Stung by rejection of its demand for restoration of tax breaks on production of natural gas, the petroleum ministry has asked the finance ministry to let courts decide if 7-year tax holiday should apply only to oil and not to gas produced from the same well.
Oil Secretary S Sundareshan has asked Revenue Secretary Sunil Mitra to allow profit-linked incentives to continue for existing contracts signed under the New Exploration Licensing Policy (Nelp) since 1999 under the proposed Direct Taxes Code.
The government promised exemption from payment of income tax on profit made from production of crude oil and natural gas for seven years from areas awarded under Nelp. But the then finance minister, P Chidambarm amended the tax Act to say the exemption was available to a product with huge carbon footprint (oil) and not to environment-friendly fuel (gas). Some companies like Niko Resources of Canada and Cairn India have challenged the 2008 amendment in courts.
“For contracts already awarded, it may be left to judiciary to decide whether there exists a notional bifurcation of mineral oil from natural gas,” Sundareshan wrote to Mitra on August 9. On June 30, Mitra had written to him saying the tax breaks could not be extended to the forthcoming 9th round under Nelp.
“As the government has consistently agreed to provide the seven-year tax holiday, it may not be appropriate to deprive the benefit for companies under contracts which already exist,” Sundareshan wrote. DTC proposes to withdraw profit-linked deductions for all industries, including the benefit available to the hydrocarbon sector under Section 80IB(9).
