I.T.AS. NOS. 965/113, 966/IBI79/IB AND 80/IB OF 1986-87, DECIDED ON 14TH FEBRUARY, 1988. Versus I.T.AS. NOS. 965/113, 966/IBI79/IB AND 80/IB OF 1986-87, DECIDED ON 14TH FEBRUARY, 1988.
ORDER
ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER).-- These are four cross-appeals, two by the assessee and two by the department relating to assessment years 1983-84 and 1984-85. Since common questions of law and facts are involved, all the four appeals are being disposed of together.
2. Brief facts under which these appeals have arisen may here be stated. The assessee is a non-resident limited company and is engaged in the business of exploration, development and production of petroleum in Pakistan. The assessee-company entered into various agreements with the Government of Pakistan in joint venture and agreements were executed between this company and the Government of Pakistan on various dates. However, expecting one area, the assessee was unsuccessful in exploring the oil. Consequently the assessee surrendered the areas for which it had been granted licences to explore under the aforesaid agreements. The detail of the agreements and the dates on which the relevant areas were surrendered by the assessee are given below:-
Areas
Date of Agreements
Remarks
Karak Concession
24-2-1976
Area surrendered on 11 February, 1981.
Tajjal Concession
21-1-1979
Area surrendered on 17-9-1981.
Central Potwar Concession
28-11-1982
Commercial production declared on 1st April, 1985.
3.The assessee suffered total losses in the first three concessions and the detail of losses as declared by the assessee were as under:-
Tajjal Concession
Rs. 2,54,65,158
Central Potwar Concession
Rs. 6,46,28,821
Karak Concession
Rs. 1,17,61,665
Total loss
Rs.10,18,53,644
It may be noted here that in the losses declared by the assessee, included the losses on account of dry holes. This loss of Rs.10,18,53,644 was declared by the assessee in its return for the assessment year 1982-83 which was accepted by the department. For the assessment year 1983-84 the assessee declared a loss of Rs.6,85,40,542 and brought-forward loss of the earlier year was also claimed by the assessee to the tune of Rs.10,18,53,644. Similarly for the assessment year 1984-85 loss of Rs.2,59,69,412 was declared and the brought-forward loss for the earlier year was also claimed. The learned Income-tax Officer while accepting the loss of the assessee as declared in both the assessment years refused to carry forward the loss of the earlier years. The Income-tax Officer refused to carry forward the loss on surrendered areas of Tajjal Concession at Rs.2,54,65,158 as well as in regard to the Karak Concession at Rs.1,17,61,665 on the ground that the area in regard to these concessions has already been surrendered by the assessee and there was no expectation of any commercial production in these concessions. However, in regard to the claim of the assessee to carry forward the losses in the Central Potwar Concession to the tune of Rs.6,46,28,821 alongwith the loss amounting to Rs.6,85,40,542 for the assessment year 1983-84 was neither accepted nor rejected on the ground that this area was not surrendered so far nor any commercial production had started from any of the wells in the Central Potwar Concession. Consequently, the Income-tax Officer ordered that the carried forward loss in the Central Potwar Concession should be kept in abeyance and would be considered when either of the following events would take place:-
(a) "Subsequent wells in this concession, result in commercial production, In such an event, the losses on these two wells could be set off against any such income.
(b) The area is surrendered and no commercial production results,
In such an event the losses would not be carried forward.
4.But in the assessment year 1984-85, the Central Potwar Concession was also surrendered by the assessee without any commercial production. Therefore, the losses declared and accepted in the assessment years 1982-83 and 1983-84 were not carried forward to the assessment year 1984-85. In the assessment year 1984-85 the loss determined was Rs.2,59.69,412 and since the Central Potwar Concession area was surrendered by the assessee on 18-9-1983 without any commercial production, this loss was also refused to be carried forward by the assessing Officer.
5. On appeal the learned Commissioner of Income-tax (Appeals) while maintaining the order of the Income-tax Officer on principle that each area of concession on a separate agreement was to be taken as a single business in terms of the 5th schedule of the Income-Tax Ordinance, 1979, partly accepted the assessee's appeals in the following words:-
"In view of the foregoing discussion the learned representatives appearing on behalf of the appellant failed to establish their contention that the' changes brought in by the Fifth Schedule were of a clarificatory nature and the term 'business under taking' was to be reckoned to encompass a series of agreements rather than each concession separately. On the other hand, I.T.O's. contention that one concession or an agreement is to be taken as a single business in terms of the provisions of Rule 1 of the Fifth Schedule of Finance Ordinance, 1979, appears to be correct and his view is therefore upheld."
