Income Tax Appellate Tribunal - Gauhati
Deputy Commissioner Of Income Tax, ... vs M/S. Assam Gas Company Ltd., Dibrugarh on 31 July, 2019
आयकर अपील य अधीकरण, खंङपीठ गुवाहाट , IN THE INCOME TAX APPELLATE TRIBUNAL GUWAHATI BENCH, GUWAHATI Before Shri S.S.Godara, Judicial Member and Dr. A.L. Saini, Accountant Member ITA No.46 to 54/Gau/2018 Assessment Years:1988-89 to 1997-98 DCIT, Circle-2, V/s. M/s Assam Gas Company Pushkara House, N.H. Ltd. Duliajan, Dibrugarh, 37,Natungaon, P.O. Assam-786602 Mohanghat, Dibrugarh- [P AN No. AABCT 5235 G] 768008 अपीलाथ /Appellant .. यथ /Respondent आवेदक क ओर से/By Assessee None राज व क ओर से/By Respondent Shri Sandeep Sengupta, DR सन ु वाई क तार ख/Date of Hearing 09-07-2019 घोषणा क तार ख/Date of Pronouncement 31-07-2019 आदे श /O R D E R PER BENCH:-
These Revenue's nine appeals for assessment year(s) 1988-99 to 1997-98 arise against the separate orders of Commissioner of Income Tax(Appeals) Dibrugarh all dated 12.12.2017 passed in case No.13- 21/DIB/2006-2007, involving proceedings u/s 143(3) r.w.s 251 of the Income Tax Act, 1961; in short "the Act".
Case(s) called twice. None appears at the assessee's behest. An adjournment petition dated 26.04.2019 filed at the assessee's behest forms part of records before us seeking postponement of today's hearing. There is nobody to pursue the same. We therefore decline the ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 2 instant adjournment and proceed to adjudicate upon the instant lis with the able assistance of Revenue's senior departmental representative Shri Sandeep Sengupta.
2. It emerges that Revenue's last three appeals in ITA No. 52 to 54/Gau/2018 suffer from 27 days delay in filing stated to be attributable to various procedural formalities. We condone the same going by the Revenue's solemn averments in the respective petitions.
3. Learned department representative states that at the outset that the Revenue has raised two identical substantive grounds in all these cases seeking to revive the Assessing Officer's action treating varying amounts kept in suspense account at the assessee's behest as its taxable income taxes as per accrued system in all assessment years. Take for instance, the first assessment year herein is 1989-89 which involves suspense account figure of Rs. 13,30,887/-. This appears to be second round of litigation between the parties. This tribunal's earlier co-ordinate bench had restored the issue back to the file to the lower authorities on account of fact that they had not taken into consideration arbitration proceedings between the taxpayer and the payee in question. The CIT(A) has taken note of the entire facts on record as well as the tribunal's earlier remand directions whilst deciding the instant first issue in assessee's favour as under: -
"3. Addition of Rs. 13,30,887/- (Ground No. 2).
This matter was agitated by the assessee in Ground No. 2 of appeal filed on 2702.1998.
3.1 In the audited accounts, total receivable in the suspense account shown was Rs.1,51,78,080/-. Out of that, Rs.13,30,887/- pertained to the AY under consideration. The said amount was receivable' from following parties.
(i) ASEB, Namrup Rs. 6,18,706/-
(ii) HFCL, Namrup Rs. 7,12,181/-
Rs. 13,30,887/-
ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98
DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 3
Amount was not offered for taxation. In not showing the same as income, assessee relied on decision in case of CIT Vs. Nadiad Electric Supply Co. Ltd. 80 ITR 650 (1971). The AO stated that he was / not in position to accept assessee's contention as the case law relied upolt was too old. According to the AO, the Hon'ble Supreme Court, in case of K S Krishna Rao Vs CIT (SC) 181 ITR 408 & Rana Bai & Other Vs. CIT 181 ITR 400 (SC) and the Hon'ble Gahati H/C in case of CIT Vs. U.M. Kidwai 219 ITR 130 (Gau) had held that interest on delayed payment had to be assessed on accrual basis notwithstanding the cash method of accounting being followed by assessee. AO also stated that the bills were raised against two ongoing Govt. concerns whose paying capacity was not in doubt. The AO accordingly added Rs. 13,30,887/- to income of assessee. The addition was deleted in first appeal. The then CIT(A) took the view that the case laws relied upon by the AO had no bearing on the facts of case in hand. Relying in decisions of Hon'ble Delhi H/C in case of. CIT Vs. R.G. Govan & Co. (1985) 156 ITR 875 (Delhi) and that of Hon'ble Calcutta H/C in case of CIT Vs. Bharat Petroleum Corporation Ltd. (1993) 202 TTR 492 (Cal), the additions made were deleted. In second appeal, Hon'ble Tribunal, relying on its decision for AYs 1984-85 to 1987-88 set aside the issue to the matter for reconsideration with a direction to give opportunity of being heard to the AO.
