Commissioner of Income Tax vs Caltex (India) Ltd.

Bharucha, J.—This is a reference u/s 256(1) of the income tax Act, 1961 (''the Act''), and it is made at the instance of the revenue. It raises the following question:

Whether, on the facts and in the circumstances of the case, the finding that the assessee is engaged in a priority industry and as such is entitled to relief u/s 80E/I of the income tax Act, 1961 and to higher development rebate u/s 33(1)(b)(B)(i) is in law justified?

The reference concerns the assessment years 1967-68 to 1972-73. The main business of the assessee was the distribution of petroleum products. It was also engaged in the blending of various grades of lubricating oil. In regard to the activity of blending the assessee claimed that it was a priority industry and was covered by the provisions of sections 80E, 80-I and section 33(1)(b)(B)(i) of the Act. The ITO declined to give the assessee the benefits contemplated by the aforesaid sections and his order was confirmed in appeal. The Tribunal, however, upheld the assessee''s contention in further appeal.

Section 33(1)(b)(B)(i) is relevant in the context of development rebate and is applicable where machinery or plant is installed for the purposes of the business of, inter alia, the manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule to the Act. Section 80E, which was relevant for the assessment year 1967-68, provides for a higher rate of deduction when the assessee''s total income includes any profits or gains attributable to the business of manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. Section 80-I, which is relevant for the other assessment years, gives such deduction when the gross total income of the assessee includes any profits or gains attributable to any priority industry. Section 80B(7) defines a priority industry to be, inter alia, the business of manufacture or production of any one or more of the articles or things specified in the list in the Sixth Schedule. Item (3) of the lists in the Fifth and Sixth Schedules (which were applicable at different times) read, identically, thus: ''Coal, lignite, iron ore, bauxite, manganese ore, dolomite, limestone, magnesite and mineral oil''.

It was found as a fact that the assessee acquired imported or locally procured straight mineral base oil and pumped it through a blending machine at certain specified temperatures along with certain additives, in the form of some 18 chemicals and different dyes, various vegetable based oils and silicones in required proportions. The end-product was the lubricating oil, in different grades, which, according to the assessee, was mineral oil for the purposes of said item (3).

It must be noted at the outset that the Supreme Court dismissed on 4-4-1983 a SLP filed by the revenue against an order of this Court-dated 11-3-1980 [in IT Appeal No. 193 of 1979] whereby this Court declined to call for a statement of case on the point whether the mixing of base mineral oil with additives to produce finished products like lubricating oil could be regarded as the production of mineral oil or petrochemicals entitling the assessee to relief under the aforementioned sections- CIT v. Indian Oil Blending Co. Ltd. [SLP (Civil) No. 8419 to 8423 of 1980]. Mr. Munim, the learned counsel for the assessee, said that the Tribunal had in the case of Indian Oil Blending Co. Ltd. (supra) followed its decision in the matter from which the present reference arises. In his submission, this Court ought, therefore, to decline to answer the question that is raised in the present reference. The question that is raised requires the interpretation of the expression ''mineral oil'' in the said item (3), read in the light of the aforementioned sections. The question raises, therefore, a point of law and we must answer it. We do not know what the precise question was in respect of which this Court and the Supreme Court declined to order a reference in the case of Indian Oil Blending Co. Ltd. (supra) and the circumstances in which the orders were passed.

It was contended by Mr. Jetley, the learned counsel for the revenue, that the expression ''mineral oil'' in the said item (3) must be read in the context of the other articles set out therein and should not be given an extended meaning so as to cover lubricating oil. On the other hand, it was contended by Mr. Munim on behalf of the assessee that lubricating oil was commonly understood to be a mineral oil and it, therefore, fell within the said item (3). He referred to the Tribunal''s order in this behalf.

The items mentioned in the said item (3) are minerals or metallic ores or stone, all available within or on the surface of the earth. Mineral oil is extracted from the bowels of the earth, but it also bears the wider meaning canvassed for by the assessee. To the expression mineral oil in the said item (3), however, the doctrine that analogous words take their colour from each other (''noscitur a sociis'') must apply and its meaning must be restricted, having regard to the minerals, metallic ores and stone, viz., coal, lignite, iron ore, bauxite, manganese ore, dolomite, limestone and magnesite, that also appear therein, to oil that is extracted from the earth. In other words, the said item (3) must be held to cover only the stated articles and not what may be made by using them, whether by manufacture or processing or blending.

Our attention was drawn to a circular dated 23-3-1971 issued by the CBDT (Circular No. 57) in the context of whether the business of refining crude oil could be regarded as a priority industry for the purposes of deduction u/s 80I. The circular states that the CBDT had been advised that the term ''mineral oil'' covers both crude oil (crude petroleum) and the liquid products derived from crude petroleum which are in the nature of mixtures of hydrocarbons, namely, motor spirit, kerosene and other allied articles. It, therefore, follows that the profits and gains attributable to the business of refining of crude oil would qualify for the higher rebate u/s 80I.

The view expressed in the circular is also the tentative view taken by this Court in Burmah Shell Refineries Ltd. Vs. G.B. Chand (Income Tax Officer) and Another, . It was there argued on behalf of the revenue that the expression ''mineral oil'' in the said item (3) had to be understood in a limited sense in view of the words that preceded it; all these were raw materials and the expression mineral oil had, therefore, to be under stood as referring1 to the raw material, i.e., mineral oil, crude oil or petroleum, and not its finished product. The Court took the view that the manufacture of mineral oil would include mineral oil obtained by a refining process from crude oil. This view was tentative because the Court was dealing with a writ petition which impugned a provisional assessment order and the parties were entitled to lead evidence.

Neither the said circular nor this Court''s tentative view assist the assessee. The facts found show that the assessee blended straight mineral base oil with some 18 chemicals besides different dyes, vegetable based oils and silicones. The assessee''s end-product was, therefore, not mineral oil, as extracted or refined. It was not a mixture of hydro carbons. It did not, therefore, fall within the meaning of the expression mineral oil as used in the said item (3).

Mr. Munim submitted that the assessee''s lubricating oil would, in any event, fall within item (18) of the Fifth and Sixth Schedules because it was a petrochemical. He said that the Tribunal had in the aforesaid case of Indian Oil Blending Co. Ltd. (supra) so held. Before the assessing authorities and the Tribunal, the assessee proceeded only upon the basis that its lubricating oil was covered by the said item (3) and the material that was placed on record was only in that regard. There is no finding of fact as to whether or not the assessee''s lubricating oil was a petrochemical. We can answer the question posed to us only upon the basis of the assessee''s contention that its lubricating oil was a mineral oil within the said item (3). If it is open to the assessee so to do, it may urge before the Tribunal that its lubricating oil was a petrochemical and fell within the said item (18). We make it clear that we express no opinion in regard to the entitlement of the assessee to do so. In the premises, the question posed to us is answered in the negative and in favour of the revenue. There shall be no order as to costs.