TMI Blog2009 (2) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... A.A.R.No.608/2003 pursuant to an application made by the petitioner under Section 245Q(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). 2. In the application filed under Section 245Q(1) of the Act by the petitioner before the Authority, it had sought an advance ruling by the Authority with respect to the following question : "Whether any income is accrued/deemed to be accrued in India from the activities carried out by the Company in India?" 2.1 The aforesaid question was posed by the writ petitioner in the background of the following facts as stated in its application to the Authority. 2.2 The petitioner is a limited liability company incorporated in the United Arab Emirates ('UAE'), with its head office at Abu Dhabi. The petitioner is engaged, among others, in offering remittance services for transferring of monies from UAE to various places in India. In order to facilitate the said purpose, the petitioner had opened liaison offices in India on 01.01.1997 under a licence granted by the Reserve Bank of India ('RBI') vide its communication dated 24.09.1996. As per the RBI communication dated 24.09.1996, the petitioner's liaison offices, in India, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the electronic media and then print cheques/drafts drawn on the banks in India, which, in turn, are couriered/despatched to the beneficiaries in India, in accordance, with the instructions of the NRI remitter. In order to facilitate downloading of the information with regard to remittances, the liaison office in India, are connected with the main server of the petitioner in UAE. This information, which is contained in the main server is accessed by the liaison offices in India for the purpose of remittances of funds to the beneficiaries in India by the NRI remitters. 2.7. However, the point to be noted, is that, in either situation, that is, whether the option exercised by the NRI remitter for remittance of the funds is through telegraphic transfer of funds to a bank in India or, through a liaison office in India; the petitioner collects a fixed charge of Dirhams 15 in UAE. There is no additional or extra charge payable by the customer to the petitioner if the customer choses the second option. 2.8 On the aforesaid basis, as averred in the writ petition, the petitioner, in compliance of provisions of Section 139 of the Act, has been filing its return of income since, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper directing Respondent No.2 not to initiate any assessment proceedings pursuant to the notices issued under Section 148 of the Income Tax, 1961 for the assessment years 2000-01 to 2003-04; (v) pass such other order as this Hon'ble Court may deem fit in the facts and circumstances of the case. Submissions of petitioner's counsel 3 Learned counsel for the petitioner, Mr.H.P.Ranina has broadly made the following submissions:- (i) the petitioner does not carry on any business/trade in India. Its business is carried out in UAE. This was sought to be demonstrated by alluding to the following facts:- (a) after the contract for remittance of funds is executed in UAE, funds are handed over by the NRI remitter to the petitioner's collection centre/camp etc. located in UAE; (b) the commission, which is equivalent to Dirhams 15 is received in UAE; (c) the funds thereafter are remitted in accordance with the instructions of the customers either telegraphically through banking channels via banks nominated by the NRI remitter, or through cheques/drafts drawn on banks in India based on information downloaded by the petitioner's liaison offices in India by despatching the same throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a business connection in India. 3.4 It may be noted here that, apart from the above submission in the writ petition, one of the grounds which has been taken to challenge the ruling of the Authority, is that, the Authority has rendered its ruling beyond the period of six months as prescribed under Section 245R(6) of the Act. It is averred that the petitioner had filed the application with the Authority on 10.01.2003; while the ruling was rendered by the Authority on 26.05.2004 well beyond the period prescribed under the said provision. It may, however, be noted that at the stage of arguments, this ground was not pressed before us. We have taken note that the petitioner has given up the said ground of challenge. Submission of the Respondent 4. As against this, the learned counsel for the respondent, Mr.R.D.Jolly, has raised a preliminary objection, which is that, in view of Section 245S, which provides, that the advance ruling pronounced by the Authority under the provisions of Section 245R shall be binding on the petitioner/applicant, the Commissioner and the Income Tax authorities subordinate to him in respect of the application and the transactions on which ruling has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance ruling by the authority shall be questioned or become invalid on the ground of any vacancy or defect in the constitution of the authority. Section 245Q provides for the procedure for filing of an application before the authority, in the manner prescribed, stating the question, on which the advance ruling is sought by the applicant. Section 245R, significantly, provides for the procedure which the authority is required to adopt in deciding the question posed before it by the applicant. Under sub-section (1) of Section 245R, on receipt of an application, the Authority is required to forward a copy of the same to the Commissioner and, if necessary, call upon him to furnish the relevant records. After examining the application and the