3.2 Before me also, the appellant heavily relied on decision of Hon'ble Bombay High Court in case of Nadiad Electric Supply Co. Ltd. (Supra) - Following notes submitted regarding subsequent history of suspense recoverable is reproduced below:
"On this ground of appeal, the Hon'ble Members of the Income Tax Appellate Tribunal, Gauhati Bench, Ganhati in para 2 of its order dated 27.07.2006, in appeal numbers 107, 106, 109, 110, 111, 112, 113, 114 and 115/Gau/2001 referred to its orders dated 31.07.2001 and 23.05.2003 in ITA Nos. 74/Gau/1993 and ITA No. 403. to 407/Gau/1996 for A. Ys 1981-82 and 1984- 85 to 1987-88 respectively. On referring the aforesaid two orders, s, it has been found that the members of the Hon'ble ITAT, after going through the records available with them, accepted/acknowledged that there were some dites between the ~assessee company and the respective debtors on Suspense Receivable Bills raised on parties as detailed below:-
ASEB, Namrup Rs. 6,18,706.8 1
HFCL, Namrup Rs. 7,12,181.08
Total: Rs. 13,30,887.89
The Hon'ble Tribunal, inter alia, while referring to the above two parties in its order dated 31.07.2001 further quoted as detailed below:-
"It appears that the matter has been referred to planning and development commissioner in the case of ASEB and the revised bill also appears to be submitted in the of Assam Petrochemical Limited. Record further slows that an arbitration proceedings was also initiated in the case of Hindnstan Fertilizer Corporation Limited. Since admittedly some disputes are going on between the assessee and the debtor the mere right to claim cannot be the basis for taxing the income".
Further to this, the Hon'ble members of the Tribunal referred to the judgment of the Bombay High Court, in the case of CIT vs Nadiad Electric Supply Co Ltd (1971) 80 ITR 650, Bombay page No 652 w1uch meads as under:-
ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 4
"The mere sending of bills does not create a legal enforceable right in the assessee company, nor a corresponding legal enforceable obligation on the municipality. There would be enforceable claim or obligation only if there was an agreement, express or implied, in that behalf or there was some statutory or similar right or obligation".
Now, in the case of the assessee company a sum of Rs. 13,30,887/-, above referred, was credited in the Suspense Receivable Account. These claims were not acknowledged by the debtor parties as their respective liabilities and, therefore, the assessee considered the same doubtful of recovery and prudently did not recognize the same as income of the relevant year.
The Hon'ble Members of the Gauhati Bench of the Tribunal in its order dated 31.07.2001 while referring to above lastly, concluded that "it becomes necessary to ascertain that what is the actual amount the assessee is entitled to legally receive"........so that the actual tax liability on income can be determined. Now to conclude, factually, no legally enforceable dues against the Suspense Receivable Rs. 13,30,887/- was ascertained and in the light of the same, the relief allowed may kindly be confirmed.
However, in the meantime the assessee company commits that as and when the relevant disputes are settled with the concerned parties and the Suspense Receivable turns into actual receivables after quantum determination the same will be/was offered for taxation. The facts submitted herein below are relevant in the matter.
Relevant notes The assessee company refers to Annexure 'B' to the Auditors' report (Page No. 11 under the Head "CURRENT LIABILITIES & PROVISIONS Rs. 45,15,17,945.32) of the Annual Report 2000-01 wherein in para 'd' the bifurcation of Suspense Receivable amounting to Rs. 19,97,92,122/16 as on 31.03.2001 has been given which are as under: -
HFC Limited Rs. 16,94,78,249.44
ASEB Namrup Rs. 2,26,87,524.46
ASEB, Maibela Rs. 75,49,738.09
APL, Namrup Rs. 76,610.17
Realization against above:-
HFCL Limited
FY. 2000-01 Rs. 1,00,00,000.00
FY 2000-02 Rs. 8,88,89,852.00
Rs. 9,98,89,852.00
FY 2001-02 Rs. 20,000.00
9,88,69,852.00
ASEB Namrup
FY 2003-04 Rs. 2,26,87,524.46
ASEB, maibela (FY 2002-03) NIL
APL, namrup (FY 2002-03) Rs. 12,16,33,986.6
ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98
DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 5
The relevant realizations, as above, were duly considered as income during the relevant accounting years of realization under the head operating Income (transmission charges) as detailed below and offered for taxation:
Operating income (TC) Name of Debtors Amount (Rs.)
1. FY 01.04.00 to 31.03.01 (EY Adjt.) HFCL 99,80,000
2. FY 01.04.01 to 31.03.202 HFCL 8,88,89,852.00
3. FY 01.04.02 to 31.03.203 APL, Namrup 76,610.17
4. FY 01.04.03 to 31.03.04 ASEB, Namrup 2,26,87,524.46
In view of above, the relief considered under the head Suspense Receivable amounting to Rs. 13,30,887/- was rightly allowed by the then Ld. CIT(Appeals) and need not be considered for income during the year.
In para 10 (a) at page No. 19 of Annual Report for Financial year 2000-01, the Management's reply on the observations of the Statutory Auditors in their report, it has been confirmed that an amount of Rs 1 crore was received from HFCL and considered as income during 2000-01 duly included in Earlier Year Adjustment Account and as reported the balance amount was to be treated as income in the relevant year of receipt.
Moreover, in para (a)(ii) under the head "Profit & Loss A/c" at Page No. 12 of the Annual Report for 200001, the Statutory Auditor has commented that Earlier Year adjustment has been overstated by Rs.1 crore which confirms the fact that the Earlier Year Adjustment A/c amounting to Rs. 1,17,26,487.59(credit) shown in Profit & Loss A/c included Rs. 1 crore received from HFCL.
Plea of assessee is that the sums credited in suspense account were offered to tax when the same were actually ascertained by being realized.
