110. On a close reading of the provisions we notice that sub section (1) of section 80-IB provides for the deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section where the gross total income of an assessee includes any profits and gains derived from eligible business referred to in sub-sections (3) to (11) and (11A).the deduction is to be in accordance with and subject to the provisions of this section.
111. Sub section (2) provides that this section applies to any industrial undertaking which fulfils all the following conditions, namely; – a) it is not formed by splitting up, or the reconstruction, of a business already in existence (except in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by. the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period-specified in that section); b) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation 1 however relaxes; this condition of this clause(ii), if any machinery or plant which was used outside India by any person other than the assessee is not to be regarded as machinery or plant previously used for any purpose, if (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. Explanation 2 further relaxes the condition in the case of an industrial undertaking, if any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business; (c) it manufactures or produces any article or thing, not being any article or thing specified , in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India. In relation to a small scale industrial undertaking or an industrial undertaking referred to in sub section (4) this condition shall apply as if the words “not being any article or thing specified in the list in the Eleventh Schedule” had been omitted; and d) in a case where the industrial undertaking manufactures or produces prides or things, the undertaking employs ten or more workers is a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power.
112. Sub section (3) provides for the amount of deduction in the case of an industrial undertaking to be at twenty-five per cent (or thirty per cent where the assessee is a company), of the profits and gains derived from such industrial undertaking for a period of ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) beginning with the, initial assessment year on fulfilment of the conditions that: (i) it begins to manufacture or produce, articles or things or to operate such plant or plants at any time during the period beginning from the 1st day of April, 1991 and ending on the 31st day of March, 1995 or such further period as the Central Government may,- by notification in the Official Gazette, specify with reference to any particular undertaking; (ii) where it is an industrial undertaking being a small scale industrial undertaking, it begins to manufacture or produce articles or things or to operate its cold storage plant [not specified in sub-section (4) or sub-section (5) at any time during the period beginning on the 1st day of April, 1995 and ending on the 31st day of March, 2002.
113. Sub section (4) provides 100% deduction of the profits and gains derived from an industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule, provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfillment of the condition that it begins to manufacture or produce articles or things or to operates its cold storage plant or plants during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2002. but if such industries in the notified North-Eastern Region, the amount of deduction shall be hundred per cent of profits and gain a period of ten assessment .years, and the total period of deduction, shall in such a case not exceed ten assessment years.
114. Sub section (5) provides for 100% deduction to an industrial undertaking located in the notified in industrially backward districts of category `A’ for five assessment years and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) Provided that the total period of deduction shall not exceed ten consecutive assessment years or where the assessee is a co-operative society, “twelve consecutive assessment years. Provided further that the industrial undertaking begins to manufacture or produce articles or things or to operate its cold storage plant or plants at any time during the period beginning on the 1st day of October, 1994 and ending on the 31st day of March, 2002. The deduction of 100% is for three assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty percent where the assessee is a company) of the profits and gains of an industrial undertaking is located in industrially backward district of category `B’. Provided that the total period of deduction does not exceed eight consecutive assessment years (or where the assessee is a co-operative society, twelve consecutive assessment years.) Provided further that the industrial undertaking begins to manufacture or produce articles or things or to operate its cold storage plant or plants at any time during the period beginning on the 1st day of October, 1994 and ending on the 31st day of March, 2002.
115. Sub section (60 provides the deduction in the case of the business of a ship at thirty per cent of the profits and gains derived from such ship for a period of ten consecutive assessment years including the initial assessment year provided that the ship is owned by an Indian company and is wholly used for the purposes of the business carried on by it; (ii) was not, previous to the date of its acquisition by the Indian company, owned or used in Indian company, owned or used in Indian territorial waters by a person resident in India; and iii) is brought into use by the Indian company at any time during the period beginning on the 1st day of April, 1991 and ending on the 31st day of March, 1995.
