Authority Tribunal
John A. Sayre vs Commissioner Of Income-Tax on 6 May, 1998
Equivalent citations: [1999]236ITR652(AAR)
RULINGS A.A.R. No. 388 of 1997 Decided On: 06.05.1998 Appellants: John A. Sayre Vs. Respondent: Commissioner of Income-tax Hon'ble Judges:
Suhas C. Sen, J. (Chairman) and Mohini Bhussry, Member Counsels:
For Appellant/Petitioner/Plaintiff: Huned Contractor and Vijay Dhingra, Chartered Accountants For Respondents/Defendant: R.K. Gupta and K.V. Trivedi, Advs.
Subject: Direct Taxation Acts/Rules/Orders:
Income Tax Act, 1961 - Sections 10(5B), 293A, 293A(2); Wealth Tax Act; Gift Tax Act RULING
1. The case of the petitioner is that he fulfils all the requirements laid down in Section 10(5B) and, therefore, he should be entitled to get the benefit of that section. On behalf of the Commissioner, the point has been taken up that the petitioner does not come within the main clause of (5B) because he is not employed by any of the authorities mentioned in the first part of the section. He is not an employee of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this clause or Sub-clause (viia) of Clause (6) by the prescribed authority.
Clause (5B) of Section 10 of the Income-tax Act is as under :
"In the case of an individual who renders services as a technician in the employment (commencing from a date after the 31st day of March, 1993), of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this clause or Sub-clause (viia) of Clause (6) by the prescribed authority or in any business carried on in India and the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India and the tax on his income for such services chargeable under the head 'Salaries' is paid to the Central Government by the employer (which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in Section 200 of the Companies Act, 1956 (1 of 1956)), the tax so paid by the employer for a period not exceeding forty-eight months commencing from the date of his arrival in India :
Provided that the Central Government may, if it considers it necessary or expedient in the public interest so to do, waive the condition relating to non-residence in India as specified in this clause in the case of any individual who is employed in India for designing, erection or commissioning of machinery or plant or supervising activities connected with such designing, erection or commissioning.
Explanation.--For the purposes of this clause, 'technician' means a person having specialised knowledge and experience in--
(i) constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or
(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, or
(iii) such other field as the Central Government may, having regard to availability of Indians having specialised knowledge and experience therein, the needs of the country and other relevant circumstances, by notification in the Official Gazette, specify, who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised ;"
2. The first part of the section deals with a "technician" in the employment of the Government or of a local authority or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this clause or Sub-clause (viia) of Clause (6) by the prescribed authority. The benefit of Clause (5B) of Section 10 can be availed of by a "technician" who is in the employment of any of the authorities mentioned in that clause. However, there is a further provision relating to a "technician" employed "in any business carried on in India and the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India". The second category of "technician" need not be an employee of the Government or of a local authority or any other corporation set up under any special law. Therefore, the first argument advanced by the Commissioner of Income-tax, Gujarat, fails.
3. However, there is a further difficulty for the petitioner in this matter. In order to qualify for the exemption granted under Clause (5B) of Section 10, a "technician" must have specialised knowledge and experience in any one of the three categories of activities mentioned in Clauses, (i), (ii) and (iii) of the Explanation set out hereinabove. Admittedly, the petitioner does not fall in the second category which deals with agriculture, animal husbandry, dairy farming, deep sea fishing or ship building. The claim of the petitioner is that he comes in the first category which deals with "technician" having specialised knowledge and experience in mining. The petitioner is employed in connection with and is responsible for production of three operating oil and gas fields. Can this activity be treated as "mining" ?
4. The Income-tax Act has not defined "mine" or "mining". The other tax Acts like the Wealth-tax Act, the Gift-tax Act, etc., have also not provided any definition of "mines". But if the provisions of the Income-tax Act are examined, it will be seen that special provisions have been made for petroleum and gas which have not been treated as a part of mines or mining. "Mineral" has not been used in a broad sense so as to include mineral oil and "mining" does not include exploration or extraction of oil.
5. In fact, Section 293A of the Income-tax Act specifically empowers the Central Government to exempt from taxation the income of a person or his employee engaged in the business of prospecting or extraction of mineral oil.
"295A. (1) If the Central Government is satisfied that it is necessary or expedient so to do in the public interest, it may, by notification in the Official Gazette, make an exemption, reduction in rate or other modification in respect of income-tax in favour of any class of persons specified in Sub-section (2) or in regard to the whole or any part of the income of such class of persons."
