Income Tax Appellate Tribunal - Mumbai
Indian Oil Corpn. Ltd. vs Dy. Cit, Special Range 2 on 23 June, 2005
Equivalent citations: [2005]4SOT1(MUM)
ORDER
K.K. Boliya, A.M. These two appeals involving common issues are disposed of by this common order as under:
Appeal No. 2675 - Assessment year 1986-87:,
2. This appeal has been filed by the assessee against the order dated 8-2-1990 of CIT(A)-IV, Mumbai. The first ground of appeal pertains to confirmation by the learned CIT(A) of disallowance of expenditure of Rs. 3.38 lakhs incurred by the assessee on construction of school premises at Haldia as not admissible under section 40A(9). Shri S.E. Dastoor, the learned Counsel appearing on behalf of the assessee-company, which is a Government of India undertaking, submitted that similar issue arose in the immediately preceding assessment year and has been decided in assessee's favour by the Tribunal vide order dated 10-3-2003 in IT Appeal No. 4923/Mum/99. A copy of the order is placed on record. We find that similar issue has been dealt with elaborately by the Tribunal in the case of the assessee for the assessment year 1985-86 at pages 1 to 5 of the order. After dealing with the factual and legal position, the Tribunal recorded its finding at Paras 5F and 6 which are reproduced below:
"In the case of CIT v. Bombay Dyeing and Mfg. Co. Ltd. 219 ITR 521, the Hon'ble Supreme Court held that the amount contributed to the State Housing Board for constructing tenements for workers was a revenue expenditure. Moreover, it is on record that in the assessee's own case, the Tribunal has, in earlier years, held the construction expenditure of the school as welfare expenses. This finding, not stated to have been challenged, has attained finality.
In view of the above, it is clear that the provisions of section 40A(9) are not attracted. The expenditure in question was incurred by the assessee wholly and exclusively for the purpose of its business. This ground, therefore, is allowed."
3. The learned Commissioner Departmental Representative, Shri Rajendra, supported the orders of the revenue authorities, but, was fair enough to concede that similar issue has been decided in assessee's favour by the Tribunal as mentioned above. Consistent with the view and respectfully following the precedent, the disallowance is deleted.
4. The ground No. 2 pertains to denial to the assessee the benefit of section 80HHC in respect of sale of aviation fuel, lubes, etc., to International airlines and in respect of sale of bunker and marine lubricants to foreign flag vessels at Indian ports. The learned Counsel appearing for the assessee was fair enough to point out that this issue is covered against the assessee by the ITAT's order for the assessment year 1985-86 referred to above. We find that similar issue has been decided by the Tribunal for the assessment year 1985-86 in the following manner at para 10 of the order:
"Ground No. 8 challenges the action of the learned CIT(A) in holding that the assessee is not entitled to the benefit of section 80HHC in respect of sale of aviation fuel and lubes, etc., to International airlines and bunkers and marine lubricants and supplies to foreign flag vessels at Indian ports. Without going into the very many details involved, suffice it to say, that as fairly admitted by the learned Authorised Representative of the assessee, this issue stands decided against the assessee and in favour of the revenue by the decision of the Bombay Bench of the Tribunal in the assessee's own case, for the assessment year 1984-85. As such, this ground of appeal is rejected."
In view of the above, we confirm the order of the learned CIT(A) on this issue.
5. The ground No. 3 which pertains to denial of interest under section 215/ 139(8) of the Income Tax Act has not been permitted by the Committee on Disputes (COD) and, therefore, this ground is rejected as such.
Appeal No. 830 - Assessment year 1987-88:
6. This appeal arises from the order of the CIT(A)-IV, Mumbai. The first ground of appeal pertains to the disallowance of sales tax of Rs. 71,68,35,930 under section 43B of the Income Tax Act. The learned Counsel for the assessee submitted that the first proviso to section 43B has been held to be retrospective. It is pointed out that sales tax has been paid before the due date for filing the return of income under section 139(1) and, therefore, disallowance is not justified. The learned Commissioner Departmental Representative submitted that this fact requires verification at the assessing officer's level.
7. Considering the facts and the submissions made before us, we deem it proper to restore this issue to the assessing officer with the direction that it may be verified as to whether the relevant sales tax has been paid before the due date for filing the return of income under section 139(1). Opportunity may be allowed to the assessee to substantiate this claim and if it is found that payment has been made as mentioned above, the same shall be allowed.
