TMI Blog1981 (9) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... ame out of India. While submitting the returns of income for these two assessment years, the assessee had calculated depreciation on its machinery and boilers-it appears there were distillers and storage tanks-at 10% and the depreciation as claimed had been allowed by the ITO. The original assessment allowing depreciation at 10% had been completed on February 27, 1967, and March 26, 1968, respectively. Subsequently, it appears that the revenue audit expressed the opinion that depreciation should have been granted to the assessee only at the rate of 7% which is the general rate applicable to machinery and plant under sub-para. (i) of para. III of Pt. I of Appx. I to the I.T. Rules, 1962. The ITO, therefore, issued notices under s. 154 of the Act calling upon the assessee to show cause why depreciation should not be reduced from 10% to 7%. The assessee replied contending that the grant of depreciation at 10% was proper inasmuch as the assessee was a " mineral oil concern ", machinery boilers and storage tanks in the case of which were entitled to depreciation at 10% under the I.T. Rules. The contention was rejected by the ITO who rectified the assessments and reduced the rate of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rightly allowed earlier and that the rectification orders in this aspect were erroneous. The Revenue preferred appeals to the Appellate Tribunal. There was a difference of opinion between the two Members who heard the appeal in the first instance. The learned Accountant Member was of opinion that ethyl alcohol in which the assessee dealt was merely a bye-product of sugar manufacture; that to be a mineral oil concern, there should be some mining or extraction of oil from earth or the assessee's product or stock-in-trade must be of mineral origin; and that, this not being so, it was very clear that the assessee was not a mineral oil concern. In the opinion of the learned Accountant Member an unnecessary controversy had been introduced by referring to various extraneous matters such as the composition of petroleum, the definition of petroleum under other enactments and so on, thus unnecessarily creating some sort of doubts in one's mind and then concluding that the matter was debatable. In the view of the learned Accountant Member, the position was quite clear and depreciation was not available to the assessee at 10% under the item referred to on behalf of the assessee. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber that the assessee could not be a mineral oil concern because it was not engaged in mining or extraction of oil from earth nor was its product or stock-in-trade of mineral origin. However, he pointed out that in this case two views could plausibly and reasonably be entertained, as, indeed, had been entertained by the two Members who had heard the case in the first instance. He saw no reason to suggest that the view taken by one of the learned Members was a view which could not be reasonably taken. Indeed, there had been a difference of opinion even at the stages of the AAC and the ITO. The learned Vice-President proceeded to observe : " The assessee is no doubt dealing in ethyl alcohol. This is not manufactured by the assessee itself but it is not disputed that it is manufactured from molasses. It is also not in dispute that no process of mineral extraction is involved in the manufacture. The only point to be considered was whether ethyl alcohol could be treated as a mineral oil product by reason of the fact that the term 'mineral product' covered both crude oil and liquid product derived from liquid petroleum which are in the nature of mixture of hydrocarbon and, according t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blished that where the issue on which a rectification is proposed is one which involves debatable point of law or where it involves the interpretation of a statutory provisions and there is reasonable scope for more than one kind of interpretation being placed on the provision in question the remedy of rectification will not be available. It is sufficient for us to refer to the decision of the Supreme Court in the case of T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50, which clearly enunciates the scope of this provision. In the present case, the depreciation of ten per cent. originally allowed would be correct only if the assessee is a " mineral oil concern " within the meaning of the entry in the Schedule which has already been set out. But in an appeal against an action under s. 154, the question has to be looked at from a slightly different perspective. It is true that, at the time of the original assessment, the ITO cannot be said to have specifically applied his mind to the various entries in the Schedule and come to a conclusion that this entry was applicable to the present case. But all the same, if the ITO wants to revise that order under s. 154 and cancel the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eries or their agents. It is, therefore, difficult to say that the construction of the entry by Shri Wadhera as applicable only to concerns which produce mine, refine or manufacture mineral oil and not to concerns which merely deal with it is so clear that it has to be accepted straightway. The second point of interpretation of the entry raised by Mr. Wadhera, learned counsel, is a little more substantial but again, in our opinion, is not the only view that can be taken in the matter. He claims that " mineral oil " can mean only petroleum and any other oil distilled from it. Ethyl alcohol may be a product made of hydrocarbons in the same way as petroleum is; it may be that, like petroleum, it is also an inflammable substance, it may be that containers used for storing it have to be similar in character to those used for storing petroleum. But, says learned counsel, ethyl alcohol is not an oil distilled from petroleum. In any event, so far as the petitioner is concerned, it deals in ethyl alcohol manufactured from mollasses and not distilled or otherwise derived from petroleum. Mr. Wadhera referred to the decision of the Bombay High Court in the case of Burmah Shell Refineries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inflammable mixture (liquid, viscous or (solid) containing liquid hydrocarbons (or acetone, wood naphtha or methyl alcohol). Cellulos enamels, lacquers and paints cements (patent), cleaning soaps, metal polishes, paint removers, rubber solution, thinners ........ " Learned counsel strongly relies upon this passage to contend that person whose official duties require him to acquire specialized knowledge of various types of petroleum and inflammable substances has expressed clear opinion that " ethyl alcohol " would fall within the definition of Petroleum " as it is understood in common commercial parlance. Counsel also invited our attention to certain statutory definitions. The Petroleum Act contains a definition of " petroleum " in s. 2(a). This definition is to the following effect : "'Petroleum' means any liquid hydrocarbon or mixture of hydrocarbons and any inflammable mixture (liquid, viscous or solid) containing any liquid hydrocarbon. " Attention has also been drawn to the provisions of the Inflammable Substances Act, 1952. The main purpose of this Act is to apply the provisions of the Petroleum Act to certain other inflammable substances. Section 3 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation. The above discussion itself will show that the answer to the question raised on behalf of the applicant is not so clear, well defined or non-controversial as to attract the provisions of s. 154. We may first deal with the contention that the product in which the present assessee deals is derived from molasses and not petroleum. It is no doubt true that the ethyl alcohol purchased by the assessee is manufactured from molasses. But, if as indicated earlier, the relevant entry can include concerns dealing in mineral oil too and if, as contended for by the respondent, ethyl alcohol is a product which can be included within the meaning of the expression it mineral oil ", then, the fact that this petitioner deals in ethyl alcohol manufactured from molasses may not be strictly relevant to the question of depreciation allowable under the Schedule. The only requirement to be fulfilled to have eligibility for the larger percentage of depreciation is that the concern should be dealing in mineral oil and the only question that could arise then would be whether ethyl alcohol can be said to be mineral oil. If ethyl alcohol can be obtained by various processes and one of such proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting chiefly or wholly of mixtures of hydrocarbons (as petroleum or many of its products) ". Ethyl alcohol is a product of hydrocarbons which can be derived, and which perhaps is usually derived, by cracking up petroleum. It is, therefore, liquid petroleum product and it is a mixture of hydrocarbons. In this view and in the light of the earlier discussion relating to definition in allied statutes and the comments in the Explosives Manual, there is nothing strange or even incorrect in describing ethyl alcohol as a mineral oil. We are not expressing this opinion conclusively, for, in the context of s. 154, it is sufficient for us to point out that the view contended for by the assessee that he is dealing in mineral oil cannot be said to be farfetched or unreasonable. To sum up, before a rectification could be effected reducing the rate of depreciation allowed earlier, the answer to the three questions should be patent and incontrovertible : (1) is the entry restricted only to concerns manufacturing mineral oil or is it also available to those dealing in it? (2) Is "ethyl alcohol" properly describable as a mineral oil ? and (3) Does the fact that the product dealt in by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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