TaxTMI 
TaxTMI 
2014 (6) TMI 214
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....khalin block and Myanmar Block. 2. That on the facts and circumstances of the case the Ld. CIT(A) erred in ignoring the fact that the Section 32(1 )(ii) comprises intangible assets, being know how patent, copy rights, trade marks, licenses, franchisee or any other business or commercial rights of similar nature. 3. That on the facts and circumstances of the case the Ld. CIT(A) erred in ignoring the fact that the business or commercial right which is talked about in this section has a close link to intangible assets which are in the nature of knowhow, copy right trademarks, franchises, which if studied closely, indicate that it is a right given from licensor to a licensee in lieu of a payment which would be in the nature of either royalty, fees for technical services or any such sum which is of a similar nature. 4. That on the facts and circumstances of the case the Ld. CIT(A) erred in allowing the assessee's claim of expenditure of Rs.83,84,846/- incurred on Board Approved Project. It was submitted that the assessee is engaged in the business of Exploration and Production of Hydrocarbons in other countries and that it has to continually evaluate various business opportunitie....
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....tances of the case the Ld. CIT(A) erred in ignoring the fact that since the assessee had already received the amount of lifting the minimum quantity of gas income from which has been crystallized in the hands of the assessee and the assessee was following mercantile system of accounting, therefore, the income that accrued to the assessee during the year is to be treated as income of the current year. 14. That on the facts and circumstances of the case the Ld. CIT(A) has not appreciated the fact that the assessee was following the mercantile system of accounting, therefore, the income accrued/received by it on the basis of minimum quantity of Gas to be lifted by M/s Petro Vietnam is to be treated as its income in the Books of account being income accrued and crystallized to it. 15. That the appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the grounds of appeal." 3. We have heard Sh. C.S.Aggarwal, Ld.Counsel for the assessee and Shri Gunjan Prasad, Ld.CIT, D.R. on behalf of the Revenue. 4. On a careful consideration of the facts and circumstances of the case, on a perusal of the papers on record and orders of the authorities below, c....
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....na. In the year 1975, the assessee company also performed a service contract in Iraq, which due to lack of commercial viability, could not be pursued further after drilling a few wells in a field which still remains undeveloped. In the year 2000, this field was awarded by Iraq government, to the assessee through negotiations, for development and production of oil under new agreements. The assessee also had entered on May 19th 1988 into a Petroleum Production Sharing Contract with Vietnam Oil and Gas Company. The Production Sharing Contract entered on May 19th , 1988 envisages making available necessary manpower, technical skills and other inputs required for the execution of the Production Sharing Contract in accordance with sound petroleum industry practices. The Production Sharing Contract provided for exploration and exploitation of Petroleum resources in the specified area in the Continental Shelf of Vietnam. The assessee carried out petroleum exploration in the area since 1988 and has the distinction of discovering the largest free gas field of Vietnam. The assessee partnered with British Petroleum and Vietnam Oil and Gas Company in the block and finalized development plans fo....
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....ss or commercial rights are not by themselves assets eligible for depreciation, and that only those rights which are similar in nature with the know-how, patents, copyrights trademarks, licences etc. are eligible for claim of depreciation. In view of principle of ejusdem generis, the expression "any other business or commercial rights" has to be read in the company of the preceding order. This rule of interpretation makes an attempt to reconcile incompatibility between the specific and general words. The first category of words like know-how, patents, copyright, etc., form a distinct genesis or category inasmuch as all those items are specific and elucidated rights of business or commercial nature. In such circumstances, the expression 'any other business or commercial rights of similar nature' also must be in the same genesis or category with specific and elucidated identity of commercial or business nature. Therefore, in the light of the statutory provisions contained in section 32(1)(ii), the commercial rights of exploration of mineral oils, as acquired by the assessee falls under the expression of any other business or commercial rights of the nature similar to one of the categ....
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....ollowing the order of the Co-ordinate Bench of the ITAT, we allow ground No.1 in the assessee's appeal. Consequently, both the grounds raised in the revenue 's appeal are rejected." Respectfully following the same, we uphold the finding of the First Appellate Authority and dismiss these grounds of the Revenue. 5.2. Ground no.4 and 5 pertain to allowability of expenditure incurred on evaluating existing business opportunities relating to products pending for final evaluation. 5.2.1. Similar issue has come up before the ITAT for the Assessment Year 2003-04 and the Tribunal at para 9 and 10 has held as follows. "9. In ground No.2, assessee has challenged disallowance of Rs.6,68,57,064 which were incurred on evaluating business opportunities relating to project pending final evaluation. These expenditure were claimed under sec. 37(1) of the Income-tax Act, 1961. Learned counsel for the assessee pointed out that similar expenditure were claimed in assessment year 2002-03 and these have been allowed by the ITAT. Learned DR was unable to controvert the contentions of the learned counsel for the assessee. The ITAT has recorded following findings: "16. The expenditure of Rs.5.64 crores....
