With about a fortnight to go for the Union Budget 2013-14, the upstream companies are hoping that Finance Minister P. Chidambaram will clear the existing taxation ambiguity including clarity on definition of ‘mineral oil’.

The companies in the sector include public sector giant ONGC, Oil India, private sector majors such as Reliance Industries, Cairn India, and multinationals BG and BP.

Recently, most of the Indian upstream companies have been seen investing far more heavily in exploration overseas than in India, a fact which the Government is aware of, industry observers say.

Not one to give up easily, despite no luck in the previous Budget, the oil and gas exploration & production (E&P) companies are expecting that the tax holiday period under Section 80-IB (9) of the Income-Tax Act be extended for the sector to 15 years, from the current seven years from the year of commercial production.

This, they say, will encourage oil and gas exploration activity, which requires heavy investments and has risks involved.

Alternatively, they suggest that the companies in this business could be given the option of claiming tax holiday for a period of at least 10 consecutive years within 15 years from the year of commercial production.

Currently, these companies receive a seven-year tax waiver on their income from selling crude oil from a block, but there is no such incentive for natural gas production.

Mineral Oil

The definition of ‘mineral oil’ as provided under various provisions of the Income-Tax Act, 1961 and statutes governing petroleum sectors – Oilfields (Regulation and Development) Act, Oil Industry (Development) Act – includes petroleum and natural gas.

But, sub-section (9) of Section 80-IB does not provide any definition of the term ‘mineral oil’ for exploration blocks. Thus, its meaning has to be imported from other provisions of the Income-Tax Act or the definition given under the statutes governing the petroleum sector.

Unambiguously the expression ‘mineral oil’ brings within its ambit ‘natural gas’. This is because when an exploration activity is undertaken, the contractor does not know whether there it is going to be an oil or gas find, industry sources said.

However, the definition has seen different interpretations which may deviate from the correct legal position, they argued.

In order to clear the doubt and remove ambiguity, it should be clarified that the term ‘mineral oil’ includes petroleum and natural gas for the purpose of Section 80-IB (9), the industry officials said.


(This article was published on February 14, 2013)
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