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TMI BlogClarification regarding treatment of Farm-in expenditure incurred by the Oil Exploration and Production(E&P) CompaniesX X X X Extracts X X X X X X X X Extracts X X X X ..... reement (PSC). Farm-in expenditure is incurred when an entity in this line of business acquires a PI from another entity(s) in oil/gas block(s) and becomes part of the PSC entered into with the Central Government. A request has been made to clarify whether Farm in expenditure being in nature of rights should be allowed to be treated an intangible asset under clause (ii) of section 32(1) of the Income-tax Act, 1961 (`Act ). 2. The Government of India (GoI) offers exploration and development rights through global bidding for specified blocks in various rounds under the New Exploration and Licensing Policy (NELP), Hydrocarbon Exploration Licensing Policy (HELP), Open Acreage Licensing Policy (OALP) etc. by signing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cost to be capitalized and depreciated. A perusal of the Model PSC s {as per the website of the Director General of Hydrocarbon (DGH)} indicates that participating interests are share in rights and obligation to explore, exploit and sell petroleum under the PSC along with related licences, permits etc. A few of the case-laws on this issue also support treatment of acquisition rights in a PSC as intangible asset. 5. The matter has been examined in the context of the above. In this regard, it is relevant to mention that earlier vide Notification No. G.S.R. 117(E) dated 08.03.1996 , in exercise of its powers under section 293A of the Act, Central Government had laid down that the persons with whom it enters into agreement f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponent of cost attributable to tangible assets for purposes of clause (i) of sub-section (1) of section 32 , would be treated as an intangible asset (being a business or commercial right akin to a licence), eligible for claim of depreciation for purposes of clause (ii) of sub-section (1) of section 32 of the Act . 9. This circular being clarificatory in nature shall be applicable from the date of applicability of clause (ii) of sub-section (1) of section 32 in the Income-tax Act, 1961 . 10. Hindi version to follow. sd/- (Rajarajeswari R.) Under Secretary (ITA.II), CBDT (F. No. 225/34/2019-ITA.II) - Circular - Trade Notice - Public Notice ..... X X X X Extracts X X X X X X X X Extracts X X X X
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