DISCRETION OF AAR TO ADMIT/REJECT SECOND APPLICATION ON SAME POINTS

[Mr. M. GOVINDARAJAN]

APPLICATION TO AAR:

An applicant desirous of obtaining an advance ruling may make an application in such form and such manner as may be prescribed stating the question on which the advance ruling is sought. The application shall be made in quadruplicate and be accompanied by prescribed fee. An applicant may withdraw an application within 30 days from the date of application.

ADMISSION/REJECTION OF APPLICATION

Rule 245 R of Income Tax Rules provides that on receipt of application, the Authority shall cause a copy thereof to be forwarded to the Commissioner and, if necessary, call upon him to furnish the relevant records. Where any records have been called for by the Authority in any case, such records shall, as soon as possible be returned to the Commissioner. The Authority may, after examining the application and the records called for, by order, either allow or reject the application. The Authority shall not allow the application where 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 Section 245 N(iii)(b) 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 Section 245 N (iii)(b);

No application shall be rejected 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.   A copy of every order shall be sent to the applicant and the Commissioner.

ISSUE:

Where an applicant has applied for a ruling of the Authority for Advance Rulings, but, without taking any further steps thereon, files another application in respect of the same transaction/contract furnishing more factual details and additional documents, whether the AAR has discretion to reject the second application.

CASE LAW:

The said issue has been disposed by the AAR in 'Yongnam Engineering and Construction (PTE) Ltd., In re - (2010) 321 ITR 442 (AAR). In this case the applicant is a company incorporated in Singapore engaged in the business of mechanical and civil engineering and fabrication and erection of steel structures.  Delhi International Airport (Private) Limited appointed L&T as a contractor for engineering, procurement and construction for setting up a new passenger terminal building at IGI Airport, Delhi. LK&*T has sub contracted the structural steel work of PTB to the applicant by means of a sub contract. In relation to the consideration received for the offshore supplies covered by the said contract agreement the applicant has sought advance ruling under Section 245Q(1) of the Income tax Act, 1961 on the following question:

"On the facts and circumstances of the case, whether the amount received/receivable by the applicant from Larsen & Toubro Limited for offshore supply and delivery of overseas fabricated items are liable to tax in India under the provisions of Income tax Act, 1961, and India-Singapore Double Taxation Avoidance Agreement (Tax Treaty)?"

It is the repetition of the earlier application filed by the same applicant in respect of the same transaction/contract and a similar question furnishing more factual details and additional documents. The said application was disposed of by the Authority with the following observations:

* The Authority could not decide the question raised in that application for the reason that the applicant, in spite of being given adequate opportunities, failed to respond and present the relevant facts, documents and clarifications;

* The factual details were lacking;

* The chain of documents relating to offshore supplies from the date of shipment up to the date of clearance from the port are not made available;

* Copies of the 'High-Seas purchase contract', commercial invoice, bill of lading etc., have also not been filed;

The applicant put forward the following for the admission of the application by the Authority:

* The then General Manager (Overseas) who received the notices from the Authority disappeared without trace;

* There is no embargo under the Act to entertain the fresh application on the same set of facts and the issues when in the previous application questions were not specifically answered or decided for want of factual details;

* The present application may be treated as continuation of the previous application/proceedings and this Authority may exercise its discretion and proceed to reheard the application on merits on the basis of additional facts/materials now adduced and to give a ruling on the merits;

The Authority held that the argument that the General Manager has disappeared is not correct. Even if this vague averment is correct, there was sufficient time for the applicant to check on the progress of the case by contacting the authorized representative or by making alternative arrangements and there not satisfied with this belated explanation. On the facts and circumstances of this case, the Authority did not think that the proceedings in connection with the earlier application shall now be reopened and a decisive answer to the question should be given at this stage. The discretion cannot be exercised to go to the aid of an indiligent and indifferent applicant who maintained steadfast silence throughout their earlier proceedings. Otherwise the Authority would be placing a premium on the negligence and indifference of an applicant who did not care to appear before the Authority and refrained from furnishing necessary information and evidence. The applicant cannot seek adjudication on the merits at any time he wants after having allowed the previous application to go by default.  Further, it is not as if the applicant will be left without remedy to agitate the same issue before the income tax authorities or the Tribunal. The extreme argument that proceedings shall be deemed to be pending notwithstanding the disposal of the earlier application cannot be accepted. The Authority held that is not at all a fit case to exercise the discretion of the authority to admit this second application and decide it on the merits.