RANGANATHAN J. - The following question of law common to both the references has been referred to this court for decision by the income-tax Appellate Tribunal :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no mistake apparent from the record which could be rectified under section 154 of the Income-tax Act, 1961, so as to reduce the depreciation from 10% to 7% for the assessment years 1962-63 and 1963-64 ?'
The reference arises out of the income-tax assessments of M/s. Distillers Trading Corporation, a limited company for the assessment years 1962-63 and 1963-64. The company carries on no manufacturing operations; its business was in the purchase of ethyl alcohol from various suppliers in the State of U.P. (who extract it from molasses), storage of the same for some time and export of the same out of India. While submitting the returns of income for these two assessment years, the assessed had calculate depreciation on its machinery and boilers - it appears there had been 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 assessed 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, thereforee, issued notices under s. 154 of the Act calling upon the assessed to show cause why depreciation should not be reduced from 10% to 7%. The assessed replied contending that the grant of depreciation at 10% was proper inasmuch as the assessed was a 'mineral oil concern', a 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 depreciation allowed earlier to the assessed.
The assessed preferred appeals to the AAC. The AAC referred to item (2) under the letter M of the machinery and plant listed under sub-para. (iii) of para. III of Pt. I of Appx. I, earlier referred to. This entry reads as follows :
Class of asset
(2) mineral oil concerns
(b) Prime movers
(c) Process plant
Field Operations :
(b) Prime movers
(c) Process plant
Except for the following items :
(1) Below ground
(2) Above ground
(a) portable boilers drilling tools, wellhead tanks, rigs, etc.
(b) Storage tanks
(c) Pipe lines :
(i) Fixed boilers
(ii) Prime movers
(iii) Pipe line
(d) Distribution :
(1) Returnable packages
Nil. cost of package actually used up will be allowed as revenue expenditure.
(2) Kerbside pumps including under round tanks and fittings
Jetties an dry docks :
(a) Constructed entirely or mainly of steel
(b) Constructed entirely or mainly wood
The AAC pointed put that the term 'mineral oil' covered both crude oil and liquid products derived from liquid petroleum which are in the nature of mixture of hydrocarbons such as motor spirit, aviation spirit, kerosene and other allied articles. In order to find out whether ethyl alcohol in the purchase and sale of which is engaged was a mineral oil, it was necessary to see whether this product came within the meaning of the word petroleum. The AAC referred to the definition of 'petroleum' under the Petroleum Act, 1934, and the inflammable Substance Act, 1952, and, reading the two provisions together, came to the conclusion that ethyl alcohol in which the appellant dealt was 'petroleum' within the meaning of the Petroleum Act. The business activity of the appellant was covered under the item 'filed operations' referred to in the entry extracted earlier. In this view of the matter the AAC concluded that depreciation at 10% had been 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 assessed dealt was merely a bye-product of sugar manufacture; that to be mineral oil concern, there should be some mining or extraction of oil form earth or the assesseds product or stock in trade must be of mineral origin; and that, this not being so, it was very clear that the assessed was not a mineral oil concern. In the opinion of the learned Accountant Member as 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 creation some sort of doubts in ones 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 assessed at 10% under the item referred to on behalf of the assessed.
The learned Judicial Member, however, took a different view. He pointed out at the outset that a mistake apparent from the record must be a mistake which is obvious and patent and not something which could be established by a long drawn process of reasoning on points on which there may be conceivably two opinions, but in the opinion of the learned Judicial Member that was not the position in the present case. While it was true that ethyl alcohol was not extracted from the earth by any mining operations, the words 'mineral oil' cannot be absolutely restricted to petroleum extracted as a result of mining operations. The Websters Third New International Dictionary defines the words 'mineral oil' as the general name for petroleum and other oils distilled from it. The Term was, thereforee, wide enough to cover ethyl alcohol. The learned Member also pointed out that both petroleum and ethyl alcohol were inflammable substance and that the plant and machinery used for storing them were similar and there was no reason why depreciation should not be allowed at the higher rate of 10%. At any rate he thought that this was a case in which there could conceivably be two opinions on the question whether the assesseds case was covered by the special entry referred to earlier. referring to the case of Harbsons Lal Malhotra and Sons Private Ltd. v. ITO : 83ITR848(Cal) , the learned Judicial Member concluded that the provisions of s. 154 could not be applied to the present case. The applicability of the entry referred to above required in the first instance an interpretation of the expression 'mineral oil' and, secondly the determination of the factual question whether plant and machinery used by the assessed-company for storing ethyl alcohol was similar to the machinery and plant used for storing petroleum and allied products. He, thereforee, held that there was no mistake apparent from the record which could be corrected by the ITO by recourse to s. 154.
