THE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX) NEW DELHI. A.A.R. No.1077 of 2011 PRESENT

Transcription

1 THE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX) NEW DELHI 10 th Day of January, 2014 A.A.R. No.1077 of 2011 PRESENT Justice Dr. Arijit Pasayat (Chairman) Mr. TBC Rozara (Member) Name & address of the applicant Present for the applicant J & P Coats Limited, 155 St Vincent Street, Glasgow, Scotland G2, 5 PA United Kingdom Mr.Girish Dave, Advocate Mr. K.R.Vasudevan, Advocate Mr. Arup Borua, CO.Rep. Mr. K.Subramanian Ms. Ramya Nayak Present the Department Mr. RS Rawal, CIT-DR(AAR), ND Kr. Aravind, Sr. Standing Counsel O R D E R The applicant J&P Coats Limited (JPCL) is a company incorporated under the laws of the U.K. having its registered office at 155 St Vincent Street, Glassgow, Scotland G2, 5PA, United Kingdom. It has carried on business as manufacturer and merchant of sewing threads and yarns and other goods in the United Kingdom and elsewhere. 2. The applicant has entered into a Master Global Framework Agreement with BT UK under which BT UK provides the Coats Group 1

2 entities with two-way transmission data through telecom bandwidth and interconnects the Coats group companies of UK located across the globe with managed wide area network (referred to as data connectivity ). BT UK raises periodic invoices on the applicant for the connectivity thus provided to the Coats entities. The applicant, in turn recoups the cost so incurred to its Coats group companies for the connectivity utilized. As part of the agreement entered into between the applicant and BT UK, Madura Coats Private Limited ( MCPL ), an Indian company is also provided connectivity. The applicant has also entered into an Applications Support and Wide Area Network Support Services Agreement ( Agreement ) with MCPL for recouping the cost so incurred on behalf of MCPL based on usage. Accordingly, the applicant raises periodic debit notes on MCPL for recovering a portion of the amount charged by BT UK to the applicant. 3. Presenting the above facts the applicant seeks ruling of the Authority for Advance Rulings on the following questions:- 1) Whether, based on the facts and in the circumstances of the case, the cost recouped by the Applicant from MCPL for the connectivity provided by BT UK would in the nature of reimbursement of expenses and hence not subject to tax in India? 2) In the event, the answer to Question 1 is in the negative, would be cost recouped by the Applicant from MCPL be regarded as- a) royalties within the meaning of the said express in Article 13 of the India-UK Double Taxation Avoidance Agreement ( Indo-UK DTAA ) or within the meaning of the said term in 2

3 Explanation 2 to section 9(1)(vi) of the Income tax Act, 1961 ( the Act )?; or b) fees for technical services within the meaning of the said expression in Article 13 of the Indo-UK DTAA or within the meaning of the said term in Explanation 2 to section 9(1)(vii) of the Act? 3) In the event, the answer to Question 1 is in the negative, would the cost recouped by the Applicant from MCPL be chargeable as business profits in the hands of the Applicant in India? In the event it is held to be chargeable as business profits, in the absence of Permanent Establishment for the applicant in India the same would not be subject to tax in India? 4) Having regard to answers to Questions 1 to 3 above, whether there is any obligation for MCPL to deduct taxes at source and if so, at what rate? 4. The Revenue objected to the admissibility of the application stating that return of income was filed before filing the application. Relying on the decision by the AAR in the case of SEPCO III Electric Power Corporation (AAR No.1009 of 2010) dated and the decision in the case of NetApp B.V (AAR No.955 of 2010) dated that was confirmed by the Hon ble Delhi High Court reported in (W.P.(C) 3959/2012 dated ), it was submitted that when the return of income is filed it should be treated as pending before the Income-tax Authority. It was stated that the return of income was filed on and the application was filed on before the Authority and therefore the matter is already pending before the Income-tax Authority before filing the application and the 3

