AAR – New Delhi : The transfer of Undertaking from MEP Infra Toll Road Private Limited(‘MEPPL’) to the partnership firm in which the Applicant is considering to join as a partner through its Indian subsidiary, would in any manner, affect the allowability of deduction under section 80IA(4)(i) to the partnership firm

Authority For Advance Rulings (Income Tax), New Delhi

Trade Circle Enterprises LLC, In Re

Section : 245N

Justice Dr. Arijit Pasayat, Chairman

And T.B.C. Rozara, Member

A.A.R. No. 1242 Of 2012

February 14, 2014

ORDER

1. Trade Circle Enterprises LLC, UAE is the applicant and the relevant facts stated in the application are as under:—

(1) The applicant is a company registered in UAE and is engaged in the business of developing and investing in the infrastructure and real estate sector.

(2) The applicant intends to invest in a 100% subsidiary company in India under the prevailing FDI regulations.

(3) This Indian subsidiary company of the applicant intends to setup consortium by way of partnership firm under the Partnership Act, 1932 with another Indian Company namely, MEP Infra Private Limited (MEPPL).

(4) This consortium (partnership firm) proposes to acquire the undertaking of MEP Infra Private Limited which is engaged in the business of operating and maintaining 20 road bridges in Mumbai and in consideration it collects toll at five Mumbai entry points pursuant to a contract dated 19th November, 2010 entered into with the Maharashtra State Road Development Corporation, a Corporation (MSRDC) owned by the Government of Maharashtra (‘Undertaking’). The said undertaking comprises of various bridges constructed within Mumbai and the last bridge was completed on 30th September, 2006.

(5) The operating of toll roads referred to above was started by MSRDC from dates prior to awarding contract for operating and maintenance to MEPPL by the state Government of Maharashtra. MEPPL has been awarded the said contract with effect from 19th November, 2010 for a period of 16 years.

(6) The present Undertaking is eligible for tax deduction of 100% of its profits and gains from such undertaking for a period of 10 consecutive assessment years out of the 20 assessment years as per provisions of Section 80IA(4)(i) of Income tax Act, 1961 (‘Act’). MSRDC and MEPPL have not claimed any income tax benefit under the said section.

(7) The above mentioned transaction is expected to be completed by the month of December, 2011, subject to necessary approvals.

2. The applicant seeks ruling from this Authority on the following questions:—

(i) Whether on facts and circumstances of the case, the transfer of Undertaking from MEP Infra Toll Road Private Limited(‘MEPPL’) to the partnership firm in which the Applicant is considering to join as a partner through its Indian subsidiary, would in any manner, affect the allowability of deduction under section 80IA(4)(i) to the partnership firm.

(ii) Whether the newly formed partnership will be considered as a consortium of companies and be eligible for deduction in respect of profits and gains from undertakings or enterprises engaged in infrastructure development etc. which is equal to hundred percent of the profits and gains derived from such business for ten consecutive assessment years out of twenty years?

(iii) Whether the twenty years period referred to in the proviso to section 80IA(2) of the Act, it to be reckoned from the date when the MEPPL (whose undertaking which is intended to be transferred to the partnership firm) entered into the contract with MSRDC for operation and maintenance of bridges, i.e.. the year 2010-11 or from the date when the Government first started the operation and maintenance of the last bridge, i.e., the year 2006-07.

(iv) Without prejudice, if the date of commencement of operation of the bridges by the State Government is to be considered for the purposes of determining the period of 20 years in terms of section 80IA(2) of the Act, since there are in all 20 bridges (toll of which is collected at 5 entry points) which form part of the Undertaking under contract granted to MEPPL and each of them was completed at a different date between 1999 to 2006 and operations and maintenance of each of them was started originally by the state government at a different date, will the year of completion of last bridge be treated as the year in which the undertaking develops and begins to operate any infrastructure facility or 20 bridges will be treated as 20 separate infrastructure facilities/undertakings and, therefore, 20 different dates/years will be considered for commencement of benefit of deduction under section 801A(2)?

(v) In the event, each of the 20 bridges is considered to be an independent infrastructure facility, how would the income of each of the Undertakings be computed as the revenue is collected at 5(five) entry point which represents the consolidated revenue of 20 bridges and it is not possible to bifurcate /allocate the revenues to each bridge as there is no linkage between the collection at entry points and usage / utilization of each bridge.

(vi) Whether the Undertaking so transferred will be treated as a new undertaking and will be eligible for the benefits of section 80IA(4) as the Undertaking so transferred fulfills the conditions mentioned in Section 80IA(4)(i) namely;

(a) It is owned by a company registered in India or by a consortium of such companies;

(b) It has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;

(c) It has started or starts operating and maintaining the infrastructure facility on or after the 1st day of Apri,1995.

