Section 17 - Amendment of section 42 - Finance (No. 2) Act, 1998

17. Amendment of section 42 Section 42 of the Income-tax Act shall be re-numbered as sub-section (1) thereof and after sub-section (1) as so re-numbered, the following shall be inserted with effect from the 1st day of April 1999, namely:- (2) Where the business of the assessee consisting of the prospecting for or extraction or production of petroleum and natural gas is transferred wholly or partly or any interest in such business is transferred in accordance with the agreement referred to in sub-section (1) subject to the provisions of the said agreement and where the proceeds of the transfer so far as they consist of capital sums:- (a) are less than the expenditure incurred remaining unallowed, a deduction equal to such expenditure remaining unallowed as reduced by the proceeds of transfer, shall be allowed in respect of the previous year in which such business or interest, as the case may be, is transferred; (b) exceed the amount of the expenditure incurred remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred in connection with the business or to obtain interest therein and the amount of such expenditure remaining unallowed, shall be chargeable to income-tax as profits and gains of the business in the previous year in the which the business or interest therein, whether wholly or partly, had been transferred: Provided that in a case where the provisions of this clause do not apply, the deduction to be allowed for expenditure incurred remaining unallowed shall be arrived at by subtracting the proceeds of transfer (so far as they consist of capital sums) from the expenditure remaining unallowed. Explanation.- Where the business or interest in such business is transferred in a previous year in which such business carried on by the assessee is no longer in existence, the provisions of this clause shall apply as if the business is in existence in that previous year; (c) are not less than the amount of the expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed in respect of the previous year in which the business or interest in such business is transferred or in respect of any subsequent year or years; Provided that in a scheme of amalgamation, the amalgamating company, sells or otherwise transfers the business to the amalgamated company (being an Indian company), the provisions of this sub-section- (i) shall not apply in the case of the amalgamating company: and (ii) shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not transferred the business or interest in the business.