tax paid under the provisions of section 115JB or 115JC over and above the tax liability arising under general provisions is available as credit for set off against future tax liability, understatement of income and the tax liability thereon under general provisions results in larger amount of such credit becoming available to the assessee for set off in future years. Hence, the amendment is to be given a retrospective effect as it is clarificatory and not substantive.
4.5.3	The Apex Court in the case of CIT v Gold Coin Health Food P. Ltd. (2008) 304 ITR 308(SC) clinches the issue of retrospectivity in the present case. The Apex Court in CIT v. Prithipal Singh and Co. (2001) 249 ITR 670 (SC) had held that where there is no taxable income or tax assessed for payment then penalty u/s. 271(1)(c) is not leviable. This decision resulted in the amendment of Explanation 4 by Finance Act 2002 w.e.f. 1-4-2003 so as to provide that penalty would be leviable even when the returned loss is reduced or converted into profit. The Apex Court in the case of Virtual Soft Systems Ltd. v. CIT (2007) 289 ITR 83 (SC) held that the amendment to Explanation 4 by Finance Act, 2002 was prospective and not retrospective. However this decision came to be overruled by the larger bench of the Apex Court in the decision of CIT v Gold Coin (supra) wherein it was held that the amendment is clarificatory. The present amendment is on similar lines and would thus be retrospective.
4.6.1	There is nothing in the Finance Bill to indicate that the amendment is clarificatory. In fact the Finance Bill unequivocally states that the effective date of the amendment is 1-4-2016.
4.6.2	The existing provisions of Explanation 4 were clear and unambiguous and hence there cannot be any case of obvious omission. In fact all the courts were unanimous in holding that on interpretation of Explanation 4 and sub-section (iii) of section 271(1)(c) penalty on additions made under general provisions is not applicable if tax is payable on book profits.
4.6.3	The Apex Court in the case of CIT v. Gold Coin Health Food P. Ltd. (supra) while deciding the issue of retrospectivity in the context of amendment brought by Finance Act 2002 considered CBDT Circular No 204 dtd. 24-7-1976 reported in (1977) 110 ITR (St) (21, 48) and recommendations of the Wanchoo Committee which stated that penalty was leviable in case of loss also and said circular was holding the field prior to the amendment brought about by the Finance Act, 2002 and thus the amendment was held to be clarificatory. The present amendment does not reiterate the position of law as declared by any statutory circular etc. issued prior to the amendment. Also the Notes on Clauses of the Finance Bill, 2002 stated that the amendment to Explanation 4 was clarificatory. Whereas the Notes on Clauses relating to the present amendment doesn’t state so.
“The income of the assessee was thus assessed under section 115JB and not under the normal provisions. It is in this context that we have to see and examine the application of Explanation 4.
The above decision of the Delhi High Court has been affirmed by the larger bench of the Apex Court, Apex Court in CIT v. Nalwa Sons (2012) 12 Taxmann.com 184 (SC).
The amendment will affect lot of cases pending at the appellate stages where the issue of penalty on additions made under general provisions in case of tax payable on book profits is involved if the amendment is held to be retrospective. The Finance Minister in his speech stated that he desired to give sufficient time to enable taxpayers to arrange their affairs in tune with the amendments and therefore the incumbent establishment would not resort to restrospective amendment. It is therefore expected that there should be specific clarification to avoid controversies. Also, the possible ambiguity in the second proviso may be taken care of in the Act or may be clarified by the CBDT.
1.1	Sections 271D/271E of the Income-tax Act, 1961 as it stands today levy penalty for accepting/repaying loan or deposit, except otherwise than, by an account payee cheque or account payee bank draft, or through electronic transfer through a bank account.
1.2	The incumbent establishment in furtherance of its initiative to curb generation of black money, has proposed to amend the said sections so as to provide that penalty shall be levied for accepting/paying from/to any person any sum of money, whether as advance or otherwise, in relation to transfer of an immovable property (whether or not such transfer takes place) except otherwise than by way of specified modes.
2.1	The existing provision contained in section 271D of the Income-tax Act provides that if a person accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so accepted.