116. Sub section (7) provides for deduction to an approved hotel at fifty per cent of the profits and gains derived for a period of ten consecutive years beginning from the initial assessment year if it is located in a hilly area or a rural area or a place of pilgrimage or a notified other place and it starts functioning at any time during the period from 1-4-1990 to 31-3-1994 or from 1-4-1997 to 31-3-2001, provided it is not located within the municipal jurisdiction of Calcutta, Chennai, Delhi or Mumbai started or starts functioning on or from 1-4-1997 to 31-3-2001. The deduction is thirty per cent for other hotel if started or starts functioning from 1-4-1991 to 31-3-1995 or 1-4-1997 to 31-3-2001 if it is not located within the municipal jurisdiction of Calcutta, Chennai, Delhi or Mumbai, and it started or starts functioning form 1-4-1991 to 31-3-1995 or 1-4-1997 to 31-3-2001 if it is not located within the municipal jurisdiction of Calcutta, Chennai, D6lhi or Mumbai, and it started or starts functioning from 1-4-1997 to 31-3-2001. This deduction is available only if (i) the business. of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose; or (ii) the business of the hotel is owned and carried on by a company registered in India with a paid up capital of not less than five hundred thousand rupees; or (iii) the hotel is for the time being approved by the prescribed authority.
117. Sub section (8) grants deduction to any company carrying on scientific research and development at l00% for a period of five assessment years beginning from the initial assessment year if such company— (a) is registered in India; (b) has the main object of scientific and industrial research and development; and (c) is for the time being approved by the prescribed authority at any time before the 1st day of April, 1999.
118. Section (8A) provides for a deduction at 100% for a further period of ten consecutive, assessment years, beginning from the initial assessment year, if such company –(i) is registered in India; (ii) has its main object the scientific and industrial research and development; (iii) is for the time being approved by the prescribed authority at any time after the 31st day of March, 2000 but before the 1st day of April, 2003; and (iv) fulfills such other conditions as may be prescribe.
119. Sub-section (9) with which we are concerned in this case provides for 100% deduction to an undertaking which begins commercial production or refining of mineral oil for a period of seven consecutive assessment years including the initial assessment year. As per the 1st proviso it should being commercial production of mineral oil on or after the 1st day of April, 1997 if the undertaking is located in North-Eastern Region but if it is located in any part of Indian it has begun or begins commercial production of mineral oil before the 1st day of April, 1997 in case the undertaking is engaged in refining of mineral oil, it beings refining on or after the 1st day of October, 1998.
120. Sub-section (10) provide 100% deduction to an undertaking developing and building housing projects approved before the 31st day of March, 2001 by a local authority, if, – (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes the same before the 31st day of March, 2003; (b) the project is on the size of a plot of land which has a minimum area of one acre; and (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place.
121. Sub section (11) provides for 100 % deduction to an industrial undertaking deriving profit from the business of setting up and operating a cold chin facility for agricultural produce, irrespective clause (iii) of sub-section (2) and sub-sections (3),(4) and (5), for five assessment years and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) not exceeding ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) and subject to fulfilment of the condition that it begins to operate such facility on or after the 1st day of April, 1999 but before the 51st day of March, 2003.
122. Sub section (11A) grants 100% deduction to an undertaking deriving profit from the integrated business of handling, storage and transportation of foodgrains, for five assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) not exceeding ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such business on or after the 1st day of April, 2001.
123. Sub section (12) provides for deduction to the successor company in a scheme of amalgamation or demerger for the remaining period but no deduction admissible for the previous year in which the amalgamation or the demerger takes place.
124. Sub section (13) incorporates the provisions of sub-section (5) and sub-sections (7} to (12) of section 80-IA to the eligible business under this section.
125. Sub section (14) defines various terms for the purposes of this section vide clauses (a) to (g). Clause (c) defines the “initial assessment year” for various businesses mentioned in clause (i) to (iv). Clause (iii) thereof provides that in the case of an undertaking engaged in the business of commercial production or refining of mineral oil referred to in sub-section (9), to mean the assessment year relevant to the previous year in which the undertaking commences the commercial production or refining of mineral oil.