8. The ground Nos. 2 and 3 pertain to disallowance of guest house expenses. Without conceding, the learned Counsel for the assessee was fair enough to admit that this issue is covered against the assessee by the ITAT, Delhi Special Bench decision in the case of Eicher Tractors Ltd. v. Dy. CIT (2003) 84 ITD 49 (Trib). Accordingly and respectfully following the precedent, the order of the learned CIT(A) on this issue is confirmed.
9. The ground No. 4 pertaining to disallowance of entertainment expenses has not been permitted by the COD and, therefore, this ground stands rejected as such.
10. The ground No. 5 pertains to disallowance of expenditure incurred by the assessee on construction of school at Haldia under section 40A(9). The facts and circumstances are the same as for the assessment year 1986-87 wherein similar issue has been decided by us in assessees favour (supra). For the same reasons, the finding of the learned CIT(A) is reversed and the assessing officer is directed to allow deduction in respect of the relevant expenditure.
11. The ground Nos. 6, 7 and 8 pertain to the finding of the revenue authorities that the assessee is not eligible to deduction under section 80HH in respect of profits of V.M, Pipeline and M.J. Pipeline, set up in backward area and the disallowance of deduction under section 80-I in respect of M.J. Pipeline. It has been pointed out before us that similar issue in respect of V.M. Pipeline arose before the Tribunal for the assessment year 1985-86. The assessee's claim that V.M. Pipeline is an independent industrial undertaking was rejected by the Tribunal. However, it was held by the Tribunal that V.M. Pipeline was part of the industrial undertaking, namely, Mathura Refinery and, therefore, the profits of V.M. Pipeline, if any, should be added to the profits of Mathura Refinery for the purpose of allowing deduction under section 80HH. The relevant finding of the Tribunal is continued in Para 25 of the order, which is reproduced below:
"Conclusively then, the claim of the assessee boils down to that of allowance of deduction under section 80HH, by adding the profits in relation to the V.M. Pipeline to the profits of the Mathura Refinery. The learned CIT(A) held in this regard that the computation of deduction under sections 80HH and 80-I is in reference to the profits derived from the newly established industrial undertaking in a backward area. He was of the view that the conditions laid down under these two sections are not fulfilled by the V.M. Pipeline. As no profit was held to accrue from any manufacturing activity of the V.M. Pipeline, the contention of the assessee was rejected. It was, however, held that the profits of the Mathura Refinery qualified for deduction under sections 80-I and 80HH. It could not be disputed by the department that since the Mathura Refinery cannot function without the V.M. Pipeline, which is an input pipeline, such input being definitely a pre-production process, it is entitled to deduction under section 80HH, by adding the profits in relation to the V.M. Pipeline to the profits of the Mathura Refinery. This claim of the assessee, hence, succeeds. The assessing officer will recompute the deduction under section 80HH pertaining to the Mathura Refinery by adding the profit of the V.M. Pipeline. Subject to the above, the alternate grounds stand rejected."
In the present case also alternative claim as reflected in the grounds of appeal is that the profits of V.M. Pipeline and M.J. Pipelines should be added to the profits of Mathura Refinery. In our view, the assessee must succeed on the alternative claim. As mentioned above, it has already been held by the Tribunal for the assessment year 1985-86 that V.M. Pipeline which is an input pipeline is not a separate industrial undertaking. We, therefore, hold that for the present assessment year also, the V.M. Pipeline and M.J. Pipeline which are the output pipelines for Mathura Refinery cannot be treated as independent industrial undertaking. However, the profits, if any, of these pipelines should be added to the profits of Mathura Refinery for the purpose of section 80HH. Similar claim under section 80-I has been made in respect of M.J. Pipeline, which is the subject-matter of ground No. 8. The factual and legal position will remain the same as for the purpose of section 80HH and, therefore, we direct that for the purpose of section 80-I also, the profits, if any, of M.J. Pipeline should be added to the profits of Mathura Refinery.
12. The ground Nos. 9 and 10 pertain to deduction legally allowable under section 32AB. As per the ground No. 9, the grievance of the assessee is that the learned CIT(A) was not justified in holding that the following items of income are not in the nature of profits of eligible business for the purpose of section 32AB :
Particulars Amount(Rs.)
(a) Interest on fixed deposits 46,15,054
(b) Interest on surcharge deposit 24,06,900
(c) Interest on bonds (tax-free) 3,97,53,425
(d) Interest on PMs investments 6,07,68,536
(e) Interest on Government Securities 23,062
(f) Dividend income 4,00,000 10,79,66,977 The grievance of the assessee as per the ground No. 10 is as under:
"The learned CIT(A) erred in not directing the DCIT to consider 95 per cent of the construction period expenses (other than Marketing Division) of Rs. 3,47,12,160 as having been utilized for the purchase of plant and machinery for the purpose of section 32AB and consequently to allow deduction under section 32AB in respect of such amount."
