Tax deductions allowed for company bottling LPG cylinders

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The Supreme Court dismissed a batch of appeals filed by the Commissioner of Income Tax (CIT) against an order of Bombay High Court and the Income Tax Appellate Tribunal (ITAT), and held that the process of bottling of liquefied petroleum gas (LPG) cylinders meant for domestic use is an activity that amounts to production and manufacturing, and is eligible for income tax deductions under sections 80HH, 80-I and 80-IA of the Income Tax Act, 1961.

In Commissioner of Income Tax – 1, Mumbai v Hindustan Petroleum Corporation, the assessing officers (AOs) had disallowed the deduction claimed by the assessors, holding that they did not engage in a production or manufacturing activity as LPG was produced and manufactured in refineries, and thereafter there was no change in the chemical composition or other properties of the gas in filling the cylinder.

This view was affirmed by CIT (Appeals). The ITAT reversed the ruling of the AOs after finding that LPG produced in the refineries cannot be directly supplied to households without bottling the LPG into cylinders, and it is a complex activity that can only be carried out by experts. The order was upheld by Bombay High Court.

The Supreme Court observed that there is no dispute that the LPG produced in a refinery cannot be directly supplied to the consumer for domestic use because of various reasons of handling, storage and safety. LPG bottling is a highly technical and complex activity that requires precise functions of machines operated by qualified personnel. Further bottling of LPG is an essential process for rendering the product marketable and usable for the end customer. The court held that the word “production” is wider in ambit and has a wider connotation than the word “manufacture”.

Further bottling of LPG is an essential process for rendering the product marketable and usable for the end customer. The court held that the word “production” is wider in ambit and has a wider connotation than the word “manufacture”.

The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.