3.2.1 In his counter comment, the AO reported as under:-
"The Suspense Receivable Bills of Rs.6,18,706,81/- and Rs 7,12,181/- raised on ASEB and HFCL respectively should have been considered as income by the assessee. The issue was dealt with by the AO's per law and the explanation offered by the assessee that the bills though raised was not accepted by the Parties is not tenable on the ground that once the bill is raised it should have been considered as income and the parties involved should have been recognized as sundry debtors which the assessee failed to do so. The assessee company has taken the plea of receipt of Rs. 1 crore from HFCL and its subsequent disclosure in the return of AU 2001-02 to support its claim but could not substantiate it by furnishing the required copies of payment Challan and proof of its credit in the A/c of the assessee co."
3.3 I have carefully considered the matter. Assessee had certain claims against two parties viz.
ASEB, Namrup and HFCL, Namrup. Bills raised against the parties were disputed. Since the claims were not certain of being realized, assessee had not offered them for taxation. Even arbitration proceeding was going in case of one of the parties. Subsequently, when parts of the claims were finally received at a much later date, assessee had offered the same for taxation. In support of its claim, assessee relied in ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 6 decisions in cases of Nadiad Electric Supply Co. Ltd. (Supra) and CIT Vs. Bhaat Petroleum Corporation Ltd. (1993) 202 ITR 492. Whereas, the AO, in support of its decision, relied on the decisions in case of KS. Krishna Rao (Supra), Rama Bai & Other (Supra) & U.M. Kidwai (Supra). Case laws relied upon by the AO pertained to taxability of interest on enhanced compensation. Sin the case laws relied upon by the AO, Hon'ble Courts were concerned about taxability of interest when the same was actually received/awarded. Hon'ble Court took the view that interests accruing over the year could not be taxed at one instance. It had to be spread over the years. So, the case relied upon by the AO is clearly not applicable here. In the case of Bharat Petroleum Corporation (Supra), excess claims was made by assessee. However, its claim was not cleared by this Government. In such a situation, it was held that assessee had no legal right to enforce its claim and income was held not to accrue during the year when excess claim was made. Respectfully following the decisions of Hon'ble Courts in cases of Nadiad Electric Supply Co. Ltd. (Supra) & Bharat Petroleum Corporation Ltd.( supra), it is held that income cannot be said to have arisen to assessee merely on account of entries made in suspense account. The issue set aside in respect of addition of Rs. 13,30,887/- is decided in favour of assessee. Ground No.2 of the appeal is allowed."
4. Mr. Sandeep Sengupta strongly argues in favour of Assessing Officer's findings that the impugned sum(s) kept in suspense account at the assessee's behest ought to be treated as income of the relevant previous year. We make it clear that the clinching fact of arbitration proceedings in earlier assessment years between assessee and the payer concerned qua the very issue has gone unrebutted. Mr. Sengupta, sought to carve out a distinction that although the issue is the same, those proceedings do not pertain to the assessment years before us. We find no merit in these Revenue's contentions. The fact remains that the assessee (recipient) and its payers have been locked in an arbitration case is not in issue. The question as to whether such an income kept in suspense account forming subject-matter of litigation could be recorded in the books of account going by accrual system of accounting come up before their lordships in Chainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC) holds that the principles of conservation and business prudence in according require that no anticipated profits be treated as income till they are realized, the same is however not the case about anticipated losses which can be booked at the first sight of reasonable probability. Hon'ble apex court's detailed discussion to this effect reads as under:-
ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 7
".... The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account at the time of their purchase, so that the cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions on which there have been actual sales in the course of the year showing the profit or loss actually realized on the year's trading. As pointed out in paragraph 8 of the Report of the Committee on Financial Risks attaching to the holding of Trading Stocks, 1919, Äs the entry for stock which appears in a trading account is merely intended to cancel the charge for the goods purchased which have not been sold, it should necessarily represent the cost of the goods. If it is more or less than the cost, then the effect is to state the profit on the goods which actually have been sold at the incorrect figure.... From, this rigid doctrine one exception is very generally recognized on prudential grounds and is now fully sanctioned by custom, viz., the adoption of market value at the date of making up accounts, if that value is less, than cost. It is of course an anticipation of the loss that may be made on those goods in the following year, and may even have the effect, if prices rise again, of attributing to the following year's results a greater amount of profit than the difference between the actual sale price and the actual cost price of the goods in question." extracted in paragraph 281 of the Report of the Committee on the Taxation of Trading Profits presented to British Parliament in April, 1951). While anticipated loss is thus taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its actual realization. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income-tax purposes are to be compute din conformity with the ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified legislative enactments, unrealized profits. In the shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over o the following year's account in a business that is continuing are not brought into the charge as a matter of practice, though, as already stated, loss due to a fall in price below cost is allowed even if such loss has not been actually realized.
(Emphasis, by underlining, supplied by us) We conclude in this legal and technical backdrop that the CIT(A) has rightly reversed the Assessing Officer's action treating assessee's suspense account figures as income since they save could not have been treated as income till the time the arbitrates proceedings (supra) did not attain finality. This first issue is decided in assessee's favour.
5. Next comes the second common issue of minimum demand charges (MDC) income addition of Rs. 41,97,860/- in (first lead AY 1998-99). The factual position is not different in qua this second issue as well wherein Mr. Sengupta has stated that the parties had been facing litigation qua this instant issue qua this minimum demand charges as a whole. We therefore apply the ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 8 above referred hon'ble apex court decision herein as well to conclude that the assessee was right in not recording the said minimum demand charges as income during the pendency of the dispute to this effect. We accordingly affirm the CIT(A)'s findings qua this second issue as well.
