Section 54 — Business of prospecting for mineral oils

(1) Where the assessee undertakes specified oil exploration business, then
deduction specified in sub-sections (3) and (4) shall be allowed while computing
the income under the head “Profits and gains of business or profession”.
(2) For the purposes of this section, “specified oil exploration business” means
business consisting of prospecting for or extraction or production of mineral oils
where the following conditions are fulfilled:—
( a) the Central Government has entered into an agreement with the assessee;
( b) such agreement is entered for association or participation of the Central
Government or any person authorised by it; and
( c) such agreement is laid before each House of Parliament.
(3) The deduction referred to in sub-section (1) shall be—
( a) for the period before the beginning of commercial production, expend-
iture towards infructuous or abortive exploration incurred in respect of
any surrendered area;
( b) for the period after the commencement of commercial production,
expenditure (whether before or after such production) in respect of drill-
ing or exploration activities or services or in respect of physical assets
used in that connection;
( c) for the tax year of commencement of commercial production and such
succeeding tax years as specified in the agreement, towards depletion of
mineral oil in the mining area.
(4) The deductions referred to in sub-section (1) shall be—
( a) either in lieu of, or in addition to, any allowance admissible under this
Act as specified in the agreement; and
( b) computed and made in the manner specified in the agreement and the
other provisions of this Act shall be deemed to have been modified to
such extent.
(5) Where the business or any interest therein as referred to in sub-section (1) is
wholly or partly transferred as per the provisions of the agreement, the profit shall
be charged to tax or deduction shall be allowed in the following manner:—
( a) where A is less than C, then (C–A) shall be allowed as deduction in the
tax year in which such business or interest is transferred;
( b) where A is greater than C,—
( i) but less than B, then (A–C) shall be the profit chargeable under the
head “Profits and gains of business or profession” for the tax year
in which such transfer takes place;
( ii) in any other case, only (B–C) shall be the profit chargeable under
the said head for the tax year in which such transfer takes place;
and
( iii) no deduction shall be allowed for the expenditure incurred remain-
ing unallowed in the tax year in which such transfer takes place or
any subsequent tax year,
where,—
A = proceeds of the transfer (so far as they consist of capital sums);
B = total amount of expenditure incurred in connection with the business
or to obtain interest therein;
C = amount of expenditure incurred remaining unallowed.
(6) If the business or interest therein is no longer in existence in the year of trans-
fer, the provisions of sub-section (5) shall apply as if such business is in existence
during the said year.
(7) Where the business or interest therein is sold or otherwise transferred in a scheme
of amalgamation or demerger and the amalgamated entity or the resulting entity
being an Indian company, then the provisions of sub-section (5) shall—
( a) not apply to the amalgamating or demerged company; and
( b) continue to apply to the amalgamated or resulting company as it would
have applied to the amalgamating or demerged company as if the transfer
had not taken place.