9911796707
TMI Blog2008 (12) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... is mentioned in the assessment order that the assessee debited a sum of Rs. 6,91,44,563 in its books of account representing interest on capital borrowed for incurring capital expenditure. This interest was added back to the income and thereafter depreciation was claimed on an amount of Rs. 6,85,95,042. In the light of these facts, it was held that since the interest had already been included in the addition made to the fixed assets on which depreciation was claimed, the assessee was not entitled to claim further depreciation on the amount of Rs. 6,85,95,042. 2.1 Aggrieved by this order, the assessee moved an appeal before the CIT (Appeals). On going through the assessment order and the submissions made by the assessee, it was pointed out by the learned CIT(A) that additions to fixed assets on account of the interest were separate and apart from other additions made to these assets. Therefore, it was held that the assessee was entitled to deduction of depreciation on the amount of Rs. 6,85,95,042. 2.2 Before us, the learned DR pointed out that the question whether, the amount of interest was capitalized or not in the books of account is a question of fact, which can be veri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of Persons. The assessee filed its return of income declaring total income of Rs. 11,32,96,59,530. The assessment was completed under section 143(3) at the total income of Rs. 11,55,99,98,340. In the course of assessment proceedings, it was found that the assessee debited certain expenditure on account of B.G. International Ltd. ( B.G. International ), being - ( i ) parent company overhead - Rs. 3,20,94,267; ( ii ) general administration - Rs. 16,16,90,739; ( iii ) MSU charges - Rs. 67,96,54,683; and ( iv ) miscellaneous expenditure - Rs. 1,73,63,841. The assessee was required to substantiate its claim for deduction of expenditure and also to state why the provisions contained in section 44C should not be applied in respect of the expenditure. It was explained that the BG International is an affiliate concern, functioning under B.G. Group Plc. The expenditure debited to the books on the basis of debit note of the BG International could not be classified as Head Office Expenditure , which means only that expenditure which has been incurred by the assessee-company in its headquarters located at Cayman Islands. Without prejudice to the aforesaid argument, it was claimed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable services currently provided by outside technical service organizations of comparable qualifications. Unless the work to be done by such personnel is covered by an approved work programme and Budget, Operator shall not authorize work by such personnel without approval of the Management Committee. (3) Clause 3.1-4( c ) of section 3 of the Accounting Procedure of the PSC reads thus : Equipment facilities and property owned and furnished by contractor s affiliates, at rates commensurate with the cost of ownership and operation provided, however, that such rates shall not exceed those currently prevailing for the supply of like equipment and facilities referred to herein shall exclude major investment items such as (but not limited to) drilling rigs, producing platforms, oil treating facilities, oil and gas loading and transportation systems, storage and terminal facilities and other major facilities, rates for which shall be subject to separate agreement with the Government." 4.1 The learned CIT(A) considered the facts of the case and the submissions made before him. It was pointed out by him that the head office of the assessee-company was situated at Cayman Islands. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the section is not applicable on the facts and in the circumstances of the case. Without prejudice to the aforesaid argument, it was pointed out that the assessee is engaged in the business of extraction of mineral oils in accordance with the terms contained in the PSC. The PSC has been placed before both the Houses of Parliament. It may be mentioned that necessary evidence in respect of placing of the PSC before Houses of Parliament was placed before us at our insistence. Further, it was pointed out that in view of Notification No. GSR 117(E), dated 8-3-1996, it is clear that each person referred to in the PSC shall be assessed in respect of its share of income in the same status under which it entered into agreement with the Central Government. This Notification was published in [1996] 219 ITR (St.) 19. He also drew our attention towards the decision of Hon ble Supreme Court in the case of CIT v. Enron Oil Gas India Ltd. [2008] 305 ITR 77 1 . The Hon ble Court at page 81 pointed out that section 42 is a special provision applicable to oil contracts. Therefore, it had to be construed in the background of the PSC. There is a difference between Production Sharing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the meaning of the expression "Head Office Expenditure" in an exhaustive manner and includes inter alia rent, rates, etc. of any premises outside India used for the purpose of business or profession; salary, wages, annuity etc., whether paid or allowed to any employee or other person employ- yed or managing the affairs of any office outside India; travelling etc. by any employee outside India; and such other matters, as may be prescribed. It is clear from the facts of the case that the expenditure was incurred outside India by the office situated outside India. The assessee has been unable to furnish the details of the expenditure beyond four broad categories, mentioned earlier. In the light of these facts, the Assessing Officer, came to the conclusion that the expenditure was in the nature of head office expenditure. The learned CIT(A) negatived this contention by stating that the expenditure was incurred by a third party. That according to us, is not the intent and purpose of the provision because the expenditure in the nature of head office expenditure, even when incurred by a third party, is caught within the mischief of this provision. In fact, we are of the view that inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid expenses had to be accounted for. The PSC is an independent accounting regime which includes tax treatment of costs, expenses, incomes, profit etc. It prescribes a separate rule of accounting. In normal accounting, in the case of fixed assets, generally when currency fluctuation results in an exchange loss, addition is to be made to the value of the asset for the purpose of computing depreciation. However, under the PSC, instead of increasing the value, the expenditure incurred on account of currency variation is taken in the expenses, and the assessee was required to book losses separately. Therefore, the PSC represented an independent regime. The shares of the Government and the contractors were also determined on that basis. Section 42 is inoperative by itself. It becomes operative only when it is read with the PSC. Expenses deductible under section 42 had to be determined as per the PSC. This implies that expenses had to be accounted for only as contemplated by the PSC. If so read, it is clear that the primary objective of the PSC is to ensure a fair "take" to the Government. The said "take" comprises profit, oil, royalty, cess and taxes. The said PSC accounting oblit ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
