2011 (12) TMI 79 - AAR - Income Tax

Admission of application for advance ruling - Scope of section 44BBB - Offshore Supply Contracts with ASE - the equipments and materials were to be sold outside India and the payments were also made outside India. - No one connected with ASE who was present in India was involved in the activities associated with the offshore supply of such goods. - Held that - Since the question whether the payment made under the transaction was chargeable to tax under the Act was pending before the authorities under the Act arising out of an assessment against ASE, before the applicant approached this Authority the allowing of this application under Section 245R(2) of the Act is barred. - Application rejected.

Summary

Issues Involved:
1. Taxability of payments under Offshore Services and Offshore Supply Contracts.
2. Obligation of NPCIL to withhold tax on payments to ASE.
3. Applicability of Section 245R(2) of the Income-tax Act regarding pending proceedings.

Detailed Analysis:

1. Taxability of Payments under Offshore Services and Offshore Supply Contracts:
The applicant, NPCIL, entered into an offshore Services Contract and four Offshore Supply Contracts with ASE for setting up a power plant. NPCIL contended that the income from such contracts is taxable under Section 44BBB of the Income-tax Act, 1961, but the payments received by ASE under the Offshore Supply Contracts were not taxable in India since the sales were conducted outside India. The Dispute Resolution Panel had previously assessed ASE to tax for the years 2006-07 and 2007-08, determining that payments received under both Offshore Services and Offshore Supply Contracts are covered by Section 44BBB of the Act.

2. Obligation of NPCIL to Withhold Tax on Payments to ASE:
NPCIL sought a ruling on whether it was liable to withhold tax on the payments made to ASE under the Offshore Supply Contracts and, if so, at what rate. The applicant argued that their primary concern was the withholding of tax, and the question of ASE's tax liability was incidental. The Authority emphasized that the obligation to withhold tax under Section 195 of the Act depends on whether the payment is chargeable to tax under the Act. The Supreme Court's decision in GE India Technology Centre Pvt. Ltd. v. CIT clarified that tax at source is deductible only from sums chargeable under the Income-tax Act.

3. Applicability of Section 245R(2) of the Income-tax Act Regarding Pending Proceedings:
The Authority examined whether the application was barred by clause (1) of the proviso to Section 245R(2) of the Act, which prohibits allowing an application if the question raised is already pending before any income-tax authority, Appellate Tribunal, or Court. The Authority noted that the question of taxability of the payments made by NPCIL to ASE was already pending before the income-tax authority and Appellate Tribunal. The Authority rejected the argument that the question of taxability was incidental to the question of withholding tax, stating that the primary question was whether the payment was chargeable to tax under the Act. The Authority concluded that the application was barred by clause (i) of the proviso to Section 245R(2) of the Act since the question of taxability was already pending in proceedings against ASE.

Conclusion:
The application by NPCIL was rejected as the primary question of whether the payment to ASE was chargeable to tax under the Act was already pending before the income-tax authorities. The Authority held that the pending proceedings barred the application under Section 245R(2) of the Income-tax Act.