2016 (9) TMI 299 - HC - Income Tax

Court overturns rejection of Non-Resident Corp's tax ruling application due to notice deficiencies

The Court overturned the rejection of the Non-Resident Corporation's advance ruling application under Section 245R(2) of the Income Tax Act, 1961. The ... Rejection of application under Section 245R(2) - advance ruling - Held that:- It is evident on a plain reading of the notice that it does not address itself to any specific question; it does not even disclose application of mind to the returns save and except the fact that they conform to the instructions which compelled the AO to issue a scrutiny notice on account of the international transaction reported by the assessee. The previous authority of this Court in Hyosung (2016 (2) TMI 575 - DELHI HIGH COURT) and L.S. Cable (2016 (5) TMI 698 - DELHI HIGH COURT ) had the occasion to deal with identical notices. It was positively ruled that such notices ipso facto would be insufficient to attract the automatic rejection route under proviso to Section 245R(2) of the Act. Consequently, we have no hesitation in holding that the impugned order of the Ruling Authority in rejecting the application is untenable. Consequently, the order is quashed and set aside. The petitioner’s application shall now be processed and independently dealt with on its merits in accordance with law by the Ruling Authority. The parties shall be present before the Advance Ruling Authority on 13.09.2016. The writ petition is allowed in the above terms. Issues:1. Rejection of application under Section 245R(2) of the Income Tax Act, 1961.2. Interpretation of the proviso to Section 245R(2) regarding pending proceedings.3. Impact of a notice issued under Section 143(2) on the application for advance ruling.Analysis:1. The petitioner, a Non-Resident Corporation, filed an application for advance ruling under Section 245R of the Income Tax Act, 1961, for AY 2012-13. The application was rejected by the Ruling Authority citing that the questions raised were part of a pending proceeding, invoking the proviso to Section 245R(2). The Ruling Authority based its decision on the notice issued under Section 143(2) to the petitioner, indicating that all questions would be covered under the said notice, thus rejecting the application under Section 245R(2).2. The petitioner contested the rejection, relying on previous judgments that emphasized the need for specific questions to be already pending before invoking the proviso to Section 245R(2). The Court referred to the judgments in L.S. Cable & System Limited v. CIT and Hyosung Corporation v. The Authority for Advance Rulings, highlighting that a notice under Section 143(2) should not automatically lead to the rejection of an advance ruling application.3. The Court analyzed the notice issued under Section 143(2) to the petitioner and concluded that it was general in nature and did not address specific questions raised in the advance ruling application. Citing precedents, the Court held that such notices were insufficient to trigger the automatic rejection under the proviso to Section 245R(2). Consequently, the Court quashed the Ruling Authority's order, directing the independent consideration of the petitioner's application on its merits. The parties were instructed to appear before the Advance Ruling Authority for further proceedings.