We are a foreign oil and gas exploration company entitled to the special deductions in s.42. Can we take those deductions before working out book profit for minimum alternate tax?
No. The Authority ruled that Niko Resources Ltd, a Canadian company exploring and developing oil and gas fields in India with Gujarat State Petrochemical Corporation Ltd under a contract with the Central Government, could not claim the special s.42 deductions in the calculation of book profit under s.115JA. Section 42 operates only when business income is computed under Chapter IV-D; s.115JA is a self-contained code that applies notwithstanding anything else in the Act, and neither s.42 nor s.293A cuts it down. The provisions of s.115JA applied to the applicant. The ruling binds only the applicant.
Pronounced by the Authority for Advance Rulings (Authority for Advance Rulings - Suhas C. Sen, J. (Chairman), Subhash C. Jain and Mohini Bhussry, Members) on 1998-08-27, reported as [1998] 234 ITR 828 (AAR). It bears on section 42, section 115JA, section 293A of the Income Tax Act 1961, in Deductions & Disallowances and Assessment & Scrutiny matters.
This is the early statement of the proposition that a special computation provision does not travel into the minimum alternate tax calculation. The Authority's route is worth keeping even though the section has changed: s.42 is a step in computing business income under one head, the minimum alternate tax fastens on total income deemed at a percentage of book profit, and the two operate at different stages, so an incentive that reduces business income has no purchase once the deeming provision is reached. Practitioners meet the same argument today under s.115JB, where the Explanation lists the permitted adjustments to book profit and nothing else may be read in. Do not, however, carry the outcome across: the minimum alternate tax code has since been rewritten and now expressly leaves out several foreign companies, including those whose income falls under the presumptive sections for oil and gas services.
Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them.
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Niko Resources Ltd is a foreign company incorporated in Alberta, Canada, engaged in the business of exploration and development of oil and gas fields. It entered into a collaboration agreement with Gujarat State Petrochemical Corporation Ltd and, with that company, into a contract with the Central Government in September 1994 for the exploration and development of oil and gas fields at various places. The project involved, among other things, drilling, completion and testing of development oil wells, the drilling and completion of wells for gas or water injection, and the laying of gathering lines. The applicant's case was that these activities fell within s.42, that its total income could only be computed after giving effect to that section, and therefore that s.115JA could not apply to it. It asked the Authority four questions, all directed at whether the s.42 deductions were to be given before book profit was worked out under s.115JA, whether s.42 overrode s.115JA, and whether s.115JA applied to it at all. No one appeared for the Department.
Against the applicant on every question. The Authority answered them together: the applicant cannot claim any special benefit under s.42 in the calculation of its book profit under s.115JA; deduction of expenditure under s.42 is allowable only when business income is computed under Chapter IV-D; s.42 cannot override s.115JA; and the provisions of s.115JA clearly apply to the applicant company.
The Authority started from the architecture of the Act. Tax is levied on total income; income is classified under heads in Chapter IV; under each head the Act gives its own deductions and allowances. A company prospecting for or producing mineral oil is assessed under the business head, and if it satisfies the conditions it gets s.42 in the computation of its business income - but that is one step in arriving at total income, not the end of it. Section 42 says so on its face, opening with the words 'For the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils', so it engages only when that business computation is being made. Section 115JA works somewhere else: it introduces a legal fiction under which thirty per cent of book profit is deemed to be total income where the total income computed under the Act falls below that figure, and it operates notwithstanding anything contained in any other provision of the Act. The Authority described why the provision existed - a large number of companies were paying no tax despite large profits by using the deductions and allowances in the Act - and treated it as a rough and ready formula rather than a machinery for computing income. Section 293A did not help either: it empowers the Central Government to notify exemptions, reductions in rate or modifications in status for persons in the oil business, and the two notifications relied on, of 31 March 1983 and 6 July 1987, dealt with rates of tax payable by foreign companies. Neither the section nor the notifications had anything to do with the computation of total income, so neither could cut down s.115JA.
There is no scope for any allowances or deduction under any other section from what is deemed to be total income of an assessee.