6. Mr. Sengupta, at this stage points out that Revenue's appeals from AY 1990-91 onwards involved yet another issue on high rate of depreciation on assessee's pipeline at the rate of 100%. He takes us to the CIT(A)'s detailed discussion qua this higher depreciation disallowance in ITA No. 48/Gau/2018 reading as follows: -
"3. Claim of depreciation @ 100% on Plant and Machinery:
3.1 Assessee is an undertaking of Government of Assam. It obtained gas from OIL Ltd., Duliajan and ONGC, Nazira. The same was supplied to ASEB, AFCL, NEPCO, DLP Power, Tea Gardens and also to domestic consumers. It claimed itself to be a "Min€a1 Oil Concern" (MOC in short). On being asked to substantiate its claim of being a "MOC' it was submitted before the AO that it had been consistently claiming itself to be an "MOC" and that its entire plant, both above and below ground levels were covered under relevant items of Appendix I to I T Rules, 1962 It was stated that the assessee's case on the matter for AY 1974-75 had travelled up to Hon'ble ITAT. The Hon'ble Tribunal, in its order dated 19.11.1988 had set aside the issue back to the table of the AO because the submissions made by assessee were not properly appreciated by the lower authorities. Detailed activities regarding the assessee company were submitted before the AO.
3.1.1 In order to come out with the correct fact, survey u/s 133A of the Act was carried out against the assessee. As a result of the survey proceeding, it transpired that assessee was found not to be producing or extracting gas. It only received gas from OIL and ONGC and transported the same to customers. Gas was allocated to it by order of Ministry of Petroleum and Natural Gas from OIL & ONGC. In view of this, the AO took the view that assessee was not a mineral oil concern, like OIL or ONGC.
3.1.2 The AO also considered the issue as to whether assessee was processing gas or to say, whether it was a manufacturing concern. According to the AO, per memorandum of Association, the assessee has to treat, refine and thereby process the gas received from the seller. Facts emanating from 133A proceedings go to show that assessee was supplying compressed gas as well as non-compressed gas to consumers. AO's finding as appearing at page (7) of his order is extracted below:
"7. ON PROCESSING OF GAS:
As per the copy of the Memorandum of Association of Assam Gas Company Limited, the company has to treat, refine and thereby process the gas received from the seller before transporting to the delivery point of the ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 9 consumers. A detailed enquiry was made in this connection to bring to records the actual facts and method, how the gas is distributed to different consumers. The processes are as follows:
i. Supply of compressed gas: Gas received from OIL is passed through computerized as well as mechanical measuring metres of OIL as well as AGOI on entering to the compressure area. One part of the gas is directly sent to HFC, ASEB, APCL of Namrup without compress. The other part received @ 10.54kg/CM square is first entered into the Suction Scabber where the heavy particles, liquids, crudes, contaminates mixed with gas are dropped down at the bottom due to sedimentation and theft gas enters into the Corn pressure where the same is cornpressed to 17.5kg/CM square and sent to ASEB, HFC, etc. of Namrup areas as per their requirement. The liquide 'and crudes deposited for sedimentation at the Scabber bottom have to be drained out from time to time mechanically or automatically to create room for further deposits. There is no bye-product out of such action of compress.
ii. Supply of gas other than compressed gas to consumers: The company receives gas from OIL and ONGCL (GAIL at present) at different points as delivered by the seller. The pressure of the gas at received point range from 2 kg to 21 kg/CM square. The company regulates the pressure as per requirement of the consumers with the help of Pressure Reducing Valve fitted on the pipe lines at different points where necessary. The main gas pipe is provided with Drain -pot to collect liquids and other particles mixed with the gas due to sedimentation. The drain pots have to be cleaned regularly and occasionally to create more room for further deposits. At the off take points there are measuring metres of the seller as well as the buyer, the assessee to measure the gas supplied. Except the drain pots there is no other system of cleaning gas.
iii. I have gone through the Form 3CD of the auditor report and found that all the items of the SI. 12 (In case of manufacturing concerns) of the report are left blank with a note "Not Applicable iv. If we go for dictionary meaning of the word "Process" we find the following: According to Oxford Illustrated Dictionary by Bay Books the word "Process" means "Method of operation in manufacture /Natural or Involuntary Operation"
According to Webster's Dictionary by Lexicon the word "process" means "A series of acts of changes proceeding from one to the next 1A method of manufacturing or conditioning something".
Considering the above it is found that the assessee is not a manufacturing concern for the purpose of income-tax Act or otherwise. It is simply a transporter of gas from receipt points of seller to the consumers' point.
On basis of above finding, the AO concluded that assessee was not a mineral oil concern. It was also not a manufacturing concern. It was found to be merely transporting gas supplied by other parties. Claim of higher depreciation was denied.
3.2 When the matter went in 1st appeal, the claim, of assessee was considered and depreciation at higher rate was allowed. However, Hon'ble ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 10 Tribunal, in line with its order for AY 1974-75 set aside the order of CIT(A) for fresh adjudication. During the course of proceeding before me, assessee reiterated the submission given to the AO at the time of assessment.
