2019 (10) TMI 1449 - AAR - Income Tax

Advance ruling application u/s 245R - non-disclosure of material facts - Whether the applicants suppressed the material facts in the applications? - HELD THAT - It is an admitted fact that the applicants did not mention the details with regard to the application made by AASL as also with regard to the intervention by the applicants and subsequent dismissal as withdrawn of earlier application. It is so recorded in the admission order of Principal Bench dated July 20, 2015 The Act provides necessary form 34C to be filed before the Authority for seeking ruling as per section 245Q(1). As per the above form necessary relevant facts must be stated. But in the application filed by them facts regarding intervening filed and the applicants admitted as intervenors were not stated in the applications. There was substantial delay in filing the present applications before the Authority for Advance Rulings since the dismissal of AASL application and it seems that the applicants had an apprehension that stating the material facts could lead to rejection of applications at the threshold. We are of the considered opinion that the above facts are very much relevant and necessary and the material facts to the present applications which were not disclosed by the applicants. The argument of learned senior advocate that it is an inadvertent error and does not cause any prejudice to the Revenue is not acceptable. The applicants were party to the transaction, pleaded earnestly to be included as intervenors in earlier proceedings, were vitally concerned with questions raised by AASL, participated in earlier proceedings, filed documents called for by the Revenue, collaborated, discussed, deliberated with Vortex group on sharing the tax deducted at source amount and very conveniently omitted these facts in form 34C. They falsely mentioned in verification segment that all relevant, correct and complete facts were stated to the best of their belief. This is not credible more so when the applicants are part of big business group of India and enjoy the services of best legal and financial brains. It is not relevant whether the Revenue is affected or not, what is pertinent is conduct of applicants. If this contention is accepted then any applicant can state and disclose whatever it deems fit and take a chance to secure ruling before any authority and if and when discovered could proffer plea of inadvertent error. This would create chaos and lead to mockery of judicial process. In the present case, as outlined above, we are of the view that material facts were omitted due to the fear that if all facts are brought on record, the applications may be rejected at the initial stage itself. The facts thus are distinguishable from the case cited in the context. The courts cannot enter the mind of applicant but have to discern the intention from the facts and circumstances of the case. Looking into all the facts and circumstances of the case, we are of the view that in the instant case there is non-disclosure of material facts and the applications are thus not maintainable. Whether the issues and questions raised in the two applications, in substance are the same to the previous application of AAR? - Disposal of the earlier application filed by AASL - HELD THAT - From a careful perusal of the earlier order dated July 1, 2011 it is clear that no specific permission was granted by this authority to file fresh application on the same subject matter in the order dated July 1, 2011. Since, there is no specific permission granted to file fresh application by this authority on the same subject matter to the present applicants who are the intervenors in the previous case and were vitally concerned in the previous application, they are precluded to file fresh application on same subject matter before this authority. In view of the foregoing, we are of the considered view that the final order passed on A. A. R. is binding on the present applicants since they are in respect of same transaction and there was no liberty given to the parent applicants to file fresh applications on the same subject matter. The instant applications are thus not maintainable. Can applications be dismissed on any ground other than clauses (i) to (iii) of proviso to section 245R(2) ? - Department contended that the authority has the power to reject the application as it deems fit and proper for any genuine reasons for i. e., compliance with procedure etc.- HELD THAT - Authority has every power to reject the application inter alia on genuine and reasonable grounds. We have held in earlier paras that the applicants have suppressed material facts in the applications and that present applications deal with same matter as was in 982 of 2010 and also that no liberty was granted to the present applicant to file fresh application on the same subject matter. Drawing support from the above decision in Microsoft Operations P. Ltd., In re 2009 (2) TMI 23 - AUTHORITY FOR ADVANCE RULINGS we are of the considered view that applications are not maintainable on all the three counts. Whether there was a commercial arrangement between the transacting parties implying thereby the consent of the intervenors to withdrawal application by AASL ? - We are convinced that there was a commercial arrangement between the transacting parties vide agreement dated July 1, 2011 after giving effect to which, the withdrawal could be made possible. We are therefore, of the opinion that after entering into, executing and obtaining additional consideration on account of tax payable and consequently withdrawal of the Authority for Advance Rulings application, the applicants cannot now disregard the entire set of facts to take the plea that it was unilateral act of Vortex Group to withdraw the