126. Background: The assessee developed Hazira field located at the mouth of the Tapti River, approximately 25 km west of the City of Surat, in Gujarat State on the west coast of India. The stages of development can be discussed in three parts –first step, the signing of PSC with Government of India, the second step, the Pre- Development stages (Pre Commercial Production) and the third step, the Drilling Operations – Commercial Production. The PSC agreement/is a tripartite one amongst Government of India, the Gujarat Gases Company and the assessee. Pre Development stages (Pre Commercial Production), involved couple of stages, which are briefly: (i) Development plan and its approval which contains detailed proposals for the construction, establishments and operation of all the facilities arid services for and incidental to the recovery storage and storage and transportation of the petroleum from the proposed development area to the delivery point together with all data and supporting information including out not limited to (a) Characteristics of reservoir, data production profits, etc. .(b) Outlines of the development project and/or alternative development projects, it any, describing the production facilities to be installed and the number of wells to be drilled under such development project and/or alternative development: projects, if any; (c)(d) (e) (f) Work programme and budget for development and production operation; (g) (h) (ii) Submission of plan to the management committee for approval on the basis of the approved development plan, the Assessee then undertakes various steps for development of wells and support production facilities; (iii) Development of wells/setting up of undertakings on the basis of approved’ development plan, the Assessee initiates the process of making investments for discovery of gas and on developing the undertakings. In Drilling Operations – Commercial Production Land Based wells,. on the basis of development plans approved by DGH, the Assessee drilled either one well or multiple wells for exploiting the field. The decision to drill a well or multiple wells being dependent on the methodology agreed upon by the Assessee and the Managing Committee, for exploiting the contract area. Based on additional facts known after drilling, the Assessee decided the methodology with MCM, for commercially exploiting the field.
127. Initially on the basis of data available, one well-started commercial production in July 1995 and later on drilling of Land wells 3 to 5 was undertaken. Subsequent to this, based on further information, the need for drilling additional wells 6 and 7 was established. To summarise, to exploit the field, various undertakings comprising, a well or number of wells, were set up: – i) Undertaking HI: Consisting well numbers 1/ 3, 4 and 5 started commercial production prior to 1 April 1997; ii) Undertaking H2: Comprising, well numbers. 6 & 7 started commercial production in 1998-99; and iii) Undertaking H3: comprising wells 8 onwards.
128. Hazira Land Based Drilling, Platform (‘LBDP’) a portion of the sea is reclaimed and drilling platform is constructed thereon. Reservoir data obtained pointed that the field was located in the sea and hence LBDP was conceived. The field was located 1 1/2 Km inside the sea, and LBDP platform was commissioned with 8 wells initially, that is, well numbers 8-15, in respect of, which commercial production has In commenced in financial year ended 31 March 2001. Based on the methodology adopted for producing mineral oil, each well or a cluster of wells, depending on the nature of reservoir to be exploited, shall constitute an “undertaking” for the purposes of claming a deduction under Section 80 IB (9) of the Act. These are the basis of formation of separate distinct and identifiable undertakings.
129. Each well an undertaking: Each well or a cluster of wells is a physically separate independent unit, which can exist on its own as a viable unit capable of earning income and would be an undertaking, eligible for tax holiday. Therefore, depending upon the facts of each case/ addition of each single land based well or cluster of wells or additional well(s) would be a separate undertaking. Similarly, in case of LBDP, the cluster of wells in the platform would be said to be a separate and distinct unit capable of . independent existence. Substantial investment is made by the assessee in the wells to the tune of Rs.34,435,436/ – (Total capital Investment in undertaking H2 as on 31 March 2001) and Rs.302,223,646/ – (Total capital investment in undertaking H3 as on 31 March 2001) and therefore result in the . creation” of separate, distinct and new undertaking. Each well produces revenue independently. The anatomy of oil exploration is determined by the nature of land. The mythology of the oil exploration, business clearly depicts that in case of laid based drilling operations, even a single oil and gas well fits within the characteristics of a `new and separate undertaking’ . The economics of land based drilling operations clearly demonstrates the independence and viability of each drilling operation as a separate independent undertaking capable of earning revenue and is independent working from other wells. The actual development of the onshore field clearly depicts that land wells have been drilled at intervals, as per the requirements of exploration and each well served the purpose of exploration and each well served the purpose of exploiting the reservoir. The operations of Undertaking H2 are not affected by the other wells in the field. The .Assessee has .separate approvals. from., the Director General of Hydrocarbons for land well 6 and 7 which indicates that wefts 6 and 7 are separate from the other wells and constitute a distinct undertaking. The Assessee is required to maintain undertaking wise quantitative production data and furnish the same to the DGH. The Assessee prepares separate records for each undertaking. For the financial year relevant to the subject Assessment Year 2001-02 the Assessee’s prepared separate profit and loss account for undertaking H2..
