2010 (10) TMI 658 - HC - Income Tax

Deduction u/s 80HHC - Revision u/s 263 - Whether on the facts and in the circumstances of the case, the hon ble Tribunal was justified in law in holding that calcined petroleum coke manufactured by the appellant is the mineral oil within the meaning of section 80HHC - Since the expression mineral oil is not defined in the Act, the meaning of the expression would have to be gathered from the common parlance. We would have to consider how commercial men concerned with or dealing in mineral oil and other related commodities understand the expression mineral oil - The learned counsel for the Revenue however submitted that the cal-cination process cannot be regarded as a manufacturing process as it is a simple process of applying heat, may be by specialised methods, and mere heat treatment cannot be regarded as a manufacturing process and no new product therefore comes into existence - Though the initial raw material used for manufacture of the CPC is a petroleum crude oil extracted from the earth, the product which is manufactured by the appellant is an entirely different product commercially known and regarded as different from petroleum crude and which is different than the one which is derived by mere distillation of the petroleum crude which is a mineral oil - Decided in favor of the assessee

Summary

Issues Involved:
1. Eligibility of Calcined Petroleum Coke (CPC) for deduction under section 80HHC of the Income-tax Act.
2. Interpretation of "mineral oil" within the meaning of section 80HHC(2)(b) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Eligibility of Calcined Petroleum Coke (CPC) for Deduction under Section 80HHC:
The appellant, a company engaged in the manufacture of CPC, claimed deductions under section 80HHC for profits derived from the export of CPC. The Assessing Officer initially allowed this deduction. However, the Commissioner of Income-tax (CIT) set aside this assessment, arguing that CPC, being a processed mineral derived from petroleum crude, was not eligible for the deduction as it was not specified in the Twelfth Schedule of the Act. The Income-tax Appellate Tribunal (ITAT) upheld the CIT's decision, stating that CPC, derived from raw petroleum coke (RPC), a form of mineral oil, did not qualify for the deduction under section 80HHC(1) due to the exclusion stated in section 80HHC(2)(b).

2. Interpretation of "Mineral Oil" within the Meaning of Section 80HHC(2)(b):
The core issue was whether CPC could be classified as "mineral oil" under section 80HHC(2)(b), which excludes mineral oil from the benefits of deduction. The appellant argued that CPC, though derived from crude oil, undergoes significant manufacturing processes, transforming it into a distinct product. The court noted that the term "mineral oil" is not defined in the Act and should be interpreted in its common parlance. In common parlance and commercial understanding, CPC is not considered a mineral oil. The court examined various dictionary definitions and previous judicial interpretations, concluding that "mineral oil" typically refers to substances in liquid form directly derived from crude oil, not to solid products like CPC.

The court emphasized that the legislative intent behind section 80HHC was to promote exports while preserving natural resources. The exclusion of mineral oil and unprocessed minerals from deductions was to prevent the squandering of natural resources. However, CPC, being a value-added product obtained through multiple manufacturing processes, does not fall under the category of mineral oil. The court cited examples and precedents where transformation through manufacturing processes resulted in new products not classified as their raw material counterparts.

Conclusion:
The court held that CPC is not a "mineral oil" within the meaning of section 80HHC(2)(b) and thus, the appellant is entitled to the deduction for export profits under section 80HHC. The decision of the ITAT and the order of the CIT were quashed and set aside. The substantial question of law was answered in favor of the appellant, affirming that CPC does not fall within the exclusionary clause of section 80HHC(2)(b).