HIGH COURT OF UTTARAKHAND
Commissioner of Income-tax, Dehradun
v.
Enron Oil & Gas India Ltd.
Prafulla C. Pant and Dharam Veer, JJ.
IT Appeal Nos. 74, 76 & 77 of 2007
JANUARY 17, 2008
Section 42 of the Income-tax Act, 1961 - Mineral oil, business for prospecting/exploration of etc., deduction in case of - Assessment years 1998-99, 2000-2001 - Assessee, a non-resident company, was engaged in production of crude oil along with its joint venture partners under production sharing contracts entered with Central Government - Assessee debited foreign exchange loss to its profit and loss account on basis of accounting procedure set out in production sharing contract that expenditure incurred in foreign exchange by co-venture during any particular month had to be converted into Indian rupee at rate which had to be determined at end of calendar month - Whether depreciation claimed by assessee on account of foreign exchange loss was admissible to it under section 42 - Held, yes
The assessee, a non-resident company, was engaged in production of crude oil from P oil fields along with its joint venture partners ‘ONGC’ and ‘RIL’ under the ‘Production sharing contracts’ entered with the Government of India. During the relevant assessment year, the assessee had debited foreign exchange loss to its P&L account. The Assessing Officer took the view that foreign exchange loss claimed by the assessee was notional and the same was not admissible to it as depreciation. On appeal, the Commissioner (Appeals) as well as the Tribunal allowed the claim of foreign exchange loss to the assessee.
On revenue’s appeal:
Section 42 contains a special provision whereby the expenditure incurred
by the assessee in commercial production of mineral oil is to be depreciated in
terms of the agreement mentioned therein. It was not the case of the parties
that the agreement between the parties was not covered or it did not fulfil the
requirements under section 42. It was clear from accounting procedure set out
in the Production Sharing Contract PSC that expenditure incurred in foreign
exchange by the co-venturer during any particular calendar month had to be
converted into Indian Rupee at the rate which had to be determined' at the end
of the calendar month. [
Thus, the reasoning given by the Commissioner
(Appeals) and the Tribunal in holding
that the depreciation claimed by the assessee on account of foreign exchange
loss was admissible to it under section 42, read with the clauses of the PSC.
Further, when the revenue was accepting the tax on the profits/gains arisen out
of the change in foreign exchange rates in other assessment years accrued to
the assessee, it could not deny depreciation on account of loss incurred for
that reason. [
Therefore, the appeal was to be dismissed. [