February 2012
Sepco Electric Power Construction Corporation AAR No. 1011 of 2010 Section 245Q(1), 245R(2), 197 of Income-tax Act Dated: 25-8-2011 and 15-11-2011 Present for the appellant: N. Venkataraman, Satish Agarwal Present for the Department: Sanjay Kumar, Dipi Agarwal
By Geeta Jani, Dhishat B. Mehta
Chartered Accountants
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AAR application is not maintainable when applicant has already filed return of income under ITA and/or assessment/reassessment proceedings are pending before the Income-tax Authorities.
Pendency of a proceeding u/s.195 or 197 of the Act, or even a final order under any of these sections, cannot invalidate an application for advance ruling being entertained.
Facts:
Applicant, a tax resident of China (FCO), entered into an offshore supply contract with an Indian company (ICO) in 2006.
FCO filed an application before the AAR on 18 November 2010 on the issue of taxability of the amounts received/receivable by it under the offshore supply contract.
As on the date of filing the application, status in respect of the years covered by the application was as under:
- Order u/s.197 of the Act was subject to revision proceedings;
- Issuance of assessment notices in response to returns filed;
- Issuance of reassessment notice
The Tax Department raised a preliminary objection regarding the admissibility of the application u/s.245R(2) on the ground that for each of the years proceedings are pending.
FCO contended that the application was maintainable and mere filing return before approaching the AAR would not mean that the question raised in the application is already pending before the Tax Department. Reliance was also placed on the ‘Hand Book’ on Advance Rulings.
Held:
AAR rejected FCO’s contentions and held that the bar u/s.245R(2) would operate for the following reasons:
Mere pendency of a proceeding u/s.195 or 197 of the Act, or even an order under any of the sections, would not invalidate an application for advance ruling being entertained. However, where a return of income is furnished and the proceedings for assessment are going on, all the claims raised by the taxpayer are before the tax authority for consideration and decision.
It cannot be said that the issue of taxability of one of the items of income returned has not arisen or not pending before the Tax Authority merely because the same has not been raised in general or specific questionnaire issued by the Tax Authority to the applicant. There is no restriction on the power of the Tax Authority to inquire.
Proviso to section 245R(2) of the Act creates a specific bar on the jurisdiction of the AAR to give a ruling once it is found that there subsists pendency of proceedings. In the circumstances, the application is liable to be rejected.
The ‘Hand Book’ on Advance ruling relied on by FCO itself provides that it should not be construed as an exhaustive statement of law. Even otherwise, what is stated in the ‘Hand Book’ cannot control the rendering of a decision with reference to the relevant provisions under the ITA.
