TMI Blog2011 (12) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to as 'the Act') on the basis that it has entered into an offshore Services Contract with M/s. Atomstroy Export Russia, (ASE) for setting up a power plant in the State of Tamil Nadu. According to the applicant, the income from such contracts is taxable under section 44BBB of the Act. It had also entered into four Offshore Supply Contracts with ASE. As per those contracts, the equipments and materials were to be sold outside India and the payments were also made outside India. No one connected with ASE who was present in India was involved in the activities associated with the offshore supply of such goods. The sales were on principal to principal basis. According to the applicant, the payments received by ASE under these supply contracts were not taxable in India. Under the Offshore Services and Offshore Supply Contracts, ASE is to make the payment of taxes in India and the applicant, the customer, was to reimburse the amounts to ASE. 2. The applicant has pleaded that ASE was assessed to tax for the years 2006-07 and 2007-08 pursuant to the directions of the Dispute Resolution Panel and it was held that payments received by ASE under Offshore Services Contracts are covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arred the application. Learned Sr. Counsel submitted that the conclusion as above was wrong and the question required to be reconsidered. He also pointed out the difference in this case in that the payer has approached this Authority after the payee has been assessed, whereas in the Foster Ruling, the payee had approached this Authority after the payer had been assessed. He submitted that, that distinction has also relevance in the context of Section 195 of the Act and the nature of the obligation arising therefrom. 7. The applicant, though a Public Sector Undertaking, has approached this Authority on the strength of Section 245N(a)(ii) read with Section 245N(b)(ii) of the Act. The procedure on receiving an application under section 245Q(1) of the Act by this Authority is prescribed by Section 245R of the Act. That section contemplates the hearing of an application in two stages. The first stage is the one contemplated by Section 245R(2) of the Act. The Authority is given the discretionary authority either to allow the application or to reject the application. The allowing contemplated is, of course, admitting the application for rendering an actual Ruling under section 245R(4) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authority is binding only on the applicant who had sought it and on the Commissioner and the income-tax authorities subordinate to him. He also relies on the additions made to the form of verification even while amending clause (i) of the proviso to Section 245R(2) of the Act. The present clause (i) of the proviso to Section 245R(2) of the Act prior to 1.6.2000 was clause (a) of the proviso to Section 245R(2) of the Act. That clause read: "(a) is already pending in the applicant's case before any income-tax authority, the Appellate Tribunal or any Court." It was amended to read: "(i) is already pending before any income-tax authority or Appellate Tribunal (except in the case of a resident applicant falling in sub-clause (iii) of clause (b) of Section245N) or any Court." 9. The form of verification in the form was also simultaneously modified. The following assertion was added in the verification with effect from 3.8.2000. "I also declare that the question(s) on which the advance ruling is sought is/are not pending in my case before any income-tax authority, the Appellate Tribunal or any Court." 10. Learned Sr. Counsel submits that even though 'in the applicant's case' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her party to the transaction, the approach of the applicant to this Authority for an Advance Ruling would be barred by clause (i) of the proviso to Section 245R(2) of the Act. We reasoned that the question posed before the income-tax authority and before us, both would be whether the payment made by one thereunder to the other, would be taxable under the Act or the Double taxation Avoidance Convention and clause (i) of the proviso to Section 245R(2) of the Act stood in the way of our assuming jurisdiction to give a Ruling on that question. If one cannot separate an applicant from a transaction for the purpose of enabling him to get an advance ruling, the position we adopted therein appears to be correct. In the case on hand, the income-tax authority has held that the gains arising out of the transaction(s) relied on before us, are taxable in terms of Section 44BBB of the Act. An appeal has also been filed against it by the other party to the transaction, though subsequent to the filing of the application before us, but the order of assessment preceded the present application. The question raised in the application is whether the said payment is taxable in terms of the Act or the DT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant to deduct tax at source and that was not the question pending before the Appellate Authority. This Authority stated: "Section 195(1) pre-supposes that the sum payable to the non-resident/foreign company must be chargeable to tax under the provisions of the Income-tax Act. That means the question of tax deduction is linked up with the tax liability of the non-resident/foreign company to whom the payment has to be made by the applicant under the transaction entered into with the non-resident. The applicant, therefore, seeks determination that the foreign company - Raytheon is not liable to pay income-tax in India on the amounts received by it from the applicant and, therefore, the applicant is under no obligation to deduct tax under section 195(1). It is true that in the process of deciding the applicant's legal obligation under section 195(1), the non-resident's liability to pay income-tax on the said sum has to be decided, but, on that account the question or issue about tax deduction cannot be said to be pending before the income-tax appellate authority. In the case of appeal of Raytheon, its liability under the provisions of Income-tax Act, read with DTAA arises for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionary, means "occurring as a minor accompaniment, occurring by chance in connection with something else". We are not able to see the question of chargeability to tax of the payment as an incidental question while ruling on the question whether there is a liability to deduct to tax under section 195(1) of the Act. 20. In the recent decision in GE India Technology Centre Pvt. Ltd. v. CIT [2010] 327 ITR 456, the Supreme Court while explaining the scope of Section 195 of the Act has stated: "The most important expression in Section 195(1) consists of the words "chargeable under the provisions of the Act". A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Income-tax Act." 21. This means that the whole obligation to withhold tax under section 195(1) of the Act, depends on the chargeability of the amount to tax under the Income-tax Act. The Supreme Court went on to lay down that Section 195(1) of the Act " . in clear terms lay down that tax at source is deductible only from 'sums chargeable' under the provisions of the Income-tax Act, i.e. chargeable under Sections 4, 5 and 9 of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to pursue this aspect further. We need only notice that there is no change brought about in Section 245S of the Act. Suffice it to say that the emphasis is on the pendency of the question. The question in this case is whether the payment to be made by the applicant to ASE is chargeable to tax under the Act. 25. Since the question whether the payment made under the transaction was chargeable to tax under the Act was pending before the authorities under the Act arising out of an assessment against ASE, before the applicant approached this Authority the allowing of this application under Section 245R(2) of the Act is barred. The bar is in entertaining an application where the question raised in the application is already pending before any income-tax authority. Since we have found that the question arising before us, the primary question, if not the only question, is whether the payment to be made by the applicant to ASE on the transaction(s) is chargeable under the Act is already pending in proceedings against the payee, ASE, entertainment of the present application is barred by clause (i) of the proviso to Section 245R(2) of the Act. We, therefore, reject the application ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