"At this juncture the appellant company's stand that their agreements pertaining to "Karak Concession" Tajjal Concessions" were not affected by the provisions brought in by the Fifth Schedule because they were covered by the provisions of Second Schedule of the Repealed Income-tax Act, 1922, merits separate consideration. On looking into tie terms and conditions of Karak Concession, I find that the said concession was signed by the appellant company on the basis of the agreement dated 18-9-1980 wherein in para. 12, part, 1, the following narration appears:-
"The profits or gains shall be computed for purposes of Income-tax in accordance with the provisions of the Income-tax Act, 1922, and the rules contained in the Second Schedule to that Act and any other applicable Schedules, rules, notifications, or regulations as constituted on the first day of August, 1976, regardless of any subsequent amendment, revision, deletion, or addition thereto."
"Similarly in the Tajjal Concession agreement made in para.12 part, 1, the following words appeared:-
"The profits or gains shall be computed for purposes of Income-tax in accordance with the provisions of the Income-tax Act, 1922, and the Rules contained in the Second Schedule to that Act, as amended, as in force on the date the parties executed this Agreement".
"The Tajjal Concession was executed on 21-2-1979 before coming of the Finance Ordinance, 1979. In view of the specific provisions of the two. agreements, I am of the view that their position will not be affected by the changes brought in by the Fifth Schedule as discussed above. Hence the ITO is directed to make the requisite adjustment."
5. The assessee's grievance in both the appeals is against the treatment given by the officers below that one Concession or an agreement in regard to a particular area has been taken as single business for the purposes of application of the Fifth Schedule of the Income-tax Ordinance, 1979. The departmental appeals are directed against the observations of the learned Commissioner of Income-tax (Appeals) that losses from Karak and Tajjal Concession were to be governed by the Second Schedule of the Repealed Income-Tax Act, as the Agreements for the Concession were executed before 1-7-1979 i.e. before coming into force of the Income Tax Ordinance, 1979, and the agreements were not affected by the changes brought in by the Income Tax Ordinance, 1979.
6. The precise question which requires determination in all the appeals is to whether the petroleum exploration and production business of the assessee comprising many agreements, in regard to more than one areas, can be treated as a single undertaking or, business in regard to the each area under a separate agreement, has to be taken as separate business within the meaning of the Fifth Schedule of the Income Tax Ordinance, 1979, or under the Second Schedule of the Repealed Income Tax Act, 1922.
7. It may here be stated that the business of exploration and development of petroleum was governed by the Regulation of Mines and Oil-fields and Mineral Development (Government Control) Act, 1948 (hereinafter referred to as the Regulation), which gave special concession to the exploring companies. This Act was first amended by the Regulation of Mines and Oil-fields and Mineral Development (Government Control) (Amendment) Ordinance, 1976, promulgated on 2nd November, 1976. This Ordinance was subsequently made an Act being Act No.LXXX of 1976. This Act was promulgated on 4th January, 1977. In this amending provision section 3-A and Section 3-B were added to the Regulation. Section 3-A and 3-B are reproduced below:-
3-A " Production sharing agreement (1) Notwithstanding anything contained n any other law or rule for the time in force, the President may enter into an agreement with any company, whether incorporated in Pakistan or outside Pakistan, for the grant of a licence or lease to explore, prospect and mine petroleum on the basis of a Production sharing Agreement and on such terms and conditions as may be agreed upon between the Federal Government and the company."
(2) Notwithstanding anything contained in the Income Tax Act, 1922 (IX of 1922) a company with which an agreement such as is referred to in sub-section (1) is for the time being in force shall not be liable to pay tax on its income, profits or gains."
"3-B Concession to Petroleum exploration companies.- (1) Notwith standing anything contained in any other law for the time being in force, every company, whether incorporated in Pakistan or outside Pakistan, to whom a licence or a lease to explore, prospect and mine petroleum is granted under this Act, not being a company such as is referred to in sub-section (1) of Section 3-A, shall be entitled to the concessions specified in the Schedule in addition to any concession for the time being admissible to it under any other law or the rules made under this Act."
(2) The Fedee&1 Government may, by notification in the official Gazette, amend the Schedule so as to add any concessions thereto or to improve any concession therein."