13. Shri S.E. Dastoor, learned Counsel for the assessee, invited our attention to the relevant provisions of section 32AB, particularly the provisions of sub-section (3), which is reproduced below:
"The profits of eligible business or profession of an assessee for the purposes of sub-section (1) shall,
(a) in a case where separate accounts in respect of such eligible business or profession are maintained, be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956 (1 of 1956) as increased by an amount equal to the depreciation, if any, debited in the audited profit and loss account."
It is contended by the learned Counsel for the assessee that the only requirement is that the profit should be computed in accordance with Parts II and III of the Sixth Schedule to the Companies Act. The learned Counsel relied on large number of cases wherein this issue was decided in assessee's favour including ITAT, Chandigarh Special Bench decision in the case of High way Cycle Industries Ltd. v. Asstt. CIT (2002) 74 TTJ 171. The learned Counsel further pointed out that this issue is also considered and decided by the A Bombay High Court in the case of CIT v. Parle Biscuits Ltd. (IT Appeal No. 215 of 2002, dated 23-8-2004). A copy of the order has been filed. The question No. 2 before the High Court was as under :
"Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in holding that income from interest, rent dividend and profit on sale of toothpaste should be included in the eligible profits for working out deduction allowable under section 32AB of the Income Tax Act ?"
The question was decided at Paras 4 to 6 of the order, which may be reproduced :
Insofar as question No. 2 is concerned, we find that the controversy stands concluded by the judgment of the Supreme Court in the case of Apollo Tyres Ltd. v. CIT 255 ITR 273. The Supreme Court in the case of Apollo Tyres Ltd. observed thus:
"A perusal of section 32AB, as it stood at the relevant time, shows that if an assessee has a total income including income chargeable to tax under the head profits & gains of business and profession' and if the income from such business is derived from are eligible business' and if the assessee has out of such income utilized any amount during the previous year for the purchase of new plant or machinery then it is entitled to a set off of a sum equal to 20 per cent of the profit of such eligible business as computed in the accounts of the assessee which account has been audited in accordance with sub-section (5) of section 32AB.
The dispute in the present case is in regard to the question whether the assessee's investment in the UTI is business, and if so, is it a business which qualifies to be an 'eligible business' under section 32AB ? In regard to the first aspect, we must note that the Tribunal as a question of fact based on material on record has come to the conclusion that the investment in the UTI by the assessce-company is in the course of its business and its business of manufacture and sale of tyres and sale and purchase of units of the UTI are common in nature and both the businesses are intertwined and interlaced. This finding is accepted by the High Court also. We also find that this business of the assessee-company of buying and selling of units is a business as contemplated under section 32AB of the Act. The question then is : is it an eligible business under the said section ? The term 'eligible business' is defined under sub-section (2) of section 32AB. As per that definition, all business of an assessee-company will be an eligible business unless it falls under the type of business enumerated in sub-clauses (a) and (b) of section 32AB(2). It is nobody's case that this business of the assessee-company is one of those businesses which fall under business enumerated in sub-clauses (a) and (b) of sub-section (2) of section 32AB. Therefore, there is no doubt that the business of the assessee-company is an eligible business. The fact that it is shown under a different head of income would not deprive the company of its benefit under section 32AB so long as it is held that the investment in the units of the UTI by the assessee-company is in the course of its 'eligible business'. Therefore, in our opinion, the dividend income earned by the assessee-company from its investment in the UTI should be included in computing the profits of eligible business under section 32AB of the Act.' The learned Counsel for the revenue did not venture to demonstrate that the business of the assessee falls under the type of business enumerated in sub-clauses (a) and (b) of section 32AB(2).
Accordingly, the Tribunal's view relating to deduction under section 32AB with regard to income from interest, rent, dividend and profit on sale of toothpaste that they fall within the meaning of 'eligible business' cannot be faulted."
The learned counsel, therefore, contended that the issue is fully covered in assessee's favour. The learned Commissioner Departmental Representative supported the orders of the revenue authorities.
14. After considering the rival submissions, we are of the view that the issue is squarely covered in assessee's favour by the Bombay High Court decision referred to (supra). The order of the learned CIT(A) on this issue is, therefore, reversed and the assessing officer is directed to re-compute the deduction allowable under section 32AB after including the relevant items of income in the profits of eligible business.
