AI OCR 
TaxTMI 
TaxTMI 
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2022 (6) TMI 839
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....nience. ITA No.5/2018 (Revenue Appeal) A.Y.2011-12 2. The Revenue has raised the following grounds:- 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred on facts and circumstances of the case and in law and not disallowing assessee's claim u/s 80IB(9) on interest income of Rs. 25,54,050/- ignoring the fact that it is not derived from activities mentioned in Section 80IB(9) of the Act. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the deduction u/s 80IB(9) on profit of Rs. 208,96,63,164/- earned by the assessee from exploration of natural gas ignoring the provisions of Section 80IB(9) which restricts the deduction to exploration of mineral oil. 3. The Appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 4. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 2.1. The effective issue to be decided is whether assessee is eligible for deduction u/s.80IB(9) of the Act in the facts and circumstances of the instant case. 3. We have heard rival....
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....unds were deposited by the assessee into the bank account till the date of its requirement and therefore by placing reliance on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Lok Holdings reported in 308 ITR 356, the said interest income would be taxable as "business income". Respectfully following the same, the ground No.1 raised by the Revenue is dismissed. 4. The second ground in Revenue's appeal is challenging the action of the ld. CIT(A) granting deduction u/s.80IB(9) of the Act on profit of Rs.208,96,63,164/- earned by the assessee from exploration of natural gas ignoring the provisions of Section 80IB(9) of the Act which restricts the deduction to exploration of mineral oil. 4.1. We find that the assessee company with 10% participating interest and its joint venture partner Reliance Industries Ltd., (RIL) with 90% participating interest, entered into Production Sharing Contract (PSC) with Government of India as per amendment No.1 to the PSC with Block KG-DWN-98/3 on 26/12/2007 for the exploration and development of oil and gas field with respect to contract area identified as Block KG-DWN-98/3 popularly known as D-6 field or D-6 PSC. The ld. A....
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....vising them on the tax holiday available for E&P activities (both Oil and Gas). The reference to the OFRD Act in the PSC makes it abundantly clear that mineral oil in the context of the PSC include natural gas. The PSC also defines petroleum to mean crude oil and natural gas. Further, there is no exception provided in the PSC that deduction under section 80-IB (9) of the Act will not be available to undertakings commencing commercial production of 'natural gas', as the same is not a 'Mineral oil'. The term 'mineral oil' should therefore be read consistently, especially, since there is no contrary definition either in the Act or in the sister legislations governing the E&P sector. In the absence of any contrary meaning, there is no basis whatsoever, to hold that the term 'mineral oil' does not include natural gas for the purposes of Section 80-IB(9) of the Act as well. The ld. AR also placed reliance on the speech of the Hon'ble Finance Minister introducing the tax holiday for promotion of the oil and gas industry in the country. Accordingly, he submitted that the term "mineral oil" as referred to Section 80IB(9) of the Act includes "natural gas" and ....
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....at High Court in the case of Niko Resources Ltd., vs. Union of India reported in 374 ITR 369. 2. The Petitioner has been claiming benefit of deduction of 100% of the profits and gains from the production of mineral oil and natural gas under Section 80-IB(9) as it stood prior to an amendment to Section 80-IB(9) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') which was introduced by the Finance (No.2) Act 2009. In these proceedings the constitutional validity of the amendment to sub-Section (9) of Section 80-IB and Explanation added to it under the Act by the Finance (No.2) Act, 2009, has been challenged. 3. The relevant portion of the amendment in the present proceedings read as under:- '37. In Section 80-IB of the Income-tax Act, - (a) for sub-Section (9), the following sub-Section shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 2000, namely :- '(9) The amount of deduction to an undertaking shall be hundred per cent, of the profits, for a period of seven consecutive assessment years, including the initial assessment year, if such undertaking fulfils any of the following, namely :- ....
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.... Section 80-IB(9) to the Act, it will be profitable to understand the meaning and import of the expression "mineral oil". The term "mineral oil" has not been defined under the Act. The Respondent seeks to rely on Explanation to Section 42 which, for the purpose of that Section, explains "mineral oil" as including both, petroleum and natural gas, The Explanation qualifies the applicability only to Section 42 of the Act. It is therefore contended that 'mineral oil" under section 80-IB should be so construed so as not to include natural gas and the Explanation under Section 42 cannot be looked at in construing the provisions of Section 80-IB. 34. This contention would merit consideration if mineral oil has either been defined under the Act or has acquired a natural, commercial or interpretative meaning so as to exclude natural gas. Section 80-IB(9)(ii) of the Act provides for the same exemption to undertakings located in any part of India which began commercial production of mineral oil on or after 1st April 1997. Apart from use of the term "undertaking", this provision also uses the term "mineral oil". It is necessary to consider the scope and amplitude of these terms in the co....