Following submission was given:
"The matter of holding the company as a Mineral Oil Concern was raised for A.Y. 1974-75 which went upto the Income Tax Appellate Tribunal and the Hon'ble Members of the ITAT Gauhati Bench vide its consolidated order dated 19.11.1998 in Appeal No. 230/Gau/1988 and others at Page No. 6 Para 8 observed/commented as under:-
8. "On careful consideration of the claim of the assessee, the orders of the authorities below and the arguments/submissions advanced by the Ld. Counsel as well as the paper book filled by him and the various judicial decisions cited in support of his argument, we find that the claim of the assessee has not been exhaustively considered by the authorities below. The only reason as to why the claim of the assessee was rejected by the authorities below are that the assessee company was not engaged in extraction of gas but it was engaged only in transportation of gas through pipe-lines to the, consumers. It, therefore, dealt with the by-products for Mineral Oil. The submissions made by the Ld. Counsel of the assessee before us and the paper book filed by him in support of his arguments as well as the various judicial decisions cited and relied on by him were not considered by the authorities below. In order to correctly appreciate the claim of the assessee and to do justice in the matter, it is necessary that the issue should go back to the AO for proper consideration of the assessee's claim and for passing necessary orders afresh in accordance with law after giving reasonable opportunity of being heard to the assessee. For the above purpose, the order of the first appellate authority is set aside and the issue is restored to the file of the AO with direction to examine the claim of the assessee by giving reasonable opportunity of being heard and to pass order afresh and in accordance with law."
In the light of the above stand taken by the Hon'ble ITAT Bench Gauhati we submit as under:-
Petroleum is an inflammable liquid occurring naturally as crude oil. It contains hydrocarbons as paraffin, cycloparaffin, napthene and aromatic compounds, crude petroleum is obtained from beneath the earth's surface by drilling wells.
Like crude petroleum, Natural Gas is also valuable resource that remain hidden in the belly of the earth.
Natural Gas is found in porous rocks of the earth's crust- with or near accumulation of crude oil. The typical gas consists of hydrocarbon having a very low melting point. Natural gas comes in two forms, i.e. associated gas and free gas. The first one remains, mixed with crude petroleum and the second one is found in a natural state. The gas is clean, convenient and odourless combustible gaseous fuel which can be used for carbon black, natural gasoline, certain chemicals and liquefied petroleum gas.
Natural gas is in demand after petroleum as a so.wce of energy and for a number of petro-chemical products.
ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 11
Natural gas remains fixed with crude oil. A tone of crude petroleum contains 190 to 240 cubic --meters gas. In OIL and ONGC oilfields, there is production of nearly 34to365 million cubic meters of the gas Assam Gas Company Limited (AGCL) was formed in 1961 in order to utilize the natural gas produced from Moran and Naharkatia oil fields. The company supplied the required gas to NFF (Namrup Fertilizer Factory) and NTP (Namrup Thermal Project). AGCL also popularized utilization of gas for household use in towns of Upper Assam. Substantial quantity of gas was also supplied to a number of tea gardens. AGCL receives its supplies of Natural Gas from different fields- Naharkatia-Duliajan- Morc:z - Kuchijan, Lalwa, Santi and Kathalguri.
Now, keeping above in mind, the company MIs. Assam Gas Company Limited was established to pursue following main objects as per its Memorandum and Articles of Association:-
1. (a) To purchase or otherwise acquire natural gas associated with Petroleum or other Crude oil or non associated natural gas and to collect , treat, refine, store, hold, transport, distribute, use, market, exchange, supply, sell or otherwise dispose of, import, export, trade and generally deal in any or all kinds of natural gas is, or could be, used.
(b) To purchase either directly or through agents or otherwise acquire liquefied petroleum gas and either directly or through agents to collect, treat, refine, store, hold, exhibit, package, distribute, use, market, exchange, supply, sell or otherwise dispose off, import, export, trade and generally deal in any or all kinds of it for any purpose for which liquefied petroleum gas is, or could be used.
2. To tarry on in India all kinds of Business relating to:-
(a) Utilization and processing of Natural Gas in every way, and to treat and turn to account in any manner by such means as the company may deem suitable and to acquire and provide any raw material and services in connection therewith.
(b) Fractionisation or stripping of Natural Gas, and transmission, distribution, supply and sale of such fractionized or stripped natural gas and by-products of natural gas in Oulk or otherwise for distribution by other parties, and in bulk and retail for industries, factories, mines, lighting streets, markets, public places, public or private buildings, railways and other places or things.
(c) Fractionisation of Natural Gas for production of methane, ethane, propane iso- butane, n. butane, n. petane, iso-petane, hexane plus, carbon-di-oxide, storage, distribution, supply and sale of Industrial and Domestic fuel and by-
product of all kinds.
(d) (i.) Utilization or processing of liquefied petroleum gas in every way and to treat and turn to account in any manner by such means as the company may deem suitable and to acquire and provide any raw material and services in connection therewith.
(ii) Manufacture and/or deal in all equipments relating to the use of liquefied petroleum gas.
ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 12
3. To construct, build, set up, equip and operate fractionating plants for fractionizing Natural Gas and to carry on business as a proprietors of such plant.
4 To carry on the business of a gas company in all the branches and in particular to construct, maintain, lay down, establish, fix and to carry out all necessary pipe-lines, power stations, sub-stations, compressors, transformers, appliances and works and supply and sell natural gas and solid, liquid and gaseous hydrocarbon and their products and by-products for all purpose, both public and private.
5. To lay down pipes, construct, maintain and improve any pipe-lines, gas reservoirs, warehouses, boosting stations, pumping stations and other buildings and works calculated directly or indirectly to advance the interests of the company and to pay or contribute to 'the expenses of constructing, maintaining and improving any such works. -
The words "Mineral Oils" or "Mineral Oil" are frequently used in various acts particularly in THE OIL FIELDS (REGULATION & DEVELOPMENT) ACT, 1948(No. 53 of 1948) or THE OIL FIELDS, (REGULATION & DEVELOPMENT) AMENDMENT ACT, 1969 (No. 39 OF 1969) and in INCOME TAX ACT, 1961.
