BURMAH SHELL OIL STORAGE AND DISTRIBUTING COMPANY OF INDIA LTD. (NOW KNOWN AS BHARAT PETROLEUM CORPORATION LTD.) vs. THE COMMISSIONER OF INCOME TAX (CENTRAL), CALCUTTA

CIVIL APPEAL No. 1325/1979Supreme Court[1994] 3 S.C.R. 37406 April 1994Bench: 2 JudgesAuthor: M.N. VENKATACHALIAH, G.N. RAY B BURMAH SHELL OIL STORAGE AND DISTRIBUTING COMPANY OF INDIA LTD.11 pages
AI SummaryDismissed

What were the facts?

The assessee, Burmah Shell Oil Storage and Distributing Company of India Ltd. (now Bharat Petroleum Corporation Ltd.), acquired iron cylinders costing Rs. 1,09,63,754 between 1955 and 1961. These were used as returnable packages and accounted for as capital assets, with no depreciation claimed. In 1961, the assessee sold these cylinders to the refinery for Rs. 82,19,947, resulting in a shortfall of Rs. 27,43,807. The assessee claimed this shortfall as a deduction in assessment year 1962-63. The Income-Tax Officer rejected the claim, as did the Appellate Assistant Commissioner. The Income Tax Appellate Tribunal held the cylinders as 'returnable packages' and the loss allowable as revenue expenditure. The Revenue appealed to the High Court, which ruled against the assessee. The assessee then appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court dismissed the appeal, upholding the High Court's decision. Regarding the claim under Section 32(1)(iii), the Court held that the assessee could not claim the deduction because it had not written off the shortfall of Rs. 27,43,807 in its books of account. Furthermore, the issue of written down value was a question of fact that the Tribunal had not adequately dealt with. On the development rebate claim under Section 34(3)(a), the Court agreed with the High Court that the assessee had not complied with the provisions by failing to transfer excess amounts from earlier years to make up the shortfall in the relevant accounting year. Finally, concerning the claim for revenue expenditure under Rule 5, the Court held that the cylinders were not 'actually used up' in the sense of being exhausted by use and rendered unserviceable. Since the cylinders were put to use by both the refinery and the assessee after the sale, they could not be considered 'actually used up', making the claim inadmissible. The Court found no reason to interfere with the High Court's decision.

What were the issues?

1. Whether the assessee was entitled to claim a deduction under Section 32(1)(iii) of the Income Tax Act, 1961, for the shortfall of Rs. 27,43,807 on the sale of cylinders, considering they were capital assets and no depreciation was claimed. - Assessee's contention: The written down value of the cylinders should be considered Rs. 1,09,63,754, and the loss on sale was allowable under Section 32(1)(iii). - Revenue's contention: The High Court was right in holding that the quantum of written down value is a question of fact not dealt with by the Tribunal, and the assessee had not written off the amount in its books. 2. Whether the assessee was entitled to development rebate of Rs. 24,15,622 under Section 34(3)(a) of the Income Tax Act, 1961, due to a shortfall in the development rebate reserve account. - Assessee's contention: There was a shortfall in the development rebate reserve account, and the loss on sale should be considered for this purpose. - Revenue's contention: The assessee did not comply with the provisions of Section 34(3)(a) by not transferring excess amounts from earlier years to make up the shortfall in the relevant accounting year. 3. Whether the claim for deduction of Rs. 27,43,807 as revenue expenditure under Rule 5 of the Income Tax Rules, 1962, specifically Item M(2)(2)(d)(i) of Appendix I, was admissible, interpreting the phrase 'actually used up'. - Assessee's contention: The cylinders lost their usefulness to the assessee after sale and must be treated as 'actually used up', including partial use. - Revenue's contention: The cylinders were not 'actually used up' as they were put to use by both the assessee and the refinery after the sale, and the entry refers to cost, not loss.

Which sections of the Income-tax Act were involved?

Section 32(1)(iii),Section 33,Section 34(3)(a),Section 261

AI-generated summary — verify with the full judgment below

A B BURMAH SHELL OIL STORAGE AND DISTRIBUTING COMPANY OF INDIA LTD. (NOW KNOWN AS BHARAT PETROLEUM CORPORATION LTD.) v. THE COMMISSIONER OF INCOME TAX (CENTRAL), CALCUTTA APRIL 6, 1994 (M.N. VENKATACHALIAH, CJ. AND G.N. RAY, JJ.] C Income Tax Act, 1961/Income Tax Rules, 1962. Sections 32(1)(iii), 33, 34(3)(a)/R.5, Appendix I, Item M(2)(2)(d)(i)- Depreciation-Development rebat..-Liquid petroleum gas cylinder,-Sale of by Distributor to Refinery-Shortfall in sale-Distributor company claiming deduction of t11e amount-Held, assessee was not entitled to claim deduction D u/s. 32 (l)(iii) as it had not written off the amount in its books of account- Nor was assessee entitled to development rebate as it did not transfer excess amounts of earlier years in the accounting year for purposes of making up corresponding reserve and did not comply with provisions of section 34(3) (a}-Claim for deduction as revenue expenditure was also inadmissibl,,_ E After sale of cylinders by assessee to refinery, cylinders can not be said to be "actually used up" as the same were put to use by both the assessee and the refinery.

Words and phrases : F Phrase "actually used up'' occuning i

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 32(1)(iii)

All 42 judgments and leading authorities on Section 32(1)(iii) →

Recent GST High Court judgments

Search GST case law →