(2) The persons referred to in Sub-section (1) of Section 293A have been enumerated as under :
"(a) persons with whom the Central Government has entered into agreements for the association or participation of that Government or any person authorised by that Government in any business consisting of the prospecting for or extraction or production of mineral oils ;
(b) persons providing any services or facilities or supplying any ship, aircraft, machinery or plant (whether by way of sale or hire) in connection with any business consisting of the prospecting for or extraction or production of mineral oils carried on by that Government or any person specified by that Government in this behalf by notification in the Official Gazette ; and
(c) employees of the persons referred to in Clause (a) or Clause (b) Explanation.-For the purposes of this section,--
(a) 'mineral oil' includes petroleum and natural gas ;
(b) 'status' means the category under which the assessee is assessed as 'individual', 'Hindu undivided family' and so on."
6. It has to be borne in mind that "mineral oil" has been brought under the control of the Central Government by virtue of the declaration made in Section 2 of the Industries (Development and Regulation) Act, 1951. The Schedule to that Act which contains a list of the controlled industries has included within its ambit "fuels". "Fuels" have been explained in the following manner ;
Fuels :
(1) Coal, lignite, coke and their derivatives.
(2) Mineral oil (crude oil), motor and aviation spirit, diesel oil, kerosene oil, fuel oil, diverse hydrocarbon oils and their blends including synthetic fuels, lubricating oils and the like.
(3) Fuel gases--(coal gas, natural gas and the like).
7. "Mineral oil", therefore, is a regulated industry. The Central Government has been empowered by Section 293A to exempt, reduce the rate or make any other modification in respect of income-tax to a person engaged in the business consisting of the prospecting for or extraction or production of mineral oil, or any employee of such person. "Mineral oil" has been defined by the Explanation to Section 293A to include petroleum and natural gas. This is a specific provision dealing with concerns engaged in the business of prospecting for or extraction or production of "mineral oil" and also their employees.
8. If any concern engaged in the business of prospecting for or extraction of mineral oil and their employees are covered by Clause (5B) of Section 10, then there was no necessity to make special provisions for persons participating in the business of prospecting for or extraction of mineral oil and their employees in Section 293A.
9. Therefore, it does not appear that "mining" in Clause (5B) of Section 10 includes extraction or exploration of oil.
There are other provisions in the Income-tax Act which lend support to this view.
10. Sections 28 to 44D deal with computation of profits and gains of business or profession. Section 44BB has made special provision for computing profits and gains of business of exploration, etc., of mineral oils.
"Mineral oil" has been defined by an Explanation added to that section to include "petroleum and natural gas". Likewise, there are special provisions for deductions in the case of business for prospecting, etc., for mineral oil provided by Section 42. There again "mineral oil" has been defined to include petroleum and natural gas.
11. Groups of associated minerals have also been specified in Part B of the Seventh Schedule. Mineral oil has not also been included therein.
12. Section 80HHC of the Income-tax Act deals with certain deductions to be allowed from profits of export business. If an assessee exports out of India goods or merchandise to which this section applies, he should be allowed in the computation of his total income a special deduction. It has been specifically provided by Sub-section (2)(a) of that section that this benefit will be available to all goods or merchandise except those specified in Clause (b) which is as under :
"(b) This section does not apply to the following goods or merchandise, namely :--
(i) mineral oil ; and
(ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule.)"
"Mineral oil" has been treated in this clause as quite distinct and separate from "minerals and ores".
13. Deduction for expenditure on prospecting of minerals is allowed under Section 35E. This allowance is to be given for expenditure incurred wholly and exclusively on any operations relating to prospecting for minerals specified in Part A or Part B of the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or group of associated minerals. This section has to be contrasted with Sections 42 and 44BB. Section 42 provides for deduction on expenditure incurred on prospecting for or extraction or production of mineral oil. Section 44BB contains special provision for computing profits and gains in connection with the business of exploration or extraction or production of mineral oils.
14. It clearly appears from these provisions that the Income-tax Act has not treated mineral oil or petroleum or gas as "mineral". In some statutes "mine" or "mineral" has been defined to include mineral oil or petroleum. The Income-tax Act, however, has not done so. It cannot be laid down as a general proposition that "mining" includes prospecting for and extraction of mineral oil. It cannot also be said that the legislative practice in this country is to use "mineral" in this sense suggested by the applicant. We have earlier referred to the provisions of the Industries (Development and Regulation) Act. In the Constitution itself, in the Seventh Schedule "mines" and "minerals" have not been used as inclusive of oil-fields and mineral oil. Schedule VII, List I, entry 53, deals with regulation and development of oil-fields and mineral oil resources; petroleum and petroleum products, and other liquids and substances declared by Parliament by law to be dangerously inflammable, whereas entry 54, List I, deals with regulation of mines and mineral development.
