2012 (8) TMI 744 - AAR - Income Tax

Off-shore supplies & services - application by the Revenue for rectifying mistake apparent from the ruling pronounced by the Authority - Held that - Going through the ruling rendered in CTCI Overseas Corpn. Ltd., In re 2012 (2) TMI 75 - AUTHORITY FOR ADVANCE RULINGS it is seen that there is a clear omission to consider the impact of the finding that the consortium which has been entrusted with the contract and of which one of the members was an Indian resident, had the status of an AOP under the Act. Once the status of an AOP has been assigned to the consortium, then the consortium can be assessed only as an AOP and not its members individually. Therefore, the logical conclusion to the ruling should have been that the transaction of offshore supplies which was part of the contract undertaken by the consortium, had to be considered on the basis that it was an activity carried on by the consortium - thus the offshore supplies is not liable to tax in India is a ruling inconsistent with the finding that the assessing unit is an AO - the mistake is apparent and it requires to be corrected - allow the application filed by the Revenue to the extent of reopening that part of the ruling which rules that the amount received / receivable from the applicant from the offshore supplies in terms of the contract dated 17.11.2009 is not liable to tax in India

Summary

Issues:
1. Interpretation of Rule 19 of the Authority for Advance Rulings (Procedure) Rules, 1996.
2. Taxability of offshore supplies in the context of Association of Persons (AOP).
3. Impact of the status of AOP on the tax liability of the transaction.
4. Consideration of the ruling in light of the Supreme Court decision in Ishikawajima-Harima.
5. Maintainability of the application under Rule 19 for correction of the ruling.
6. Effect of the Order by the Assessing Officer on the correction sought under Rule 19.
7. Clarification on whether correction under Rule 19 constitutes a review or rectification of a mistake.
8. Assessment of the transaction as part of a consortium acting as an AOP.
9. Reopening of the ruling for a fresh hearing on the tax liability of the AOP.

Analysis:
1. The Revenue applied under Rule 19 of the Authority for Advance Rulings (Procedure) Rules, 1996, seeking to rectify a mistake apparent from the record in a previous ruling. The contention was that the ruling had incorrectly treated the taxable unit as an individual instead of an Association of Persons (AOP) as per the Income-tax Act, and thus, the tax liability of offshore supplies needed correction to align with the AOP status.

2. The ruling in question had held that the offshore supplies transaction was not taxable in India under the Act. However, the Revenue argued that since the assessing unit was an AOP with a resident company as a member, the ruling was erroneous. The impact of the AOP status on tax liability needed to be considered, especially in light of the Supreme Court decision in Ishikawajima-Harima.

3. The Authority acknowledged the oversight in not considering the AOP status of the consortium involved in the transaction. It was clarified that if the consortium was deemed an AOP, the tax assessment should be on the consortium as a whole, not on individual members. Therefore, the ruling needed correction to reflect the correct tax liability based on the AOP structure.

4. The applicant argued against the maintainability of the Rule 19 application, citing that the Assessing Officer had already given effect to the ruling. However, the Authority clarified that the Order by the Assessing Officer was provisional and did not preclude the correction sought under Rule 19, as it was subject to regular assessment.

5. The debate arose on whether the correction sought under Rule 19 was a review or rectification of a mistake. The Revenue contended that considering the assessing unit as an AOP was essential for accurate tax assessment, highlighting an error apparent on the face of the record that needed correction.

6. In light of the finding that the consortium should be assessed as an AOP, the Authority concluded that the ruling on the tax liability of offshore supplies required reopening for a fresh hearing. The decision was made to ensure a fair procedure and to determine the taxability of income from offshore supplies in the context of the AOP structure.