Section 3(c) of the Oil fields (Regulation and Development) Amendment Act, 1969 defines the "Mineral Oils" to include Natural Gas and Petroleum and explanations to sections 42,44BB and section 293A of the IT Act, 1961 define "Mineral Oil" as under:-
Section 42 Explanation - For the purpose of this section "Mineral Oil" includes petroleum and natural Gas.
Section 44BB Explanation (ii) - "Mineral Oil" includes petroleum and natural gas.
Section 293A Explanation (a) - "Mineral Oil" includes petroleum and gas.
Now, on referring to TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE vide old Appendix.
I (Applicable for A. Y. 1988-89 to 2002-031 of Income Tax Rules, 1962 we find that item Ill (3)(ix) related to depreciation allowable on Plant & Machinery of a Mineral Oil Concern reads as follows:-
Item III(Mix) Mineral Oil Concerns
(a) Plant used infield operations(above ground) Distribution- Rturnable packages 100"
ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 13
(b) Plant used infield operations(below ground), but not including kerbside pumps including underground tanks and fittings used in" field operations(distribution) by mineral oil concerns In course of finalization of assessment for the A.Y. 1990-91 our claim for 100% depreciation was denied on the ground that the Assessee Company is not a Mineral Oil Concern. However, at the same time it was acknowledged by the Ld. AO that the raw gas received was allowed to enter Suction Scabber for certain processing activities to remove heavy particles, liquids, crudes, contaminates mixed with gas through sedimentation and then the purified gas was allowed to enter the compressors where the same was compressed upto 17.5kg/CM (received at 10.54kg/CM) and delivered to ASEB, HFCL etc. of Namrup area as per their requirement. The relevant extract from the order of the AO are quoted below:-
"i. Supply of compressed gas: Gas received from OIL is passed through computerized as well as mechanical measuring meters of OIL as well as AGCL on entering to the compressor area. One part of the gas is directly sent to HFC, ASEB,APCL of Namrup without compress. The other part received @ 10.54Kg/tM square is first entered into the Suction Scabber where the heavy particles, liquids, crudes, contaminates mixed with gas are dropped down at the bottom due to sedimentation and then gas enters into the compressor where the same is compressed to 17.5kg/CM square. and sent to ASEB, HFC etc of Namrup areas as per their requirement. The liquid and crudes deposited for sedimentation at the Scabber bottom have to be drained out from time to time mechanically or automatically to create room for further deposits. There is no by-product out of such action of compress."
"ii. Supply of gas other than compressed gas to consumer; the company receives gas from OIL and ONGC (GAIL at present) at different points as delivered by the seller. The pressure of the gas at received point range from 2kg to 21kg/CM square. The company regulates the pressure as per requirement of the consumers with the help of pressure reducing valve fitted on the pipe-lines at different points where necessary. The main gas pipe is provided with Drain Pot to collect liquids and other particles mixed with the gas due to sedimentation. The Drain pots have to be cleaned regularly and occasionally to create more room for further deposits. At the off take points there are measuring meters of the sellers as well as the buyer, the assessee to measure the gas supplied. Except the drain there is no other system of cleaning gas."
The above process, although seemed very easy in the part of the AO but the same are not that easy and, requires hundreds of technically skilled staff to be engaged to monitor, control and administrate the entire mechanism so that the natural gas is properly received at the receiving end from OIL, ONGC and GAIL etc. and, thereafter, the same is released satisfactorily at duly regulated/administrated compressed level for use by the consumers like HFCL, ASEB, various gardens and domestic consumers.
Having submitted herein above, further to confirm that ours is a Mineral Oil Concern entitled for 10010 depreciation. on Plant & Machinery as per para ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 14 II1('3)(ix) of old appendix I, applicable for assessment years 1988-89 to 2002- 03, of Income Tax Rules, 1962 the assessee company refers and relies on judgments of Hon'ble Supreme Court and various High Courts, which if construed in right earnest, confirms views/stand taken by the assessee company.
First of all we refer to the decision of Hon'ble Calcutta High Court in Commissioner of Income Tax(Central), Calcutta vs Burmah - Shell Oil Storage and Distribution Company of India Limited (Bombay)(115 ITR 891).
In this case "the assessee company was a distributor of petroleum products including gas for cooking. The gas was supplied to the company by a refinery and the company had purchased many specially made cylinders for the purpose of distributing gas to the customers. The customers returned the cylinders to the company after the gas was exhausted and they were refilled again and supplied to the customers."
"The company sold the cylinders to the refinery in the accounting year for Rs. 82,19,947/- against their original cost of Rs. 1,09,63,754/- ."
Now, "on the question, whether the loss of Rs. 27,43,8071- on the sale of the cylinders by the company was allowable as revenue expenditure u/r 5 of the IT Rles,1962 read with item M2)(2)('d,(1) of Pt I of Appendix I to the said rule, petroleum is a mineral oil and petroleum gas is a product of petroleum oil. The expression "Mineral Oil Concerns" includes the concerns dealing in mineral oil and its by-products and the purpose for which the mineral oil or its by- products is sold or distributed is wholly an irrelevant consideration. The company, as the owner of the cylinders, has used them as a "Mineral Oil Concern" in its mineral oil business."