On account of the difference of opinion between the two Members, who had heard the case, the matter was referred to the Vice-President of the Tribunal. The learned Vice-President observed at the outset that if he were called upon to decide whether the assessed was a mineral oil concern, his answer would have been in the negative and he would have wholeheartedly agreed with the conclusion of the learned Accountant Member that the assessed could not be a mineral oil concern because it was not engaged in mining or extraction of oil form 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 at the stages of the AAC and the ITO. The learned Vice-President proceeded to observe :
'The assessed is no doubt dealing in ethyl alcohol. This is not manufactured by the assessed itself but it is not disputed that it is manufactured from molasses. It is also not in dispute that no process of mineral extraction in 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 the the term mineral product covered both crude oil and liquid product derived from liquid petroleum which are in the nature of mixture of hydro-carbon and, according to the Manual of Petroleum and Carbide Calcium issued by the Chief Inspector of Explosives, ethyl alcohol fell within the category of petroleum. It is this aspect of the matter that has persuaded me to the view that the claim of the assessed, although not acceptable to me, was not preposterous or reasonably inconceivable.'
Thus, though the learned Vice-President had his reservations as to whether the view taken by the learned Judicial Member was correct and he had also further reservations as to whether the nature of the plant and machinery used by the assessed would be relevant for considering the Court in the case of Harbans Lal Malhotra & Sons P. Ltd. : 83ITR848(Cal) directly governed the present case, he came to the conclusion that the issue involved was one of controversy and debate which cannot be solved by resort to s. 154.
The result of the above views was that the appeals preferred by the ITO to the Tribunal were dismissed. That is why the Additional Commissioner of Income-tax has come up before us on this reference made by the Tribunal under s. 256(1) of the Act.
After hearing the learned counsel for the parties we are of the opinion that the view taken by the Vice-President and the learned Judicial Member of the Tribunal to the effect that the matter is not one which can be sought to be rectified under s. 154 is correct. The question at issue is not one which is capable of a debate and simple answer but raises aspects which requires arguments and debate and is one which there can be, legitimately and reasonably, more than one opinion. It is not necessary to elaborate on the case-law as to the circumstances in which a rectification is permitted under s. 154 of the Act. It is well settled that this section can be invoked only to correct what are clear and patent mistakes apparent from the record. It is, of course, not necessary that the rectification should be only clerical or mathematical mistakes. It is also not necessary that the rectification should be only of a question of fact and not of a question of law. It is also possible for the provision of s. 154 to be applied where the provisions of a section or a rule have been overlooked that where the issue on which a rectification is proposed is one which involves a debatable point of law or where it involves the interpretation of a statutory provisions and there is a 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 : 82ITR50(SC) , which clearly enunciates the scope of this provision.
In the present case, the depreciation of ten per cent. originally allowed would be correct if the assessed is a 'mineral oil concern' within the meaning of the entry in the schedule which has already been set out. But in 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 of depreciation at ten per cent, he can do so only if it is patent, obvious or incontrovertible that the assesseds came does not fall within the language of the above entry.
Mr K. K. Wadhera, learned counsel for the applicant, raised two contention as to why the assessed cannot qualify for depreciation at ten per cent. His first submission was that assuming ethyl alcohol to be a mineral oil, this entry applies only to cases where it merely deals in mineral oil. He pointed out that the assessed only purchases and sells ethyl alcohol. Mere purchase or sold by concern will not, according to him, render the concern a mineral oil concern within the meaning of the above entry. The second argument of Mr. Wadhera was that 'ethyl alcohol' cannot be said to a be 'mineral oil' merely because it is capable of being obtained from petroleum, particularly since the ethyl alcohol dealt in by the assessed was extracted from the molasses and not manufactured from petroleum.
