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TMI Blog2013 (6) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the following three questions for ruling : "1. Whether the provisions of section 115JB of the Act relating to payment of minimum alternate tax (MAT) are applicable only to domestic Indian companies ? 2. If the answer to question No. 1 is negative, whether the provi-sions of section 115JB of the Act relating to payment of MAT are applicable to only such foreign companies that have a physical busi-ness presence in India ? 3. Based on the answer to question No. (2) since the applicant is a foreign company who does not have any physical presence in India in the form of an office or branch and also in the light of the declaration provided by the applicant that it does not have a permanent estab-lishment in India, whether the provisions of section 115JB of the Act are applicable to the applicant on the sale of shares of listed compa-nies, viz., "A" and Industries Ltd. and "B" Industries Ltd., which has suffered securities transaction tax and is accordingly, exempt from tax under section 10(38) of the Act ?" 5. This Authority allowed the application under section 245R(2) of the Act for rendering a ruling under section 245R(4) of the Act. 6. According to the applicant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by this Authority "in relation to a transaction which has been undertaken or is proposed to be undertaken" by the appli-cant. That proposed transaction is the sale of shares of two Indian com-panies through a recognized stock exchange in India. The question of the taxability of the transaction under the Act arises, since there is no Tax Con-vention with Panama. In considering the question of chargeability to tax under the Act, the two relevant provisions admittedly are, section 10(38) and section 115JB of the Act. According to the applicant itself, section 115JB would get attracted, in any event, by virtue of the proviso to section 10(38) of the Act. That is why this need for a ruling on the applicability of section 115JB of the Act. According to the Revenue, section 10(38) has no application to a non-resident company, since section 115JB itself has no application to a non-resident company, if an earlier ruling of this Authority were to be adopted and that is the case put forward by the applicant itself. 10. Whether the applicant has sought a ruling on the applicability of section 10(38) of the Act to the income generated by the transaction in question, for answering the questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is shows that this Authority is expected to give a ruling in respect of the transaction ; on the chargeability to tax either under the Act or the DTAC in appropriate cases, so that there will be a binding adjudication on the chargeability to tax under the Act. That, this is the purpose of creating this Authority, is also clear from the object sought to be achieved by the intro-duction of Chapter XIX-B in the Act, by the Finance Act of 1993. In my view, seeking of a ruling only on a part of a transaction or on a truncated transaction, cannot be said to be proper and in any event is not a practice that ought to be encouraged. The applicant is bound to come forward and seek a ruling on all the relevant aspects of the chargeability to tax, of a transaction and not rest content with raising questions on aspects of the transaction which may suit it 14. It is to be noticed that while asking the third question, the applicant has assumed that section 10(38) of the Act exempts the income from the pro-posed transaction from within the taxnet. This claim that the sale of shares which has suffered securities transaction tax and is accordingly exempt from tax under section 10(38) of the Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(38) of the Act to domes-tic or Indian companies. I find force in this submission on behalf of the Revenue. 17. I may indicate that a ruling to be given by this Authority cannot merely depend on the stand adopted by the Revenue or the applicant. This Authority is a judicial Authority entrusted with the duty of giving an advance ruling on the taxability or otherwise of a transaction. This Autho-rity has, therefore, the right, nay, the duty to consider the terms of the transaction and the terms of the relevant provisions of the Act or the DTAC to understand the scope of taxation. Hence, I am of the view that when this Authority is requested to give a ruling whether section 115JB of the Act would apply to it and the transaction it proposes to undertake, the question has to be decided by the Authority with reference to the transaction and the relevant provisions, on a proper interpretation and understanding of their scope. 18. In this case, the applicant might have been misled by the stand adopted by the Revenue. After considering for myself the relevant aspects, I re-opened the hearing under section 245R(4) of the Act and heard the applicant on the question of the applicabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany means a non-resident company as well. In an earlier ruling in Timken Co., In re [2010] 326 ITR 193 (AAR), this Authority essentially relied on the requirements prescribed by sub-section (2) of section 115JB, the Notes on Clauses Explaining the Provisions of the Finance Bill, 2002, a circular issued by the Central Board of Direct Taxes and a statement in the speech of the Finance Minister that it is intended to cover domestic companies, to come to the conclusion that the operation of section 115JB is limited to resident companies and, consequently, the expression "company" as defined in the Act cannot be adopted in construing section 115JB of the Act. This Autho-rity referred to the non obstante clause contained in the definition section, "unless