15. Coming to the controversy reflected in ground No. 10, we find that this issue has been dealt with by the learned CIT(A) elaborately at pages 25 and 26 of his order. The assessee had claimed that roughly 95 per cent of the expenditure incurred by the assessee during the period of construction should be qualified under the head 'Plant & machinery' for the purposes of section 32AB. The learned CIT(A) restored this issue back to the assessing officer with the following directions: "The appellant stated that 95 per cent of the amount represented profits actually utilized in accordance with the provisions of section 32AB, and hence the appellant ought to get deduction under section 32AB in respect of this item also. The DCIT is directed to look into the work in progress afresh after obtaining details from the appellant-company and make disallowance on actual basis rather than on estimate basis. This issue again is restored to the file of the DCIT for proper verification before allowance."
We have heard both sides on this issue and have gone through the facts. In our view, the order of the learned CIT(A) does not need any interference. The learned CIT(A) has actually directed the assessing officer to consider the factual aspects on the basis of material and evidence available and allocate the expenditure referable to plant & machinery on actual basis. We confirm the finding of the learned CIT(A) on this issue.
16. The grounds Nos. 11 to 13 pertain to deduction under section 80HHC.
Two issues emerge from these grounds of appeal. The first issue is denial of deduction under section 80HHC in respect of sale of products to foreign airlines and flag vessels in Indian Ports. This issue has already been considered and decided by us while dealing with the assessee's appeal for the assessment year 1986-87. For the same reasons, the order of the learned CIT(A) on this issue stands confirmed.
17. The second issue is with regard to denial of deduction under section 80HHC in respect of export of petroleum products like Naphtha, diesel and fuel oil. The deduction under section 80HHC was disallowed by the assessing officer on the ground that there is specific prohibition under the section itself in respect of mineral oil and the petroleum products exported by the assessee are in the nature of mineral oil. The learned CIT(A) has dealt with this issue in great detail at pages 26 to 31 of his order. The learned CIT(A) has mentioned that for the assessment year 1985-86, his predecessor CIT(A) allowed the deduction under section 80HHC in respect of profits earned by the assessee on export of Naphtha and fuel oil. The learned CIT(A), for the present assessment year, did not agree with the view adopted by his predecessor in respect of the assessment year 1985-86. He held that petroleum products exported by the assessee can be classified only after the head 'Mineral Oil' and, therefore, the assessee is not entitled to deduction under section 80HHC. The learned CIT(A) considered the following Bombay High Court decisions :
(i) Burmah Shell Refineries Ltd. v. G.B. Chand, ITO (1966) 61 ITR 4.
(ii) CIT v. Caltex (India) Ltd. (1989) 177 ITR 239.
18. Shri Dastoor, the learned counsel, forcefully contended before us that the petroleum products which are manufactured and refined by the assessee from out of crude oil cannot be classified as mineral oil. He submitted that mineral oil means crude oil and once the crude oil undergoes several processes of refining, its character completely transforms and it cannot be said that the given products like, Naphtha, diesel and fuel oil are in the nature of mineral oil. The learned Counsel invited our attention to certain definitions of some relevant terms contained in dictionaries. To start with, he referred to the following definitions contained in P. Ramanatha Aiyer's The Law Lexicon :
"Mineral - Any thing that grows in mines, and contain metals."
"Mineral - Any substance that is neither animal nor vegetable. In narrow sense, no more than precious metals like gold and silver. It is also meant substances obtained from underneath the surface of the earth by digging or quarrying."
"Primarily, 'mineral' means that which grows in amine. On the other hand, it sometimes means every substance forming part of the crust of the earth, other than or possibly even including, the layer which sustains vegetable life. In its legal sense, the word 'minerals' has been held to include prima facie every substance which can be got from underneath the surface, whether by underground workings or by open quarrying."
"Petroleum - Petroleum oil is a fluid found in the pours sand rock of the earth."
He then invited our attention to the following definitions in the Revised Edition of Dictionary of Sciences and Technology by Allied Publishers (P) Ltd. :
"Mineral - A naturally occurring substance of more or less definite chemical composition and physical properties. It has a characteristic atomic structure frequently expressed in the crystalline form or other properties."
"Mineral oils - Petroleum and other hydrocarbon oils obtained from mineral sources."
"Petroleum - Naturally occurring green to black coloured mixtures of crude hydrocarbon oils, found as earth seepages or obtained by boring. Petroleum is widespread in the Earth's Middle East. In addition to hydrocarbons of every chemical type and boiling range, petroleum often contains compounds of sulphur, vanadium, etc. Commercial petroleum products are obtained from crude petroleum by distillation, cracking, chemical treatment, etc."