It appears to us, without expressing any final opinion on either of the contentions that both the contention raised by Shri Wadhera, vis-a-vis the entry in the Schedule under consideration, are arguable and involve issues of controversy and debate. In the first place, it is not, at all clear from a perusal of the entry in question that it is intended to apply only to concerns manufacturing, mining or producing or refining mineral oil and not to one dealing in it. A reference to the entry show that it refers to two kinds of operation : (1) refinery and (2) field operations. The nature of field operations contemplated in the entry is made cleared by the other details set out in the entry. They refer to portable boilers, storage tanks and pipelines and to assets employed in the course of distribution of mineral oil. In particular, it refers to kerbside pumps including underground tanks and fitting therein. It, thereforee, appears to us that the entry is intended to cover not only concerns which produce refine of manufacture mineral oils but also concerned which only deal with or distribute the. To give what seems to be simple and obvious illustration, the entry will clearly cover the case of the lessee of a petroleum pump on the roadside whose business consists in the sale of petrol supplied to him by the refineries or their agents. It is, thereforee, difficult to say that the construction of the entry by Shri Wadhera as applicable only to concern 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 straightaway.
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 only the 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 sorting it have to be similar in character to those used for storing petroleum. But says learned counsel, ethyl alcohol is not distilled from petroleum. In any event, so far as the petitioner is concerned, it deals in ethyl alcohol manufactured from molasses and not distilled or otherwise derived from petroleum.
Mr. Wadhera referred to the decision of the Bombay High Court in the case of Burma Shell refineries Ltd. v. ITO : 61ITR493(Bom) , where the expression 'mineral oil' has been discussed. After setting out the various definitions of the term, the court expressed the opinion that it was wide enough to include petroleum in its crude form as well as the products obtained from the crude oil by refining. That court, however, was not concerned with the question with which we are faced in the present case. They had to decide whether a company engaged in refining crude oil could be said to be a company engaged in the manufacture or production of mineral oil and they held that for the purpose of a provisional assessment, the department had to proceed on the basis that it was claimed by the assessed. We are, however, concerned with the slightly different question as to whether ethyl alcohol is a substance with can be described as a mineral oil, that is, as petroleum or as an oil distilled from it.
Mr. D. K. Aggarwal, learned counsel for the respondent invited our attention to a text book on Chemistry (by Shri P. L. Soni) and drew our attention to various passages setting out the composition of petroleum as well as the various products secured by cracking petroleum. He referred in particular to a product known as 'ethylium' which is obtained from which ethyl alcohol is derived. Learned counsel contended that the word 'petroleum' has no technical meaning except that it is a product made up of hydrocarbons and that ethyl alcohol could be described as 'petroleum' within the normally accepted Chemical and even the commercial meaning of that expression. In support of this contention, reference was made to the 'Petroleum and Carbide Manual' issued by the Chief Inspector of Explosive of India in 1959. This was a compilation made by Mr. Gordon Peace, who was the chief Inspector of Explosives in India. It essentially consists of certain directions and guidelines issued departmentally for the implementation of the Petroleum Act and allied enactments. At page 1 of the manual the Chief Inspector of Explosives has expressed an opinion of the following effect :
'Comments by Chief Inspector of explosives - The following more common articles of commerce fall within the definition of Petroleum :
Liquid Hydrocarbons or mixtures of hydrocarbons, Asphalt, aviation spirit, benzene, benzine...Ethyl... white oil, white spirit, Xylene, Xylol.
Inflammable mixture (liquid, viscous of (solid)) containing liquid hydrocarbons (or acetone, wood naptha or methyl alcohol). Cellulose enamels, lacquers and paints cements (patent), cleaning soap metal polishes, paint removers, rubber solution, thinners.....'
Learned counsel strongly relies upon this passage to contend that a person whose official duties require him to acquire specialized knowledge of various type of petroleum and inflammable substances had expressed a 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(1). 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 Substance 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 provides that the following substances are to be considered as dangerously inflammable :
(1) acetone, (2) calcium phosphide,.. (5) ethyl alcohol, (6) methyl alcohol (7) wood naptha.
Section 4 of the act enables the Central Govt. by notification to apply any of the provisions of the Petroleum Act to the above dangerously inflammable substances and that, on such notification being made, 'the provisions applied shall have effect as if such substance had been included in the definition of Petroleum under the Act'. One more statutory definition is contained in the Central Excise Act. Item 6 of the tariff in the Schedule to the Act defines 'motor spirit'. This entry reads as follows :
'Motor spirit, that is to say -
(i) any mineral oil (excluding crude mineral oil) which has its flashing point below seventy-six degrees of Fahrenheit thermometer, and which either by itself or in admixture with any other substance is suitable for use as fuel for internal combustion engines, and
(ii) power alcohol, that is to say ethyl alcohol of any grade (including such alcohol when denatured or otherwise treated), which either by itself or in admixture with any other substance is suitable for being used as aforesaid.