2.2	Thus, section 269SS prohibited acceptance of (i) loan or (ii) deposit otherwise than by a mode prescribed therein and violation of section 269SS entailed a penalty u/s. 271D.
2.3	The existing provision contained in section 271E of the Income tax Act provides that if a person repays any loan or deposit referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so repaid.
2.4	Thus section 269T prohibited acceptance of (i) loan or (ii) deposit otherwise than by a mode prescribed therein and violation of section 269T entailed a penalty u/s 271E.
3.1	Clause 69 of the Bill seeks to amend section 271D to provide that if a person accepts any loan or deposit or specified sum referred to in section 269SS in contravention of the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so accepted. Similarly, clause 70 of the Bill seeks to amend section 271E to provide that if a person repays any loan or deposit or specified advance referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified advance so repaid.
3.2	Thus clause 69 and clause 70 of the Bill makes not only acceptance/repayment of loan or deposit in contravention of sections 269SS/269T subject to penalty but also acceptance/repayment of specified sum/specified advance in contravention of section 269SS/section 269T subject to penalty.
3.3	This amendment is made as a consequence of substitution of existing section 269SS and section 269T by clause 68 and clause 69 of the Finance Bill respectively. The said clauses effectively prohibit even acceptance/repayment of a specified sum/specified advance otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account. The term specified sum is defined in Explanation (iv) to section 269SS as any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place. Similarly the term specified advance is defined in Explanation (iv) to section 269T as any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.’.
4.1	The Finance Minister during his budget speech stated that while finalising tax proposals he has adopted certain broad themes. The first and foremost pillar of his tax proposal theme was “ Measures to curb black Money”. It is no secret that black money eats into the vitals of our economy and society. It is equally true that the problems of poverty and inequity cannot be eliminated unless generation of black money and its concealment is dealt with effectively and forcefully. In our country transactions in real estate generates lots of black money. In the direction of curbing generation and utilisation of black money in real estate transactions, the Finance Bill proposed to amend the provisions of sections 269SS and 269T of the Income-tax Act so as to prohibit acceptance or re-payment of advance in cash of ` 20,000 or more for any transaction in immovable property. Consequently the Finance Bill also proposed to provide a penalty of an equal amount in case of contravention of such provisions.
4.2	Also, there are judicial precedents wherein it has been held that advance given against property could not be treated as loan or deposit covered within the purview of section 269SS and therefore, no penalty under section 271D is leviable. Hence, it was necessary to widen the scope of provisions of section 269SS and section 269T to include transactions relating to immovable property.
4.3	The provisions of section 271D and section 271E are covered by section 273B which provides immunity from penalty in case of a reasonable cause. In Commissioner of Income Tax v. Raj Kumar Sharma (2007) 294 ITR 131 (Raj), Narotam Singh Mann v. Income Tax Officer (2004) 90 TTJ (Asr.) 683, Assistant Commissioner of Income Tax v. Vinman Finance & Leasing Ltd. (2008) 115 ITD 115, Harpal Singh v. Assessing Officer (2008) 12 DTR (Jd)(Trib.) 529, Narayan Ram Chhaba v. Income Tax Officer & Anr. (2005) 96 ITD 163 (Jd)(TM) penalty has been deleted u/ss. 271D/271E r.w. section 273B.
According to the Finance bill the amendment will take effect from 1st June, 2015.
1.1	In the case of offshore funds, under the existing provisions, the presence of a fund manager in India may create sufficient nexus of the offshore fund with India and may constitute a business connection in India even though the fund manager may be an independent person. Therefore, apart from taxation of income received by the fund manager as fees for fund management activity, income of off-shore fund from investments made in countries outside India may also get taxed in India due to such fund management activity undertaken in, and from, India constituting a business connection. Obviously such a tax regime would be detrimental or at least create roadblocks in the efforts of the present establishment to infuse more and more foreign investments in India for the growth of India.
1.2	Further, there are a large number of fund managers who are of Indian origin and are managing the investment of offshore funds in various countries. These persons are not locating in India due to the above tax consequence.
(ii)	That income of the fund from the investments outside India would not be taxable in India solely on the basis that the fund management activity in respect of such investments have been undertaken through a fund manager located in India.
