DCIT, Dehradun V. M/s. Oil & Natural Gas Corporation Ltd., Dehradun

ITA 1967/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4270 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC 1
• Next Hearing Date: 29-06-2017
• Assessment Year: 1995-1996
• Appeal Filed On: 03-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWAROOP
• Keywords: Capital asset; Cost of acquisition; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER & SHRI K.N. CHARY, JUDICIAL MEMBER ITA NO.-1967/DEL/2014 ( ASSESSMENT YEAR: 1995-96) DCIT CIRCLE-1, DEHRADUN VS OIL & NATURAL GAS CORPORATION LTD. CORPORATE TAX DIVISION, TEL BHAWAN, DEHRADUN. AAACO1598A ASSESSEE BY SH. AJAY VOHRA, SR. ADV. MR. GAURAV JAIN, ADV. MS. MANISHA SHARMA, ADV. REVENUE BY MS. SHEFALI SWAROOP, CIT DR ORDER PER SHRI K.N. CHARY, JUDICIAL MEMBER REVENUE IS IN APPEAL BEFORE US CHALLENGING THE ORDE R DATED 16.01.2014 IN APPEAL NO. 172/DDN/2007-08 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, DEHRADUN (H EREINAFTER FOR SHORT CALLED AS THE LD. CIT (A)), ON THE FOLL OWING GROUNDS: 1. THE LD.CIT (APPEALS) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE INCOME ARISING FROM TRANSFER OF PETROLEUM EXPLO RATION/MINING RIGHTS BY ONGC TO CERTAIN PRIVATE COMPANIES WAS ASS ESSABLE NOT UNDER THE HEAD PROFIT & GAINS OF BUSINESS OR PROFE SSION BUT UNDER THE HEAD CAPITAL GAINS. SINCE THE COST OF ACQUISITION OF THE RIGHTS HAD BEEN CLAIMED AS REVENUE EXPENDITURE, THE DATE OF HEARING 13.09.2017 DATE OF PRONOUNCEMENT 26.09.2017 2 ITA NO. 1967/DEL/2014 CONSIDERATION ACCRUING ON TRANSFER OF THE SAME HAD BEEN CORRECTLY TREATED AS REVENUE RECEIPT AND TAXED AS PART OF PRO FIT OF BUSINESS BY THE AO. 2. EVEN WHILE HOLDING THAT THE INCOME ARISING FROM TRA NSFER OF PETROLEUM EXPLORATION/MINING RIGHTS BY ONGC TO CERT AIN PRIVATE COMPANIES WAS ASSESSABLE UNDER THE HEAD CAPITAL GA INS. THE LD. CIT (A) ERRED IN HOLDING THAT THE BOOK VALUE OF THE ASSETS OF THE BUSINESS IN QUESTION HAD TO BE DEDUCTED FROM TH E AMOUNT OF SIGNATURE BONUS. THE ASSET TRANSFERRED WAS EXPLO RATION/MINING RIGHTS; NOT THE ASSET OF BUSINESS. HENCE, EVEN IF THE INCOME HAD TO BE TAXED AS CAPITAL GAINS, IT WAS THE COST OF ACQUI SITION OF SUCH RIGHTS THAT WAS TO BE DEDUCTED FROM FULL VALUE OF C ONSIDERATION ARISING ON TRANSFER OF SUCH RIGHTS BY THE ASSESSEE. 3. EVEN IF THE ASSETS OF THE BUSINESS HAD BEEN TRANSFE RRED, IT WAS THE WRITTEN DOWN VALUE NOT THE BOOK VALUE OF TH E ASSETS THAT COULD BE DEDUCTED. IN THIS CASE, THE ASSESSEE WAS CAPITALIZING THE COST OF EXPLORATION/DEVELOPMENT IN THE BOOKS OF ACC OUNT BUT WAS CLAIMING DEDUCTION FOR THE SAME U/S 42 OF THE I.T. ACT. HENCE, FOR PURPOSES OF INCOME TAX, A SUBSTANTIAL PART OF THOSE ASSETS HAD NOT BEEN CAPITALIZED AT ALL. