Vildirect: IncomeTax-caselaws-2013-VIL-01--DT

2013-VIL-01--DT

AUTHORITY FOR ADVANCE RULINGS

AAR No. 1138, 1140-1144, 1150 of 2011

Date: 07.08.2013

HYOSUNG CORPORATION, KOREA

CIT-DR (AAR) AND ADIT, (IT) DELHI

For the Appellant: Mr. Deepak Chopra, Advocate, Mr. Harpreet Singh Ajmani, Advocate and Ms. Shruti Sinha, Advocate
For the Respondent: Mr. R.S. Rawal and Mr. Bhupinderjit Kumar

BENCH

Dr. Arijit Pasayat and Mr. TBC Rozara , JJ.

JUDGMENT

(By Justice Dr. Arijit Pasayat, Chairman)

Since common questions of law are involved in all these applications, reference to the factual aspects is limited only to the factual scenario of the issues involved, which are also similar.

2. The applicant company in each case filed application for advance ruling in terms of Section 245Q (1) of the Income-tax Act, 1961 (in short the Act). In response to the notice issued in each case the respondent Revenue has filed its objection (in the nature of preliminary objection) taking the stand that in view of the bar provided in section 245R(2) of the Act, the application needs to be rejected in each case. It has been specifically pointed out with reference to the dates of filing of return the date of filing of application before this Authority and the relevant assessment year that before filing of the application the return of income in each case had been filed and the question(s) raised/involved were pending before the Income-tax Authority. The data furnished by the Revenue is not disputed by the applicant. The same reads as follows:

AAR No.	Project	Relevant AY	Date of filling return of income	Date of filing application before AAR
AAR/1150/11	Maharani Bagh	2008-09	Sep.30,2008	Oct.10, 2011
AAR/1143/11	Gurgaon	2009-10	Jan.8,2010	Sep.23,2011
AAR/1144/11	T3	2009-10	Jan.8,2010	Sep.23,2011
AAR/1140/11	T4	2009-10	Jan.8,2010	Sep.23,2011
AAR/1138/11	Bidadi	2010-11	Oct.15, 2010	Sep.23,2011
AAR/1142/11	Maharani Bagh Extension	2010-11	Oct.15, 2010	Sep.23,2011
AAR/1141/11	Sipat	2010-11	Oct.15, 2010	Sep.23,2011

The applicant in each case has raised the following identical questions in the application filed by it:-

1. On the facts and circumstances of the case, whether the amount received/receivable by Hyosung from PGCIL for Offshore supply of equipments and materials etc. under Offshore supply contract No. (‘Offshore supply contract’) read with letter of Award No. dated (‘LOA for Offshore supply contract’) for Substation (New) associated with (‘Project’) is liable to tax in India under the provisions of the Act and/or the Agreement for Avoidance of Double Taxation between India and Korea (‘India Korea Tax Treaty’)?

2. Whether ‘Supervisory Activities” performed by Hyosung under_____Project results in establishment of a Permanent Establishment (‘PE’) of Hyosung in India under Article 5(3) of the India Korea Tax Treaty?

3. If answer to second question is in the affirmative, then;

3.1 Can any income other than income attributable to such ‘Supervisory Activities’ be liable to tax in India?

3.2 Is ‘Transactional Net Margin Method’ or ‘Comparable Uncontrolled Price Method’ an appropriate method for determining fee for ‘Supervisory Activities’ in the absence of any specific supervisory fee under the Offshore supply contract?”

3. Reference has been made to two decisions of this Authority in the case of Wave Field Inseis ASA (AAR No. 951 of 2010), wherein it was observed as under:

“In our order in AAR No.1009 of 2010 (SEPCO III Electric Power Corporation), we had taken the view that if the applicant before this Authority had already filed a return of income involving the amount arising out of the identical transaction on which a question for our ruling is raised by filing an application under section 245Q(1) of the Income-tax Act, the application before the Authority for Advance Rulings will be barred by the clause (i) of the proviso to section 245R(2) of the Act and the application will have to be rejected.”

It was further observed in the cited ruling as under :-

“One of the situations or circumstances, is when the question raised before it, has arisen before the Income-tax Authority. The question referred to in the proviso to section 245R(2) of the Act, is the question before the Authority for Advance Rulings. When a return is filed, so many aspects arise out of that return. The question of computation of total income, of computation of the exemptions and exclusions, acceptance or non-acceptance of an item of expenditure and ultimately the determination of chargeable income and the determination of the tax due, are all questions that arise. Therefore filing of a return ushers in all these questions. By filing a return, an assessee invites an adjudication on all the questions arising out of that return. Subsection (2) of section 245R only speaks of the question arising before the Authority. So if an answer to that question would be involved in the return filed or would arise out of the return filed, it would be a case where the bar is attracted. The arising of a question from out of a return filed, cannot depend on the volition, diligence, care or lack of care on the part of the Assessing Officer. A jurisdiction cannot depend on such vagaries.

