TaxTMI 
TaxTMI 
2016 (2) TMI 575
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....ation, having its office in South Korea, is to an order passed by the Authority for Advance Rulings ('AAR') on 7th August 2013, rejecting the applications filed by the Petitioner, for determination of the question regarding taxability of its profits arising from offshore sales. The AAR rejected the applications accepting the plea of the Respondent Income Tax Department that the bar under clause (i) of the proviso to Section 245R (2) of the Income Tax Act, 1961 ('Act') to the AAR allowing the applications stood attracted. 4. These petitions challenge inter alia the said impugned order of the AAR and constitutional validity of clause (i) of the proviso to 245R (2) of the Act on the ground that the said provision is discriminatory and violative of Article 14 of the Constitution of India as well Article 25 of the Double Taxation Avoidance Agreement ('DTAA') between India and the Republic of South Korea. 5. At the outset, it requires to be noticed that this Court by its decision in Net App BV and Sin Oceanic Shipping ASA v. The Authority for Advance Rulings (2013) 357 ITR 102 (Del) held that where a return of income has been filed, the bar in terms of clause (i) of the proviso to ....
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....s, the Petitioner took the stand that no portion of its revenue from off shore supplies was liable to be taxed in India. Consistent with this position, the Petitioner claimed refund of TDS deducted by PGCIL. In reference to each of the returns filed by the Petitioner, notices were issued both under Section 143(2) of the Act as well as 142(1) of the Act by the Assessing Officer ('AO') concerned. Applications before the AAR 9. On 23rd September 2011, the Petitioner filed separate applications before the AAR seeking a ruling on the issue of taxability of the profits from off shore supplies made during the aforementioned AYs to PGCIL. On 10th October 2011, one more application was filed before the AAR with respect to the supply made for a project of PGCIL at Maharani Bagh. In fact there were seven applications filed by the Petitioner before the AAR for advance rulings. 10. The details of dates of issuance of notices under Section 143(2) and 142(1), the dates of filing of the applications before the AAR for each of the transactions in the three AYs are as under: 11. Before the AAR, a preliminary objection raised by the Revenue was that the above applications of the Petitione....
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.... return are pending for adjudication before the AO. Therefore, the question raised in the application for advance ruling was pending adjudication before the assessing authority and the bar created under clause (i) of the proviso to Section 245R (2) of the Act operates. (iv) As regards the plea that the aforementioned clause (i) of the proviso to Section 245 R (2) was discriminatory, the AAR was of the view that being a creature of the Act, it could not pronounce upon the constitutional validity or the vires of any provision of the Act. It held that the AAR had no jurisdiction to deal with the question of discrimination. Submissions of counsel 14. Mr. Deepak Chopra, learned counsel for the Petitioner at the outset urged that on the face of it, clause (i) of the proviso to Section 245R(2) was discriminatory. It exempted PSUs notified by the Central Government from the bar imposed by the said clause. There was no justification in creating such a classification that had no nexus to the object of the legislation. However, Mr. Chopra was candid to submit that the attempt by the Petitioner was not to deny the benefit to the PSUs but to ensure that non-resident applicants like the....
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.... tax authorities. As regards the interpretation of the words "where the question raised in the application is already pending" in clause (i) of the proviso to Section 245R(2) of the Act, Mr. Manchanda submitted that if the question was pending for one of the AYs, and in this case it was already pending for AYs 2008-09 and 2009-10, then such question should be taken to be pending even as regards AY 2010-11. Analysis of relevant provisions 17. Section 245N (a) defines 'advance ruling' to mean: "(i) a determination by the Authority in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant; or (ii) a determination by the Authority in relation to [the tax liability of a non-resident arising out of] a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with such non-resident; or (iia) a determination by the Authority in relation to the tax liability of a resident applicant, arising out of a transaction which has been undertaken or is proposed to be undertaken by such applicant, and such determination shall include the determination of any question of law or ....
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....scriminatory and violative of Article 14 of the Constitution. 20. The other ground on which the above provision has been attacked for being discriminatory is that in terms of Section 90(2) of the Act, the said provision will have to give way to Article 25 of the DTAA between India and Republic of South Korea. 21. There is no doubt that the proviso to Section 245R(2) makes a distinction between applicants who are residents and those who are non-residents as far as the bar on the AAR allowing an application for advance ruling was concerned. In the context of the present case while PSUs notified by the Central Government can maintain an application for advance ruling notwithstanding that the question raised in the application is already pending before the income tax authorities, a non-resident applicant cannot, in the same circumstances, maintain such an application. The object behind the proviso to sub-section (2) of Section 245R is to ensure that parallel proceedings do not take place simultaneously before two different fora in respect of the same question. Therefore, the proviso is per se not irrational. Decision on constitutional validity 22. The Court at this stage no....
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....quently, neither Article 25 of the DTAA can come to the aid of the Petitioner. 24. For all of the aforementioned reasons, the Court finds that it serves no purpose, and certainly not that of the Petitioner, to pronounce on the validity of the portion of clause (i) of Section 245R(2) of the Act, that exempts resident PSUs from the bar of that provision, to be violative of Article 14 of the Constitution. Therefore, the Court declines the prayer to declare clause (i) of the proviso to Section 245 R (2) of the Act to be violative of Article 14 of the Constitution. When can a question be stated to be 'pending'? 25. The Court next deals with the plea of the Petitioner that the mere issuance of a notice under Section 143 (2) of the Act would not per se make the question raised in the application before the AAR 'pending' before the income tax authorities. 26. As already noticed, mere filing of a return by the Petitioner claiming the refund in respect of the TDS deduction by the PGCIL in respect of the payment for the equipments supplied by the Petitioner overseas will not tantamount to the question raised in the applications before the AAR being pending before the incom....
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....e Petitioner were executed overseas. 29. Therefore, in as much as, the notices under Section 142(1) of the Act raising the very questions that form subject matter of the applications by the Petitioner before the AAR for AYs 2008-09 and 2009-10 were issued prior to the filing of the applications, clause (i) of the proviso to Section 245R(2) of the Act stood attracted. Therefore the rejection by the AAR of the applications filed by the Petitioner for advance ruling in respect of AYs 2008-09 and 2009-10 are not erroneous and do not call for any interference. 30. However, as far as the notices under Section 142(1) of the Act issued by the AO to the Petitioner in respect of the equipments supply contracts for AY 2010-11 is concerned, the notices were issued only on 24th November 2012 whereas the date of filing of the application before the AAR was 23rd September 2011. 31. Here it is sought to be submitted by Mr. Manchanda that as long as the notice under Section 142 (1) of the Act was issued prior to the date when the AAR took up for decision the applications filed by the Petitioner, it could be said that the question raised in the applications were already pending before the i....