Oil exploration, production firms’ farm-in expenses are intangible assets, says CBDT


Oil exploration, production firms’ farm-in expenses are intangible assets, says CBDT

The Central Board of Direct Taxes (CBDT) has clarified that ‘farm in’ expenditure incurred by oil exploration and production (E&P) companies would be treated as an ‘intangible asset’ and would be eligible for claim of depreciation.

A ‘farm in’ expenditure is incurred when an entity in the oil and gas business acquires a participating interest (PI) from another entity in oil/gas block (s) and becomes part of the production sharing agreement (PSC) entered into with the Central government.

Over the life cycle of an oil and gas block, E&P companies generally buy (farm in) and sell (farm out) their PI in the PSC.

The CBDT’s clarificatory circular has come in response to clarification requests on whether ‘farm in’ expenditure — being in nature of rights — should be allowed to be treated an ‘intangible asset’ under Section 32 (1)(i) of the income tax law. Read Nire

Leave a Reply

Your email address will not be published.