The learned Counsel also invited our attention to the discussion contained at pages 164 to 189 of the New Encyclopaedia Britannica, Vol. 14 under the head 'Petroleum'. At page 64 of the Encyclopaedia Britannica petroleum is defined the following manner:
"Petroleum can be applied as an inclusive term to the complex mixture of hydrocarbons that occurs in the earth in liquid, gaseous or solid forms. As generally used, however, petroleum is a liquid (crude oil) that is recovered from some depth within the Earth through boreholes. The liquid and gaseous phases of petroleum occur naturally underground, primarily within the pore spaces of sedimentary rocks and under normal conditions they migrate freely until stopped by a subsurface obstruction or trap. In its liquid and gaseous forms, petroleum is the most important of the primary fossil fuels that supply the bulk of the world's energy requirements."
At page 180, petroleum refinery is defined as under:
"Petroleum Refining - Crude oil as it is found in nature consists of complex mixtures of compounds containing hydrogen and carbon (hydrocarbons). In the petroleum refining process, useful products, such as gasoline, motor oil, and petrochemicals, are manufactured from crude oil which in general is unsuitable for direct use."
He invited our attention to the discussion contained at pages 181 and 182 of the Encyclopaedia Britannica. The learned Counsel for the assessee pointed out that the primary refinery process is fractional distillation, which may be followed by other physical separation methods, such as solvent extraction in which superior lubricating stocks are extracted by means of a solvent. It is also pointed out that the separation processes described in the Encyclopaedia Britannica are based on differences in physical properties of the components of crude oil. By chemically changing their molecular structure, it is possible to convert less valuable hydrocarbon compounds into those in demand. The learned counsel, with the help of a chart showing the refining process, explained that refining process includes large number of stages from crude oil to the finished product. The learned Counsel has also filed before us a chart of 'Physico-Chemical Properties' of the petroleum products as compared to the petroleum crude oil. This chart is reproduced below:
Sr. No. Parameter Petroleum Crude Oil Mineral Oil Naphtha Diesel Fuel Oil
1.
Density 0.8355 to 0.8745 gm/ml.
0.69 to 0.74 gm/ml.
0.82 to 0.86 gm/ml.
0.92 to 0.98 gm/ml.
2. Sulphur content 0.2% to 3.1% or more 0.05% (max.) 0.05% (max.) 4.5% (max.)
3. Distillation range
-10oC to 566oC 35oC to 145oC About 30oC to 370 Very high boiling
4. Carbon chain C5 to C80 C6 to C7 C11 to C20 C20 to C60
5. Flash point (Temperature at which it catch fire with little spark).
<4oC Very low 35oC (minimum) 66oC (minimum)
6. Chloride content 10 to 99 ppm (salt content) 1ppm (maximum) Nil
-
7. Olefins content
-
1% (maximurn) <2%
-
8. Colour Dark Black Colourless Pale yellow to colourless Dark Black The learned Counsel for the assessee finally invited our attention to the Bombay High Court decision in the case of CIT v. Caltex (India) Ltd. (1989) 177 ITR 239. The question considered by the High Court in the above case was whether the lubricating oil produced by the assessee was 'mineral oil' for the purposes of special deduction admissible under sections 80-E, 80-I, read with item No. (3) of Schedule V and Schedule VI of the Income Tax Act. In that case, it was found by the High Court that the assessee blended straight mineral based oil with some 18 chemicals besides different dyes, vegetable based oils and silicon. It was held by the High Court that the assessee's end product being the lubricating oil was not mineral oil as extracted from refining. It was not a mixture of hydrocarbon and, therefore, it did not fall within the meaning of the expression 'mineral oil'. Shri Dastoor contended before us that the Bombay High Court decision is squarely applicable to the case of the assessee and the end-product cannot be said to be in the nature of mineral oil, for the purposes of section 80HHC. It is, therefore, argued that the revenue authorities were wholly unjustified in denying the deduction under section 80HHC in respect of profits earned by the assessee by export of petroleum products.
