2013 (7) TMI 586 - AAR - Income Tax

Jurisdiction of authority - Advance ruling - Offshore supplies - Authority held that applicant not entitled to relief u/s 90(2) - Held that - While dealing with an application under Rule 19 it is not permissible to re-frame the questions or issues already framed and/or to add further questions - it is not legally permissible to decide new questions which were not originally formulated or adjudicated. That would virtually mean reopening of host of issues in the manner suggested which cannot be decided in view of the jurisdictional limitations inbuilt in section 245N. Even on merits, it needs no reiteration that the Authority has jurisdiction to make a determination only in relation to the transaction which has been undertaken or proposed to be undertaken by non-resident applicant. It is not permissible to deal with hypothetical questions - Authority cannot give a ruling that the applicant is not liable to be taxed and somebody else is liable to be taxed. The proposed question framed by the Authority for determination can only relate to the tax liability of the applicant and it would be impermissible to determine tax liability of a person other than the applicant.

Issues Involved:
1. Taxability of income received/receivable by the applicant for offshore supplies.
2. Determination of the extent of income attributable to operations carried out in India.
3. Status of the consortium as an Association of Persons (AOP) and its tax implications.
4. Jurisdiction and scope of the Authority for Advance Rulings (AAR) under Section 245N.

Issue-wise Detailed Analysis:

1. Taxability of Income Received/Receivable by the Applicant for Offshore Supplies:
The applicant, a Hong Kong-based company, formed a consortium with an Indian company to execute a project for Petronet LNG Ltd. The applicant was responsible for offshore supplies and services. The primary question was whether the income from these offshore supplies was liable to be taxed in India. The applicant argued that since the transfer of goods occurred outside India, there was no territorial nexus for taxation. They cited the Supreme Court's decision in Ishikawajima Harima Heavy Industry (IHHI) (2007) 288 ITR 408, which supported their stance. However, the Revenue contended that the consortium constituted an Association of Persons (AOP) under Section 2(31) of the Income-tax Act, 1961, making the payments taxable in India.

2. Determination of the Extent of Income Attributable to Operations Carried Out in India:
If the income was deemed taxable, the next issue was to determine the extent of income attributable to operations carried out in India. The applicant maintained that the offshore supplies were outside India's tax jurisdiction, while the Revenue argued that the consortium's operations in India created a business connection, thus making the income taxable under Section 9(1)(i) read with Explanation 2(b) of the Act.

3. Status of the Consortium as an Association of Persons (AOP) and Its Tax Implications:
The Revenue's primary objection was that the consortium formed by the applicant and CINDA was an AOP, and therefore, the income should be taxed in India. The applicant refuted this, arguing that the roles and responsibilities of each consortium member were clearly defined and paid separately, thus not constituting an AOP. The Authority initially ruled in favor of the applicant, stating that the income from offshore supplies was not liable to tax in India. However, upon a subsequent application by the Revenue under Rule 19 of the Authority for Advance Rulings (Procedure) Rules, 1996, the Authority reconsidered its stance. It acknowledged an omission in its earlier ruling regarding the consortium's status as an AOP, leading to the reopening of the case.

4. Jurisdiction and Scope of the Authority for Advance Rulings (AAR) under Section 245N:
The applicant contended that the Authority's jurisdiction was limited to the questions raised by the applicant and could not extend to new issues introduced by the Revenue. The Authority's jurisdiction under Section 245N includes determining questions of law or fact related to transactions undertaken or proposed by a non-resident applicant. The Authority agreed with the applicant, stating that it could not reframe or add new questions post-decision. The Authority emphasized that its jurisdiction was confined to the tax liability of the applicant and could not extend to hypothetical questions or the tax liability of other entities.

Conclusion:
The Authority concluded that it was not permissible to decide new questions that were not originally formulated or adjudicated. The proceedings were disposed of, maintaining the jurisdictional limitations under Section 245N. The Authority reiterated that its role was to determine the tax liability of the applicant based on the specific questions raised and not to address broader or hypothetical tax implications for other entities.

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