8. The concession referred to in Section 3-B of the Regulation reproduced above have been incorporated in the Schedule attached to the Regulation. Clause (3) of the Schedule to the Regulation is again reproduced below for ready reference:-
"3. Before commencement of commercial production of petroleum, any expenditures on searching for, or on discovering and testing, a petroleum deposit, or on winning access thereto, allocable to a surrendered area and to the drilling of a dry hole, shall be deemed to be lost at the time of the surrender of the area or the completion of the dry hole, as the case may be, for the purpose of the Second Schedule to the Act. Such lost expenditure shall be allowed in one of the two ways mentioned in sub-rule (1) of rule 2 of the said Schedule."
9. It would, therefore, be seen that by virtue of Clause 3 of the Schedule, the losses suffered by an assessee, which are allocable to a surrendered area and to the drilling of a dry hole, have been allowed as provided in sub-rule (1) of rule 2 of the Second Schedule of the repealed Income Tax Act. Therefore, so far as the issue under consideration is concerned we have to revert back to sub-rule (1) of rule-2 of the Second Schedule to the Repealed Income-tax Act. Now sub-rule (1) of rule-2 of the Schedule to the Repealed Income Tax Act may here be reproduced:-
"Where a person incurs any, expenditure on searching for, or on discovering a testing petroleum deposit or winning access thereto, (but the search, exploration or enquiry upon which the expenditure is incurred is given up before the commencement of commercial production), such expenditure allocable to a surrendered area and to the drilling of a dry hole shall be deemed to be lost at the time of the surrender of the area or the completion of the dry hole as the case may be. A portion of such loss provided for in any agreement between any such person and the Government, shall be allowed in either of the following ways:-
(a) Such portion of the said loss in any year shall be set off against income, profits or gains from business or under any other head of income, other than income from dividend, of that year. If the loss cannot be wholly set off in this manner, the portion not so set off shall be carried forward to the following year and set off against such income, profits or gains, for that year in the same manner; if it cannot be wholly set off, the amount not so set off shall be carried forward to the following year and so on; but no loss shall be so carried forward for more than six years;
(b) Such portion of the said loss in any year be set off against income, profits or gains of the same business of the previous year in which commercial production commences. If the loss cannot be wholly set off against the profits of the same business for th6t year, the loss not so set off shall be carried forward to the following year and set off against the profits or gains, if any, of the assessee from the same business for that year; and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year, and so on; but no loss shall be so carried forward for more than ten years.
10. From the plain reading of the above provision, it is evident that under rule-1 it has been laid down that the business, which consists of exploration and production of petroleum, profits and gains of a person therefrom are to be computed separately from his income, profits and gains from any other business. This means that a clear bifurcation has been made between the profits and gains from the business of exploration and production of petroleum and any other business and the business of exploration, and production of petroleum etc. has to be computed separately in accordance with the Second Schedule to the Repealed Income Tax Act. Now sub-rule (1) of rule-2 provides two things:-
(1) That all expenditure on searching for, or on discovering and testing a petroleum deposit etc. allocable to a surrendered area and to the drilling of a dry hole would be deemed to be lost at the time of the surrender of the area or on the completion of the dry hole.
(2) A portion of such a loss provided for in any agreement would be allowed under either of following two ways:-
(a) It would be set off against income or profits etc. from any other business or against income under any other head of income (except income from dividened) of that year. If such a loss cannot be set off in that year it can' be carried forward upto six years.
(b) Such loss can be set off against income and 'profits etc. of the same business of the previous year in which commercial production commences. Again if such a loss cannot be set off in that year, the loss can be carried forward for a period of 10 years.