19. Shri Rajendra, the learned CIT Departmental Representative, invited our attention to the order of the learned CIT(A) and submitted that the Bombay High Court decision in the case of Caltex (India) Ltd. (supra) has been duly considered by the learned CIT(A) together with the Bombay High Court decision in the case of Burmah Shell Refineries Ltd. (supra). The learned CIT Departmental Representative contended that the facts of the present case are totally different from the facts of Caltex (India) Ltd. In that case, the assessee blended the crude oil with not less than 18 chemicals and also added dyes, vegetable oil and silicon. The end-product no more remained the mixture of hydrocarbon. He invited our attention to the observations of the Bombay High Court in the case of Caltex (India) Ltd. (supra) that the assessee's end-product was not mineral oil as extracted by refining. It is argued that indirectly it means that refined petroleum products, which remain the mixture of hydrocarbon will continue to be considered as only mineral oil. It is submitted that in the present case, the end-product remained only as a mixture of hydrocarbon, which was not the case in Callex (India) Ltd. (supra). The learned CIT Departmental Representative submitted that the Bombay High Court decision in the case of Caltex (India) Ltd. (supra), in fact, supports the view that refined petroleum products like Naphtha, diesel would be in the nature of only mineral oil. The learned CIT Departmental Representative strongly relied on the order of the learned CIT(A) and die Bombay High Court decision in the case of Burmah Shell Refineries Ltd. (supra.). The learned CIT Departmental Representative invited our attention to the discussion given at page 501 of the Report, relevant portion of which may be reproduced below:
"The expression 'mineral oil' has not been defined anywhere in the Act. In Webster's Third New International Dictionary (Vol. II, page 1438), the meaning of 'mineral oil' has been given as 'mineral oil, n.: a liquid product of mineral origin that is within the viscosity limits recognized for oils (as petroleum, shale oil, or any oil obtained from them by refining), esp. liquid petroleum -compare Hydrocarbon oil, Parafin oil. In Oxford English Dictionary, edited by Murray (volume 6, page 467), the meaning of 'mineral oil' is given as a general name for petroleum and the various oils distilled from it.
In Petroleum Dictionary by Lalia Phipps Boone (page 199), the meaning is mineral oil'-(1) Crude petroleum and its products; (2) Liquid petroleum.
In the Illustrated Petroleum Dictionary and Products Manual compiled and edited by the editorial staff of the Petroleum Educational Institute (page 269) the meaning is: 'Mineral oil - Petroleum as it comes from the ground is frequently called mineral oil because it comes from a mineral surrounding; also to distinguish it from oil secured from vegetable and animal sources. It may refer to (1) crude oil coming naturally from the ground or secured from coal, shale or any other natural source; (2) any one of the many products secured from the crude oil or secured from coal, shale or other natural sources'.
From the meaning of the word 'mineral oil' as given in Webster's and Oxford Dictionaries as well as in the technical dictionaries, viz., the Petroleum Dictionary and the Illustrated Petroleum Dictionary, it is clear that the expression 'mineral oil' is wide enough to include both the petroleum in its crude form as well as the products secured or obtained from the crude oil by refining. We have already stated that in the petition the business of the petitioner-company has been given as 'refining crude oil'. The dictionary meaning of the word 'crude oil' in Webster's Dictionary (page 546, Vol. 1) is :
'Crudr oil' or crude petroleum, n. : petroleum as it occurs naturally, as it comes from an oil well, or after extraneous substances (as contained water, gas and minerals) have been removed. In the Illustrated Petroleum Dictionary and Products Manual- by Petroleum Educational Institute, California - it has been mentioned that 'crude oil' - See Petroleum. Petroleum - Describes crude oil as it comes from the ground in its natural state of when secured from coal, shale and other sources. Its origin is not definitely known. The word is derived from the two Latin words, petra, meaning rock and oleum meaning oil and frequently called rock oil or earth oil. Sometimes found oozing from the surface and called seepage, but usually found far below the surface and in every continent on earth. Also known as mineral oil, crude oil and crude naphtha (page 311).
In the Petroleum Dictionary by Lalia Phipps Boone (page 104), it has been mentioned: Crude mineral oil - petroleum. Designated crude to distinguish it from the refined oils manufactured from it. Petroleum, n.: An inflammable liquid, oily mixture of a great many hydrocarbons found in the earth. The quality and quantity of the deposits of pools vary almost as widely as the localities in which they are found."
The leaned CIT Departmental Representative has also invited our attention to the observations of the High Court on page 502 of the Report to the effect that 'crude oil' means petroleum in its raw form as it comes from the ground and the expression 'mineral oil' is wide enough to include both the petroleum as well as the products produced from petroleum by refining, or the products secured from petroleum or crude oil. It was further observed by the High Court that prima facie the assessee-company appears to have been engaged in the business of manufacturing or production of mineral oil. The learned CIT Departmental Representative contended that the order of the Bombay High Court in the case of Burmah Shell Refineries Ltd. is clear and categorical and the petroleum products exported by the assessee fall under the expression 'mineral oil' and, therefore, the assessee is not entitled to deduction under section 80 HHC.
