2020 (12) TMI 1272 - AAR - Income Tax

Application for advance ruling u/s 245R - Whether application cannot be allowed if the question raised in the application is already pending before any Income-tax authority or Appellate Tribunal ? - notice under section 143(2) was for scrutiny under computer aided scrutiny selection (CASS) and the only reason for selection was refund claim - HELD THAT - The applicant has categorically stated that neither the notice under section 142(1) of the Act nor any questionnaire was received prior to the filing of the present application. AO might have examined all the aspects, including the issues raised in the present application, while examining the issue of refund claim for which the case was selected for scrutiny. But the fact remains that such issues were not raised by the AO before filing of the present application. In the absence of any specific question in respect of the issues raised in the present application, it cannot be concluded that the questions raised in the present application was already pending before the Income-tax authority. The general notice as issued in this case is found to be insufficient to attract the rejection of the application under clause (i) of the proviso to section 245R(2) of the Act. In the present case the notice was issued in a standard preprinted format and the specific issues as appearing in this application were not part of the said notice. The hon'ble Delhi High Court has also held in the case of Sage Publications Ltd., U.K. 2016 (9) TMI 299 - DELHI HIGH COURT that issue of notice under section 143(2) even prior to filing of application before the Authority for Advance Rulings, ipso facto would be insufficient to attract automatic rejection of the said application under the proviso to section 245R(2) of the Act and the special leave petition filed against this decision was dismissed by the apex court. Thus the notice under section 143(2) was issued in response to computer aided scrutiny selection reason of refund claim . The specific question in respect of strategic alliance agreement entered into by the applicant with PVR was never raised by the Assessing Officer in any of the notices or the questionnaire issued before the filing of the present application. As held by the hon'ble court such notice cannot attract the automatic rejection route under clause (i) of the proviso to section 245R(2) of the Act as the questions raised in the present application are not found pending before the Income-tax authority.The application is admitted under section 245R(2).

Summary

Issues:
1. Tax liability on offshore supply of equipment under strategic alliance agreement.
2. Obligation of PVR to deduct taxes at source on payments.
3. Determination of permanent establishment or business connection in India.
4. Attribution of consideration to operations in India.
5. Obligation of PVR to deduct taxes at source on specific services.
6. Taxability of consideration for services under tax treaty or Income-tax Act.

Analysis:

Issue 1:
The applicant, a Korean company, sought clarification on the tax liability in India for offshore supply of equipment to PVR. The Authority for Advance Rulings considered the strategic alliance agreement and the provisions of the Income-tax Act and the India-Korea tax treaty.

Issue 2:
The question of whether PVR is obligated to deduct taxes at source on payments was raised if the offshore supply was not taxable in India. The Authority analyzed the legal requirements and implications of tax deduction at source in such scenarios.

Issue 3:
Regarding the establishment of a permanent establishment or business connection in India, the applicant inquired about the services provided and their implications under the tax treaty and Income-tax Act. The Authority examined the criteria for determining a permanent establishment and its tax implications.

Issue 4:
In case a permanent establishment was established, the Authority was asked to determine the extent of consideration attributable to operations in India. This involved a detailed analysis of the tax treaty provisions and the Income-tax Act.

Issue 5:
The question of PVR's obligation to deduct taxes at source on specific services provided by the applicant was raised if a permanent establishment was established. The Authority reviewed the legal requirements and rates for tax deduction at source in such circumstances.

Issue 6:
The taxability of consideration for onshore services under the tax treaty or Income-tax Act was also raised. The Authority considered the relevant provisions and implications of taxation on the services provided under the strategic alliance agreement.

The Authority examined the contentions of both parties, focusing on the pending scrutiny of the applicant's tax return. It was determined that the questions raised in the application were not already pending before the Income-tax authority, as the scrutiny was based on a different issue. Citing precedents, the Authority concluded that the mere issuance of a notice under section 143(2) did not automatically make the questions raised in the application as pending. Therefore, the application was admitted under section 245R(2) of the Act for further proceedings.