2021 (5) TMI 565 - AAR - Income Tax

Admissibility of application for Advance ruling under section 245R - Revenue has submitted that the applications may not be admitted for the reason that the questions raised in the applications were already pending before the Income-tax authority and that the transaction was also prima facie designed for avoidance of tax - whether proceeding was pending on the date of filing of present application? - HELD THAT - As mentioned the applicant had claimed credit for TDS on offshore services in its return but the corresponding receipt was not disclosed in the Income-tax return. When the case was selected for verification of corresponding receipts vis-a-vis TDS certificates, it is evident that the receipt for offshore services which were not disclosed in the return was subject matter of verification. The applicant had nowhere mentioned in the return that the receipt for offshore services was not offered for tax or claimed as exempt income. In the absence of any such declaration by the applicant a specific question in respect of offshore service receipts could never have been raised. Nevertheless, the basis for CASS selection and the specific questions raised in the questionnaire dated October 23, 2017 vividly show that the issue as involved in the present applications were already pending before the Income-tax authority. Thus is found that the issue involved in the questions raised in the two applications filed before us was already pending before the Income-tax authority and the bar in terms of clause (i) of the proviso to section 245R(2) is found attracted in these cases. Therefore, both the applications are not admitted and consequently rejected.

Issues Involved:
1. Taxability of sums received under the PMC agreement for offshore services under Article 13 of the India-UK DTAA.
2. Attribution of sums received under the PMC agreement to the applicant's permanent establishment in India under Article 7 of the DTAA.
3. Taxability of sums received under the PTC agreement for offshore services under Article 13 of the India-UK DTAA in the absence of a permanent establishment in India.
4. Objections by the Revenue regarding the pendency of the issue and potential tax avoidance.

Detailed Analysis:

Issue 1: Taxability of Sums Received under the PMC Agreement for Offshore Services
The applicant, a UK-based company, entered into a Project Management Consulting (PMC) agreement with GSPC LNG Limited for various technical services. The core question was whether the sums received for offshore services under this agreement were liable to tax as fees for technical services under Article 13 of the India-UK Double Taxation Avoidance Agreement (DTAA). The applicant argued that these sums should not be taxed in India as they were for services rendered offshore.

Issue 2: Attribution of Sums to Permanent Establishment in India
If the sums received under the PMC agreement were taxable, the next issue was whether these sums could be attributed to the applicant's permanent establishment (PE) in India. The applicant maintained that its India Project Office (PO) was only involved in onshore services and that offshore services were rendered entirely outside India. Therefore, the sums for offshore services should not be taxable in India under Article 7 of the DTAA.

Issue 3: Taxability of Sums Received under the PTC Agreement
The applicant also entered into a Project Technical Consulting (PTC) agreement with Reliance Industries Limited for review services related to construction activities. Similar to the PMC agreement, the question was whether the sums received for these offshore services were taxable as fees for technical services under Article 13 of the India-UK DTAA, given the absence of a permanent establishment in India. The applicant contended that since the services were provided from the UK, the sums should not be taxed in India.

Issue 4: Revenue's Objections on Pendency and Tax Avoidance
The Revenue objected to the admission of the applications on the grounds that the issues were already pending before the Income-tax authorities and that the transactions were designed for tax avoidance. The Revenue highlighted that notices under sections 143(2) and 142(1) were issued before the filing of the applications, indicating that the matter was under scrutiny. The Revenue also pointed out discrepancies between the receipts disclosed in the return of income and Form 26AS, suggesting that the sums for offshore services were not properly declared.

Judgment Analysis:

Pendency of Issues:
The Authority for Advance Rulings (AAR) examined whether the issues raised in the applications were already pending before the Income-tax authorities. It was found that notices under sections 143(2) and 142(1) were issued prior to the filing of the applications, and the Assessing Officer had raised specific questions about the agreements and technical services provided to Indian customers. The AAR concluded that the issues were indeed pending, as the verification of receipts for offshore services was part of the scrutiny process.

Tax Avoidance:
The AAR did not delve into the Revenue's objection regarding tax avoidance, as the applications were already rejected based on the pendency of issues under clause (i) of the proviso to section 245R(2) of the Act.

Conclusion:
The AAR found that the issues involved in the questions raised by the applicant were already pending before the Income-tax authority. Consequently, both applications were not admitted and were rejected under clause (i) of the proviso to section 245R(2) of the Act. The AAR did not address the objection related to tax avoidance, as the applications were already dismissed on the grounds of pendency.

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