the context otherwise requires" to give a meaning to the expression "company" different from the definition in the Act. This interpretation was heavily based on the requirement of section 115JB(2) of the Act. With great respect, it appears to me that sub-section (2) of section 115JB deals with the mode of calculation of the assessable profit in the context of sub-sec-tion (1) of section 115JB. There is no lack of clarity or ambiguity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity noticed that the Act contained provisions which are made applicable to Indian companies or the domestic companies only and there was no such confinement of operation in section 115JA of the Act. In the ruling in Timken Co., In re [2010] 326 ITR 193 (AAR), the above ruling was distinguished stating that the foreign company involved therein and a permanent establishment in India. With respect, it is difficult to agree with this approach to distinguish the ruling reported in P. No. 14 of 1997, In re [1998] 234 ITR 335 (AAR). On facts that might have been a case where there was a permanent establishment of the company in India, but the reasoning and the conclusion clearly appear to be that section 115JA has application both to foreign and domestic companies. The passage from that ruling quoted above, also reaffirms this. The ruling reported in P. No. 14 of 1997, In re [1998] 234 ITR 335 (AAR) was followed in the ruling in Niko Resources Ltd. v. CIT [1998] 234 ITR 828 (AAR). 24. The passage quoted from Kanga and Palkhivala commenting on section 115J of the Act, "This section which was inserted by the Finance Act, 1987, with effect from the assessment year 1988-89 and replaces sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 517 (HL). "If Parliament in a statutory enactment defines its terms (whether by enlarging or by restricting the ordinary meaning of a word or expression), it must intend that, in the absence of a clear indication to the contrary, those terms as defined shall govern what is proposed, authorized or done under or by reference to that enactment". Is a clear indication to the contrary available in this case ? 27. Both section 10(38) and section 115JB refer to a company. Company as per the definition in the Act, takes in an Indian company and a foreign company. As far as a company is concerned, the proviso exhorts that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under sec-tion 115JB of the Act. Section 115JB by its wording, overrides section 10(38) and section 115JB(1) of the Act, leads to the position that as far as a com-pany is concerned, its total income has to be computed based on its book profit in juxtaposition to the prescription in section 115JB of the Act. Thus, as far as a company is concerned, section 10(38) and section 115JB of the Act are to some extent interlinked, though sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision. It overrides all the other provisions in the Act. It is the overriding charging provision. It is clear. It provides for payment of income-tax by an assessee, which is a company. That company normally, is a company of whatsoever hue, or in the alter-native, a company as defined in the Income-tax Act. There is no warrant for borrowing the definition of a company from section 3 of the Companies Act, 1956. Merely because sub-section (2) of section 115JB refers to the Companies Act, it does not mean that the definition from therein has to be borrowed. There may be practical difficulties for foreign companies to prepare an account in terms of Schedule VI to the Companies Act, but that is no reason to whittle down the scope of section 115JB of the Act. The difficulties are for the Legislature to consider and remove and not for this Authority. In fact, the difficulties in respect of some of them are now sought to be removed by the amendment made by the Finance Act, 2012. 31. A harmonious construction of section 10(38) and section 115JB of the Act would suggest that both the sections have operation in the field of taxation of a company. Section 10(38) deals with income arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argeability to tax of the income earned by a company. 33. The position thus emerges that section 115JB of the Act has to be cons-trued harmoniously with section 10(38) of the Act dealing first with the exempting of a particular income and then roping it in for the purpose of calculation of the liability under section 115JB of the Act. The interpretation of one without looking at the other relating to the transaction in question here, is not justified. 34.The income of a person arising from the transfer of a long-term capital asset, being an equity share in a company is exempt from taxation, if the transaction of sale is after April 1, 2004, and the transaction is chargeable to securities transaction tax under the Finance Act of 2004. A company is taken up for a different treatment by the proviso. The proviso provides that such income of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB. So, in respect of the income of a company, under the head of long-term capital gains, from sales subject to securities transactions, one has to go to section 115JB of the Act. On going to section 115JB, one finds that the income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es within the sphere of the charging provision, that is, section 115JB(1). The principle of B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) cannot be legitimately invoked to find non-taxability when the taxability is patent. 37. 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 busi-ness 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). 38. 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 do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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