Site Restoration Fund

Introduction

The deduction can be claimed by the assessee engaged in production of petroleum/natural gas in India for deposit in a special account or site restoration account. The assessee must have an agreement with the Central Government.

1. About

1.1. Who can claim deduction?

The deduction is allowed to an assessee who is engaged in the business of prospecting for or extracting or production of petroleum or natural gas or both in India under an agreement with the Central Government.

1.2. When this deduction is allowed?

The deduction is available when assessee deposits amount in the following accounts:

(a) Special account with SBI under a scheme approved by Ministry of Petroleum and Natural Gas, Government of India

(b) Site Restoration Account under a scheme framed by the Ministry of Petroleum and Natural Gas, Government of India.

Interest credited to these accounts is also treated as a deposit for the purposes of deduction under this provision.

The deduction is available for the deposit made, in these accounts, at any time before the end of the tax year. Thus, any deposit made after the end of the tax year does not qualify for deduction.

1.3. How much deduction is allowed?

The amount of deduction to be available under this provision shall be lower of following:

(a) Amount deposited in the accounts specified above including interest credited in these accounts

(b) 20% of business profits, computed under the head ‘Business or Profession’ before making any deduction under this provision.

Such deduction is allowed before making any deduction of carried forward business losses under Section112

1.4. How to claim this deduction?

To claim this deduction, the assessee is required to get his accounts audited by a Chartered Accountant as referred under section 288(2) and furnish the report of such audit electronically in Form 3AD one month prior to the due date of furnishing return of income under section 139(1). The audit shall not be mandatory if accounts are required to be audited under any other law and the audit report as per that law is obtained along with a report in Form 183 for the purposes of this provision.

1.5. When deposit can be withdrawn?

The amount standing to the credit of Special account or site restoration account may be withdrawn only for the purpose specified in the scheme. A depositor can withdraw, from the account, only such amount as is necessary to meet the following expenditure to be incurred by him on expiry or termination of the agreement or relinquishment of part of the contract area

(a) For removal of all equipments and installations, in a manner agreed with the Central Government pursuant to an abandonment plan

(b) For necessary site restoration in accordance with the good international petroleum industry practice

(c) For meeting all other expenses necessary to prevent hazards to life or property or environment consequent on such expiry, termination or relinquishment.

1.6. Withdrawal of deduction

1.6-1. In case of closure of business

If deposit is withdrawn on closure of the account during any tax year, the amount so withdrawn, as reduced by the amount payable to the Central Government towards share in profit or production as provided in the agreement referred under section 54, is deemed as business income of that year. If business is no longer in existence in that year, it is presumed that the business is still in existence.

1.6-2. Use for non-permitted purpose

If deposit is utilized for purchase of following machinery and plant, the amount so utilized shall be deemed to be business profits of that tax year:

(a) Any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of guest house

(b) Any office appliances (not being computers)

(c) Any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the business income

(d) Any new machinery or plant to be installed in an industrial undertaking for construction, manufacture or production of any article or thing specified in the Eleventh Schedule.

1.6-3. Amount remain unutilized

The amount of deposit withdrawn or released, by the assessee or by the state bank of India respectively from site restoration account, should be utilized in accordance with the relevant scheme in the said tax year. If it is not so utilized, the unutilized amount is deemed to be business income of that tax year.

1.6-4. Sale of assets within 8 years

If any asset, acquired under the relevant scheme, is sold or otherwise transferred within 8 years from the end of the tax year in which it was acquired, the proportionate amount of deduction, relatable to the cost of such asset is deemed to be business income of that tax year. The deduction to be withdrawn shall be calculated as under:

The deduction is not withdrawn if asset is transferred, within 8 years, to the government, a local authority, a statutory corporation or a government company. Similarly, the deduction shall not be withdrawn from a partnership firm which is succeeded by a company. This benefit is allowed subject to fulfilment of two conditions – first, all properties and liabilities of the firm, immediately before the succession, are transferred to the company and second, all shareholders of the company were partners of the firm immediately before the succession.

In this situation, the successor-company is required to apply the deposit in accordance with the scheme and should not transfer such assets within unexpired period of 8 years.

1.7. Double deduction

Where amount deposited has been allowed as deduction in any tax year, no deduction shall be allowed in respect of such amount in any other tax year.

Similarly where the amount standing to the credit of the special account or site restoration account is utilized by the assessee for expenditure in accordance with the scheme, such expenditure shall not be allowed as deduction in computing the business income.

1.8. No deduction to partner or member

In case of a Firm, AOP or BOI, No deduction shall be allowed for the amount deposited while computing the income of any partner or member, as the case may be.

References

Notification no. S.O. 118(E), Dated 16-2-1999

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.