TaxTMI 
TaxTMI 
2022 (6) TMI 839
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....of by this common order for the sake of convenience. 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 ....
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....A.Y.2009-10 in ITA No.4826/Mum/2015 dated 07/06/2017 had held that temporary business funds 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 contr....
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....include "natural gas and petroleum". He argued that the Government of India is entering into PSCs with companies and advising 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. Acco....
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....(A) on this issue. 4.7. For the sake of convenience, we also would like to reproduce the operative portion of the decision of the Hon'ble Gujarat 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 c....
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....ive from 1.4.2010 i.e. for Assessment Year 2010-11 onwards. 32. We propose to deal with the second issue first. 33. Before we go into the issue of constitutional validity and vires of the amendments by insertion of sub-clause (iv) to 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 ....
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....ve forms." 35.5 The relevant portions of this decision is reproduced below:- '20. In Kirk-Othomer Encyclopedia of Chemical Technology, (Third Edition), Vol, 11 page 630, 'Natural gas' is defined as a naturally occurring mixture of hydro-carbon and non- hydrocarbon gases found in the porous geologic 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 ....
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.... gas' has been defined in the Webster's new 20th Century dictionary, unabridged second edition, as follows : "Natural Gas: A mixture of gaseous hydrocarbons, chiefly methane, occurring naturally in the earth in certain place, from which it is piped to cities etc, to be used as a fuel." (p-756). 32. In Ballantine's Law Dictionary, 3rd Edn. 1969, 'Natural Gas' 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 associat....
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.... product. 1. The Oil Fields (Regulation & Development) Act, 1948. 3(c) "Mineral Oils" include natural gas and petroleum. 2. Mines Act, 1952 2 (jj) "minerals" means all substances which can be obtained from the earth by mining, digging, drilling, dredging, hydraulicking, quarrying or by any other operation and includes mineral oils (which in turn include natural gas and petroleum)." 3. The Mines and Minerals (Development and Regulation) Act, 1957, 3.(b) "minerals 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 c....
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.... 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 Encyclopedia 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 '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 ....
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....This contention of the learned counsel for the Respondent needs to be rejected for the following reasons:- (i) The judgment of the Apex Court makes it very clear that the expression "mineral oil" encompasses within itself petroleum products and natural gas. (ii) The Constitutional Bench judgment was delivered on 25.3.2004. The Explanation in Sections 42 and 293A was introduced vide Finance Act 1981 effective from 1.4.1981. Explanation of Section 44BB was again introduced vide Finance Act 1987 with retrospective effect from 1.4.1983. (iii) The judgment of the Apex Court which is later in time 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 ....
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....ubsequent amendments to Section 80-IB(9)(ii). The insertion of sub-clause (iv) to Section 80-IB(9) does not militate against meaning attributed to the expression "mineral oil" by the Apex Court, Entry 53 of List I does not refer to Natural Gas separately. The Apex Court has also read it only as part of mineral oil, but for which Parliament would not have had the power and competence to legislate. Various enactments such as the Oil Fields (Regulation and Development) 1948, Mines Act 1952, The Mines and Minerals (Development and Regulation) Act 1957, Petroleum and Natural Gases Rules 1959, The Petroleum and Minerals Pipelines (Acquisition of Right of User in 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....
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....fining not later than the 31st day of March, 2012.' 35.15 Statement of the Finance Minister on the floor of the Parliament while moving the motion for the consideration of Finance Bill 2008 :- "...Members are aware, this sub-section allows 100 per cent tax exemption in respect of an undertaking which begins commercial production or refining of mineral oil for a period of seven consecutive assessment years. Now, what is the scope of this Section? It is disputed. The Department has taken a view; the assessees have taken another view. The disputes go back to assessment year 2001-02. The disputes are under adjudication before different tax authorities. In my view, it is not correct to resolve these disputes by debate in 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 ....
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....97; (ii) is located in any part of India and has begun or begins commercial production of mineral oil on or after the 1st day of April, 1997; (iii) is engaged in refining of mineral oil and begins such refining on or after the 1st day of October, 1998. It is further proposed to provide by way of an Explanation that for the purposes of claiming deduction under this sub-section, all blocks licensed under a single contract which is, awarded 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 or has been awarded in pursuance of any law for the time being in force or has been awarded by the Central or State Government in any other manner, shall be treated as a single "undertaking". This amendment 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 min....
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....or a State Government in any other manner, shall be treated as a single "undertaking"; (b) In sub-section (9), as so substituted, - (A) in clause (iii), after the words, figures and letters "the 1st day of October, 1998", the words, figures and letters "but not later than the 31st day of March, 2012" shall be inserted; (B) after clause (iii), the following clauses shall be inserted with effect from the 1st day of April, 2010, namely :- (iv) is engaged in commercial production of natural gas in blocks licensed under the VIIIth Round of bidding for award of exploration contracts (hereafter referred to as "NELP-VIII") under the New Exploration Licensing Policy announced by the Government of India vide Resolution No.O-19018/22/95-NG.DO.VL dated 10th February, 1999 and begins commercial production of natural gas on or after the 1st day of April, 2009. (v) is engaged 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 ....
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....h the parties mutually agreed that the grounds raised by the Revenue for this assessment year are exactly identical with those raised in A.Y.2011-12 and hence, the decision rendered in A.Y.2011-12 would apply mutatis mutandis to this assessment year also except with variance in figures. 8. In the result, appeal of the Revenue for A.Y.2012-13 in ITA No.642/Mum/2018 is dismissed. ITA No.643/Mum/2018 (A.Y.2013-14) Revenue Appeal 9. Both the parties mutually agreed that ground nos. 3 & 4 raised for this assessment year are exactly identical with the grounds raised for A.Y.2011-12 by the Revenue and the decision rendered for A.Y.2011-12 shall apply mutatis mutandis to these grounds also except with variance in figures. 10. The ground Nos. 1 & 2 raised by the Revenue are challenging the action of the ld. CIT(A) in deleting the transfer pricing adjustment of Rs.15,72,431/- made on account of interest chargeable on outstanding receivables. 10.1. We have heard rival submissions and perused the materials available on record. We find that assessee in its form 3CEB had reported an amount of Rs.1,08,81,872/- as receivable from Niko Resources Ltd., Cyprus India- Project Office, As....