ADMISSIBILITY OF APPLICATION FOR ADVANCE RULING UNDER SECTION 245R OF INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Advance Ruling

Section 245R of the Income Tax Act, 1961(‘Act’ for short) deals with the procedure of obtaining advance ruling under the Act.  The Authority may, after examining the application and the records called for, by order, either allow or reject the application.  The Authority may reject the application where the question raised in the application, --

• is already pending before any income-tax authority or Appellate Tribunal [except in the case of a resident applicant falling in sub-clause (iii) of clause (b) of section 245 or any court;
• involves determination of fair market value of any property;
• relates to a transaction or issue which is designed prima facie for the avoidance of income-tax except in the case of a resident applicant falling in sub-clause (iii) of clause (b) of section 245N or in the case of an applicant falling in sub-clause (iiia) of clause (b) of section 245N.

No application shall be rejected under this sub-section unless an opportunity has been given to the applicant of being heard.  Where the application is rejected, reasons for such rejection shall be given in the order.

Issue

The issue to be discussed in this article is as to whether the Authority for Advance Ruling may admit an application for advance ruling when there is a case pending before the Income Tax Authority with reference to decided case law.

Case law

IN RE : MITSUI KINZOKU COMPONENTS INDIA P. LTD. - 2021 (5) TMI 566 - AUTHORITY FOR ADVANCE RULINGS — NCR BENCH (INCOME-TAX) , the applicant is a company incorporated in India and tax resident of India. It is wholly owned subsidiary of Mitsui Kinzoku Kogyo Kabushiki Kaisha, Japan.  The applicant is paying dividend to Mitsui Japan on which dividend distribution tax (DDT) is being deducted as per the provisions of section 115O of the Income-tax Act, 1961.

The applicant filed an application before the Authority for Advance Ruling under Income Tax Act, 1961 for getting ruling in respect of the following questions-

• On the facts and circumstances of the case and in law, whether the dividend distribution tax (DDT) paid/payable by Mitsui Kinzoku Components India Private Limited under the provisions of section 115O of Act on dividend paid/ payable to Mitsui Kinzoku Kogyo Kabushiki Kaisha is in substance and effect, a tax on dividends?
• Whether MKCI, being a resident of India, is entitled to apply the lower tax rate of 10 per cent. under article 10 (dividends) of the India-Japan Double Taxation Avoidance?  (Agreement (DTAA/tax treaty) in respect of dividend distribution tax payable on dividend paid/payable to Mitsui Japan by it under section 115O of the Act.)
•  Whether the applicant is entitled to the refund of excess dividend distribution tax paid (i.e., excess rate applied by applicant as per section 115O over the rate of 10 per cent. as per tax treaty)?

The Income Tax Department raised an objection to the application that a proceeding was pending on the date of filing of present application. Therefore, the present application was not maintainable.  The applicant had declared dividend of Rs. 200,000,000 on 06.06.2016 on which dividend distribution tax of Rs. 40,715,389 was made. Further, dividend of Rs. 350,000,000 was also declared on 29.06.2017 on which dividend distribution tax of Rs. 71,251,931 was made. A notice under section 143(2) of the Act for the assessment year 2016-17 was issued to the assessee on 03.07.2017.   This proceeding was pending as on 30.11.2018 when this application was filed.  A notice under section 142(1) was also issued in this case on 09.07.2018 along with the questionnaire and thereafter another notice under section 142(1) was issued on 05.09.2018 along with another questionnaire.

The Department further submitted that after filing the application for advance ruling before the authority, the applicant had filed an application under section 144A of the Act before the Additional Commissioner of Income-tax on 11.12.2018 seeking a direction on the refund of excessive dividend distribution tax, which was rejected by the Assessing Officer vide order under section 143(3) of the Act dated 20.12.2018. Thereafter, the applicant had preferred an appeal before the Com missioner of Income-tax (Appeals) on this issue. Thus, the issue of refund of excessive dividend distribution tax was already pending before the Department. 

The applicant submitted the following before the Authority for Advance Ruling-

• the issue raised in the present application was not subject matter of any of the notices issued by the Department.
• The notice under section 143(2) was a standard notice for complete scrutiny, without any question. 
• the refund application was filed after the filing of present application before the authority.
• Therefore, the application under section 144A of the Act filed subsequently had no bearing on deciding the pendency under clause (i) of the proviso to section 245R(2) of the Act.

The Authority for advance ruling carefully considered the submissions of the applicant as well as the Department and the facts of the case. The Authority for Advance Ruling observed that as per the provisions of section 245R (2) of the Act the application cannot be allowed if the question raised in the application is already pending before any Income-tax authority or Appellate Tribunal. In the notice under section 143(2) no detail was mentioned as to on what ground the matter was required to be examined by the Assessing Officer. The said notice was for scrutiny under computer aided scrutiny selection. 

The Authority for Advance Ruling further observed that the applicant had deducted dividend distribution tax of Rs 57,001,412 on 29.06.2015 which was deposited on 01.07.2015. There was another dividend distribution tax of Rs. 40,715.389 made on 29.02.2016 which was deposited on 06.06.2016. As per this Schedule the dividend distribution tax on the dividend declared was made at 15% under section 115O and there was no refund claim of dividend distribution tax in the return of income. Since the applicant had already deducted dividend distribution tax under section 115O of the Act on the dividend declared at the prescribed rate, paid the taxes and no refund of dividend distribution tax was claimed in the return of income, the selection of case for scrutiny under computer aided scrutiny selection under section 143(2) could not have been on account of dividend distribution tax payment.  The claim for the refund of excess dividend distribution tax was made vide applicant's letter dated 30.11.2018 which was after the filing of the present application. 

The pendency has to be considered on the date of filing of the application and there was no pendency on that date.  Merely because the applicant had raised the issue of excess dividend distribution tax in his subsequent letter dated November 30, 2018, it does not create any pendency of the date of application filed earlier. Thus, the questions raised in the present application is not found pending before the Income-tax authority on the date of filing of the application.    Therefore, such notices issued prior to filing of the application cannot be a bar in terms of clause (i) of the proviso to section 245R (2) of the Act, for admitting the application.

The Authority for Advance Ruling ruled that the issue involved in the questions raised in the application filed before us was not pending before the Income-tax authority and the bar in terms of clause (i) of the proviso to section 245R (2) is not found attracted.  Therefore, the application is admitted under section 245R (2) of the Act.