2004 (12) TMI 628 - AT - Income Tax

Summary

Issues Involved:

1. Denial of deduction under section 80HHC for export of Calcined Petroleum Coke on the grounds that it constitutes 'mineral oil'.
2. Treatment of interest income from banks as 'income from other sources' instead of 'business income'.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80HHC:

The main dispute in these appeals revolves around the denial of deduction under section 80HHC due to the classification of Calcined Petroleum Coke (CPC) as 'mineral oil'. The Commissioner of Income-tax (CIT) revised the orders of the Assessing Officer (AO) for assessment years 1993-94 and 1994-95, directing disallowance of the deduction under section 80HHC. The CIT held that Calcined Petroleum Coke is a processed mineral, which is not specified in the Twelfth Schedule of the I.T. Act, and thus, it is a residue obtained from petroleum, a mineral oil.

For assessment year 1995-96, the AO rejected the claim of deduction under section 80HHC following the CIT's directions. The CIT(A) directed the AO to inspect the plant and determine whether the product exported could be considered mineral oil. The AO concluded that Calcined Petroleum Coke is a residue of crude oil, and thus, it is a mineral oil, making the assessee ineligible for deduction under section 80HHC.

For assessment years 1997-98, 1998-99, and 2000-01, the AO similarly disallowed the deduction under section 80HHC, citing the reasons given in earlier years. The CIT(A) upheld these disallowances.

The assessee contended that Raw Petroleum Coke (RPC) is a product derived from refining crude oil and is further processed into CPC. The finished product, CPC, is a solid material and cannot be classified as mineral oil. The assessee argued that the basic intent of section 80HHC is to prohibit incentives for exporting natural wealth in its original form, not processed products like CPC.

However, the Tribunal concluded that CPC is a product secured from crude oil, and its basic character remained the same even after calcination. The Tribunal relied on the Bombay High Court's decision in Burmah Shell Refineries Ltd. v. G.B. Chand, ITO [1966] 61 ITR 493, which held that the term 'mineral oil' includes both crude oil and products obtained from it by refining. Thus, the Tribunal held that CPC is mineral oil and denied the deduction under section 80HHC.

2. Treatment of Interest Income:

For assessment year 2000-01, the AO treated the interest income from banks amounting to Rs. 12,72,247 as 'income from other sources' instead of 'business income'. The CIT(A) upheld this treatment, and the Tribunal agreed, citing the Supreme Court's decision in Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278, which supports the view that interest income from bank deposits cannot be said to have been derived from export business.

Conclusion:

The Tribunal dismissed all six appeals of the assessee, upholding the CIT(A)'s orders that the assessee is not entitled to deduction under section 80HHC for the export of Calcined Petroleum Coke, as it is classified as mineral oil. Additionally, the Tribunal upheld the treatment of interest income from banks as 'income from other sources'.