1.4	Section 9A requires that every eligible investment fund shall, in respect of its activities in a financial year, furnish within ninety days from the end of the financial year, a statement in the prescribed form to the prescribed income-tax authority containing information relating to the fulfilment of the above conditions or any information or document which may be prescribed.
1.5	In case of non furnishing of the prescribed information or document or statement as required under section 9A, a penalty of ` 5 lakh shall be leviable on the fund by virtue of section 271FAB.
Clause 71 seeks to insert a new section 271FAB of the Income-tax Act relating to penalty for failure to furnish statement or information or document by an eligible investment fund. It is proposed to provide that if any eligible investment fund which is required to furnish a statement or any information and document under sub-section (5) of section 9A fails to furnish such statement or information and the document within the time prescribed under that sub-section, the income-tax authority prescribed under the said sub-section may direct that such fund shall pay, by way of penalty, a sum equal to five hundred thousand rupees.
3.1	The second pillar of taxation proposals theme of the Finance Minister this year is job creation through revival of growth and investment and promotion of domestic manufacturing and ‘Make in India’. In this direction it is proposed to undertake a series of steps to attract capital, both domestic and foreign.
3.2	The present taxation structure has an inbuilt incentive for fund managers to operate from offshore locations. The managers taking care of off-shore fund houses were forced to manage their investment activity from outside India due to the fear of adverse tax consequences in respect of income of such fund houses. To encourage such offshore fund managers to relocate to India, this finance bill proposes to modify the Permanent Establishment (PE) norms to the effect that mere presence of a fund manager in India would not constitute PE of the offshore funds resulting in adverse tax consequences.
3.3	Thus a new section 9A has been proposed whereby the income of the fund houses may not be taxable subject to the fulfilment of conditions mentioned therein.
3.4	Sub-section (5) of Section 9A casts a liability on such eligible fund houses to furnish statement, information or documents, as required, within a period of 90 days from the end of the financial year. These statements, information and documents would be relating to compliance of various terms and conditions contained in section 9A.
3.5	As section 9A effectively makes an exception to the rule, it is very important that the conditions contained therein are strictly adhered to and no wrongful advantage is taken. Thus, in order to ensure that the eligible fund house complies with reporting requirements as specified in sub-section (5) of section 9A, section 271FAB is proposed to be inserted to provide for penalty of ` 5 lakhs in case of non-compliance.
3.6	Further section 273B is proposed to be amended to include the reference of the proposed new section 271FAB relating to penalty for failure to furnish information or document by eligible investment fund.
The Finance Act 2008, had inserted sub-section (6) to section 195 which required any person referred to in sub-section (1) of section 195, responsible for making cross-border payments which are chargeable to tax to furnish information relating to such payment in Form Nos. 15CA and 15CB read with Rule 37BB. However, no penalty was provided for non-furnishing of information.
Clause 73 of the Bill seeks to insert a new section 271-I in the Income-tax Act relating to penalty for failure to furnish information or for furnishing inaccurate information under section 195. It is proposed to insert a new section 271-I so as to provide that if a person, who is required to furnish information under sub-section (6) of section 195, fails to furnish such information; or furnishes inaccurate information, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of one lakh rupees.
3.1	The person responsible for making cross-border payment was required to furnish information as envisaged in Form 15CA and 15CB while making such payments, as per section 195(6) of the Act.
3.2	The mechanism of obtaining information in respect of remittances fulfils twin objectives of ensuring deduction of tax at appropriate rate from taxable remittances as well as identifying the remittances on which the tax was deductible but the payer has failed to deduct the tax. Therefore, obtaining of information only in respect of remittances which the remitter declared as taxable defeats one of the main principles of obtaining information for foreign remittances i.e. to identify the taxable remittances on which tax was deductible but was not deducted.
3.3	In view of this, the said sub-section (6) of Section195 is proposed to be substituted by clause 48 of the Finance Bill with effect from the 1st day of June, 2015 to provide that the person responsible for paying any sum, whether chargeable to tax or not, to a non-resident, not being a company, or to a foreign company, shall be required to furnish the information of the prescribed sum in such form and manner as may be prescribed.