11. Now if the departmental view is accepted then clause (b) would become wholly redundant inasmuch as there is no question of any set off against commercial production. Clause (b) pre-supposes that there must be some profits and gains by way of commercial production. The departmental view that each area under an agreement is to be treated as a separate business and has to be computed separately would mean that the assessee in regard to a particular surrendered area would not be entitled to carry forward the loss in one of the ways which has been permitted by sub-rule (1) of rule 2 of the Schedule. As stated above, clause (b) pre-supposes commercial production. Assuming that the departmental view is correct then in that case the loss incurred by the assessee allocable to a surrendered area before the commencement of commercial production, though would be allowed entirely in that year in which the area was surrendered but it cannot be carried forward because the profits or gains in regard to other areas or concessions under a separate agreement is separate business and, therefore, cannot be regarded as the same business. This interpretation ignores the second way of the allowance gives clause (b) above, which would make absurd reading. If each surrendered area has to be taken separate business by itself then there is no question of any profits and gains out of the commercial production as mentioned in clause (b) and this clause would not be applicable. The only correct and proper interpretation, which would avoid absurdity would be that business of exploration and production of petroleum would be taken as a whole, consisting of as many agreements and the areas as the assessee possesses. It is only then some meaning can be given to clause (b) of sub-rule (1) of rule 2 of the Schedule. What the law requires is that the business of exploration and production of petroleum should be separately computed under the Second Schedule of the Act as against any other business of the assessee. This however, does not mean that each area of agreement can be taken as a separate business. However, according to sub-rule (1) of rule 2 only a portion of loss under consideration which had been provided for in any agreement can be allowed to be set off and carried forward either under clause (a)' or under clause (b) of the aforesaid rule. For that purpose the terms and conditions of the agreement had to be seen and only that portion of loss allocable to a particular surrendered area has to be set off and carried forward which has been provided for in a particular agreement and for that purpose the terms and conditions of each agreement have to be examined and each case has to be decided on its own terms. What the Income Tax Officer has to do in such a case would be that for each surrendered area he has to go through the terms and conditions of the agreement and then to find out as to whether there was any clause in regard to the allowance of the losses as provided in sub-rule (1) of rule 2 and then it could be set off either under clause (a) or under clause (b) of sub-rule (1) of rule 2. Unfortunately complete text of the agreements has not been placed before us. We, therefore, are not in a position to give any finding as to what were the terms and conditions of the each agreement and whether a portion of loss of the nature claimed by the assessee has been provided for in the agreements under consideration or not. In regard to the departmental appeals the Income-tax Act, 1922, being applicable, we would direct that the assessee's agreements in regard to Karak Concession, and Tajjal Concession should be examined and found out as to whether any portion of the loss incurred by the assessee allocable to a surrendered area and to the drilling of a dry hole was or was not allowable. Such portion of loss if allowable under these Agreements should be allowed and carried forward at the option of the assessee either under clause (a) or under clause (b) of sub-rule (1) of rule 2.
12. So far as the departmental appeals are concerned, we are in agreement with the finding of the learned Commissioner of Income Tax (Appeals) on principle that the Karak and Tajjal Concessions were governed by the Repealed Income Tax Act by force of law and, therefore, provisions of the Income Tax Ordinance could not be applicable. We, however, modify the order of the Commissioner in regard to these concessions in the light of the discussion made above and direct the Income Tax Officer to examine each Agreement and then loss has to be allowed in the manner provided in clauses (a) and (b) of sub-rule (1) of rule 2 at the option of the assessee.
13. Now coming to the other Agreements, which are governed by the Fifth Schedule of the Income Tax Ordinance, 1979, the position is slightly different although the principles remain the same. The provisions of rule 2 of the Second Schedule of the Repealed Income Tax Act has been substantially re-inacted in the shape of rule 2 to the Fifth Schedule of the Income Tax Ordinance. Rule-1 of the 5th Schedule however has undergone considerable changes as compared to sub-rule (1) of rule-2 of the Second Schedule of the Repealed Income Tax Act. Rule-1 of the 5th Schedule is reproduced below for ready reference:-
"Exploration and production of petroleum to be treated as a separate business undertaking.-Where any person carries on, or is deemed to carry on, under an agreement with the Government, any business, which consists of, or includes, the exploration or production of petroleum in Pakistan, such business or part thereof, as the case may be, shall, for the purposes of this Ordinance, be deemed to be a separate business undertaking hereinafter referred to as "such undertaking" and the profits and gains of such undertaking shall be computed separately from his income, profits or gains from any other business, if any, carried on by him."
14. The Income-tax Officer as well as the Commissioner of Income Tax (Appeals) in their impugned orders have relied on rule 1 of the 5th Schedule to a large extent in order to contend that this rule has made absolutely clear that profits and gains derived by an assessee out of each area under an Agreement with the Government has to be treated as a separate business which has to be called as "such undertaking". However, this phrase cannot be read in isolation. It is with reference to the last phrase of this rule and has to be read in that context. We agree with the contention raised by the learned counsel for the assessee that in this rule more clarification has been made as compared to rule-1 of the Second Schedule of the Repealed Income Tax Act so as to make it clear that the business of exploration and production of petroleum in Pakistan has to be treated as a separate business and to be computed under the 5th Schedule. This is clear from the last phrase of rule-2, which is "and the profits and gains of such undertaking shall be computed separately from his income, profits or, gains from any other business, if any, carried on by him". It is clear from the plain reading o this rule that there is no substantial change on principle from the provisions given in the Repealed Income Tax Act and the one given in the 5th Schedule of the Income Tax Ordinance, 1979. What the law has required is only that the profits and gains from business of exploration and production of petroleum has to be computed separately from any other business. The word 'surrendered area' has been defined in 5th Schedule itself which is as follows:-
"Surrendered area" means an area with respect to which the rights of a person have terminated by surrender or by assignment or by termination of the business.