(vii) Whether the consideration paid towards the acquisition of toll rights would be regarded as an “intangible asset” u/s32(1)(ii) for the purpose of claiming depreciation under the Income-tax Act. 1961.

3. The Revenue objected to admission of the application u/s 245R(2) stating that the questions posed before the AAR do not fall under any of the clauses of section 254N of the Act. It was submitted that the applicant is in no way involved in the present set of transactions as described in the statement of facts and agreements filed before the AAR. The companies involved in the transaction are Indian companies and any tax liability out of such transaction will arise on Indian companies or the proposed partnership firm which is also Indian. Neither the non-resident applicant has entered into any arrangement/agreement with the Indian parties nor any inference can be drawn from the application that any consideration is being received by the applicant in the instant case. It was argued that the application is outside the scope of the framework of the Authority for Advance Rulings and ought not be admitted for adjudication.

4. The learned counsel for the applicant on the other hand submitted that the applicant company intends to invest in a 100% subsidiary company in India under the prevailing FDI regulations and the Indian subsidiary company of the applicant intends to set up consortium by way of partnership firm under the Partnership Act with another Indian company namely, MEP Infra Pvt. Limited (MEPPL) and ultimately the applicant company will be involved in transaction with the Indian concerns and therefore, there will be issue of tax liability in India.

5. We have considered the rival contention of the learned counsel for the applicant and the Revenue and also examined the documents placed before us. At the outset we have noticed that the applicant Umesh H Ashar is an individual whereas the statement of facts mentions the applicant as a company registered in UAE. When this was pointed out, the learned counsel made a statement that there was a mistake and affidavit was filed from Mr. Umesh H Ashar stating that he is Managing Director of Trade Circle Enterprises LLC (Trade Circle) and in the application filed in form No.34C the name of the applicant has been inadvertently mentioned as “Umesh H Ashar Trade Circle Enterprises LLC”. It was stated that the correct name of the applicant is Trade Circle Enterprises LLC which is a company.

6. On perusal of the questions we find that there is no mention of the applicant’s name except in question No.1 that states :

” Whether on facts and circumstances of the case, the transfer of Undertaking from MEP Infra Toll Road Private Limited (‘MEPPL’) to the partnership firm in which the Applicant is considering to join as a partner through its Indian subsidiary, would in any manner, affect the allowability of deduction under section 80IA(4)(i) to the partnership firm.”

7. There is no transaction or proposed transaction with the Indian companies mentioned in the question. At the time of hearing the learned counsel for the applicant argued that the language employed in sub clause (i) of section 245N(a) is wider in scope in contrast with the language employed in sub- clause (ii) in as much as there is no specific requirement in sub clause (i) that determination should relate to the tax liability of a non-resident. In his argument the learned counsel referred to decision of the Supreme Court in the case of Doypack Systems (P.) Ltd. v. Union of India AIR 1988 SC 782 and of the Delhi High Court in the case of Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272/[2011] 203 Taxman 364/15 taxmann.com 390 for interpretation of the expression “in relation to employed in sub clause (i) of section 245N(a) of the Act. We do not find relevance of those decisions in this case. In order to bring in the question within the scope of section 245N of the Act, there has to be either a transaction undertaken or proposed transaction to be undertaken by the non-resident applicant. This is not the case in the present application. “Transaction” or “proposed transaction” are not the same as mere intention. In this case the applicant intends to invest in a 100 per cent subsidiary company in India which in turn intends to set up a consortium by way of partnership firm with the Indian company and the partnership firm propose to acquire the undertaking of the Indian company which is stated to be eligible for deduction u/s 80IA of the Income-tax Act, 1961. We are of the view that the 100 per cent subsidiary company has to exist in reality and the partnership firm has to be set up in order to make transaction or proposed transaction of the applicant with the Indian company/subsidiary. The question relates to proposed setting up of the subsidiary and the partnership firm with the Indian company and as to whether the subsidiary or the partnership firm will be eligible to 100 per cent deduction u/s 80IA of the Income-tax Act. The ruling of this Authority in the case of Umicore Finance, In re [2009] 318 ITR 78/184 Taxman 99 (AAR – New Delhi) is also not applicable in the present application. On facts and circumstances of the case, we agree with the stand of Revenue that the questions posed before us do not fall under the purview of this Authority.

The application is not admitted and consequently rejected as incompetent.

[Citation : 361 ITR 673]