AJIT K.SENGUPTA, J. - (1.) IN this reference under S. 256(1) of the IT Act, 1961 for the asst. yr. 1975-76, the following questions of law have been referred to this Court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the sum of Rs. 44,47,482 representing additional claim under the COPE Scheme (realised by the assessee during the relevant previous year by way of adjustment and never refunded to the Government) did not accrue to the assessee during the previous year relevant to the asst. yr. 1975-76?" "2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 44,47,482 was not assessable in the hands of the assessee in the asst. yr. 1975-76?"
(2.) SHORTLY stated, the facts are that the assessee, who is a non- resident company, derived income from business of distribution and marketing of petroleum products in India. As per the Burmah- Shell (Acquisition of Undertaking in India) Act, 1976, the undertaking of Burmah-Shell in India vested in the fully owned Government company Burmah-Shell Refineries Ltd. w.e.f. 24th Jan., 1976. The name of the Government company was subsequently changed to Bharat Petroleum Corporation Ltd. on 1st Aug., 1977. The balance sheet of the assessee-company for the calendar year 1974 disclosed an item on the liability side "Balance of crude price adjustment and crude price equalisation account Rs. 68,75,654" under the main head "Sundry Creditors". The assessee gave bifurcation initially at Rs. 42,23,864 which was termed as additional claim and another amount of Rs. 26,51,792 being liability to the Government. It was explained before the IAC during the course of assessment proceedings that for the purpose of fixing up the price of petroleum products the FOB cost of crude oil was determined at a weighted average price by taking into account price of various types of crude imported from different countries as well as price payable on crude obtained indigenously from the oil fields within the country. But in practice the procurement price of crude oil in world market kept on changing. In order to obviate the effect of such changes into the price system the variations between the approved actual cost of crude oil and the cost assumed in the pricing scheme was allowed to be adjusted in an account styled as "Crude oil price equalisation (COPE) A/c." The assessee further in the letter dt. 15th Jan., 1979 addressed to the IAC, explained that the above sum of Rs. 68,75,654 consisted of the following two items : (a) Rs. 26,51,792 being gain on sale of petroleum products on or after 3rd Nov., 1973 at increased price under the COPE Scheme (based on crude oil cost of 3.48 US Dollars per barrel) out of crude oil purchased prior to 16th Oct., 1973 at 2.61. (b) Rs. 42,23,862 being additional claim relating to 1974 representing reimbursement through the COPE mechanism of increases of crude FOB component based on Government approvals. These claims were computed on the basis of approved FOB and related crude cost of FIFO basis subject to the condition that in cases where approvals were delayed and revised higher rates were effective from the prospective date/s, reimbursements were due and claimable on the basis that total production out of the stocks as well as purchases would rank for claim at the higher applicable approved FOB rate. These amounts (a) and (b) were kept in suspense as the Government instruction relating to adjustments under COPE scheme were not clear and the assessee feared that the Ministry of Petroleum (hereinafter called as 'MOP') might ask for the above amounts to be reimbursed to Industry Pool Accounts according to the order of the IAC. The IAC added both the items (a) and (b) on the following grounds : (i) Rs. 68,75,654 was set apart by the assessee as a liability in the accounts, payable to Government under the COPE mechanism by debiting "Cost of sale" account. This shows that the amount has already been realised from customers. (ii) Reasons for suspense credit like this are not clear as no definite demand was made by the Government for this amount. (iii) Admittedly, the above amount was credited back in the accounting period corresponding to the asst. yr. 1978-79. (iv) That in 1974 calendar year (the accounting year in question) there was no actual liability for the above sum. (v) The amount could at best be called a contingent liability, i.e. in anticipation of what the Government might claim in future. As regards Rs. 44,47,482 it was explained that this sum represented additional claim of the assessee under the 'COPE Scheme' disregarding FIFO principle. This amount had been credited to sundry creditors by debiting COPE A/c. Under the 'COPE Scheme' the assessee got the excess of the approved FOB cost of crude over the cost of crude taken into account by Government for product pricing per barrel. In para 9(1) of MOP's Circular dt. 24th June, 1964, it was confirmed that FOB cost of crude oil for the production of bulk refined petroleum products should be on the basis of the "first in an first out" (FIFO) principle. That is, if there were opening stock as on a particular date purchased earlier at a lower approved price, claim under the ''COPE Scheme" could not be made on the basis of the increased approved price as on that particular date but at such lower approved price at which the stock was purchased earlier. The assessee departed from the FIFO principle when actual purchase price of crude was more but the approved FOB purchase price was less for a particular period. This additional claim of Rs. 44,47,482 was a mere claim not settled and cleared by the Government during the accounting year in question vide MOP's letter dt. 7th April, 1976. It was urged that the assessee had not acquired any right to receive the above sum during the relevant accounting year and, therefore, the sum could not be treated as its income for the asst. yr. 1975-76. M/s. Bharat Petroleum Corpn. Ltd. which took over the undertakings of Burmah- Shell wrote back Rs. 68,75,654 in question to Profit & Loss Account for the period ended on 31st March, 1978.
(3.) THE CIT(A) after considering the facts of the case, the various Circulars and claim made thereunder, the entry in the books of accounts held that the additional claim of Rs. 44,47,482 was neither admitted by the Government of India nor finalised during the relevant accounting period. The claim thus did not ripen into income receivable during the year. He accordingly held that the sum of Rs. 44,47,482 should not be included in the total income of the assessee.;