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Handle my notice → Ask a CA on WhatsAppNo. The Authority ruled that Niko Resources Ltd, a Canadian company exploring and developing oil and gas fields in India with Gujarat State Petrochemical Corporation Ltd under a contract with the Central Government, could not claim the special s.42 deductions in the calculation of book profit under s.115JA. Section 42 operates only when business income is computed under Chapter IV-D; s.115JA is a self-contained code that applies notwithstanding anything else in the Act, and neither s.42 nor s.293A cuts it down. The provisions of s.115JA applied to the applicant. The ruling binds only the applicant. This was decided by the Advance Ruling (Authority for Advance Rulings - Suhas C. Sen, J. (Chairman), Subhash C. Jain and Mohini Bhussry, Members) and bears on section 42, section 115JA, section 293A of the Income Tax Act 1961. It is reported as [1998] 234 ITR 828 (AAR). This is the early statement of the proposition that a special computation provision does not travel into the minimum alternate tax calculation. The Authority's route is worth keeping even though the section has changed: s.42 is a step in computing business income under one head, the minimum alternate tax fastens on total income deemed at a percentage of book profit, and the two operate at different stages, so an incentive that reduces business income has no purchase once the deeming provision is reached. Practitioners meet the same argument today under s.115JB, where the Explanation lists the permitted adjustments to book profit and nothing else may be read in. Do not, however, carry the outcome across: the minimum alternate tax code has since been rewritten and now expressly leaves out several foreign companies, including those whose income falls under the presumptive sections for oil and gas services. If it applies to you, the first step is this: Work out the total income under the ordinary provisions first, taking every deduction the Act allows, and only then compare it with the book-profit threshold; the incentive is not lost, it is simply exhausted before the deeming provision bites.
Niko Resources Ltd is a foreign company incorporated in Alberta, Canada, engaged in the business of exploration and development of oil and gas fields. It entered into a collaboration agreement with Gujarat State Petrochemical Corporation Ltd and, with that company, into a contract with the Central Government in September 1994 for the exploration and development of oil and gas fields at various places. The project involved, among other things, drilling, completion and testing of development oil wells, the drilling and completion of wells for gas or water injection, and the laying of gathering lines. The applicant's case was that these activities fell within s.42, that its total income could only be computed after giving effect to that section, and therefore that s.115JA could not apply to it. It asked the Authority four questions, all directed at whether the s.42 deductions were to be given before book profit was worked out under s.115JA, whether s.42 overrode s.115JA, and whether s.115JA applied to it at all. No one appeared for the Department. The matter was decided on 1998-08-27 by the Advance Ruling (Authority for Advance Rulings - Suhas C. Sen, J. (Chairman), Subhash C. Jain and Mohini Bhussry, Members). On those facts the Advance Ruling held as follows. Against the applicant on every question. The Authority answered them together: the applicant cannot claim any special benefit under s.42 in the calculation of its book profit under s.115JA; deduction of expenditure under s.42 is allowable only when business income is computed under Chapter IV-D; s.42 cannot override s.115JA; and the provisions of s.115JA clearly apply to the applicant company.
The Authority started from the architecture of the Act. Tax is levied on total income; income is classified under heads in Chapter IV; under each head the Act gives its own deductions and allowances. A company prospecting for or producing mineral oil is assessed under the business head, and if it satisfies the conditions it gets s.42 in the computation of its business income - but that is one step in arriving at total income, not the end of it. Section 42 says so on its face, opening with the words 'For the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils', so it engages only when that business computation is being made. Section 115JA works somewhere else: it introduces a legal fiction under which thirty per cent of book profit is deemed to be total income where the total income computed under the Act falls below that figure, and it operates notwithstanding anything contained in any other provision of the Act. The Authority described why the provision existed - a large number of companies were paying no tax despite large profits by using the deductions and allowances in the Act - and treated it as a rough and ready formula rather than a machinery for computing income. Section 293A did not help either: it empowers the Central Government to notify exemptions, reductions in rate or modifications in status for persons in the oil business, and the two notifications relied on, of 31 March 1983 and 6 July 1987, dealt with rates of tax payable by foreign companies. Neither the section nor the notifications had anything to do with the computation of total income, so neither could cut down s.115JA. In the words reproduced by the source cited on this page: "There is no scope for any allowances or deduction under any other section from what is deemed to be total income of an assessee."
