Exemption of income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India [Section 10(48A)] :
Effective from: A.Y.2016-17
(i) As per section 5(2), the scope of total income of a non-resident includes only the income which accrues or arises in India or is deemed to accrue or arise in India or is received in India or is deemed to be received in India.
(ii) Section 9 lists the circumstances in which the income is deemed to accrue or arise in India. Section 9(1)(i) provides that income would be deemed to accrue or arise in India if any income accrues or arises, directly or indirectly, through or from a business connection in India.
(iii) An underground storage facility is being set up by the Indian Strategic Petroleum Reserves Limited for storage of crude oil as part of strategic reserves. It is in the country’s national interest to maintain the strategic reserves. Further, it also guarantees price stability for Indian oil companies. However, heavy financial burden arises on account of the filling cost of such facility.
(iv) In order to address this concern, the Government is considering meeting a significant portion of the financial burden through participation of private playersincluding foreign national oil companies (NOCs) and multinational companies (MNCs). However, the activities of storage of crude oil by such foreign companies and its sale in India would result in business connection and hence, such income would be deemed to accrue or arise in India. Resultantly, these entities would be subject to tax in India.
(v) For achieving tax neutrality to encourage the NOCs & MNCs to store their crude oil in India and to build up strategic oil reserves, clause (48A) has been inserted in section 10 to exempt any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India, if, –
(1) such storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and
(2) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.