When an income is received or is expended as a permissible expenditure, both figure in the return and are dealt with while completing the assessment. If the return is accepted after scrutiny or without scrutiny, it would only mean that the claim of the applicant has been accepted by the Assessing Officer. The implication is that the question is answered in his favour. This would not mean that, the question or aspect has not arisen before the Assessing Officer, on the filing of the return. We have dealt with some of the relevant aspects in our orders in SEPCO III.”

The Hon’ble Delhi High Court in W.P.(C) 3959 of 2012 concurred with the view. Therefore it has been essentially submitted that proviso to Section 245R(2) of the Act creates a bar upon this Authority from admitting an application for advance ruling.

4. The applicant does not dispute the factual data as submitted by the Revenue. However, it has pleaded that the bar contained in Section 245R (2) is patently discriminatory as it creates a discrimination between resident and non-resident applicants. It is pointed out that the bar is applicable only to non-resident applicant and not to resident applicant and the provision even if read as it is, creates a discrimination between two categories of applicants though they are similarly situated in facts and in law. Therefore, the provision is violative of Article 14 of the Constitution of India 1950 (in short the Constitution) and Article 25 of the Double Taxation Avoidance Agreement between India & South Korea which is applicable to the applicant in each case. It is further pointed out that there is divergence of opinion in various rulings of this Authority and judgment of the Delhi High Court and therefore at the most the views expressed can be said to have prospective effect. In essence it is submitted that the provisions of Section 245R (2) have to be read down as discriminatory and invalid. The purpose and intent for setting up of the Authority has also been highlighted. It is also pointed out though initially the Authority was empowered to deal with applications of non-resident only, later on residents of a particular category were brought within the ambit of Section 245N(a). Some decisions dealing with the concept of equality under Article 14 of the Constitution have been highlighted. 5. By way of reply the Revenue has submitted that the plea of discrimination in any provision is an issue which this Authority cannot decide. Even otherwise, it is submitted that there is rationale for treating the two categories of applicants differently and the reasons have been highlighted by explanatory notes to the Finance Act by which the amendments were introduced at various points of time.

6. Before dealing with rival submissions it will be appropriate to deal with few provisions relating to definitions contained in chapter XIX B (Advance Rulings)

245N [(a) “Advance ruling” means –

(i) a determination by the Authority in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant; or

(ii) a determination by the Authority in relation to [the tax liability of a non-resident arising out of] a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with such non-resident, and such determination shall include the determination of any question of law or of fact specified in the application;

(iii) a determination or decision by the Authority in respect of an issue relating to computation of total income which is pending before any income-tax authority or the Appellate Tribunal and such determination or decision shall include the determination or decision of any question law or of fact relating to such computation of total income specified in the application;

[Provided that where an advance ruling has been pronounced, before the date on which the Finance Bill, 2003 receives the assent of the President, by the Authority in respect of an application by a resident applicant referred to in sub- clause (ii) of this clause as it stood immediately before such date, such ruling shall be binding on the persons specified in section 245S;]

[(b) “applicant” means any person who –

(i) is a non-resident referred to in sub-clause (i) of clause (a); or

(ii) is a resident referred to in sub-clause (ii) of clause (a); or

(iii) is a resident falling within any such class or category of persons as the Central Government may, by notification in the Official Gazette, specify in this behalf; and

(iv) makes an application under sub-section (1) of section 245Q;]

Section 245R deals with procedure on receipt of an application. Subsection (2) of 245R is relevant so far as the present case is concerned and reads as follows:

“(2) The authority may, after examining the application and the records called for, by order, either allow or reject the application.

[Provided that the Authority shall not allow the application where the question raised in the application,-

(i) is already pending before any income-tax authority or Appellate Tribunal {except in the case of resident applicant falling sub-clause (iii) of clause(b) of section 245N} or any court;

(ii) involves determination of fair market value of any property;

is already pending before any income-tax authority or Appellate Tribunal {except in the case of resident applicant falling sub-clause (iii) of clause(b) of section 245N} or any court;

(iii) relates to a transaction or issue which is designed prima facie for the avoidance of income-tax {except in the case of resident applicant falling in sub-clause (iii) of clause (b) of section 245N{or in the case of an applicant falling in sub-clause (b) of section 245N}

Provided further that no application shall be rejected under this sub-section unless an opportunity has been given to the applicant of being heard:

Provided also that where the application is rejected, reasons for such rejection shall be given in the order.”

