2007 (5) TMI 265 - AT - Income Tax

Summary

Issues Involved:
1. Determination of the initial assessment year under section 80-IB(9) of the Income-tax Act, 1961.
2. Computation of deduction under section 80-IB, including the eligibility of certain incomes for deduction.

Detailed Analysis:

1. Determination of Initial Assessment Year:

Revenue's Argument:
The revenue contended that the initial assessment year for the purpose of deduction under section 80-IB(9) should be the assessment year 1996-97, as held by the Assessing Officer, because the assessee commenced commercial production in that year. The revenue argued that the production of mineral oil started in the financial year 1995-96, and thus, the initial assessment year should be 1996-97.

Assessee's Argument:
The assessee argued that the initial assessment year should be 1999-2000, as the commercial production in substantial quantities began only after extensive work-over operations were completed in April 1999. The assessee contended that the production before this period was merely trial production and not commercial production.

CIT(A)-1's Findings:
The CIT(A)-1 agreed with the assessee, holding that the initial assessment year for the purpose of section 80-IB(9) was 1999-2000. The CIT(A)-1 considered the work-over operations and the substantial increase in production post these operations to determine the initial assessment year.

CIT(A)-2's Findings:
The CIT(A)-2, however, held that the initial assessment year was 1996-97, as the production of crude oil commenced in that year. The CIT(A)-2 emphasized that the work-over operations were part of regular overhaul and did not affect the commencement of commercial production.

Tribunal's Decision:
The Tribunal held that the initial assessment year should be 1996-97, agreeing with the CIT(A)-2. The Tribunal reasoned that the production of crude oil in the financial year 1995-96 constituted commercial production, and the subsequent increase in production due to work-over operations did not change the fact that commercial production had already commenced.

2. Computation of Deduction Under Section 80-IB:

Revenue's Argument:
The revenue argued that certain incomes, including parental support, interest income, and miscellaneous income, should not be eligible for deduction under section 80-IB as they were not derived from the business of the undertaking.

Assessee's Argument:
The assessee contended that the parental support income was directly linked to the operations of the extraction of oil and should be eligible for deduction. However, the assessee did not press for the deduction of interest income and miscellaneous income.

Tribunal's Decision:
The Tribunal held that the parental support income had a direct nexus with the production of mineral oil and was eligible for deduction under section 80-IB. However, the interest income and miscellaneous income were not derived from the business of the undertaking and were not eligible for deduction.

Conclusion:
- The appeals of the assessee for the assessment years 2003-04 and 2004-05 were dismissed, affirming that the initial assessment year was 1996-97.
- The appeal of the revenue for the assessment year 2000-01 was allowed, and the initial assessment year was determined to be 1996-97.
- The appeal of the revenue for the assessment year 2001-02 was partly allowed, granting deduction for parental support income but denying it for interest income and miscellaneous income.