A government panel has allowed Oil and Natural Gas Corporation Ltd (ONGC) to file an appeal against a tax demand notice issued by the Income Tax (I-T) Department over treating each oil well as an individual company, which allowed India’s largest oil producer to claim tax exemption for a longer time span.
In a decision last week, the Committee on Disputes (CoD) headed by the Union Cabinet Secretary also permitted the I-T Department to drag Oil India Ltd, country’s second largest oil producer, to the Income Tax Appellate Tribunal (ITAT) in a similar case. The decision of ITAT can only be challenged in a High Court.
For the assessment years 2002-03 and 2003-04, ONGC had claimed deductions from the income derived from new oil producing undertakings under Section 80-IB of the Income Tax Act. The department did not allow the deductions saying that each well in an ongoing business could not be treated as a separate undertaking.
When the department raised an additional tax demand of about Rs 1,200 crore, ONGC moved an appeal against the order at the Commissioner Income Tax (Appeal), a first appellate authority. The department won the case. After this, ONGC, being a government undertaking, sought approval from the CoD to move to ITAT. Its plea was rejected initially, but a CIT(A) ruling against the department in a similar case involving Oil India changed the situation.
As the matter could not be settled without judicial intervention, it was decided to allow ONGC to go to ITAT against the department and the department against Oil India.
The department suspects that oil producers are digging new wells after availing the 7-year tax holiday for the old ones. Clubbing a new well to the existing business will deny the company full seven-year tax holiday.
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ONGC Chairman R S Sharma confirmed that there was a dispute with the Income Tax Department and that it had sought the CoD nod to move to ITAT.
The oil producers are already fighting another high pitched court case against the department on the issue of giving tax exemption on gas production under Section 80-IB. In an amendment in Budget 2008, the finance ministry said that mineral oil did not include gas, effectively denying the tax benefit and casting a shadow on auction of new oil and gas blocks under the New Exploration and Licensing Policy.