BURMAH SHELL OIL STORAGE AND DISTRIBUTION COMPANY OF INDIA LIMITED Vs. COMMISSIONER OF INCOME TAX CENTRAL CALCUTTA

JUDGEMENT

(1.) This is an appeal on a certificate granted by the High court at Calcutta under Section 261 of the Income Tax Act, 1961, against the judgment and order of the said High court dated 8/06/1977 in Income Tax Reference No. 336 of 1970.

(2.) The Burmah Shell Oil Storage and Distribution Company of India Ltd. (now known as Bharat Petroleum Corporation Ltd. ) hereinafter referred to as the appellant-Company, was engaged in the business of distributing liquid petroleum gas manufactured by the Burmah Shell Refineries Limited (hereinafter referred to as the Refinery). For the purpose of such distribution, the appellant-Company had from the year 1955 to the beginning of 1961, which was its previous year for the assessment year 1962-63 acquired iron cylinders at a total cost of Rs. 1,09,63,754. 00. Those cylinders were used as 'returnable packages'. They were accounted by the appellant-Company as its capital assets but no allowance for depreciation thereon was claimed or allowed in any of its assessment up to the year 1961-62. The said cylinders were used to be filled with the gas by the Refinery. The Refinery later on offered to purchase the cylinders owned by the appellant-Company. The sale of cylinders took place in 1961 for a total sum of Rs. 82,19,947. 00 as against their original cost of Rs. 1,09,63,754. 00. There was thus a shortfall of Rs. 27,43,807. 00 which the appellant-Company claimed as a deduction in the assessment year 1962-63.

(3.) By an assessment order, the Income Tax Officer central Circle V, disallowed the said claim. The Income Tax Officer rejected the contention of the appellant-Company that the loss on the sale of cylinders should be allowed as loss on 'returnable packages' by observing that under Rule 5, the cost of returnable packages was to be allowed as revenue expenditure when 'actually used up' and the same implied that the packages must have been rendered unused by wear and tear and must have been consumed. The Income Tax Officer held that the said rule had no application where packages were disposed of in good condition by sale. The said officer further observed that the loss would also not arise under Section 32 (l) (iii) of the Income Tax Act, 1961, as the terminal loss applied only to assets on which depreciation allowances had been granted.