It would be appropriate to deal with the issue as to whether the question raised can be said to be already pending.

Where a return has been filed by the applicant for advance ruling and notice under section 143(2) was issued, the matter shall be treated to be pending before the Assessing Officer, so that any issue in respect of such return cannot be entertained for advance ruling under section 245R(2) of the Act as held in Sepco III Electric Power Construction Corporation, In re (No.1). (2012) 340 ITR 225 (AAR).

In yet another case, the assessee filed an application for ruling after having filed a return. On filing of such return, assessment proceedings get initiated. Return may be either accepted or may be taken up for scrutiny. Acceptance brings finality, while scrutiny would make the ascertainment of liability pending. It is in this view, it was ruled in Wavefield Inseis ASA, In re (2012)343 ITR 136 (AAR) that where a return is filed, there could be no jurisdiction for advance ruling following its earlier ruling in SEPCO III Electric Power Construction Corporation, In re (No.1)’s case (supra),

The jurisdictional bar on entertaining an application on advance ruling is relatable to the aspect whether the question which can be either a question of law or a question of fact is pending before any income-tax Authority or Appellate Tribunal except in the case of resident applicant falling in sub-clause (iii) of clause (b) of section 245N or any Court. What is of seminal importance is the crucial issue as to whether the question raised is pending before the Income-tax Authority, the Appellate Tribunal or a Court. Even when a return is filed but the question is not pending adjudication, there is no jurisdictional bar in admitting the application. It is only when the question posed for advance ruling is pending determination then the jurisdictional bar operates. It is not necessary that all the questions or disputes are aspects which need determination and should be pending. The bar operates only in respect of the question pending before the Authority or the Tribunal or Court. To put it differently there may be several questions pending for adjudication by the Authority or the Tribunal or the Court. But the question which is specifically raised in the application for advance ruling cannot be segregated and it cannot be said that because the other questions are not pending, the application can be entertained for the purpose of giving ruling.

It needs to be emphatically stated that mere filling of a return does not attract the bar, unless the question raised in the application for advance ruling is in issue in the return filed, be it on the question of taxability/non-taxability of any income, rate at which it is to be taxed, whether any expenditure/exemption is allowable or not and relatable to inclusion or exclusion of any income/expenditure.

Mere filing of return before filing of the application under section 245Q(1) of the Income-tax Act, 1961 does not necessarily mean the question raised in the application is already pending before the Income-tax Authority.

In these instant cases notices under section 143(2) were already issued before filing of the application before the AAR. The transaction on those where rulings of the AAR were sought, were admittedly shown in the return of income-tax filed before the date of application. Section 143(2) reads as under :

“Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall –

(i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and required him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim: [Provided that no notice under this clause shall be served on the assessee on or after the 1st

(ii) Notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return: [Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.] day of June, 2003;]

When notice u/s.143(2) is issued, all the informations available in the return and claims thereon are subject to adjudication by the Assessing Officer and several issues emerge for adjudication by the Assessing Officer. Some of them relate to computation of total income, computation of exemptions and exclusions, acceptance or non-acceptance of any item of expenditure. Ultimately the assessment is made in determining the gross total income, the net/chargeable income and determination of tax liability. They are all intrinsically linked and cannot be separated. With issue of notice u/s.143 (2) of the Act, particulars of income, claims of the assessee in the return are pending for adjudication before the Assessing Officer. It has therefore, to be held that the question raised in the application for advance ruling is pending adjudication before the assessing authority and the bar created under the proviso to section 245R (2) clearly operates. Therefore, these applications are not admitted for adjudication and stand rejected.

Coming to the plea in relation to alleged discrimination, the contention of the applicant only needs to be noted and rejected. It is not in dispute and obviously cannot be disputed that this authority is a creature of the Act.

It is settled position in law that any authority created under a statute can not pronounce upon the constitutional validity or vires of any provision of the Act. See K.S.Venkataraman & Co. Pvt. Ltd. V. State of Madras (1966) 60 ITR 112 (SC), Beharilal Shyamsundar V. STO (1966) 60 ITR 260 (SC) and Senthil Nathan Chettiar (C.T.) V. State of Madras (1968) 67 ITR 102 (SC).

Therefore, we find no substance in the plea of the applicant on the question of alleged discrimination. This Authority has no jurisdiction to deal with such an issue.

All the applications are, therefore, not admitted and consequently rejected.

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