It was decided by the Advance Ruling on 1998-08-27 and is reported as [1998] 234 ITR 828 (AAR). Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them. An advance ruling binds only the applicant who sought it, only for the transaction it was sought on, and only the Commissioner and the officers under him in relation to that applicant and that transaction — and only until the law or the facts change. That is section 245S, and it means the ruling is not a precedent and binds nothing in your case. You cite it because the Authority reasoned the point out, often first and most fully, and the Tribunal and the courts treat a considered ruling as persuasive. Check before you rely on one: most of these were pronounced before 2009, and a great deal of cross-border tax has been rewritten since by amendment, protocol and judgment. On section 42, section 115JA, section 293A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. Against the applicant on every question. The Authority answered them together: the applicant cannot claim any special benefit under s.42 in the calculation of its book profit under s.115JA; deduction of expenditure under s.42 is allowable only when business income is computed under Chapter IV-D; s.42 cannot override s.115JA; and the provisions of s.115JA clearly apply to the applicant company. It arises in Deductions & Disallowances and Assessment & Scrutiny matters, on section 42, section 115JA, section 293A of the Income Tax Act 1961, and was decided by Authority for Advance Rulings - Suhas C. Sen, J. (Chairman), Subhash C. Jain and Mohini Bhussry, Members. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. When arguing for an adjustment to book profit, point to the Explanation in the minimum alternate tax section itself - anything outside the listed items has to come out of the argument. For a foreign company, check first whether the minimum alternate tax applies at all: it is now excluded for a treaty resident with no permanent establishment in India, and for a foreign company whose income falls under ss.44B, 44BB, 44BBA or 44BBB and is offered at those rates. Treat this ruling as persuasive only; under s.245S it binds the applicant and its own transaction and nobody else.
Superseded by amendment. The section this ruling turns on is gone. Section 115JA has been replaced by s.115JB, and the departmental page on minimum alternate tax sets out the present code without reference to s.115JA at all. More to the point for a foreign applicant, the minimum alternate tax has since been taken off several foreign companies altogether: a Press Information Bureau release records the decision to amend the Act so that with effect from 1 April 2001 s.115JB shall not apply to a foreign company that is a resident of a country with which India has a treaty and has no permanent establishment here, or is a resident of a non-treaty country and is not required to register under s.592 of the Companies Act 1956 or s.380 of the Companies Act 2013; and the departmental page adds that the provisions do not apply to a foreign company whose total income comprises profits and gains from a business referred to in ss.44B, 44BB, 44BBA or 44BBB where that income is offered at the rates specified in those sections. Oil and gas services of the kind this applicant carried on are the territory of s.44BB, so a company in Niko's position today might never reach the charge at all. What survives is the structural proposition - that a head-of-income computation provision cannot be carried into the minimum alternate tax calculation - and the ruling is cited on that footing in the Committee on Direct Tax Matters report. No later decision doubting or following the ruling was found. The Authority itself no longer exists: three Boards for Advance Rulings were constituted by Notification No. 96/2021 dated 1 September 2021 under the Finance Act 2021, and their orders are appealable to the High Court under s.245W. The Income-tax Act 2025 comes into force from 1 April 2026. That finding was checked against a published source, which is linked on this page, on 2026-08-23. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Authority itself observed that the questions as framed were 'not happily framed' and answered them together rather than one by one, so there is no separate reasoning on each. The ruling does not decide anything about the applicant's residence, its permanent establishment, or the rate at which it was taxable, and it does not consider the presumptive provisions for oil-field services in s.44BB. It also does not address whether the applicant fell within the class of companies the minimum alternate tax was aimed at; the Authority reasoned only from the words of s.115JA. The second source used here is the Committee on Direct Tax Matters report on the applicability of minimum alternate tax to foreign institutional investors, which names this ruling and its outcome. Note what an advance ruling actually does: under s.245S it binds only the applicant who sought it, only in respect of the transaction the ruling was sought on, and the Commissioner and the income-tax authorities subordinate to him in relation to that applicant and that transaction - and only for so long as the law and the facts on which it was pronounced remain unchanged. It binds nobody else, though a considered ruling of the Authority is treated as persuasive. The ruling does not say what the applicant's book profit or total income actually were, so it does not show the arithmetic. It does not consider s.44BB, which is where an oil-field services contractor would ordinarily be assessed, and it does not deal with the India-Canada treaty at all. The entry does not trace how s.115JB has been applied to production sharing contractors since, nor the position under the Income-tax Act 2025. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Against the applicant on every question. The Authority answered them together: the applicant cannot claim any special benefit under s.42 in the calculation of its book profit under s.115JA; deduction of expenditure under s.42 is allowable only when business income is computed under Chapter IV-D; s.42 cannot override s.115JA; and the provisions of s.115JA clearly apply to the applicant company.
TaxSphere, “Niko Resources Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/niko-resources-aar-1998/
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