3.4	Further, currently there is no provision for levying of penalty for non-submission/inaccurate submission of the prescribed information in respect of remittance to non-resident.
3.5	Hence, for ensuring submission of accurate information in respect of remittance to non-resident, section 271-I is inserted in the Act to provide that in case of non-furnishing of information or furnishing of incorrect information under sub-section (6) of section 195 of the Act, a penalty of one lakh rupees shall be levied.
3.6	However, the provisions of section 273B of the Act are suitably amended to provide that no penalty shall be imposable under this new provision if it is proved that there was reasonable cause for non-furnishing or incorrect furnishing of information under sub-section (6) of section 195 of the Act.
This amendment will take effect from 1st June, 2015.
Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc.
The provisions of section 272A of the Act provide for penalty for non-compliance with various procedural requirement under the Income-tax Act. The Government deductors/collectors i.e. Drawing and Disbursing Officer (DDO)are allowed to make payment of tax deducted/collected by them through book entry under the existing mechanism. The DDO, thereafter, intimates such amount to the concerned officer who credits the amount to the credit of Central Government through book entry. The concerned officers were required to furnish detail of payment made through book entry in the prescribed Form 24G. However, the compliance was not effectively done by the concerned officers resulting into delay in furnishing of the TDS/TCS statement by the DDO. In order to improve the reporting of payment of TDS/TCS made through book entry and to make existing mechanism enforceable, sections 200 and 206C of the Act is proposed to be amended by Finance Bill, 2015 to ensure timely furnishing of information by the concerned officer. Further, to ensure compliance of this proposed obligation of filing statement, section 272A of the Act is proposed to be amended by Finance Bill, 2015 so as to provide for a penalty of ` 100 for each day of default during which the default continues subject to the limit of the amount deductible or collectible in respect of which the statement is to be furnished.
Clause 74 of the Bill seeks to amend section 272A of the Income-tax Act relating to penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. The proposed amendment seeks to insert a new clause (m) in sub-section (2) of section 272A to provide that if any person fails to deliver or cause to be delivered a statement within the time as may be prescribed under sub-section (2A) of section 200 or sub-section (3A) of section 206C, then, such person shall pay, by way of penalty, a sum of one hundred rupees for every day of such default. It is also proposed to amend first proviso to sub-section (2) of the said section so as to provide that the amount of penalty for failure to file statements under sub-section (2A) of section 200 or under sub-section (3A) of section 206C shall not exceed the amount of tax deductible or tax collectible, as the case may be.
3.1	Under the existing scheme of payment of TDS and TCS, Government deductors / collectors are allowed to make payment of tax deducted/collected by them without production of challan i.e., through book entry. For payment of tax deducted/collected through book entry, the Drawing and Disbursing Officer (DDO) intimates the TDS/TCS amount to the Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer (PAO/TO/CDDO) who credits the TDS/TCS amount to the credit of Central Government through book entry. For generating credit for TDS/TCS paid through book entry by the Government deductors, Rule 30 and Rule 37CA of the Income-tax Rules, 1962 provide that the PAO/TO/CDDO shall file the detail of payment of TDS/TCS made through book entry in the prescribed Form 24G.
3.2	There was no specific section in the Act to enforce timely filing of the same by the concerned officer. Delay in furnishing of the Form 24G resulted into delay in furnishing of the TDS/TCS statement by the DDO. In order to improve the reporting of payment of TDS/TCS made through book entry and to make existing mechanism enforceable, sections 200 and 206C of the Act is proposed to be amended by clause 50 and clause 53 respectively of the Finance Bill to ensure timely furnishing of information by the concerned officer by providing that where the tax deducted [including paid under section 192(1A)] / collected has been paid without the production of a challan, the PAO/ TO/CDDO or any other person by whatever name called who is responsible for crediting such sum to the credit of the Central Government, shall furnish within the prescribed time a prescribed statement for the prescribed period to the prescribed income-tax authority or the person authorised by such authority by verifying the same in the prescribed manner and setting forth prescribed particulars.
3.3	To ensure compliance of this proposed obligation of filing statement, it is proposed to amend the provisions of section 272A of the Act so as to provide for a penalty of ` 100/- for each day of default during which the default continues subject to the limit of the amount deductible or collectible in respect of which the statement is to be furnished.
