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2013 (6) TMI 216 - AAR - Income TaxMinimum Alternate Tax (MAT) - Section 115JB - Whether applicable to foreign company - applicability of MAT on capital gain exempt u/s 10(38) - Held that - Normally, when the charging provision itself indicates how to deter-mine the chargeable income and the rate at which it is to be taxed, one cannot resort to the so-called machinery provision to nullify the effect of the charging provision. Here, the requirement of the machinery provision, (if section 115JB(2) is a machinery provision) has to be complied with by one who comes within the sphere of the charging provision, that is, section 115JB(1). The principle of B. C. Srinivasa Setty 1981 (2) TMI 1 - SUPREME Court cannot be legitimately invoked to find non-taxability when the taxability is patent. The argument that a foreign company which is an investment company cannot comply with section 115JB(2) of the Act since it has no other business in India may only mean that the long-term capital gain covered by section 10(38) of the Act may itself become the book profit for the purpose of section 115JB. A foreign company under section 112 of the Act may have to pay tax at 20 per cent. of the gain, but for section 10(38) read with section 115JB(1). The applicant has insisted even at the concluding hearing that it does not seek or want a ruling on the applicability of section 10(38) of the Act canvassed for by the Revenue. I have endeavoured to show that for giving a ruling satisfactory to its conscience, this Authority has to interpret both sections, section 10(38) and section 115JB of the Act together. That alone will answer the question of taxability of the transaction in question, in the context of section 115JB of the Act. Since the applicant does not seek and does not want a ruling on all the aspects arising out of the ques-tions posed for ruling, I think that it would be proper to decline a ruling on the questions as raised. Hence, I decline to give a ruling on this application. As noticed by this Authority, in Microsoft Operations P. Ltd., In re (AAR No. 781 of 2008) 2009 (2) TMI 23 - AUTHORITY FOR ADVANCE RULINGS this Authority has the discretion not to entertain an application or to give a ruling, if the circumstances warrant it. I consider this a fit case to decline a ruling on the questions as sought for by the applicant. The application is hence disposed of by refusing to give a ruling on the questions now posed.
Issues Involved:
1. Applicability of Section 115JB of the Income-tax Act to foreign companies. 2. Applicability of Section 10(38) of the Income-tax Act to foreign companies. 3. Interrelation between Sections 115JB and 10(38) of the Income-tax Act. 4. Authority's discretion to decline ruling on the application. Detailed Analysis: 1. Applicability of Section 115JB of the Income-tax Act to Foreign Companies The applicant, a foreign company registered in Panama, sought a ruling on whether the provisions of Section 115JB, relating to the payment of Minimum Alternate Tax (MAT), are applicable to foreign companies without a physical presence in India. The applicant argued that Section 115JB should only apply to domestic companies. However, the Revenue contended that if Section 115JB is limited to resident companies, then Section 10(38) should also be limited to resident companies. The Authority concluded that Section 115JB, by its wording, does not distinguish between resident and non-resident companies. It applies to all companies as defined in Section 2(17) of the Act, which includes foreign companies. 2. Applicability of Section 10(38) of the Income-tax Act to Foreign Companies The applicant assumed that Section 10(38) exempts the income from the proposed transaction from tax. The Revenue countered this assumption, arguing that Section 10(38) does not apply to foreign companies, as clarified by the proviso added to Section 10(38) effective April 1, 2007. The Authority determined that the question of Section 10(38)'s applicability could not be avoided, as it is essential for ruling on the questions posed by the applicant. 3. Interrelation between Sections 115JB and 10(38) of the Income-tax Act The Authority emphasized the need for a harmonious construction of Sections 10(38) and 115JB. Section 10(38) deals with the exemption of income from long-term capital gains, while Section 115JB deals with the payment of tax by companies. The proviso to Section 10(38) directs the inclusion of such exempted income in the computation of book profit for the purpose of Section 115JB. The Authority noted that if Section 115JB does not apply to foreign companies, then logically, Section 10(38) would also not apply to them. The Authority found no compelling reason to restrict the operation of these sections to domestic companies alone. 4. Authority's Discretion to Decline Ruling on the Application The applicant insisted on seeking a ruling only on the applicability of Section 115JB and not on Section 10(38). The Authority held that for a satisfactory ruling, it is necessary to interpret both sections together. Since the applicant did not seek a ruling on all relevant aspects, the Authority exercised its discretion to decline the ruling. The Authority referred to its discretion under Section 245R(4) of the Act and previous cases, such as Microsoft Operations P. Ltd., In re, to justify its decision to refuse a ruling on the questions posed. Conclusion: The Authority declined to give a ruling on the questions posed by the applicant, emphasizing the need to consider the interrelation between Sections 115JB and 10(38) of the Income-tax Act. The Authority held that both sections apply to foreign companies and must be interpreted together to determine the taxability of the transaction in question.
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