previous application. Thus, withdrawal of Authority for Advance Rulings application is a part of commercial arrangement between the two transacting parties, which obviously is a bilateral act between them. Whether other proceedings mentioned in the withdrawal order of 2011 implies proceedings other than the Authority for Advance Rulings proceedings or not ? - We agree with the arguments of the Revenue that other proceedings would not mean proceedings before the Authority for Advance Rulings in respect of the same transaction. The word other proceedings mentioned in the earlier order means different or distinct or not similar proceedings which clearly shows that not similar or same proceedings before the Authority for Advance Rulings but different proceedings or before the other parties, i. e., Income-tax authorities, etc. Hence, arguments of the learned counsel for the applicant that as per the order dated July 1, 2011 the present applicants' rights are safeguarded by the previous order, is not an acceptable one. The applicant's rights are safeguarded only to put forward their right before other authorities which means not before the Authority for Advance Rulings on the same ground but before other authorities, i. e., Income-tax authorities, i. e., Assessing Officer, Commissioner (Appeals), Income-tax Appellate Tribunal etc.Hence, the present applications filed by CCOM and CCLM are barred and these applications are not maintainable before this authority. Whether the applications are barred under clause (i) of proviso to section 245R(2) ? - The said order does not refer to revisiting the threshold bar under proviso (i) to section 245R(2). Any how we are in agreement with the learned authorised representative that no question on the taxability of capital gains of VCL shares was raised in the notices under section 133(6) of the Act, there cannot be said to be any question arising therefrom. Further, the applications under section 245Q in the case of AASL, came to a closure upon the dismissal on withdrawal order dated July 1, 2011. So, did the proceedings under section 133(6) arising on account of the same. It is an admitted position that no further notice was issued to the two applicants upon the closure of the AASL proceedings, i. e., after July 1, 2011. Hence proviso (i) to section 245R(2) of the Act can have no application in the present case. Whether the applications are barred under clause (ii) of proviso to section 245R(2) ? - Authority for Advance Rulings in its admission order, dated July 20, 2015 had mentioned that the determination of fair market value was also a scheme to avoid payment of tax could be examined at the time of final hearing, it is seen that neither the Department nor the applicant presented any fresh arguments despite opportunities provided in the hearings under clause (ii) of the proviso to section 245R(2). In view thereof, it is presumed that the contention is not pertinent and is set to rest and is not discussed further. Even otherwise, prima facie it looks that the share sale transaction is between two independent entities and at mutually agreed price and thus the capital gain is clearly ascertainable. Hence, we are of the view that there is no bar under clause (ii) of the proviso to section 245R(2). Prima facie tax avoidance - Whether the applications are barred under clause (iii) to proviso to section 245R(2) ? - We are not in agreement with the plea of the applicant that for considering the issue of prima facie tax avoidance or exemption under treaty, we have to limit ourselves to the activities and affairs of the relevant financial year, i. e., if it pertains to the financial year 2011-12, we have to examine whether there was a scheme of tax avoidance during that year. This is not an acceptable interpretation. Imagine a share sale transaction happening on April 1, 2011, there is nothing to even look for any documents or papers for the relevant financial year. We are in agreement with the Revenue that in the instant case certain events inter alia do serve as pointer towards prima facie tax avoidance -Investment for acquisition of VCL shares not made by applicants but funds were routed through them and on top of that they bound them selves in restrictive covenants of loan agreements ; -Further loans were raised by pledging these shares for the benefit of Capex group ; -When shares were sold, consideration immediately moved out from accounts of applicants to lenders on the directions of executives of Capex group ; -Shares were bought, pledged, sold by Capex group and the entities merely lent their name to seek treaty benefits ; -The shares in MCL/VCL have been acquired by CCLM by voluntary liquidation of CTIL. The sole purpose, it seems is to transfer the situs of ownership of 15.85 per cent. of MCL/VCL shares owned by Capex group, to Mauritius to avoid capital gains tax in India. We hold that the present applications are barred under clause (iii) of the proviso to section 245R(2). As held earlier that the applications are not maintainable and are liable to be dismissed and that the applicants can pursue their cases in other proceeding in forum other than Authority for Advance Rulings, it would be in fitness of things that the concerned authorities would also consider this aspect of tax avoidance in detail at the time of merit proceedings. We, therefore, decline to comment on merits of the questions posed before us as we have held earlier that the present applications are not maintainable on various counts and the applicants are free to take up the matter before other authorities other than Authority for Advance Rulings - In view of the foregoing, we hold that the present applications are dismissed as non-maintainable and are also rejected under clause (iii) of the proviso to section 245R(2).