records, the Authority is empowered to allow or reject the application. Under the first proviso, the authority's jurisdiction to allow the application is excluded, with respect to issues which are also pending before Income Tax Authority or the Appellate Tribunal or involves determination of fair market value of any property or relates to a transaction or an issue, which is designed prima facie to avoid income-tax except in the case of a resident ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant, the transaction in relation to which the ruling is sought, the Commissioner and the Income Tax authorities subordinate to him, in respect of, the applicant and the transaction, it does not exclude the jurisdiction of the Courts either expressly or by implication. There is no provision which gives finality to the decision of the Authority. In our view, even though the provisions of Section 245S provide that the orders of the Authority would be binding, this, by itself, cannot exclude the jurisdiction of the Courts by implication or otherwise, as it does not provide for any adequate remedy to mitigate or deal with the grievance of the aggrieved party. Therefore, in our view the Courts would have jurisdiction to entertain actions under Article 226 of the Constitution impugning the ruling given by the Authority under Section 245R of the Act. [See : Dhulabhai vs. State of MP ; AIR 1969 SC 78 at page 89 (para 32) and Gurbax Singh vs. Financial Commissioner and Anr; 1991 Supp (1) SCC 167 at pages 174-175 (para 19)]. The principles enunciated in the aforementioned judgments clearly point to the fact that Section 245S in Chapter XIX-B of the Act cannot be construed as an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... si-judicial functions and are within the ambit of the word 'tribunal' in article 136 of the Constitution. It was pointed out in the above case that a tribunal is not necessarily a Court in this strict sense because it gives a final decision, nor because it hears witnesses on oath, nor because two or more contending parties appear before it between whom it has to decide, nor because it gives decisions which affect the rights of subjects, nor because there is an appeal to a Court, nor because it is a body to which a matter is referred by another body. The intention of the Constitution by the use of the word 'tribunal' in the article seems to have been to include within the scope of article 136 tribunals adorned with similar trappings as Court but strictly not coming within that definition." 8. Seen in the light of the principles enunciated above, it is clear that the Authority constituted under Chapter XIX-B of the Act is a Tribunal as it is invested with powers of a civil court by virtue of provisions of Section 131 of the Act; which includes all such powers a court is vested with under the CPC when trying a suit in respect of matters relating to discovery, inspection, enforcing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial authority has jurisdiction to decide a matter, it does not lose its jurisdiction by coming to a wrong conclusion, whether it is wrong in law or in fact." 9.1 It is now fairly well settled that superior courts can issue a writ of certiorari where there is an error of law which is apparent on the face of record as these are akin to errors of jurisdiction as against mere errors of law. The statement of law in Halsbury's Laws of England [4th Edition Vol. 1(1) Para 73 Page 127] best captures the accepted position in law. "Where upon the face of the proceedings themselves it appears that the determination of an inferior tribunal is wrong in law, certiorari to quash will be granted. Thus, it will be granted where a charge laid before magistrates, as stated in the information, does not constitute an offence punishable by the magistrates, or where it does not amount in law to the offence of which the accused is convicted, or where an order is made which is unauthorized by the findings of the magistrates, or is materially defective in form. Most of these cases are to be regarded as usurpations of jurisdiction; but it is settled that certiorari will also be granted to quash a dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted facts in this case are that the petitioner is offering remittance services to NRIs in UAE. The contracts pursuant to which funds are handed over by the NRIs to the petitioner in UAE are entered into between the petitioner and the NRI remitter in UAE. The funds are collected from the NRI remitter by the petitioner in UAE. A one time fee of Dirhams 15 is levied and collected by the petitioner from the NRI remitter in UAE. The funds are transmitted to the beneficiaries of the NRI remitter, in India, either by telegraphic transfer through normal banking channels via banks in India or are remitted by involving the liaison offices of the petitioner in India, who in turn, download the information and particulars necessary for remittance by using computers in India which are connected to the servers in UAE, by drawing cheques on banks in India in couriering/despatching the same to the beneficiaries of the NRI remitter in India. 