In a verdict that enhances the room for Niko Resources, which partners BP and RIL in the KG-D6 block, to enjoy a tax holiday in India, the Gujarat High Court has said that an undertaking could be defined as a well or cluster of wells.
“The judgment states that 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,” Niko said.
If the judicial process goes against the firm, it will change the firm’s tax position and record a tax expense of approximately $52 million (comprised of additional taxes of $33 million and write off of approximately $19 million of the net income tax receivable) plus interest on taxes for the past periods.
The court also ruled favourably to the firm in holding that the term “mineral oil” for the purposes of the tax holiday takes within its purview both petroleum products and natural gas.
Niko had filed its income tax returns in India for the taxation years 1998 through 2008 under provisions that provide for a tax holiday deduction for eligible undertakings related to the Hazira and Surat fields.
The company said it had received unfavourable tax assessments related to taxation years 1998 through 2010. The assessments contend that Niko is not eligible for the requested tax holiday because: a) the holiday only applies to “mineral oil” which excludes natural gas; and/or b) the company has inappropriately defined undertakings.
The taxation years 2011 and later have not yet been assessed by the tax authorities. Niko had appealed the tax assessments and received favorable rulings from a Tribunal (Income Tax Appellate Tribunal). The tax department then appealed this decision to the High Court.