2019 (3) TMI 1312 - AAR - Income Tax

Admission of application before AAR - whether issue pending before any income tax Authority, or Appellate Authority or any Court - allegation of tax avoidance - taxable as AOP or as separate entity - HELD THAT - If we read both the reports together, it is apparent that the only objection raised by the Department appears to be regarding alleged tax avoidance. We asked Ld. DR to show us any material in support the plea of tax avoidance. However, at this stage he was unable to furnish any such material. We must note that this matter has been adjourned at least on two occasions. Hence it is not possible to adjourn it any further. We must also note that Ld.FCA for the applicant has strenuously objected to the Department s case of tax avoidance. In the circumstances, the application will have to be admitted keeping the question of alleged tax avoidance open.

Summary

Issues: Alleged tax avoidance in consortium income assessment

Analysis:
The judgment by the Authority for Advance Rulings, New Delhi involved the issue of alleged tax avoidance in the assessment of income from a consortium. The Department raised objections stating that the entities involved should be assessed as an Association of Persons (AOP) rather than separate entities due to their consortium formation. The Department argued that there is no provision in the Income Tax Act to assess separate entities when they form a consortium, and the income should be assessed as an AOP. The Department claimed that the application for advance ruling might be an attempt to offset losses against income or future anticipated losses by separate entities to avoid paying taxes on profits earned by the AOP. The Department cited Section 245(R)(2)(2)(iii) related to transactions or issues designed to avoid income tax, except for specific cases. The Department also mentioned issuing a notice under section 143(2) of the Income-tax Act, 1961 to the applicant. However, it was clarified that the question raised by the applicant was not specifically pending before any income tax authority, appellate authority, or court.

The Authority considered both reports filed by the Department and noted that the objection raised was primarily about alleged tax avoidance. The Department was asked to provide material supporting the claim of tax avoidance, but they were unable to do so. The Authority acknowledged that the matter had been adjourned multiple times and could not be further delayed. The applicant's representative strongly opposed the Department's argument of tax avoidance. In light of the circumstances and the lack of concrete evidence supporting the claim of tax avoidance, the Authority decided to admit the application while keeping the question of alleged tax avoidance open for further consideration. Therefore, the application was admitted, and the issue of alleged tax avoidance was left unresolved for future examination.