Advance Ruling : S. 245R of I. T. Act, 1961 : Writ : Articles 226 and 227 of the Constitution of India : Authority for Advance Ruling is Tribunal : High Court can issue writ against advance ruling under Articles 226 and 227 of the Constitution of India.

DTAA between India and UAE : NR company providing
remittance services to NRIs in UAE :  Liaison offices set up in India
performing auxiliary services : No permanent establishment of NR in India.
Amount earned by NR not assessable in India : S. 90 of I. T. Act, 1961 and
Arts. 5(3)(b) and 7 of DTAA.

[U.A.E. Exchange Centre Ltd. vs. UOI; 313 ITR 94
(Del.), 223 CTR 250 (Del).]

The petitioner is a company incorporated in the UAE. It
offered remittance services to NRIs in the UAE under contracts entered into
between the petitioner and the NRIs in the UAE. The funds were collected from
the NRI remitter in the UAE. A one- time fee of 15 dirhams was levied and
collected by the petitioner from the NRI remitters in the UAE. Funds were
transmitted to the beneficiaries of the NRI remitters in India either by
telegraphic transfer through normal banking channels via banks in India or by
involving the liaison offices of the petitioner in India, who in turn,
downloaded the information and particulars necessary for remittance by using
computers in India which were connected to the servers in the UAE, by drawing
cheques in banks on India and couriering/dispatching to the beneficiaries of
the NRI remitters in India. For the A. Ys. 1998 – 99 to 2003 – 04 the
petitioner had filed returns of income under the provisions of the Income-tax
Act, 1961 showing ‘Nil’ income. The returns were accepted by the Assessing
Officer. The petitioner had also made an application u/s. 245Q(1) of the Act
to the Authority for Advance Ruling (AAR) seeking an advance ruling with
respect to the following question :

“Whether any income is accrued/deemed to be accrued in
India from the activities carried out by the company in India.”

The AAR gave its ruling on 26.05.2004. The AAR held that
downloading of information by the liaison offices in India with regard to the
beneficiaries of the NRI remitters in India and thereupon the act of the
cheques or drafts being drawn on banks in India, in the name of the
beneficiaries and their dispatch through couriers to the beneficiaries
constituted an activity which enabled the petitioner to complete the
transaction of remittance, in terms of the contracts entered into with the
NRIs. From this the Authority concluded that there was, therefore, a real and
intimate relationship between the business carried on by the petitioner, for
which it received commission in UAE. The Authority held that the activities of
the liaison offices of downloading of information, printing and preparation of
cheques and drafts, and sending them to the beneficiaries if India contributed
directly or indirectly to the earning of income by the petitioner by way of
commission. The Authority concluded that the income would be deemed to accrue
or arise to the petitioner in the UAE from a ‘business connection’ in India.
Pursuant to the said ruling, the Assessing Officer issued notices u/s. 148 of
the Act.

On a writ petition challenging the said ruling, the Delhi
High Court held as under : 

“i) The Authority for Advance Ruling would qualify as a
tribunal within the meaning of Article 227 of the Constitution. Thus the
Authority would be amenable to the jurisdiction of the High Court under
Article 227, and more so, of the Article 226 of the Constitution which,
without doubt, has a wider reach being conferred with jurisdiction to issue
appropriate order or direction to any “person or authority” for enforcement
of fundamental rights under Part III of the Constitution as also for any
other purpose.

ii) Where India has entered into a treaty for avoidance
of double taxation as also in respect of purposes referred to in Section 90
of the Act, the contracting parties are governed by the provisions of the
treaty. The treaty overrides the provisions of the Act.

iii) Article 5(3) of the DTAA between UAE and India,
which opens with a non-obstante clause, is illustrative of instances where
under the DTAA various activities have been deemed as ones which would not
fall within the ambit of the expression “permanent establishment”. One such
exclusionary clause is found in Article 5(3)(e) which is : maintenance of a
fixed place of business solely for the purpose of carrying on, for the
enterprise, any other activity of a preparatory or auxiliary character. The
only activity of the petitioner’s liaison offices in India was to download
information which was contained on the main servers located in the UAE,
based on which cheques were drawn on banks in India whereupon the cheques
were couriered or dispatched to the beneficiaries in India, keeping in mind
the instructions of the NRI remitters. Such an activity could not be
anything but auxiliary in character. The instant activity was in “aid” or
“support” of the main activity. It fell within the exclusionary clause.

iv) The ruling rendered by the Authority proceeded on a
wrong premise, inasmuchas, it, firstly, examined the case from the point of
view of Section 5(2)(b) and Section 9(1)(i) of the Act while it was required
to look at the provisions of the DTAA for ascertaining the petitioner’s
liability to tax and, secondly, it ignored the plain meaning of the terms of
the exclusionary clause, i.e., Article 5(3)(e), while examining as to
whether setting up a liaison office in India would result in setting up a
permanent establishment within the meaning of the DTAA. The ruling of the
Authority in these circumstances being contrary to well- established
principles as well as the provisions of law, would amount to an error
apparent on the face of the record and hence, amenable to a writ of
certiorari. The ruling was liable to be quashed.”