Advance ruling maintainability turns on prima facie treaty abuse and concluded withholding proceedings do not bar a fresh application.

An AAR advance ruling application was rejected as non-maintainable because the transaction was prima facie structured to avoid income-tax and secure treaty benefits not intended by law. The bar under section 245R(2)(i) did not apply since the section 197 withholding proceedings had concluded before the application was filed, and a concluded proceeding could not be treated as pending. The bar under section 245R(2)(ii) also did not apply because the referred question concerned share-sale taxability under the Act and treaty, not a valuation exercise or fair market value determination. However, on the materials as a whole, the arrangement was treated as a pre-ordained Mauritius holding structure aimed at avoiding Indian tax, so section 245R(2)(iii) applied.

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Issues: (i) Whether the application was barred because the question was already pending before the income-tax authority under section 197 proceedings; (ii) whether the question involved determination of fair market value so as to attract the statutory bar; (iii) whether the transaction was prima facie designed for avoidance of income-tax so as to attract the statutory bar.

Issue (i): Whether the application was barred because the question was already pending before the income-tax authority under section 197 proceedings.

Analysis: The statutory bar applies only where the very question raised is already pending before an income-tax authority or the Appellate Tribunal on the date of the application. The materials showed that the section 197 proceedings had concluded before the applications were filed, and a concluded withholding proceeding could not be treated as a pending proceeding merely because the certificate had a stated period of validity. A prior tentative withholding determination did not preclude a later advance ruling application.

Conclusion: The bar under section 245R(2)(i) was not attracted and the objection failed.

Issue (ii): Whether the question involved determination of fair market value so as to attract the statutory bar.

Analysis: The question referred was confined to the taxability of gains arising from the sale of shares under the Act read with the treaty. It did not require the Authority to undertake a valuation exercise or compute capital gains at the admission stage. Any valuation or computation would arise only after the taxability issue was answered in favour of the Revenue, and the mere possibility of such computation did not make fair market value determination part of the referred question.

Conclusion: The bar under section 245R(2)(ii) was not attracted and the objection failed.

Issue (iii): Whether the transaction was prima facie designed for avoidance of income-tax so as to attract the statutory bar.

Analysis: The Authority applied the prima facie standard at the admission stage and assessed the entire arrangement on the basis of the materials and surrounding circumstances. It found that the applicants were structured as holding vehicles to obtain treaty benefits, that real control and management were outside Mauritius, and that the transaction was not a genuine investment participation in India but an arrangement to secure a benefit not intended by the India-Mauritius treaty. The treaty claim was treated as part of a larger pre-ordained structure aimed at avoiding Indian tax on the share sale.

Conclusion: The transaction was held to be prima facie designed for avoidance of income-tax and the bar under section 245R(2)(iii) was attracted.

Final Conclusion: The advance ruling applications were not maintainable and were rejected on the ground that the statutory bar relating to prima facie tax avoidance applied, while the other objections raised by the Revenue did not survive.

Ratio Decidendi: At the admission stage, the Authority may reject an advance ruling application where the surrounding materials show that the transaction, viewed as a whole, is prima facie structured to secure a treaty or tax benefit not intended by law, even though prior withholding proceedings do not by themselves bar maintainability once they have concluded.

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