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Canada’s Niko Resources on Monday announced the Gujarat High Court had issued a favourable judgment on retrospective application of the definition of undertakings and whether or not ‘mineral oil’ included natural gas. This pertains to an income tax holiday for the company’s fields in India.
The court order also provides relief to companies such as Reliance Industries Ltd (RIL), Cairn India and other hydrocarbon producers, which were denied a tax holiday by the United Progressive Alliance government.
On its website, Niko said, “The judgment states the government of India’s retrospective application of the definition of undertakings as ‘all blocks licensed under a single contract shall be treated as a single undertaking’ is clearly unconstitutional and has been struck down. As such, the company’s position that an undertaking can be defined as a well or cluster of wells has been upheld for the purpose of tax holiday provisions in the Income Tax Act in India.”
“This is a very significant development for the oil & gas sector. If the government is serious about the country’s energy security, it will not challenge the verdict but allow companies in the segment to work well,” said the chief financial officer in a multinational company operating in India.
The judgment can be challenged before the Supreme Court within 90 days of the delivery of the order.
The high court also said for the purpose of tax holiday provisions in the Income Tax Act, the term “mineral oil” included both petroleum products and natural gas.
The 2008 Budget proposed to withdraw a tax holiday under section 80-IB for oil and gas companies engaged in refining activities if such activities commenced on or after April 1, 2009. Also, the tax holiday to oil and gas companies under section 80-IB was made available for commercial production or refining of ‘mineral oil’.
Niko had been claiming benefit of deduction of 100 per cent of the profits and gains from the production of mineral oil and natural gas under section 80-IB(9), as it was prior to an amendment.
The company challenged the constitutional validity of the amendment and sought to know whether the term “mineral oil” included gas.
Niko has been producing hydrocarbons from its blocks in Hazira and Surat. It is also a 10 per cent partner with RIL in the KG-D6 gas block, where a total of 20 oil and gas discoveries have been made, with three of those in production. Last month, Niko put up for sale its stake in the KG-D6 block, saying there was uncertainty over the long-term price outlook in India.