3.4	The penalty u/s. 272A is subject to the protection of reasonable cause u/s. 273B. In Commissioner of Income Tax v. Gordhanbhai Jethabhai (1994) 205 ITR 279 (Guj.), Superintending Engineer v. Income Tax Officer (1996) 54 TTJ (Jp) 608 , Royal Metal Printers (P.) Ltd. v. Additional Commissioner of Income-Tax, (Tds) Range 3, Mumbai  37 Sot 139 (Mum.), Harsiddh Construction (P) Ltd. v. Deputy Commissioner of Income Tax (2001) 70 TTJ (Ahd.) 266 & Sudershan Auto & General Finance v. Commissioner of Income- tax (1998) 60 ITD 177 (Del.) penalty u/s. 272A(2) has been deleted on account of reasonable cause.
The Finance Bill, 2015 has proposed a new section 285A casting a responsibility on the Indian entity, through or in, which the Indian assets are held by the foreign company or the entity whose value is substantially derived by the Indian assets. The Indian entity is obligated to furnish information relating to the transaction having the effect of directly or indirectly modifying the ownership structure or control of the Indian entity, or documents as required. Section 271GA is proposed to be inserted to provide for penalty to the tune of 2% of the value of transaction or INR 5,00,000, as the case may be, in the event of failure to furnish such information or document by the Indian entity.
2.1	Clause 76 of the Bill seeks to insert a new section 285A relating to furnishing of information by an Indian concern in certain cases. It is proposed to provide that where any share or interest in a company or entity registered or incorporated outside India derives, directly or indirectly, its value substantially from the assets located in India as referred to in the Explanation 5 to clause (i) of sub-section (1) of section 9, and such company or, as the case may be, entity holds such assets in India through or in an Indian concern, then, any such Indian concern shall, for the purposes of determination of income accruing or arising in India, under the clause (i) of sub-section (1) of section 9, furnish within the prescribed period to the prescribed income-tax authority the relevant information or document, in such manner and form as is prescribed in this behalf.
2.2	Consequently clause 72 of the Bill seeks to insert a new section 271GA relating to penalty for failure to furnish information or document under section 285A. It is proposed to provide that if any Indian concern which is required to furnish any information or document under the proposed section 285A, fails to do so, the Income-tax authority as may be prescribed in the said section 285A, may direct that such Indian concern shall pay, by way of penalty,– (i) a sum equal to two per cent. of the value of the transaction, in respect of which such failure has taken place, if such transaction had the effect of directly or indirectly transferring the right of management or control in relation to the Indian concern; (ii) a sum of five hundred thousand rupees in any other case.
3.1	The Bombay High Court in Vodafone International Holdings B.V. v. Union of India (2010) 329 ITR 126 (Bom.) had dismissed the writ petition of Vodafone and the Court rejected the argument of Vodafone that what was transferred was only shares of an Cayman Island Company i.e., foreign company and therefore, the argument that no capital gains will arise on sale of shares in foreign company was rejected.
3.2	Vodafone filed an appeal to the Supreme Court and Supreme Court in Vodafone International Holdings B. V. v Union of India (2012) 341 ITR 1 (SC) reversed the Bombay High Court decision. Supreme Court held that Assessing Officer in India had no jurisdiction to tax the transaction which took place outside India and what was transferred was the shares of a foreign company and not Indian Business.
3.3	The Finance Act, 2012 made retrospectively amendment in the definition of Transfer under section 2(47); Capital asset under section 2(14) and deemed accrual of income under Section 9 in order to affirm the judgment of Bombay High Court in the case of Vodafone and to nullify the Supreme Court judgment in the said case.
3.5	The present Finance bill provides a mechanism to determine “value substantially from assets in India”. These changes would require the Indian concern to furnish information or documents relating thereto.
3.6	Thus new section 285A is introduced to provide for furnishing of information or documents by the said Indian concern and new section 271GA is introduced to provide for penalty for failure to furnish information as required by Section 285A.
3.7	Further section 273B is proposed to be amended to include the reference of the proposed new section 271GA.
These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent years.

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