Summary

Issues Involved:
1. Suppression of material facts.
2. Similarity of issues and questions raised in the current and previous applications.
3. Grounds for dismissal beyond section 245R(2) provisos (i) to (iii).
4. Commercial arrangement between transacting parties and consent for withdrawal.
5. Interpretation of "other proceedings" in the withdrawal order.
6. Bar under clause (i) of proviso to section 245R(2).
7. Bar under clause (ii) of proviso to section 245R(2).
8. Prima facie tax avoidance under clause (iii) of proviso to section 245R(2).

Detailed Analysis:

Issue 1: Suppression of Material Facts
The applicants did not disclose their involvement as intervenors in the earlier application (AAR No. 982 of 2010) and the subsequent withdrawal of that application. The Authority found that this omission was deliberate and material, affecting the credibility of the applications. The applicants' argument that it was an inadvertent error and caused no prejudice to the Revenue was not accepted. The Authority concluded that the applications were not maintainable due to non-disclosure of material facts.

Issue 2: Similarity of Issues and Questions Raised
The Authority found that the essence of the transaction and the questions raised in the current applications were the same as those in AAR No. 982 of 2010. The questions in both sets of applications pertained to the taxability of capital gains on the sale of shares under the India-Mauritius tax treaty. The Authority concluded that the present applications were filed for the same relief and were thus not maintainable.

Issue 3: Grounds for Dismissal Beyond Section 245R(2) Provisos (i) to (iii)
The Authority held that it has the discretion to reject applications on genuine and reasonable grounds beyond the specified provisos. The suppression of material facts and the similarity of issues with the previous application were sufficient grounds for dismissal. The Authority drew support from the ruling in Microsoft Operations P. Ltd., In re [2009] 310 ITR 408 (AAR), which affirmed that applications could be rejected on grounds not expressly specified by the statute.

Issue 4: Commercial Arrangement and Consent for Withdrawal
The Authority found that there was a commercial arrangement between the transacting parties, resulting in the withdrawal of the application by AASL. The applicants were part of this arrangement and had consented to the withdrawal. The Authority concluded that the withdrawal was a bilateral act between the parties, and the applicants could not now disregard the entire set of facts.

Issue 5: Interpretation of "Other Proceedings" in the Withdrawal Order
The Authority interpreted the term "other proceedings" in the withdrawal order to mean proceedings other than those before the Authority for Advance Rulings. The applicants' argument that they were at liberty to file fresh applications before the Authority was not accepted. The Authority concluded that the term referred to proceedings before other tax authorities and not the Authority for Advance Rulings.

Issue 6: Bar Under Clause (i) of Proviso to Section 245R(2)
The Authority found that no question on the taxability of capital gains was pending before any Income-tax authority at the time of filing the current applications. The proceedings under section 133(6) had come to a close with the withdrawal of AASL's application. Therefore, the applications were not barred under clause (i) of the proviso to section 245R(2).

Issue 7: Bar Under Clause (ii) of Proviso to Section 245R(2)
The Authority noted that neither the Department nor the applicants presented fresh arguments on the determination of fair market value. The share sale transaction appeared to be between independent entities at a mutually agreed price, making the capital gain ascertainable. The Authority concluded that there was no bar under clause (ii) of the proviso to section 245R(2).

Issue 8: Prima Facie Tax Avoidance Under Clause (iii) of Proviso to Section 245R(2)
The Authority found that certain events indicated a scheme of tax avoidance. These included the routing of investment funds through the applicants, restrictive covenants in loan agreements, immediate transfer of sale consideration to lenders, and the applicants acting merely as conduits for the Capex group. The Authority concluded that the applications were barred under clause (iii) of the proviso to section 245R(2) due to prima facie tax avoidance.

Conclusion:
The Authority dismissed the applications as non-maintainable on multiple grounds, including suppression of material facts, similarity of issues with a previous application, and prima facie tax avoidance. The applicants were advised to pursue their cases before other tax authorities.