15. The Mines Act has defined "mine" to mean and include oil wells, and "minerals" to include mineral oil. But that is a special definition for the purpose of that Act only.
16. Having regard to the provisions of the Income-tax Act, we are of the view that "mining" has not been used in Section 10(5B) in a broad sense to include prospecting for or extraction of mineral oil. Activities relating to extraction of petroleum and natural gas will not come within the ambit of Clause (5B) of Section 10.
17. The next argument is that the Explanation to Section 10(5B) has made it clear that technician means a person who has specialised knowledge and experience in, inter alia, construction or manufacturing operations. The applicant is a person who has such specialised knowledge and experience of construction of platforms, etc., for the purpose of extraction of oil. Therefore, he is entitled to the benefit of Section 10(5B).
18. In order to succeed on this point, the applicant has to establish that not only has he specialised knowledge and expertise in constructional and manufacturing operations but he was also employed in India for this purpose. The assessee is employed in Niko Resources Ltd. ("NIKO") which along with the Gujarat State Petrochemical Ltd., has obtained a turnkey contract from the Government of India for prospecting for and extraction of mineral oil at Hazira, Gujarat. This activity clearly comes within the provision of Section 293A(2)(a) . Any relief from the burden of taxation on income arising from such activity can only be given by an appropriate notification by the Central Government and not otherwise. The exploration and development of oil-fields may require digging of wells, laying of pipelines and other engineering activities like construction of a platform. But that will not alter the nature of these activities nor will it take away the fact that the NIKO is engaged in the business of prospecting for and extraction or production of mineral oil. Many things may be done incidentally to this business. Those incidental activities will not turn NIKO into a construction company nor the applicant into a construction engineer or a technician. Tax relief to NIKO and its employees can only be given by a notification issued by the Central Government under Section 293A. This special provision cannot be allowed to be bypassed by taking resort to any other general provision of the statute.
19. Moreover, the Explanation of Clause (5B) of Section 10 has explained the meaning of technician. It means a person having specialised knowledge and experience in constructional or manufacturing operations, or in mining or any form of power. The technician with specialised knowledge in any of these fields must be employed in India in a capacity in which such specialised knowledge and experience are actually utilised. It has been stated on behalf of the petitioner that the petitioner has got a degree in geology and he has wide experience in drilling and oil mining operations. He has worked in various capacities in various oil companies in the past where he rendered various technical duties like well-site supervisor. He has also worked as consultant/advisor, stall petroleum engineer, area petroleum drilling and completion engineer and field service supervisor also in different organisations. Now, he is graded as general manager-India Operations. He is reporting to the CEO and the President of Niko Resources Ltd., and is responsible for the production operations of three operating oil and gas fields. In this managerial capacity he may be doing various administrative work also. But principally his responsibility is for production operation of the three operating oil and gas fields for which he had knowledge and experience. He has not been employed to do any construction work. He does not have any academic qualification nor any degree in civil or mechanical engineering nor has he undergone any training in that line. He has a degree in geology. It has not been stated what special knowledge he has acquired of any constructional operations. For the purpose of this section general knowledge will not suffice. The applicant will have to establish that he had special knowledge of the constructional operation.
20. We are of the view that the applicant's claim to be treated as a technician having specialised knowledge and experience in constructional or manufacturing operations is without any factual basis. It has also not been stated how the applicant is employed in India in a capacity in which such specialised knowledge and experience are being actually utilised. It will not be enough to show that the applicant has some general knowledge and experience in the field of construction. In order to get the benefit of this section, the petitioner must be able to show that he has some special knowledge and he has been employed in a capacity where such special knowledge is required to be used. The petitioner's case is that he has a degree in geology and he has acquired vast expertise and skill in the business of prospecting for and extraction of mineral oil. He does not have any special knowledge of any constructional operations. For all these reasons, this argument of the applicant also fails.
21. We are, therefore, of the view that in the facts and circumstances of the case, the applicant is not a "technician" and is not entitled to the benefits of Section 10(5B) of the Income-tax Act.
22. The application is disposed of as above.