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....these grounds of the Revenue. 5.3. Ground nos. 6 to 8 pertain to the claim for allowance of risk insurance premium amounting to Rs.22,59,81,215/-, incurred for obtaining a political risk insurance policy for safeguarding its interest, in its wholly owned subsidiary (hereinafter referred to as 'WOS') against unstable political environment in Sudan. 5.3.1. The Ld.Counsel for the assessee submits that payment of insurance premium is in the nature of revenue expenditure. He submitted that the insurance policy was taken at the specific directions issued by the Ministry of Petroleum and Natural Gas, Govt. of India, vide letter dt. 28th October,2002. He argued that the mere fact that the investment in Sudan has been made through a Subsidiary, does not make the expenditure, as expenditure of the Subsidiary. The Ld.D.R. supported the order of the Ld.A.O. 5.3.2. We have considered rival submissions. The First Appellate Authority has at para 8.2 to 8.2.4. pages 42 to 44 held as follows. "8.2. I have carefully considered the assessment order and the submissions made by the Ld. AR on the above issue. As per the facts of this case, M/s ONGC Nile Ganga BV (ONGBV) is a wholly owned subsidiary ....
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....m in agreement with the submission of the appellant that the expenditure needs to be allowed u/s 37(1) of the Act for the reason that the same is incurred in order to safeguard its business interest as it is the real beneficiary of insurance as well as investment made in the subsidiary. Secondly, the said expenditure also falls within the meaning "for the purpose of business" as the appellant has earned substantial dividend from the above investment which has been offered to tax in India and therefore such expense has a direct link with the investment and also in protecting the legitimate business interest of the appellant. This view is also squarely supported by the, Hon'ble Apex court in the case of S.A. Builder Ltd VS CIT 288 ITR 1 and ITC Limited vs. Jt.CIT (2005) 95 TTJ 1017. 8.2.4. Further the facts of the case of the appellant are identical to the case of ITC Ltd. (supra) wherein the Hon'ble ITAT has allowed the payments made by the holding company to discharge the liability of its subsidiary as a revenue expense. The appellant in its submissions relyi8ng on the judgement of M/s ITC Ltd. has argued that an expenditure incurred by the assessee with a view to protect the ....
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....e of charge in future years. 5.4.1. In this case the assessee had received an amount of Rs.98,16,00,000/- for gas which was not supplied during the year. The gas was supplied in the subsequent year and the same was offered to tax during the A.Y. 2005-06 and 2006-07. The Ld.Commissioner of Income Tax (Appeals) at pages 53 to 55 para 9.3.1 of his order has held as follows. "9.3.1. As argued by the Id. AR, the consideration received under the take or pay agreement can e held taxable only when the transaction of sale is completed, which would happen when the buyers take delivery of the product sold. It is submitted by the ILd.AR that the purchaser had to guarantee and pay for lifting of a certain minimum quantity of gas from the appellant. In case the said gas was not lifted in the 151 year it could be supplied by the appellant within the subsequent four years. The payments received during the year was thus in the nature of advance which could be adjusted against the sale only when the gas was delivered to the buyer. It is argued that in oil & gas industries, such contracts are normal as the seller or producer of gas always looks for a prospective buyer who is willing to enter into a....
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....ove reasoning is also fortified by clause 4 of the Gas Sales and Purchase Agreement according to which the title to and risk in Sales Gas sold and delivered passes from the seller to the buyer at the sale point. Sale point is the point connecting the transportation facilities with the buyer's facilities for receiving gas. In other words, the title and risk in the gas sold passes from the seller to the buyer only when the gas sold is delivered by the seller to the buyer and not earlier. Since in the present case gas worth Rs. 1032.44 million was not delivered to the buyer in the present year, the amount so received stood reflected as advance in the Balance Sheet. The appellant has submitted that the gas as against this advance to the extent of Rs. 62,35,50,000/- was supplied in AY 2005-06 and to the extent of Rs. 35,81,50,000/- was supplied in AY 2006-07 and stands accounted for as sale in the respective years. The AO has not been able to bring on record any material or evidence to show as to how the sale of gas to the extent of Rs. 1032.44 millions crystallised in the current year as the same had not been delivered by the seller to the buyer and hence the title risk did not st....