Explanation 1 - Mineral oil means an oil consisting of single liquid hydrocarbons or a liquid mixture of hydrocarbons (except of associated impurities) derived from petroleum, coal, shale, peat or any other bituminous substance, and includes any similar oil produced by synthesis or otherwise.
Explanation II - Flashing point shall be determined in accordance with the tests specified in this behalf in the rules made under the Petroleum Act, 1934 (30 of 1934).
The learned counsel for the respondent strongly relied upon the terms of the above definitions. He contended that all these statutory provisions and the passage from the Explosives manual show that the word 'petroleum' itself has a very wide connotation in commercial and technical circles and that 'ethyl alcohol' can legitimately be included within this expression. The expression 'mineral oil' is very much wider and also needs to the interpreted in the present context in such a manner as to give effect to the intention of the Legislature that tanks and distillers used for storing, conveying and transporting corrosive substance should be eligible for a higher rate of depreciation.
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 provision of s. 154. We may first deal with the contention that the product is which the present assessed deals is derived from molasses and not petroleum. It is no doubt true that the ethyl alcohol purchased by the assessed 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 'mineral oil', then, the fact that this petitioner deles 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 fulfillled to have eligibility for the larger percentage of depreciation is that the concern 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 a mineral oil. If the ethyl alcohol can be obtained by various process and one of such process is by refining, distilling or cracking up petroleum. Then it is possible to hold that ethyl alcohol is a mineral oil; if ethyl alcohol is thus a mineral oil and the assessed is a concern dealing in ethyl alcohol, then it can be said that the assessed is a mineral oil concern within the meaning of the entry in the Schedule which has already been set out not withstanding that the ethyl alcohol purchased by it is derived by some other process. It is clear that the rate of depreciation should depend on the nature of description of the product and not the source from which it mat be derived in a particular case. the matter may also be looked at it in another way. Quite often a product may have its derivation from two or more substances just as in the present case ethyl alcohol can be derived on the one hand from petroleum and on the other by extraction from various other sources, e.g. molasses and coal. Even if the source of extraction is material, it can at best be said that, in trying to define whether ethyl alcohol can be described as mineral oil, what has to be considered is whether ethyl alcohol is normally or usually derived from petroleum or whether it is normally or usually derived be extracting it from molasses and that, in the former case, it would be a mineral oil. Before us, it is stated, on behalf of the respondent that mostly and in many countries, ethyl alcohol is only not got from petroleum and the derivation from molasses is the exception rather than the rule. This again is a matter which would require investigation of facts before an answer can be furnished either way.
Turning now to the main question whether ethyl alcohol can be said to be a 'mineral oil', it has already pointed put that the expression 'mineral oil' is not one which is capable of easy construction. If it is understood in a wide and liberal sense as including natural gas, petroleum, and other liquid products derived from it, there is no reason why ethyl alcohol should not be treated as a mineral oil. In Websters Dictionary 'mineral oil' is defined as a liquid product of mineral origin, that is, within the viscosity limits recognised for oils (as petroleum, shale oil or any oil obtained from them by refining) especially liquid petroleum. There is also a definition in the same dictionary of the expression 'hydrocarbon oil' as 'any of various oily liquids consisting 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, thereforee, a 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 statues 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 view contended for by the assessed 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 concern 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 dealer in by the assessed is derived from molasses make a different to the applicability of the entry which confers a higher rate of depreciation on distillers and storage tanks and plant used for storage, distribution etc., of a substance corrosive by nature irrespective of its sourse. For the reasons discussed above even if the answer to all these three questions may not be given clearly in favor of the assessed by everyone, it cannot be said that two opinions are not conceivable and tenable in respect of each of them. Whether, thereforee, the grant of depreciation should, on a proper interpretation, be at 7 per cent. or 10 per cent., the grant of the higher depreciation in the first instance cannot be withdrawn by recourse to s. 154. We, thereforee, answer the question referred to us in the negative and in favor of the assesses. Since, however, this is a case in which there has been a considerable difference of opinion at all levels, we make no order as to costs.