11. The Authority in paragraph 11 of the impugned ruling held that downloading of information by the liaison offices in India with regard to the beneficiaries of the NRI remitters in India and thereupon the act of the cheques or drafts being drawn on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia has been that Section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a double taxation avoidance agreement. When that happens the provisions of such an agreement, with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income Tax Act. We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the Legislature to make a departure from the general principle of chargeability to tax under Section 4 and the general principle of ascertainment of total income under Section 5 of the Act, then there was no purpose in making those sections "subject to the provisions" of the Act. The very object of granting the said two sections with the said clause is to enable the Central Government to issue a notification under Section 90 towards implementation of the terms of the DTA's which would automatically override the provisions of the Income-Tax Act in the matter of ascertainment of chargeability to income-tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAC. The contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in paragraphs 12 to 15 of the impugned ruling. The Authority came to the conclusion that the activity carried on by the liaison offices in India did not have an 'auxiliary' character in terms of Article 5(3)(e) of the Act as the option of remitting of funds through the liaison offices in India was exercised by the NRI remitter which was "nothing short of, as in the words of the parties, performing contract of remitting the amounts". The Authority, thus, held that while, in respect of all remittances of funds by telegraphic transfer through banking channels, the role of the liaison offices in India of an 'auxiliary' character, the same was not true in respect of remittance of funds through liaison offices in India. This was based on the reasoning that without remittances of funds to the beneficiaries in India performance under the contract would not have been complete and thus, the downloading of data, preparation of cheques for remitting the amount, despatching the same through courier by the liaison offices, constituted an important part of the main work, which was, remitting the amount to the beneficiaries as desired by the NRIs. Based on this reasoning, the Authority came to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which permits making a value judgment as to whether the transaction would or would not have been complete till the role played by liaison offices in India was fulfilled as represented by the petitioner to their NRI remitter. According to us, what has been lost sight of, is that, by invoking the clause with regard to permanent establishment, we would, by a deeming fiction tax an income which otherwise neither arose nor accrued in India - when looked at from this point of view, the exclusionary clause contained in Article 5(3) and in this case in particular, sub-clause (e) have to be given a wider and liberal play. Once an activity is construed as being subsidiary or in aid or support of the main activity it would, according to us, fall within the exclusionary clause. To say that a particular activity was necessary for completion of the contract is, in a sense saying the obvious as every other activity which an enterprise undertakes in earning profits is with the ultimate view of giving effect to the obligations undertaken by an enterprise vis-a-vis its customer. If looked at from that point of view, then, no activity could be construed as preparatory or of an 'auxiliary' character. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s matter, even though, as discussed above, we are not required to discuss as to whether the activity carried on by the liaison offices of the petitioner in India resulted in a 'business connection' so as to bring the income earned by the petitioner within the ambit of Section 9(1)(1) and Section 5(2)(b) of the Act, we are of the opinion that the Authority has misconstrued the ratio of the judgments of the Supreme Court in the case of Anglo French Textile Co Ltd vs. CIT; (1953) 23 ITR 101 and CIT, Punjab vs. R.D.Aggarwal Co; (1965) 56 ITR 20. The ratio in both the judgments is that the non-resident entity could be taxed only if there was business connection between the business carried on by a non-resident which yields profits or gains and some activity in the taxable territory which contributes directly or indirectly to the earning of those profits or gains. The acid test for determination of a business connection as laid down in the aforementioned judgments is that there must be a real and intimate relationship between the activity of a non-resident outside the taxable territory with that of activity in the taxable territory. Therefore, the profit or gains earned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main function. Illustratively, clauses (a) to (c) includes activities such as habitually concluded contracts on behalf of non-resident, maintaining of all stocks and goods and merchandises from which he regularly delivers goods or habitually secures orders in India mainly or wholly for the non-resident. 13.4 Curiously, while the Authority has returned a finding of fact that none of the activities mentioned in explanation (2) to Section 9(1)(1) is carried on by the petitioner in India, it then went on to apply the ratio of the judgment of the Supreme Court in the case of R.D.Aggarwal (supra) to hold that the activity carried on by the liaison offices of the petitioner, in India, constituted a 'business connection' in India and hence, income shall be deemed to accrue/arise in India, to the petitioner, situated in UAE, from business connection in India. In our opinion, the Authority has clearly erred in applying the ratio of the judgments of Supreme Court in the case of R. D. Aggarwal (supra) and Anglo French Textile Co (supra) which was not applicable in the present case. 14. In the circumstances, we quash the impugned order of the Authority. In so far as the other prayers a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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