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....c formations beneath the earth's surface, often in association with petroleum. 22. Natural gas is found in areas of the earth that are covered with sedimentary rocks. These sediments were first laid down during the Cambrian period, ca 500 million years ago, and this process continued until the end of the Tertiary period ca 100 million years ago. These sediments contain the organic source materials from which natural gas and petroleum were produced. Gas and petroleum, being less dense than the water present in the rocks, tended to migrate upward until contained under impervious rock barriers. 23. On page 634 of the above Encyclopedia, Natural gas is classified in several broad categories based on the chemical composition, which are; (1) wet gas contains condensable hydrocarbons such as propane, butane, and pentane; (2) lean gas denotes an absence of condensable hydrocarbons; (3) dry gas is a gas whose water content has been reduced by dehydration process; (4) sour gas contains hydrogen sulfide and other sulfur compounds; and (5) sweet gas denotes an absence of hydrogen sulfide and other sulfur compounds. Natural gas sold to the public is described as lean, dry and sweet. 2....
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....as' has been defined as "A mineral in the form of a vapor." "A gas characterized by hydrocarbons in mixture, occurring naturally in the crust of the earth, obtained by drilling, and piped to cities and villages, industrial and commercial centers, for use in heating, illumination and other purposes." "35. All the materials produced before us would only show that the natural gas is a petroleum product. It is also important to note that in various legislations covering the field of petroleum and petroleum products, either the word 'petroleum' or 'petroleum products' has been defined in an inclusive way, so as to include natural gas. In Encyclopaedia Britannica, 15th Edn. Vol. 19, page 589 (1990), it is stated that "liquid and gaseous hydrocarbons are so intimately associated in nature that it has become customary to shorten the expression 'petroleum and natural gas' to 'petroleum' when referring to both. "The word petroleum literally means 'rock oil'. It originated from the Latin term petra-oleum. (petra-means rock or stone and oleum-means oil). Thus, Natural Gas could very well be comprehended within the expression 'petroleum' or ....
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....rals oils" includes natural gas and petroleum." 4. Petroleum and Natural Gas Rules, 1959, 3. (k) "Petroleum" means naturally occurring hydrocarbons in a free state, whether in the form of natural gas or in a liquid viscous or solid form, but does not include helium occurring in association with petroleum, or coal, or shale, or any substance which may be extracted from coal, shale, or other rock by the application of heat or by a chemical process." 3. (n) "petroleum product" means any commodity made from petroleum or natural gas and shall include refined crude oil, processed crude petroleum, residuum from crude petroleum, cracking stock, uncracked fuel oil, fuel oil, treated crude oil residuum, casing head gasoline, natural gas gasoline, naphtha, distillate, gasoline, kerosene, waste oil, blended gasoline, lubricating oil, blends or mixture of oil with one or more liquid products or by-products derived from oil condensate, gas or petroleum hydrocarbons, whether herein enumerated or not." 5. The Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962, 2. (c) "petroleum" has the same meaning as in the Petroleum Act, 1934, and includes natural gas an....
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....nd natural gas' to 'petroleum' when referring to both. The word petroleum literally means 'rock oil', it originated from the Latin term petra-oleum. (petra-means rock or stone and oleum-means oil). Thus, Natural Gas could very well be comprehended within the expression 'petroleum' or 'petroleum product'. (ii) In para 37, it held "a survey of various legislations on the topic would show that the term "petroleum' or "petroleum products" has been given a wide meaning to include natural gas and other similar products. (iii) In para 41, it held "production of natural gas is not independent of the production of other petroleum products; though from some wells natural gas alone would emanate, other products may emanate from sub terrain chambers of the earth, But all oil fields explored for their potential hydrocarbon." (iv) In para 42 it held that the legislative history and the definition of 'petroleum', 'petroleum products' and 'mineral oil resources' contained in various legislations and books and the national interest involved in the equitable distribution of natural gas amongst the States - all these factors lead t....
