1. Computation of Profits from exploration and production of petroleum.—

Where any person carries on or is deemed under an agreement with the Government to be carrying on any business which consist of or includes exploration and production of petroleum, the profits or gains of such person therefrom shall be computed separately from his income, profits or gains from any other business.

2. Computation of profits.—

Subject to the provisions of section 49, the profits and gains for the purposes of paragraph 1, shall be computed after making the following additional allowances, namely:—

(a) where a person incurs any expenditure on searching for, or on discovering and testing a petroleum deposit or winning access thereto, but the search, exploration or enquiry upon which the expenditure is incurred is given up before the commencement of commercial production, such expenditure allocable to a surrender area and to the drilling of a dry hole shall be deemed to be lost at the time of the surrender of the area or the completion of the dry hole, as the case may be. A portion of such loss as provided for any agreement between any such person and the Government, shall be allowed in either of the following ways, namely:—

(i) such portion of the said loss in any year shall be set off against income, profits or gains from business or under any other head of income, other than income from dividend, of that year. If the loss cannot be wholly set off in this manner, the portion not so set off shall be carried forward to the following year and set off against such income, profits or gains, for that year in the same manner, and if it cannot be wholly so set off, the amount not so set off shall be carried forward to the following year and so on; but no loss shall be so carried forward for more than six years;

(ii) such portion of the said loss in any year shall be set off against income, profits or gains of the same business of the income year in which commercial production commences. If the loss cannot be wholly set off against the profit of the same business for that year, the loss not so set off shall be carried forward to the following year and set off against the profits or gains, if any, of the assessee from the same business for that year; and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year, and so on; but no loss shall be so carried forward for more than ten years;

(b) after the commencement of commercial production, all expenditure prior thereto not deemed to be lost under clause (a) and not represented by physical assets in use at the time the commercial production commenced, shall be allowed as deductions. The portion of such deduction to be allowed in any year shall be such amount (not being greater than 10% (ten percent). of the aggregate amount deductible) as may be selected by the assessee;

(c) expenditure incurred after the commencement of commercial production in connection with production and exploration shall be allowed as a deduction:

Provided that such expenditure on asset with respect to which depreciation is allowable shall not be deducted, and depreciation shall be allowable on such assets in accordance with the provisions of the Fourth Schedule. Depreciation shall also be allowed in respect of the expenditure referred to in the preceding clause on physical assets acquired prior to the date on which commercial production commenced, which were in use on that date, as if the assets were newly acquired at their original cost at the time of commencement of commercial production:

Provided further that where any depreciation allowance has been allowed before the commencement of commercial production, the original cost as aforesaid shall be reduced by the amount of such allowance;

(d) if, in any year, the deductions admissible under section 49-53 and the foregoing clauses (b) and (c) of this paragraph, exceed the gross receipts from the sale of petroleum produced in Bangladesh such excess shall be set off against other income, not being a dividend, and carried forward in the manner and subject to the limitations laid down in sections 70 and 71.

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4. Payments to the Government and taxes.—

The sum of payments to the Government and taxes on income in respect of the profits or gains derived from the business or part of the business to which the provisions of this Part apply, for any year of assessment, shall be as provided for in the agreement with the assessee.

5. Adjustments of payments to the Government and taxes.—

If in respect of any year, the aggregate of the sum of payments to the Government and taxes on income is greater or less than the amount provided for in the agreement referred to in paragraph 4, an additional income tax shall be payable by the assessee or an abatement of tax shall be allowed to the assessee, as the case may be, so as to make the aggregate of the sum of payments to the Government and taxes on income equal to the amount provided for in the agreement.

6. Carry forward of excess payments.—

If, in respect of any year, the payments to the Government exceed the amount provided for in the agreement referred to in paragraph 4, so much of the excess as consist of any tax or levy referred to in paragraph 4 shall be carried forward and treated as payments to the Government for the purposes of paragraph 4 and 5 for the succeeding year.

7. Sale price of oil.—

For the purposes of computing income under this Part, the “well-head value” shall be adopted as the sale price of the oil.

8. Explanation.—For the purposes of this Part—

(a) “commercial production” means production as determined by the Government;

(b) “petroleum” shall carry the same meaning as assigned to it in the Bangladesh Petroleum Act, 1974 (LXIX of 1974), but does not include refined petroleum products;

(c) “surrender” means the termination of right with respect to an area including the expiration of rights according to the terms of an agreement;

(d) “surrendered area” means an area with respect to which the rights of a person have terminated by surrender or by assignment or by termination of the business;

(e) “well-head value” has the meaning assigned to it in the agreement between the assessee and the Government and, in the absence of its definition in the agreement, the meaning assigned to it in the Petroleum (Production) Rules, 1949;

(f) “Payment to Government” means any money paid to the Government or to any authority of the Government of Bangladesh, in respect of any tax or levy imposed in Bangladesh specifically for the oil producing or extractive industry or for all such industries, or any of them, and not normally imposed for all industrial establishments and commercial establishments.