2011 (8) TMI 226 - AAR - Income Tax

DTAA between India and Australia - Application for advance ruling when a case is pending before AO - Discretion of AAR - whether the consideration received/receivable by the applicant under the terms of the agreement with Ravva Oil Singapore is liable to tax as royalty as defined in Article 12 of the Double Taxation Avoidance Agreement between India and Australia - Held that - it is a matter of discretion as to whether an application for advance ruling is to be entertained in terms of section 245R(2) of the Act when there is pendency of a proceeding before the regular authorities under the Act. We are not quite sure that it is only a matter of discretion insofar as the specific bar created by one or more of the clauses to the proviso to section 245R(2) of the Act. It is debatable how far discretion can be exercised to admit an application for a ruling, when one of the conditions of the proviso is clearly attracted. - we have to see whether the pendency of the appeal at the instance of the payer of the amount would stand in the way of this application at the instance of the payee in respect of the same payment being admitted to ruling. The question raised in this application is already pending before an Appellate Authority, though not at the instance of the applicant before us, but at the instance of a person who is immediately concerned with this payment, the other party to the contract under which the amount is paid to the applicant before us and what is involved is the nature of the payment in terms of the Income-tax Act. - Application rejected.

Summary

Issues Involved:
1. Admissibility of the application under section 245R(2) of the Income-tax Act.
2. Taxability of the payments made by Ravva Oil Singapore to the applicant under the Double Taxation Avoidance Agreement (DTAA) between India and Australia.
3. Obligation of Ravva Oil Singapore to deduct tax at source under section 195 of the Income-tax Act.
4. Application of section 40(a)(i) of the Income-tax Act concerning disallowance of payments due to non-deduction of tax.

Issue-wise Detailed Analysis:

1. Admissibility of the Application under Section 245R(2):
The primary issue was whether the application for an advance ruling was admissible under section 245R(2) of the Income-tax Act. The Revenue objected to the admissibility, arguing that the question of taxability of payments made by Ravva Oil Singapore to the applicant was already pending before the Appellate Authority. The proviso to section 245R(2) states that the Authority shall not allow the application if the question raised is already pending before any Income-tax Authority, Appellate Tribunal, or Court. The Authority examined the legislative history and noted that the proviso's amendment in 2000 removed the words "in the applicant's case," thus broadening the scope to include questions pending before any authority, not necessarily at the instance of the applicant. The Authority concluded that since the question was pending before the Appellate Authority in the case of Ravva Oil Singapore, the application was not maintainable.

2. Taxability of Payments under DTAA:
The applicant sought a ruling on whether the payments received from Ravva Oil Singapore were taxable as royalty under Article 12 of the DTAA between India and Australia. The Authority noted that this question was already under consideration by the Appellate Authority in the case of Ravva Oil Singapore. The Authority emphasized that the same question, whether the payments were taxable in India, was pending before the Appellate Authority, making it inappropriate for the Authority to entertain the application.

3. Obligation to Deduct Tax at Source under Section 195:
The applicant argued that Ravva Oil Singapore did not deduct tax at source under section 195 of the Income-tax Act, believing the payments were not taxable in India. The Authority observed that the Assessing Officer had disallowed the payments under section 40(a)(i) due to non-deduction of tax. The applicant contended that an order under section 195 should not bar the application. However, the Authority held that the issue of taxability and the obligation to deduct tax were interrelated and pending before the Appellate Authority. Therefore, the application could not be entertained.

4. Application of Section 40(a)(i):
The applicant argued that the disallowance of payments under section 40(a)(i) was solely due to non-compliance with section 195. The Authority noted that in the regular assessment, it was open to Ravva Oil Singapore to argue that the payments were not taxable in India and hence no deduction was necessary under section 195. The Authority concluded that the question of taxability was directly and substantially in issue before the Appellate Authority. Since the same question was pending, the application was barred under the proviso to section 245R(2).

Conclusion:
The Authority rejected the application for an advance ruling, citing the bar under section 245R(2) due to the pending appeal concerning the same question of taxability before the Appellate Authority. The Authority emphasized that the jurisdiction to entertain the application was precluded by the proviso to section 245R(2), as the issue was already under consideration in the case of Ravva Oil Singapore.