2021 (2) TMI 1062 - AAR - Income Tax

Maintainability of advance ruling application u/s 245Q - Liability towards Dividend Distribution Tax (DDT) under the provision of Section 115-O - Revenue has submitted that the application may not be admitted under clause (i) of Proviso of Section 245R(2) for the reason that the questions raised in the application was already pending before the Income Tax Authority in the assessment proceeding for the A.Y.2018-19 - whether the beneficial provisions of the India-Hungary Tax Treaty could be invoked by the applicant on payment of dividend to Signify Holding B. V. by virtue of presence of the Most Favoured Nation clause in the Protocol to the India-Netherlands Tax Treaty? - whether the rate of Dividend Distribution Tax payable by the Applicant on payment of dividend to Signify Holdings B. V. would be capped at 10% by invoking the favourable provisions of India-Hungary Tax Treaty? - Whether Applicant ought to be entitled to claim a refund of Dividend Distribution Tax, paid in excess of 10% of the dividends paid to Signify Holding B.V? HELD THAT - As notice under section 143(2) was issued in this case for the A.Y. 2018-19 on 23.09.2019 whereas the present application was filed much before on 29.03.2019. It has been held by this Authority in the case of Mitsubishi Corporation, Japan, In re 2013 (12) TMI 1118 - AUTHORITY FOR ADVANCE RULINGS, NEW DELHI that the question raised in advance ruling application will be considered as pending for adjudication before Income tax Authorities, only when issues are shown in return and notice under section 143(2) is issued and, thus, an application for advance ruling is to be admitted which is filed prior to issue of notice under section 143(2). In the present case also the application for advance ruling was filed prior to the issue of notice u/s 143(2) of the Act. Therefore, the questions raised by the applicant in the present case were not already pending before the Income-tax Authorities and the clause (i) of proviso to section 245R(2) is not found attracted. In the present case the Applicant has merely sought ruling on application of beneficial provisions of DTAA for determination of DDT rate on the dividend to the non-resident shareholder. There is no design to avoid tax by any illegal or improper means. No such design to avoid tax is found present in this case. The revenue's contention that the applicability of tax treaty provision on the tax liability of the domestic company was designed for the avoidance of tax is far-fetched. In fact the basic issue to be decided in this case is whether the provisions of section 90 of the IT Act can be invoked in respect of liability of the Applicant u/s 115-O of the Act. Merely because the applicant has raised a question regarding availing the tax treaty benefit to minimize its tax liability u/s 115-O of the Act, it cannot be considered as a transaction designed to avoid the tax . Accordingly, the objection of the revenue in this regard is overruled. The Applicant vide submission dated 4 th December 2020 has raised fresh set of five questions to be decided in the present application. The Ld. AR submitted that first three revised questions were identical with the three original questions except that in the original questions beneficial provision of the India-Hungry Tax Treaty was sought to be invoked whereas in the revised questions beneficial provisions of the India- Slovenia Tax Treaty/India Hungry Tax Treaty has been sought to be invoked. It was further clarified that question numbers 4 5 were added in the eventuality of question number 2 3 being answered in negative, which was initially omitted to be taken in the application. The Ld. AR fairly agreed that these two questions (4 5) were of academic nature only. The Ld. DR objected to the admission of the revised questions. It was submitted that the revised questions were filed at a very late stage and the comments of the Principal CIT is yet to be obtained in this respect. In view of the objection of the Revenue the revised questions cannot be admitted at this stage. The Applicant is free to raise the issue of revised questions in the course of merit hearing. The application is admitted under section 245R(2) of the Act in respect of the three questions raised in the application

Summary

Issues:
1. Whether the beneficial provisions of the India-Hungary Tax Treaty could be invoked on payment of dividend to a specific company.
2. Whether the rate of Dividend Distribution Tax payable by the Applicant would be capped at 10% by invoking the India-Hungary Tax Treaty.
3. Whether the Applicant is entitled to claim a refund of Dividend Distribution Tax paid in excess of 10% of the dividends paid to a specific company.

Analysis:
1. The Applicant sought an advance ruling on the applicability of the India-Hungary Tax Treaty on dividend payments to a particular company. The Principal CIT contended that the application was inadmissible due to pending assessment proceedings for the AY 2018-19. However, as per the Authority's precedent, an application filed before the issuance of a notice under section 143(2) is admissible. Thus, the application was not already pending before the Income Tax Authorities, making the clause (i) of the Proviso to Section 245R(2) inapplicable.

2. The Revenue argued that the transaction was designed to avoid tax, invoking clause (iii) of the Proviso to Section 245R(2). However, to establish such a design, there must be evidence of improper means to avoid tax. The Applicant's request for a ruling on the DTAA provisions for determining DDT rate did not indicate any illegal intent to avoid tax. Citing past rulings, the Authority determined that there was no prima facie inference of tax avoidance in the transaction under consideration.

3. The Applicant submitted additional questions during the proceedings, seeking to invoke provisions of different tax treaties. The Revenue objected to these late submissions, emphasizing the need for the Principal CIT's input. The Authority admitted the original three questions for ruling, deferring consideration of the new questions to the merit hearing. The application was accepted under section 245R(2) for the initial queries, with the hearing date to be communicated later.

This detailed analysis covers the issues raised in the judgment, addressing the legal arguments presented by both parties and the Authority's rationale for admitting the application and ruling on the questions at hand.