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE WAS G RANTED A MINING LEASE TO MINE PETROLEUM FOR 20 YEARS EFFECTI VE FROM THE DATE 01.01.1987 IN RESPECT OF BASING OFFSHORE AREA VIDE MINISTRY OF PETROLEUM DATED 10.10.1985, IN RESPECT OF MUKTA FIE LD AREA EFFECTIVE FROM 15.11.1990 VIDE LETTER DATED 24.06.1 991. VIDE LETTER DATED 03.07.1992 OF THE JOINT SECRETARY, MINISTRY O F PETROLEUM, THE ASSESSEE INTIMATED THE PROPOSAL OF JOINT VENTURE DE VELOPMENT IN FIELD OF MUKTA PANNA IN WESTERN OFFSHORE AND RAVVA IN THE KRISHNA GODAWARI OFFSHORE INDIA ON THE CONDITION OF THE COM PANIES PAYING THE ASSESSEE IN CONSIDERATION OF THE RIGHT TO COMME NCE AND CARRIED OUT EXPLORATION AND DRILLING ACTIVITIES. ASSESSEE AGREED WITH THE 3 ITA NO. 1967/DEL/2014 OTHER COMPANIES TO RECEIVE 40% OF THE SHARE IN THE PRODUCTION AND IN ADDITION TO THE SUM OF CERTAIN AMOUNTS DEPENDING UPON THE ACHIEVEMENT OF CERTAIN LEVEL OF PRODUCTION. DURING THE AY 1995- 96, ASSESSEE RECEIVED A SUM OF RS. 219.76 CRORES AS SIGNATURE BONUS FOR DEMITTING 60% SHARE IN THE OIL FIELDS A ND THE AO TREATED THE SAME AS REVENUE RECEIPT AND BROUGHT IT TO TAX. HOWEVER, IN APPEAL LD. CIT (A) HELD THAT THE TRANSFER BY THE AS SESSEE WAS A REVENUE YIELDING ASSET I.E. THE OIL MINES AND THAT ANY TRANSFER OF CAPITAL ASSET WOULD LEAD TO CAPITAL GAIN OR CAPITAL LOSS BUT IN SO FAR AS THIS PARTICULAR CASE ON HAND IS CONCERNED WHAT T HE ASSESSEE RECEIVED WAS RS. 219.76 CRORES FOR TRANSFER OF 60% OF SHARES IN THE OIL FIELDS THE BOOK VALUE OF WHICH WAS 882.86 CRORE S, AS SUCH, THE TRANSACTION DID NOT LEAD TO ANY CAPITAL GAIN. ON T HIS PREMISE, LD. CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE AND DELE TED THE ADDITION OF RS. 2,19,75,65,000/- MADE BY THE AO. THUS, REVE NUE IS BEFORE US IN THIS APPEAL AGGRIEVED BY THE IMPUGNED ORDER. 3. IT IS THE ARGUMENT OF THE LD. DR THAT THE AMOUNT OF RS. 219.76 CRORES WAS RECEIVED BY THE ASSESSEE IN THE C OURSE OF BUSINESS ACTIVITIES BECAUSE THE BUSINESS FOR WHICH JOINT OPERATING 4 ITA NO. 1967/DEL/2014 AGREEMENT WAS ENTERED INTO WAS ALREADY YIELDING REV ENUE TO THE ASSESSEE AND THE ASSESSEE WOULD HAVE ALSO CLAIMED E XPENSES U/S 42(1) OF THE ACT IN RESPECT OF THE REVENUE OF THESE FIELDS, AND THE SIGNATURE BONUS RECEIVED BY THE ASSESSEE IS NOTHING BUT A PAYMENT TOWARDS THE COMPENSATION TO THE ASSESSEE FOR THE PR OFIT IT WAS SUPPOSED TO LOSE AS A CONSEQUENCE OF PRODUCTION SHA RING CONTRACT. SHE FURTHER SUPPORTED THE ASSESSMENT ORDER STATING THAT BY A TRANSFER OF THE OIL FIELDS THE ASSESSEE HAS NOT SOL D ANY ASSET, NOR THE SOURCE OF BUSINESS OF THE ASSESSEE SEIZED TO EX IST. ON THIS PREMISE, LD. DR SUBMITS THAT THE SURPLUS LUMPSUM SO RECEIVED BY THE ASSESSEE WAS LIABLE TO TAX AS REVENUE RECEIPT. PER CONTRA, LD. AR SUPPORTED THE IMPUGNED ORDER ON TWO GROUNDS. FI RSTLY, THE SO CALLED TRANSFER OF REMAINING RIGHTS IN THREE OIL FI ELDS BY THE ASSESSEE AGREEING TO RECEIVE 40% OF SIGNATURE BONUS DOES NOT RESULT IN ANY CAPITAL GAIN IN AS MUCH AS, AS OBSERV ED BY THE LD. CIT (A) AS AGAINST THE 60% OF SHARES IN THE OIL FIE LDS BOOK WORTH OF WHICH IS ABOUT 882.86 CRORES, THE ASSESSEE RECEIVED ONLY A SUM OF RS. 219.76 CRORES. SECONDLY, HE SUBMITTED THAT HER E WHAT WAS TRANSFERRED WAS AN ONGOING CONCERN WITH ALL THE LOC K, STOCK AND BARREL INCLUDING THE EMPLOYEES AND ALL OTHER ATTEND ANT AND 5 ITA NO. 1967/DEL/2014 ANCILLARY MATERS, AS SUCH, THIS TYPE OF SLUMP SALE TRANSACTION CANNOT BE BROUGHT TO TAX BECAUSE THERE WERE NO COMP UTATION PROVISIONS PRIOR TO 1.4.2000 THAT COULD BE BROUGHT TO TAX AS CAPITAL GAINS THE CONSIDERATION RECEIVED IN SLUMP SALE. HE PLACED RELIED ON THE DECISION REPORTED IN PNB FINANCE LTD. VS. CO MMISSIONER OF INCOME TAX (2008) 307 ITR 75 (SC) & CIT VS. DLF LTD . 