The Hon'ble High Court further observed "as regards the applicability of Section 32(1)(iii) this provision cannot apply to these cylinders because they are returnable packages and are governed by the special provisions of item M (2) (2) (d) (1). Moreover, there cannot be any written down value of Returnable Packages in view of the aforesaid items. Section 32(1)(iii) cannot, therefore, apply to Returnable Packages."
The Hon'ble High Court further opined as under:-
"At the outset we reject the contention of Mr. Paul, Ld. Senior of Mr. Sengupta, that the cylinders are not packages. The finding of the Tribunal, namely, that the cylinders are, returnable packages is a pure question off act."
"Since the company has used the cylinders for distribution of petroleum gas for cooking purposes, Mr. Paul urges that it cannot be said that the company has used the cylinders in its business as a mineral oil concern and as such has failed to comply with the conditions of Section 32(1) of the Act. But we do not agree with him."
"Petroleum is a mineral oil. Petroleum gas is a product of petroleum oil. In our opinion, the expression 'mineral oil concerns' includes the concerns dealing in mineral oil and its by-products and that the purpose for which the mineral oil or its by-products is sold or distributed is wholly an irrelevant consideration under this item."
ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 15
Further to support the above view taken by the Hon'ble Calcutta High Court the appellant company now turns to the judgment of the Hon'ble Delhi High Court in Additional Commissioner of Income Tax, Delhi-II vs Distillers Trading Corporation Limited. In the case under reference the matter regarding allowability of higher rate of depreciation treating the company as Mineral Oil Concern came up for consideration and the Hon'ble Court decided the matter in favour of the assessee.
The facts of the aforesaid case are:-
"The assessee company carried on business in purchase of ethyl alcohol extracted from molasses and storage and export of the same out of India. In the original assessments for the assessment years 1962-63 and 1963-64, the assessee claimed depreciation at 10% on its distillers and storage tanks and the claim was allowed. Thereafter, the revenue audit expressed an opinion that depreciation should have been granted at the general rate of 7% applicable to machinery and plant under para (i) of Pt III of App. I to the IT Rules, 1962 and the ITO sought to reduce the depreciation allowance from 10% to 7% by initiating rectification proceedings under section 154 of the IT Act, 1961. The assessee claimed that it was a "mineral oil concern" within the meaning of item M(2) of para (iii) and that depreciation was properly granted at 10%."
The Hon'ble Delhi High Court observed at Page No. 904/905 of ITR 137 as under:-
"the only requirement to be fulfilled to have eligibility for the larger percentage of depreciation is that the concern should be dealing in mineral oil and the only qIestion that could arise then would be Whether ethyl alcohol can be said to be a mineral oil. If ethyl alcohol can be obtained by various processes and one of such processes is by refining, distilling or cracking up petroleum then it is possible to hold that ethyl alcohol is a mineral oil, if ethyl alcohol is thus a mineral oil and the assessee is a concern dealing in ethyl alcohol, then it can be said that the assessee is a mineral oil concern within the meaning of the entry in the schedule which has already been set out not withstanding that the ethyl alcohol purchased by it is derived by some other process."
In this connection, their Lordship held, "affirming the decision of the Tribunal,
(i) that the expression "mineral oil concerns" under item M(2) of para (iii) of Pt I of App. I to the Rules was intended to cover not only concerns which produced, refined or manufactured mineral oils but also to concerns which only dealt with or distributed them."
The assessee company further relies on a para quoted by the Hon'ble judges of the Apex Court in Mysore Minerals Limited vs CIT 239 ITR 775(SC) at page No. 778 as follows:-
"Section 32 of the Income Tax Act confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee securing the benefit intended to be given by the legislature to the assessee. It is also well settled that where there are two possible interpretations of a taxing provision the one which is favourable to the assessee should be preferred."
ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 16
To endorse the above view taken by the Apex Court the assessee company further refers to the judgment of the Hon'ble Supreme Court of India in Commissioner of Income Tax vs Gwalior Rayon Silk Manufacturing Co. Ltd. (and other appeals) 196 ITR 149. In the said judgment the Hon'ble Apex Court observed that "a provision for deduction, exemption or relief should be construed reasonably and in favor of the assessee." In the said judgment the Hon'ble Court held as under:-
"Roads within factory premises as links or providing approach to the buildings to carry on the business activity of the assessee are "buildings" within the meaning of section 32 of the IT Act, 1961. Depreciation is admissible on the capital expenditure incurred thereon as "building". Equally, drains also would be an integral part of the building for convenient enjoyment of the factory. Depreciation would be available in the same manner on expenditure incurred in laying drains."
The assessee company also quotes the judgment of jurisdictional Hon'ble High Court of Gauhati in Commissioner of Income Tax vs India Carbon Ltd.(No.1). The facts of the case are as under:-
"The assessee, a public limited company, for the assessment year 1985-86 claimed depreciation of Rs.1,14,997/- in respect of a temple constructed within the factory premises. The assessing Officer disallowed the same on the ground that it was a non-factory building and the temple had nothing to do with the business of the assessee-company. The assessee being aggrieved took up the matter in appeal before the Commissioner of Income Tax(Appeals). The Commissioner of Income Tax(Appeals) held that the temple was for the welfare of the staff of the assessee-company and it was having a direct link or attributable aspect with the business activities of the assessee. Therefore, the Commissioner of Income Tax (Appeals) allowed depreciation. Being aggrieved the Revenue preferred an appeal before the Tribunal. The Tribunal following the decision in Atlas Cycle Industries Ltd vs CIT (1982) 134 ITR 458 (P & H) upheld the order of the Commissioner of Income Tax(Appeals)."
