Case Law Details
RELEVANT PARAGRAPH
29. On a close reading of this section, we find that the deduction under this section is allowed for computing the profits and gains of the business of prospecting for or extracting or production of mineral oil, in relation to which, the Central Government has entered into an agreement. Only such deductions are allowed under section 42(1) as are specified in the agreement and that also when they fall in any of the sub clause (a), (b) or (c) of section 42(1). Sub clause (a) applies to an activity prior to beginning of commercial production and sub clause (b) applies to the situation, after the beginning of commercial production. Sub clause (c) applies to allowance in relation to depreciation on mineral oil in the year where production has begun and in succeeding year. The assessee has already started commercial production, its case therefore falls in sub clause (b) of section 42(1). To summarize, the following conditions should be satisfied for claiming deduction under section 42(1) of the Act- I) there should be an agreement of the assessee with Central Government; (ii) that the agreement should be laid on the table of each house of the Parliament; (iii) that the allowances sought to be allowed are those specified in the agreement; (iv) that such specified, allowances should be the expenditure incurred in respect of drilling or exploration activities or services or in respect of physical assets used in that connection; and (v) that such allowances is to be computed and allowed.
30. The assessee has no doubt entered into agreement (PSC) with the Central Government in respect of various fields, but except one the other agreements are not shown to have been laid on the table of the both the houses of the Parliament. The agreement does not provide the manner of computation such deduction. Further the allowances are not of the nature specified in the agreement, nor of various specific nature as mentioned in sub clause (a), or (b) or (c) of section 42(1). As we are concerned in this case with sub clause (b), these specified allowances should be in relation to expenditure in respect of drilling or exploration activities or services.
31. There are five Contracts which the assessee and M/s. GSPCL jointly entered with the Government of India. They are Production Sharing contracts (PSC) and these are similarly worded with the same contents and language. In all these agreements Article 15 deals with computation of profits and gains for the purpose of Income-tax. It is titled as “taxes, royalties, rentals, custom duties etc”. Clause (3) is relevant and on which reliance is placed reads :-
“15.3. The profits and gains of the a company consisting of petroleum operations shall, for the purpose of levy of income-tax under the Income-tax Act, 1961 be computed on the basis of the value, determined in accordance with Article 18, of its Participating Interest share of Crude Oil produced and saved and sold, or otherwise disposed of, from the Contract Area and from any revenue realized on the same or disposal of Associated or Non-Associated Natural Gas referred to in Article 20 as well as any other gains or receipts from Petroleum Operations as reduced by the allowable deductions”.
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