20. The learned Counsel for the assessee, in his rejoinder, submitted that the Bombay High Court decision in the case of Burmah Shell Refineries Ltd. is only tentative and does not lay down any binding ratio which is also clarified in the case of Caltex (India) Ltd. (supra), wherein the Bombay High Court, at page 242 of 177 ITR, has observed that the view adopted in the case of Burmah Shell Refineries Ltd. was tentative because the court was dealing with a writ petition which impugned a provisional assessment order and the parties were entitled to lead evidence. Shri Dastoor led us through the relevant portion of the Bombay High Court decision in the case of Burmah Shell Refineries Ltd. as also the facts of this case. The assessee, Burmah Shell Refineries filed the return and claimed rebate of 35 per cent from tax payable on the ground that it was a company engaged in the manufacture or production of 'mineral oil'. For making provisional assessment under section 141(1), the assessing officer enquired into the question whether the refining of crude oil was manufacturing or production, of mineral oil, and came to the conclusion that refining crude oil was not manufacturing or processing of mineral oil. The assessee filed writ petition before the High Court. In this context, it was observed by the High Court that for the purpose of making provisional assessment, the assessing officer has to proceed on the basis of the return filed by the assessee. The correctness of the return as to the factual position stated in the return has to be accepted for the time being and the assessment should be made on the basis that the facts stated in the return are correct. The assessing officer has no jurisdiction to enquire into questions of mixed facts and law. It was, therefore, observed by the High Court that the assessing officer acted in excess of his jurisdiction. It was, for this limited purpose, the learned Counsel argued that the High Court went into the implications of the expression 'mineral oil'. At page 500 of the Report, the High Court clearly observed that it would not be legitimate at this stage to decide the question one way or the other finally as further debate on the question would be permissible under law at the stage of final assessment after full inquiry into facts. It is true that the High Court held that prima facie the company appears to have been engaged in the business of manufacture or production of mineral oil. The learned Counsel submitted that this was in the context of the interpretation of the words 'manufacture' and 'production' of mineral oil. If any other interpretation was taken, the word 'manufacture' would be redundant. Again at page 504 of the Report, the High Court observed that the question is one of considerable difficulty requiring thorough enquiry into the facts particularly as to the exact nature of the goods that are produced by refining process in which the petitioner-company was engaged. These matters could be gone into only when the proceedings for final assessment would commence. Shri Dastoor further invited our attention to the observations made by the Bombay High Court at page 508 of the Report stating that the High Court was not deciding the question finally. Shri Dastoor submitted that the Bombay High Court in the case of Burmah Shell Refineries Ltd. has been considered in the case of Caltex (India) Ltd. and it has been observed by the High Court that the view taken in the Burmah Shell Refineries Ltd. was only a tentative view. The learned counsel, therefore, vehemently contended that the case of Burmah Shell Refineries Ltd. cannot be applied to the facts of the assessee's case and the claim that the refined petroleum products manufactured by the assessee do not fall under the expression of 'mineral oil' is fully supported by the Bombay High Court decision in the case of Caltex (India) Ltd. (supra).
21. We have given a very careful consideration to the rival submissions made before us vis-a-vis the facts of the case and have gone through the relevant Bombay High Court decisions in the case of Caltex (India) Ltd. (supra) and Burmah Shell Refineries Ltd.'s case (supra). Under section 80HHC(I), deduction is available in respect of an assessee who is engaged in the business of export out of India of any goods or merchandise and clause (b) of sub-section (2) of section 80HHC stipulates that this section does not apply to the following goods or merchandise :
i. Mineral Oil.
ii. Minerals and Ores (other than processed minerals and ores specified in the 12th Schedule.
From the above statutory provisions, it becomes clear that deduction under section 80HHC is not available to an assessee who is engaged in the business of export of 'mineral oil'. The moot question is as to whether the petroleum products manufactured by the assessee, namel, Naptha, Diesel and Fuel oil fall under the expression 'mineral oil'. For the purposes of section 80HHC the expression of 'mineral oil' has not been defined.
