Income Tax Assessment of Non-Resident Oil and Natural Gas Exploration Companies

The demand for oil and natural gas in the country is directly proportional to the growing population and changing consumption trends. The case for India is no different. Even though the emphasis is on shifting to consumption of non-conventional sources of energy, oil and natural gas continue to meet the bulk of the demand. In this background the Government of India has continued to adopt a policy of incentivizing the activities of prospecting and exploration of oil and natural gas. Special provisions have also been enacted for Non-Resident entities which are engaged in providing services or equipment to those entitles engaged in activities of prospecting and exploration of oil and natural gas. This note examines the provisions under the income tax law of Indian in as much as it governs the Non-Resident entities which are engaged in provision of such services or equipment. An attempt has been made to traverse the legal position on a historic basis so as to examine the impact and muddling of clarity in wake of recent amendment to the legal provisions and the ensuing judicial interpretation thereon. Upon an appraisal of the legislative history and wavering judicial interpretation, it is concluded that the Non-Residents engaged in provision of services or equipment to the entitles engaged in activities of prospecting and exploration of oil and natural gas have been subjected to tremulous times as far as their assessment for income tax purpose is concerned. Even though the much awaited Direct Taxes Code Bill, 2010 seemingly puts to rest few of the controversies by a simpler provision, the disputes will continue to arise in the context of the existing income tax legislation for the a variety of reasons