From this definition it is clear that rights of a person in regard to a particular area for which an Agreement had been made can be terminated either by surrender or by assigning or by termination of the business. This definition also makes it clear that the business o exploration and production of petroleum has to be taken as a whole and each business in regard to each area or Agreement cannot be separately treated. It may be of interest to note that an expenditure, which is allowable in regard to an area where ultimately the commercial production is commenced, has separately been treated under the Schedule. The assessee in the present case was successful and commercial production was started in April, 1985 in regard to North Potwar Concession. Now under sub-rule (4) of rule 2 of the 5th Schedule any expenditure which has been incurred by the assessee prior to the commencement of the commercial production is allowable under this sub-rule, This also clarifies that sub-rule (3) of rule 2 is applicable only in regard to the surrendered area where commercial production had not started and the assessee failed and suffered total loss so far as that area is concerned. Therefore, clause (b) of sub-rule (3) of rule 2 can only be applicable in regard to the loss suffered and allocable to a surrendered area. This is only possible if the entire business of the assessee and income out of the exploration and production of petroleum is taken as one single undertaking consisting of more than one Agreements and Concessions.
15. We, therefore, hold that in regard to the Agreements where the 5th Schedule of the Income-tax Ordinance is applicable, on principle the position remains the same as obtained at the time when the Repealed Income-tax Act was applicable. Consequently in regard to Central Potwar Concession as well, we hold that the assessee's entire business is to be taken as a whole so as to carry forward losses, if any, suffered by the assessee should be allowed as provided in rule 2 and in clauses (a) and (b) of sub-rule (3) at the option of the assessee provided the Agreements of the assessee with the Government have such a provision to allow a portion of the losses suffered by it and for that matter the assessing Officer would examine the Agreements and calculate the losses in the terms of the Agreements.
A.A. ZUBERI (ACCOUNTANT MEMBER) .-- Before I could have the advantage of going through the detailed and authoritative order drafted by my learned brother, the Judicial Member, I had penned down my own views in respect of appeals under consideration. The reasons, as also the conclusions, drawn by both of us are the same. I, therefore, see no impropriety in releasing my concurring view (as hereinbelow) as part of the final order.
2. We have heard the rival contentions of the two sides at considerable length, with a good measure of interest, and have carefully gone through the record besides undertaking a careful study of the record, provisions of the Ordinance. Our view is: The computation of income from 'business or profession' is normally made under section 22 read with sections 23 and 24 of the Ordinance. However, the Legislature in section 26 of the Income-tax Ordinance, has prescribed a special dispensation for 'business of insurance and production of oil and natural gases etc'. Clauses 'a' and 'b' of section 26 relate to the computation of 'profits and gains from the exploration and production of petroleum (including natural gases)' which is to be in accordance with the rules contained in Part I of the Fifth Schedule. This part of the Schedule (sub-rule (1) of Rule 2 deals with the profits which are to be computed in the matter applicable to income, profits and gains chargeable under the head 'Incomes from Business or Profession'. Sub-rule (2) of Rule 2 while dealing with the pre-commercial production expenditure unequivocally authorises:-
" .... expenditure allocable to a surrendered area or to the drilling of dry-hole shall be deemed to be lost at the time of surrender of the area or the completion of the dry-hole as the case may be."