4 application is barred by proviso to section 245R(2) of the Act. It was also submitted that notices under section 143(2) and 142(1) were issued before the applicant filed an application to the Authority for Advance Rulings. It was therefore, argued that the question is already pending before the Income tax Authority and the application is barred by Proviso (i) to section 245R(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act). 5. The applicant on the other hand submitted that mere filing of return does not attract the bar unless the question raised in the application for Advance Ruling is an issue pending for adjudication before the Income Tax Authorities. Reliance is placed on the decision of this Authority in the case of Hyosung Corporation Korea in AAR/1138/2011. The learned AR also submitted that particulars of the issues raised before the Authority for Advance Rulings were not disclosed in the return of income filed. Copies of the returns were filed. 6. We have considered rival submissions of the applicant and the Revenue and also considered the facts and case decisions cited in their submissions. 7. When returns are filed under section 139 or in response to a notice under sub-section (1) section 142, they are processed under section 143(1) of the Act. While processing the return under section 143(1) the total 4

5 income or loss are computed after making the following adjustments i.e. (i) any arithmetical error in return; or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return. It is also provided that no intimation under that section shall be sent after the expiry of one year from the end of the financial year in which the return is made. In Explanation to section 143(1) of the Act, the expression incorrect claim apparent from any information in the return is also defined. The Revenue does not have any jurisdiction to examine or adjudicate any issue other than those mentioned in Section 143(1) of the Act. There is no scope for examining or adjudicating any debatable issue that requires long drawn arguments. Again only in those cases where the Assessing Officer has reason to believe that any claim of losses, exemption, deduction, allowances or relief made in the return is inadmissible or if he considers it necessary or expedient to ensure that the assessee has not under-stated the income or has not computed excessive loss or has not under-paid the tax in any manner, he can serve notice under section 143(2). Before or without issuing notice under section 143(2) or notice under section 142(1) in cases whether return is not filed, there is no jurisdiction to examine or adjudicate debatable issue claimed or shown in the return of income. 5

6 8. The decision in the cases of SEPCO III Electric Power Construction Corporation (supra) and NetApp BV (supra) are based on the premise that by filing a return, an assessee invites adjudication of the question arising out of the returns. It will be seen from analysis of provisions under section 143(2) and 142(1) of the Act, that this was not so. By issue of notice under section 143(2) only, the Assessing Officer assumes jurisdiction to adjudicate all the questions arising out of the return. In the case of Jagtar Singh Purewal reported in (1995) 213 ITR 512, this Authority considered the issue where though applicant declared amount in question in return, his application for advance ruling was maintainable in as much as no dispute was pending between applicant and department as return had been processed under section 143(1) and refund had been granted and, further, even in return, assessee had raised no dispute regarding assessability of amount but only claimed refund of excess tax paid. It was held that there was no pending dispute between the applicant and the Income-tax Department because the return had been processed under section 143(1) and the refund as prayed for by the applicant had been granted. Secondly, even in the return the assessee raised no dispute regarding the assessability of the amount. On the other hand, he voluntarily showed it and paid tax thereon claiming refund of only the balance. There was, 6

7 therefore, no ground to reject the application on any of the grounds mentioned in section 245R(2). 9. In the case of Hyosung Corporation Korea (supra) it was held that mere filing of return does not attract bar on the admission of the application as provided in section 245R(2) of the Act. We are of the view that only when the issues are shown in the return and notice under section 143(2) is issued, the question raised in the application will be considered as pending for adjudication before the Income-tax Authorities. In the present case not only return of income was filed but even notices under section 143(2) and 142(1) were already issued before filing of the application. Return of income for the relavant assessment year was filed on and a revised return was filed on i.e. before filing the application to the Authority for Advance Rulings on Notice under section 143(2) was issued on which was before filing the application. The assessment was also completed under section 143(3) of the Act by the Assessing Officer on The submission of the learned AR that the particulars of the issue are not shown in the return is also not factually correct as it is found in the revised return, copy of which was submitted, the transaction was shown in the form of details of TDS. We agree with the Revenue that the question was already pending before the 7

8 Income-tax Authorities and the application is barred by Proviso (1) of section 245R(2) of the Act. The application is, therefore, not admitted and consequently rejected. (Arijit Pasayat) Chairman (TBC Rozara) Member 8