130. With the commissioning of Undertaking H-2 in financial year 1998-99, the total gas production went up from 89,068,959 SCM(Gross) to 109,198,817 SCM (Gross), for the part year. This increase constituted more than 1.8% of the total production, which increased to 20% during financial year 1999-2000 for the full year of production. Similarly for the yea- under assessment (FY 2000-01), with the commissioning of Undertaking H-3, the total gas production went up from 141,850,588 SCM(Gross) to 291,820,249 SCM(Gross) for the part year. This increase constitutes more than 51% of the total production, which increased to 75% during financial year 2001-02. These all indicate that there was a substantial expansion by additions of wells and plant &. machinery which constitute a new undertaking in addition to the old ones.
131. Certain decisions with regard & determination of a new undertaking are cited and can be discussed:
a) Textile Machinery Corporation Ltd. vs. CTT 107 ITR 195(SC): In this case the expansion of an existing business is held to be a new undertaking by the Supreme Court. It was observed that the fact that an assessee by establishment of a new industrial undertaking expand his existing business which he certainly does, would not on that score, deprive him of the benefit under Section 15C. Every new creation in business is some kind of expansion and advancement The true test is not whether a new industrial undertaking connotes expansion of the existing business of the, assessee but whether it is all the same a new and identifiable undertaking, separate and distinct from the existing business. It is also held that the new activity may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business. The Court held that “new industrial undertaking must be an integrated unit by itself wherein articles are produce. In order to be entitled to the benefit u/s 15C (of the old Act), the following facts have to be established by the assessee:
Investment of substantial fresh capital in the industrial undertaking set up.
(1) Employment of requisite labour therein.
(2) Manufacture or production of articles in the said undertaking.
(3) Earning of profits dearly attributable to the said new industrial undertaking and
(4) Above all, a separate and distinct identity of the industrial unit set up.-
b) CIT v. Indian Aluminium Co. Ltd.  108 ITR 367 (SC): In this case, there was a manufacturer of aluminium ingots from ore and it had four manufacturing centers at Belur, Kaiwa, Alupuram and Hirakud. The assessee made an extension to the existing centers at Belur and Alupuram and installed new plant and machinery there. The production of aluminium ingots went up by double. The additional units set-up cost was over Rs.50 lacat Belur and about the same .amount at Alupuram. It was held that in view of the nature of the investments that the units were new Industrial undertakings by themselves, that these units were set up side by side with the old ones and added to the assessee’s total output and therefore, the assessee was entitled to relief under Section 15C of I T Act, 1922. Section 15C of the old Act was replaced by section 803 of the new I T Act, 1961 and the language of section 80IB is more or less is same as that* of 803 at least in relation to industrial undertaking or undertaking.
c) CTT vs. Premier Cotton Mills Ltd. 240 ITR. 434 (Mad): The Court held that “an undertaking is not to be equated with the legal entity that owns the undertaking. A single legal entity may own and operate more than one undertaking and the fact of common ownership does not render undertakings, which are otherwise capable of being separate into a common undertaking. What is of relevance is the existence of ail the. facilities including factory building, plant, machinery godowns and things which are incidental to the . carrying on of manufacture or production all of which taken together are capable of being regarded as an industrial -undertaking”
132. Applying the aforesaid tests to the facts of this case Undertaking H2 is a separate and distinct unit and therefore, the deduction under Section 80IB(9) is allowable to the assessee in respect thereof, particularly in view of the facts that a sum of Rs.34,435,436 has been invested in setting up this undertaking and the fact that it had employed 20 employees in undertaking H2 for the extraction of mineral oil; the undertaking independently produces natural gas a part of mineral oil; it earns profits which are clearly attributable to the new undertaking and above all, a separate and distinct identity of the industrial undertaking set up.