This is identical to the process of assessment for determination of profits (or losses) in the case of normal business. There is, however, a slight change in respect of set off and carry forward of the loss in the Fifth Schedule, compared to the normal process of assessment to determine losses. Under Rule a(3) of the Fifth Schedule the facility of set off and carry forward of losses can be availed only when the agreement with the Government (for exploration or production of oil) has a provision to that effect. In those cases where this pre-condition is fulfilled, the Assessee has two options as are listed at clauses 'a' and 'b' of Rule 3. The impact of this concession is that the amount which is deemed to have been lost on surrender of an area (or the drilling of a dry hole) shall be allowed to be set off in either of the two ways at the option of the Assessee: (i) against the income under the head 'Income from business or profession or any income (other than income from dividends) chargeable under any other head. Here carry forward is permissible for six years; or (11) against the income of such undertaking in the year in which commercial production has commended and the carry forward is permissible for 10 years. It is thus manifest on a combined reading of Rule 1 and sub-rules (1), (2) and (3) of Rule 3, that if any person enters into an agreement with the Government to carry on any business of exploration or production of petrol in Pakistan such business is to be deemed to be a separate business undertaking and profits and gains of 'such undertaking' shall be computed separately from his income, profits or gains from any other business which he may carry on. If the losses are suffered due to a surrender of area or due to the drilling of a dry hole, the same may be adjusted under sub-rule (3) of Rule 2 in the manner specified under clauses 'a' and 'b' of that sub-rule.
3. In the present case the Assessee was fortunate enough to drill successful wells in the Northern Potwar Concession and was, therefore, clearly entitled to set off the losses pertaining to the three areas (= dry well) already surrendered as per the choice available in sub-rule (2) of Rule 3 of the Fifth Schedule. These losses could not only be adjusted against income in the income year in which commercial production commenced, but so much of the loss as could not be wholly ,set off is to be carried forward for the following year and set off against income in the succeeding years, not exceeding ten. This is so because the Assessee exercised the choice as per clause 'b' of sub-rule (3) of Rule 2, of Part I of the Fifth Schedule about which there is no dispute. We entertain no doubt that the expression 'such undertaking' in clause 'b' of Rule 2(3) refers to the separate business undertaking, a character, which the business of exploration or production of petroleum is to be assigned under Rule 1 of the Fifth Schedule. The logical conclusion would thus be that the entire 'business which consists of or includes the exploration or production of petroleum in Pakistan, or part thereof which 'any person carries on, or is deemed to carry on', is treated a separate business under king. The view that 'such undertaking' would cover only one agreement, would ''render the expression 'or part thereof' obtaining in Rule 1 redundant.
Rule 1 . -- here any person carries on----under an agreement, any business which consists of or includes the exploration or production of petroleum in Pakistan, such business... shall--be deed to be a separate business undertaking, herein referred to as 'such undertaking' and profits and gains of such under king shall be computed separately "
It is abundantly clear that exploration or production of petroleum in Pakistan (whenever undertaken under an agreement with the Government) is to a treated as a separate undertaking; the profits and gains of which are to be determined separately from any other business.
CONCLUSION
In view of the foregoing discussion our unanimous conclusion is:-
(1) The business `of exploration and production of petroleum by an assessee (Whenever undertaken under an agreement with the Government) is to be treated as a separate undertaking encompassing all leases for searching, discovering, testing, exploration or enquiry about petroleum deposits or winning access thereto end that the expenditure allocable to a surrendered area \ (or drilling a dry hole) shall be set off against those where success is achieved.
(2) That the agreements entered into prior to 1st July, 1979 (before the commencement of the Ordinance, 1979) are governed by the Second Schedule of the repealed Income-tax Act. However, no new principle has been introduced by the Income-tax Ordinance, 1979, in the Fifth Schedule, viz-a-viz the relevant provisions in the repealed Income-tax Act relating to carry forward and set off of the losses.
(3) Losses due to expenditure allocable to a surrendered area or the drilling of a dry hole which is deemed to be lost, can be carried forward for the purposes of set off in one of the ways provided in Second Schedule to the repealed Income-tax Act or in the Fifth Schedule of the Income-tax Ordinance, 1979, as the case may be. However, these losses cannot be carried forward automatically but have to be governed by the 'I terms and conditions of an agreement and only that portion of; such losses would be carried forward which is provided in the agreement.
As a result of the above discussion and conclusions, we remand the case back to the Income-tax Officer with the direction that he should examine each agreement and carry forward only that portion of losses in regard to a particular surrendered area or a dry hole, which is provided in the agreement.
ISSUE DECIDED
Whether the petroleum exploration and production business of the assessee comprising many agreements, in regard to more than one areas, can be treated as a single undertaking or, 'business in regard to the each area under a separate agreement, has to be taken as separate business within the meaning of the Fifth Schedule of the Income-tax Ordinance, 1979, or under the Second Schedule of the Repealed Income-tax Act, 1922.
M.B.A./504/T Case remanded.