2017-TIOL- 1818-HC-DEL-IT. 4. AS COULD BE SEEN FROM THE RECORD, IT IS EVIDENT THAT ONGC TRANSFERRED 60% OF RIGHTS IN THREE FIELDS TO RECEIV E THE SIGNATURE BONUS AND THE COMMERCIAL ACTIVITIES HAVE ALREADY BE EN STARTED AT THOSE THREE FIELDS. AS RIGHTLY HELD BY THE LD. CIT (A) WHEN THE REVENUE YIELDING ONGOING CONCERN WAS TRANSFERRED TH ERE WILL ONLY BE CAPITAL GAIN OR CAPITAL LOSS AND THE OBSERVATION OF THE AO THAT SINCE THE JOINT OPERATING AGREEMENT WAS ENTERED INT O IN RESPECT OF A BUSINESS WHICH IS ALREADY YIELDING REVENUE THE AMOU NTS RECEIVED BY THE ASSESSEE ARE REVENUE IN NATURE IS NOT CORREC T. RECORD DOES NOT SUPPORT THE OBSERVATION OF THE AO THAT THE SIGN ATURE BONUS WAS A PAYMENT TOWARDS COMPENSATION TO THE ASSESSEE FOR THE PROFIT WHICH IT LOSES, AS A CONSEQUENCE OF PRODUCTION SHAR ING CONTRACT. 6 ITA NO. 1967/DEL/2014 SIGNATURE BONUS WAS RECEIVED BY THE ASSESSEE IN LIE U OF THE TRANSFER OF 60% OF RIGHTS IN THE OIL FIELDS, AS SUC H, BY NO STRETCH OF IMAGINATION COULD IT BE SAID THAT THE RECEIPTS ON T HAT ACCOUNT WOULD BE TO RECEIVE THE COMPENSATION FOR LOSS OR PR OFIT. UNDER THE JOINT OPERATION AGREEMENT ONGC SURRENDERED 60% OF T HE RIGHTS TO THE OTHER COMPANIES AGREEING TO RECEIVE SIGNATURE B ONUS. WE, THEREFORE, HOLD THAT THE AMOUNT OF RS. 219.76 CRORE S RECEIVED BY ONGC IS FOR TRANSFER OF 60% OF SHARES IN THE REVENU E YIELDING OIL FIELDS, AS SUCH, IS CAPITAL IN NATURE. 5. HERE IN THIS CASE, THE TRANSFER WAS IN THE NATUR E OF SLUMP SALE AND AS IS HELD BY THE HONBLE APEX COURT IN PNB FIN ANCE LTD. (SUPRA) WHILE REFERRING TO THE DECISION IN CIT VS. B.C. SRINIWAS SHETTY (1981) 128 ITR 294, AND HOLDING THAT THE RAT IO OF ARTEX MANUFACTURING CO. (1997) 227 ITR 260 (SC) HAS NO AP PLICATION TO THE FACTS OF THE CASE AND PRIOR TO 1.4.2000 THERE W AS NO COMPUTATION PROVISION THAT COULD BE BROUGHT TO TAX AS CAPITAL GAINS THE CONSIDERATION RECEIVED IN SLUMP SALE. TH E HONBLE JURISDICTIONAL HIGH COURT FOLLOWED THIS PRINCIPLE I N CIT VS. DLF LTD. (SUPRA). WHILE RESPECTFULLY FOLLOWING THE SAM E, WE ARE OF THE 7 ITA NO. 1967/DEL/2014 CONSIDERED OPINION THAT THE AMOUNT OF RS. 219.76 CR ORES RECEIVED BY THE ASSESSEE AS SIGNATURE BONUS FOR DEMITTING 60 % SHARES IN THE THREE OIL FIELDS CANNOT BE BROUGHT TO TAX. EVE N OTHERWISE, AS IS HELD BY THE LD. CIT (A) IN THIS MATTER THE TRANSACT ION DID NOT RESULT IN ANY CAPITAL GAIN IN AS MUCH AS BY DEMITTING 60% OF SHARE IN THREE OIL FIELDS THE BOOK VALUE OF WHICH IS RS. 882 .86 CRORES THE ASSESSEE RECEIVED ONLY A SUM OF RS. 219.76 CRORES. VIEWING FROM ANY ANGLE THE AMOUNT RECEIVED BY THE ASSESSEE AS SI GNATURE BONUS IS NOT LIABLE FOR TAX. WE, THEREFORE, DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.09.2017 SD/- SD/- (N.K. SAINI) (K.N. CHAR Y) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26.09.2017 *KAVITA ARORA 8 ITA NO. 1967/DEL/2014 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI DRAFT DICTATED ON 15.09.2017 DRAFT PLACED BEFORE AUTHOR 18.09.2017 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 26.09.2017 KEPT FOR PRONOUNCEMENT ON 26.09.2017 FILE SENT TO THE BENCH CLERK 26.09.2017 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.