BAR OF APPLICATION FOR ADVANCE RULING WHERE MATTER PENDING CONSIDERATION BEFORE INCOME TAX AUTHORITIES

[Mr. M. GOVINDARAJAN]

Section 245R (2) provides for the rejection of application for advance rulings.  The said section provides that the Authority may, after examining the application and the records called for, by order, either allow or reject the application.  The proviso to this section provides that the authority shall not allow 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 245N] 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.

In ‘Hyosung Corporation V. Authority for Advance Rulings and another’ – 2016 (4) TMI 467 - DELHI HIGH COURT the petitioner’s application for determination of the question regarding taxability of its profits arising from offshore supplies was rejected by the Authority for Advance Rulings on the ground that the bar under Section 245R (2)(i) of the Income Tax Act, 1961 to the Authority for Advance Rulings allowing the application stood attracted.   It was held that once notice was issued to the petitioner under Section 143 (2) of the Act, it should be construed that the question raised in the application was a question that was ‘pending’ adjudication and therefore the bar could apply.

The petitioners pointed out that as far as Section 143(2) (i) is concerned, a notice issued there under was required to specify particulars of such claim of such exemption, deduction, allowance or relief made in return is inadmissible, which according to the Assessing Officer was inadmissible.  The Assessing Officer would then call upon the assessee to produce evidence of particulars that the assessee sought to rely upon in support of such claim.

The High Court found that the notice issued under Section 143(2) by the Assessing Officer on 25.08.2011 in relation to the return filed for the assessment year 2010=11 merely reproduces the language of Section 143(2)(ii) of the Act.  It merely states that the authorized representative of the petitioner is required to attend the office of the Assessing Officer or produce or cause to be produced any documents the accounts and other evidence sought to be relied upon by the petitioner in support of the return.  The notice, in any event, does not set out the opinion of the Assessing Officer that he considers it necessary or expedient to issue such notice for any of the reasons specified in Section 143(2).  The High Court held that the issuance of the said notice under Section 143(2) will not constitute a bar in terms of clause (i) to the proviso under Section 245R(2) of the Act.                       

In ‘LS Cable and Systems Limited V. Commissioner of Income Tax and another’ – 2016 (5) TMI 698 - DELHI HIGH COURT the petitioner is a company incorporated under the laws of South Korea.  The petitioner is engaged in the manufacture of electric wires and cables for power distribution.   The petitioner has been executing several projects in India involving supply, laying, jointing, testing and commissioning of power cables.  The petitioner executes its onshore work through the project offices in India established in accordance with the regulations under FEMA, 1999.  The contract for offshore supplies is executed directly by its head office in South Korea.

A dispute arise between the petitioner and the Income Tax Department regarding the taxability of profits arising on account of offshore supplies which the petitioner has been claiming to be exempted from tax in India.  The petitioner filed four applications before the Authority for Advance Rulings for the determination of the taxability of offshore supplies for four transactions.  The said applications were allowed by the Authority holding that the petitioner was not liable to tax under the Act in respect of offshore supplies.  The Revenue filed appeal before Commissioner (Appeals) which was dismissed.  The Tribunal also dismissed the appeal filed by the Revenue.  The period for the said dispute is from 2003 – 04 to 2008 – 2009.

The present petition concern assessment years 2012-13 and 2013-14.  The petitioner filed its return on 29.11.2012.  On 13.08.2013, the Assessing Officer issued notice under Section 143(2) of the Act for initiating assessment proceedings for the said assessment year.  On 20.09.2013 the petitioners filed four applications before the Authority of Advance Rulings seeking determination of tax liability in respect of amounts received towards the offshore supplies contract.  The Authority for Advance Rulings rejected the applications since notice under Section 143(2) had already been issued by the Department earlier to the filing of the applications.  The petitioner pointed out that the applications pertaining to the assessment year 2013-14 had been filed even before filing of the returns, the Authority for Advance Rulings observed that if the issues are identical in all the four applications and if even in one of the applications, the notice is issued under Section 143(2) it will be a case of pending question before the income tax authorities.

The High Court considered the question to be considered in this case whether the Authority for Advance Rulings was justified in rejecting the application on the ground that the question referred to it was pending consideration before the income tax authorities, by virtue of notice having been issued to the petitioner under Section 143(2) of the Act and thereby attract Section 245R(2)(i) of the Act.

The High Court relied on various judgments in this regard.  The High Court held that the impugned order of the Authority of Advance Rulings rejecting the petitioner’s four applications is unsustainable in law.  The mere issuance of a notice under Section 143 (2) of the Act to the petitioner, in relation to the return filed for the assessment year 2013-12 by merely stating that there are certain points in connection with the return income submitted by the petitioner for the assessment year 2012-13 on which the Revenue wanted some information, does not tantamount to the issues raised in the application filed by the petitioner before the Authority for Advance Rulings.  The applications before the Authority for Advance Rulings were filed even before the issuance of notices under Section 143(2) of the Act.  Therefore, even in relation to the applications for the assessment year 2013-14, it could not be said that on the date of filing of the said applications the issue raised therein was pending consideration before the income tax authorities.  There was no statutory bar to the Authority for considering the said application.  The High Court set aside the impugned order of Advance Ruling.  The four applications of the petitioners are restored to the file of the Authority for a fresh decision.