2017 (9) TMI 1576 - AT - Income Tax

Nature of income - Income arising from transfer of petroleum exploration/mining rights by ONGC to certain private companies - assessee received a sum of ₹ 219.76 crores as Signature bonus for demitting 60% share in the oil fields and the AO treated the same as Revenue receipt and brought it to tax. - CIT(A) treated the same as taxable as Capital Gains - determination of cost of acquisition, if to be taxed as capital gains. Held that - Record does not support the observation of the AO that the signature bonus was a payment towards compensation to the assessee for the profit which it loses, as a consequence of production sharing contract. Signature bonus was received by the assessee in lieu of the transfer of 60% of rights in the oil fields, as such, by no stretch of imagination could it be said that the receipts on that account would be to receive the compensation for loss or profit. Under the joint operation agreement ONGC surrendered 60% of the rights to the other companies agreeing to receive signature bonus. We, therefore, hold that the amount of ₹ 219.76 crores received by ONGC is for transfer of 60% of shares in the Revenue yielding oil fields, as such, is capital in nature. Here in this case, the transfer was in the nature of slump sale and as is held by the Hon ble Apex Court in PNB Finance Ltd. (2008 (11) TMI 7 - SUPREME COURT) referring to the decision in CIT vs. B.C. Sriniwas Shetty (1981 (2) TMI 1 - SUPREME Court) and holding that the ratio of Artex Manufacturing Co. (1997 (7) TMI 7 - SUPREME Court) has no application to the facts of the case and prior to 1.4.2000 there was no computation provision that could be brought to tax as capital gains the consideration received in slump sale. While respectfully following the same, we are of the considered opinion that the amount of ₹ 219.76 crores received by the assessee as signature bonus for demitting 60% shares in the three oil fields cannot be brought to tax. Even otherwise, as is held by the Ld. CIT (A) in this matter the transaction 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 ₹ 882.86 crores the assessee received only a sum of ₹ 219.76 crores. Viewing from any angle the amount received by the assessee as signature bonus is not liable for tax. We, therefore, dismiss the grounds of appeal of the Revenue.

Summary

Issues:
1. Classification of income from transfer of petroleum exploration/mining rights
2. Treatment of book value in capital gains calculation
3. Consideration of written down value for assets in taxation

Analysis:

Issue 1: Classification of income from transfer of petroleum exploration/mining rights
The appeal concerned the classification of income arising from the transfer of petroleum exploration/mining rights by a party to certain private companies. The Revenue contended that the income should be assessed under "Profit & Gains of business or profession," while the Ld. CIT (A) held it should be under "Capital Gains." The Revenue argued that the consideration accrued on transfer should be treated as revenue receipt since the cost of acquisition of rights was claimed as revenue expenditure. However, the Ld. CIT (A) emphasized that the transfer was of rights in oil fields, not business assets, and thus, the income should be treated as capital in nature.

Issue 2: Treatment of book value in capital gains calculation
The Ld. CIT (A) further discussed the calculation of capital gains, stating that the book value of the assets in question needed to be deducted from the amount of the signature bonus. The assessee received a sum for transferring shares in the oil fields, and the Ld. CIT (A) found that the transaction did not result in any capital gain. The Ld. CIT (A) allowed the appeal and deleted the addition made by the AO, emphasizing that the nature of the transfer and the consideration received did not lead to capital gains.

Issue 3: Consideration of written down value for assets in taxation
The argument presented by the Ld. DR focused on the amount received by the assessee in the course of business activities and claimed that it should be taxed as revenue receipt. However, the Ld. AR supported the impugned order, stating that the transfer did not result in capital gain and that it involved a slump sale transaction. The Tribunal held that the amount received as a signature bonus for transferring shares in the oil fields was not liable for tax, considering the nature of the transaction and the absence of applicable computation provisions.

In conclusion, the Tribunal dismissed the Revenue's appeal, emphasizing that the amount received as a signature bonus for transferring shares in the oil fields was capital in nature and not subject to taxation. The judgment highlighted the distinction between revenue and capital receipts in the context of the transfer of exploration/mining rights, ultimately ruling in favor of the assessee.