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....ime after considering the technical, commercial and legislative meaning have concluded that mineral oil would encompass within itself petroleum products and natural gas. (iv) In the light of the judgment of the Constitutional Bench of the Apex Court, the Explanation in these Sections have to be read and referred to only as abundant caution. 35.9 If Explanation has to be given preference then it would amount to reading or rewriting the decision of the Apex court that mineral oil in its natural sense would not include natural gas. On the contrary, para 48 of the judgment uses the expression "all these factors lead to the inescapable conclusion" that natural gas in raw and liquefied form is petroleum product and part of mineral oil resources. 35.10 In fact, there is no dispute or contest on facts between the Union and the States as to what would constitute "natural gas" and its broad categories and chemical compositions. The Apex Court referred to technical literature and the advancement in science in the use of liquefied natural gas. The contention of the State that natural gas do not fall within the genre of petroleum products and mineral oil stood rejected by holding that nat....
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.... Land) Act 1962 and The Oil Industry Development Act 1974 have been passed by the Parliament. Since there was no explicit entry "Natural Gas" in Entry 53, all the aforesaid legislations while referring to Mineral Oil had indicated explicitly, what is otherwise implicit that Mineral Oil includes Natural Gas. If Natural Gas is not part of the term Mineral Oil, Parliament could not have legislated in any manner on any issues relating to Natural Gas which position has been made explicit. 35.14 Sub-clause (iv) to Section 80-IB(9) was introduced by the Finance (No.2) Act 2009 with effect from 1.4.2010. Notes on Clauses to the Finance Bill 2008 and 2009, the actual amendments to Section 80-IB(9) made through Finance Bill 2008 and Finance Bill 2009 along with the statements laid on the floor of the Parliament by the Hon'ble Finance Minister while moving the motion for consideration of Finance Bill 2008 on this subject matter are reproduced below :- 'Notes on clauses to Finance Bill 2008 :- "Clause 15 seeks to amend section 80-IB of the Income-tax Act, which relates to deduction in respect of profits and gains from certain industrial undertakings other than infrastructure deve....
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....n Parliament. We should allow the disputes to be resolved in the normal course by the tax tribunals and the courts. Nevertheless, some doubts have arisen because of the notes on clauses attached to the Finance Bill. I wish to clarify these doubts. The statement in the notes on clauses is a mere restatement of the Income Tax Department's known position before the tribunals and the courts which are adjudicating the matter. Nothing new has been stated, it is simply a restatement of Department's position which has already placed before the tribunals and the courts. Besides, it is a well settled proposition of law that notes on clauses have no legal effect and are not binding on the courts. I may assure potential bidders for oil exploration blocks that the benefit of Section 80IB(9), as finally interpreted by the courts, will be applicable to all exploration and production contracts, whether obtained through nomination or bidding..." 35.16 Budget speech of the Finance Minister while introducing Finance (No.2) Bill, 2009 :- "102. Madam Speaker, in the context of the geo-political environment, it is necessary for us to create our own faculties for energy security. Accordingly,....
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....dment will take effect retrospectively from 1st April, 2000 and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. It is further proposed to amend clause (iii) of the said sub-section (9) as so substituted to provide that the benefit of deduction under the said sub-section shall be available if the undertaking is engaged in refining of mineral oil and begins such refining on or after the 1st day of October, 1998 but not later than the 31st day of March, 2012. This amendment will take effect retrospectively from the 1st April, 2009. It is also proposed to further amend the said sub-section (9) as so substituted and further amended by inserting a new clause (iv) to provide that the benefit of deduction under the said sub-section shall be available if the undertaking is engaged in commercial production of natural gas in blocks licensed under the VIII Round of bidding for award of exploration contracts under the New Exploration Licensing Policy announced by the Government of India vide Resolution No.O-19018/22/95-ONG.DO.VL dated 10th February, 1999 (hereinafter referred to as "NELP-VIII") and begins commercial production of natural gas on or a....
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....ed in commercial production of natural gas in blocks licensed under the IV Round of bidding for award of exploration contracts for Coal Bed Methane blocks and begins commercial production of natural gas on or after the 1st day of April, 2009.' 35.19 These amendments are not in the nature of a Validating Act and they have not been given retrospective effect. In fact, the Notes on Clauses merely set out the stand of the revenue authorities. This exercise is insufficient to construe that the term mineral oil does not include natural gas or that the benefits of Section 80-IB have been extended to natural gas for the first time with effect from 1.4.2009 by virtue of insertion of sub-clause (iv) to Section 80-IB(9). At the best, sub-clause (iv) has to be construed to mean that the benefit would also be available for NELP VIII bidders who satisfy the conditions set out in the said sub-clause. 35.20 In the absence of specific wordings in the Statute, to draw a conclusion that only undertakings engaged in the commercial production of 'mineral oil" other than "natural gas" will be entitled to deductions of profits and gains under the above mentioned sub-section, is wholly incorre....