Therefore, this expression has to be interpreted and understood in the light of dictionary definitions and the observations made by the Bombay High court in the two cases which have been referred to in the order of the learned CIT(A) and also relied upon by both the sides before us. The dictionary definitions with which we have been assisted by the learned Counsel for the assessee, in our view, do not in any way conclusively indicate that the refined petroleum products are not included in the expression 'mineral oil'. These definitions have already been reproduced by us above and in none of these definitions it is stated that the refined petroleum products are not included in the expression of mineral oil. The discussion contained in the relevant part of the New Encyclopaedia Britannica, in our view, does not in any way strengthen or substantiate the view that the expression 'mineral oil' would not include refined petroleum products.
The Bombay High Court, in case of Caltex (India) Ltd. (supra) was concerned with the meaning of 'mineral oil' for the purpose of deciding as to whether lubricating oil is a mineral oil. As already mentioned above, the Bombay High Court considered the fact that the lubricating oil was manufactured after blending mineral based oil with 18 chemicals besides different dyes, vegetable oil and silicon. The following observations made the High Court in this case, as reproduced from page 243 of the Report, are crucial:
"The assessee's end product was, therefore, not mineral oil, as extracted or refined. It was not a mixture of hydrocarbons. It did not, therefore, fall within the meaning of the expression 'mineral oil' as used in the said item (3)."
A fortiorari, the observations of the High Court can be interpreted to mean that refined petroleum product which is a mixture of hydrocarbons would come under the category of mineral oil. In our considered view, the Bombay High Court decision in the case of Caltex (India) Ltd. (supra) does not in any way help the assessee. In the case of the assessee the end product remained a mixture of hydrocarbons and the entire process is only the various stages of refining of the crude oil. It is true that in the case of Burmah Shell Refineries Ltd., the Bombay High Court had made it abundantly clear that they were not deciding the issue finally and further in the case of Caltex (India) Ltd. (supra), it was observed that the view taken by the Bombay High Court in the case of Burmah Shell Refineries Ltd. (supra) was only a tentative view. Nevertheless, the observations made by the High Court in the case of Burmah Shell Refineries Ltd. are of considerable importance for the purpose of understanding and interpreting the meaning of the expression of 'mineral oil'. In this case, the dictionary definitions have also been quoted. The Websters Third New International Dictionary defines mineral oil as a liquid product of mineral origin, i.e., within the viscosity limit recommended for oil (as petroleum, shale oil or any oil obtained from them by refining), especially the liquid petroleum. The Oxford English dictionary states that mineral oil is a general name for petroleum and various oils distilled from it. In Petroleum Dictionary by Lalia Phipps Boone, the meaning of the phrase 'mineral oil' is stated to be as under:
i. Crude petroleum and its products.
ii. Liquid petroleum.
The Bombay High Court also referred to the meaning of mineral oil as given in the Illustrated Petroleum Dictionary and Products Manual compiled and edited by the editorial staff of the Petroleum Educational Institute. This meaning reads as under:
"Mineral oil - Petroleum as it comes from the ground is frequently called mineral oil because it comes from a mineral surrounding; also to distinguish it from oil secured from vegetable and animal sources. It may refer to (1) crude oil coming naturally from the ground or secured from coal, shale or any other natural source; (2) any one of the many products secured from the crude oil or secured from coal, shale or other natural sources."
After considering these various authentic definitions and meaning of the phrase 'mineral oil', the Bombay High Court observed that it is clear that the expression 'mineral oil' is wide enough to include both petroleum in its crude form as well as the products secured or obtained from the crude oil by refining. In our view, merely because these observations were made while deciding a writ petition and the matter was not finally decided by the Bombay High Court, the persuasive force of the observations made by the Bombay High Court are not in any way diluted.
22. We have also perused the chart of physicochemical properties of the petroleum products filed before us and from this chart, we find that there variation in the percentage of certain ingredients on qualities or colour, but the basic character has not changed. In our view, when mineral oil was excluded for the purposes of section 80HHC, the intention of the Legislature was quite clear. Considering the entire facts and circumstances, we feel that the refined petroleum products manufactured by the assessee, namely, Naphtha, Diesel and Fuel oil are covered under the expression 'mineral oil for the purposes of section 80HHC. We, therefore, uphold the order of the learned CIT(A) on this issue.
23. The ground No. 14, pertaining to disallowance of miscellaneous expenses, has been withdrawn by the learned Counsel for the assessee and, therefore, this ground stands rejected as withdrawn,
24. The ground No. 15, pertaining to disallowance of depreciation on lease-hold land, depreciation on right of way and ESA on right of way, has not been permitted by the COD and, therefore, this ground stands rejected as such.
25. The ground No. 16, pertaining to disallowance under section 40A(5), has not been permitted by the COD and, therefore, this ground stands rejected as such.
26. In the result, both the appeals are partly allowed.