In course of argument it was brought to the notice of their Lordship that the case was covered by the decision of the same court in CIT vs Associated Flour Mills Pvt. Ltd. (1996) 220 ITR 123. In their opinion the question referred was squarely covered by the said decision. Accordingly, they answered the question in the affirmative, in favor of the assessee and against the revenue.
It is also worth mentioning that a survey was also conducted u/s 133A of the IT Act, 1961 to verify all aspects of the case. In addition to other details collected, the Inspectors Deputed recorded statements on oath from (a) Managing Director of the company, (b) Assistant General Manager (O & M) and (c) Assistant Gen. Manager (Technical Services). We understand that the survey report under reference also conclusively endorses the stand taken by us herein above in the detailed submission.
In view of whatever submitted herein above, it is clear that a provision for deduction, exemption or relief should be construed reasonably and in favor of the assessee and therefore, the status of the assessee company needs to be considered as mineral oil concern and depreciation at the rate of 100% be allowed on plant & machinery.
ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 17
3.2.1 In his report, the AO reiterated that conclusions made in the assessment order and stated that assessee was not a mineral oil concern.
3.3 I have carefully considered the matter."The AO had gone at great length to show that assessee is not a mineral oil concern. According to the AO, assessee cannot be treated like OIL Ltd. or ONGC which were engaged in exploration and production of gas. He had taken the view that assessee was only transporting gas and as such, not eligible for 100% depreciation. Mineral Oil Concern (MOC) is not defined in the Act. But the terms mineral oil finds places at few sections of the Act. In section 42, which is a provision for deduction in cases of prospecting etc., for mineral oil, petroleum and natural gas were included in definition of mineral oil. Similar is the definition of mineral oil in sections 44BB and 293A of the Act. In all the three sections, the special provisions are meant for assessee engaged in prospecting extraction or production of mineral oil. A possible inference could be drawn that for an assessee, to be treated as a "mineral oil concern", it should be doing prospecting, extracting or production of mineral oil, including gas. Since present assessee was not in activities of prospecting, extracting or production of gas, inference may be drawn that it was not a mineral oil concern. I have gone in great details through the contentions of the AO as well as that of appellant. In, one of the case laws relied upon by assessee, i.e. Burmah Shell Oil Storage and Distributions Co. of India (Supra), assessee was distributing petroleum gas for cooking purposes. Petroleum gas was supplied by a refinery. The company purchased cylinders and those gas-filled cylinders were given to consumers and the same were returned as and when the gas in the cylinder got exhausted. Gas was not produced by assessee. In that case, the Hon'ble High Court of Calcutta held as under:
"Petroleum is a mineral oil. Petroleum gas is a product of petroleum oil. In our opinion, the expression 'mineral oil concerns' includes the concerns dealing in mineral oil and its by-products and that the purpose for which the mineral oil or its by-products is sold or distributed is wholly an irrelevant consideration under this item."
I have not come across any decision contrary to the case mentioned above. In absence of contrary opinion, the decision in the above-mentioned case is binding on me. In view of the binding decision, it is held that assessee is a 'Mineral Oil Concern". Ground Nos. 1 to 8 are treated as allowed."
7. Mr. Sengupta vehemently contends that neither the assessee can be held a mineral oil concern nor the assets are in the nature of gas pipes as per the relevant deprecation schedule at serial no. 9 Appendix-1(i) in the Income Tax Rules. We find no subsistence in the Revenue's instant grievance. It has come on record that this issue is engaged in natural gas business. We thus, conclude that the CIT(A) has rightly followed the foregoing legal precedents in holding that such an activity also amounts to "Mineral Oil" concern. Coming to Revenue's later plea that the assessee's pipelines have been wrongly taken as returnable packages unlike ITA No.46-54/Gau/2018 A.Ys 88-89 to 97-98 DCIT Cir-2, Dibrugarh Vs. M/s Assam Gas Co. Ltd. Page 18 cylinders, we conclude that such pipelines although look not returnable at the first instance from a laymen's perspective, can be very well taken on returnable assets by way of dismantling or wonding up going by ordinary prudence. We accordingly affirm the CIT(A)'s findings qua this third issue as well. No other grounds agitated before us at the Revenue's behest.
8. These Revenue's appeals are dismissed.
Order pronounced in accordance with Rule 34(3) of the ITAT Rules by putting on Notice Board 31/07/2019 Sd/- Sd/-
(लेखा सद य) (&या'यक सद य)
( A.L.Saini) (S.S.Godara)
(Accountant Member) (Judicial Member)
Guwahati,
*Dkp
(दनांकः- 31/07/2019 ू ाहाठ ।
गव
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. आवेदक/Assessee-M/s Assam Gas Co. Learned. Duliajan, Dibrugarh, Assam-786602
2. राज व/Revenue-DCIT, Ciri-2, Pushkara House, N.H.37, Natungaon, P.O. Mohanghat, Dibrugarh-768008
3. संब3ं धत आयकर आय4ु त गव ृ ाहाठ9 / Concerned CIT Guwahati
4. आयकर आय4 ु त- अपील / CIT (A) Guwahati
5. <वभागीय 'त'न3ध, आयकर अपील य अ3धकरण, गव ू ाहाठ9 खंङपीठ / DR, ITAT, Guwahati
6. गाडB फाइल / Guard file.
By order/आदे श से, /True Copy/ Sr. Private Secretary (on tour) आयकर अपील य अ3धकरण, ू ाहाठ ।
गव