AAR : the taxable unit in respect of the transaction relied on by the applicant is an Association of Persons within the meaning of section 2 (31) (v)

Authority For Advance Rulings (Income Tax)

CTCI Overseas Corporation Limited, In Re. 

Section 2(31)(v), 90(2), 245Q, 195, 197

Rule 19 of the AAR (Procedure) Rules, 1996

P. K. Balasubramanyan (Chairman)

AAR No. 854 of 2009

27th Aug., 2012

Counsel appeared :

Pawan Kumar, Ravi Sharma & Shailendra Gupta, for the Applicant : Bhupinderjit Kumar, for the Department

ORDER

1. This is an application by the Revenue under Rule 19 of the Authority for Advance Rulings (Procedure) Rules, 1996. The said Rule reads:-

“(1) The Authority may, with a view to rectifying any mistake apparent from the record, amend any order passed by it before the ruling pronounced by the Authority has been given effect to by the Assessing Officer.

(2) Such amendment may be made suo motu or when the mistake is brought to its notice by the applicant or the Commissioner, but only after allowing the applicant and the Commissioner reasonable opportunity of being heard.”

According to the Revenue, overruling the contention of the applicant in AAR 854 of 2009, this Authority has held that the taxable unit in respect of the transaction relied on by the applicant is an Association of Persons within the meaning of section 2 (31) (v) of the Income-tax Act. Having so held, this Authority has gone on to rule that the transaction put forward by the applicant related to offshore supply of equipments and is not taxable in the country, proceeding as if the applicant alone is the assessee under the Act, and ignoring the effect of the finding earlier rendered that the recipient of the income is an Association of Persons. According to the Revenue, this is an error apparent on the face of the record or a mistake coming within the purview of Rule 19 and the ruling in that regard requires to be corrected.

In the ruling dated 1.2.2009, it was held that since the applicant is not entitled to relief in terms of section 90(2) of the Act, the fiscal jurisdiction to tax the offshore supplies would be governed by the Act. It was thereafter that it was ruled that the amount received/receivable by the applicant from Petronet for offshore supplies in terms of the contract dated 17.11.2009 is not liable to tax in India under the provisions of the Act. It is submitted on behalf of the Revenue, that if the assessing unit is an AOP and one of the members of the AOP is a resident company as in this case, the actual ruling is clearly a mistake to be corrected to make the ruling consistent with the finding earlier rendered.

This authority had referred to the decision of the Supreme Court in Ishikawajima-Harima to arrive at the conclusion that the income from the off shore supplies are not chargeable to tax. In rendering that ruling, this authority has not specifically noticed the impact of the finding that the assessing unit under the Act would be an AOP of which one is a tax resident.

On behalf of the company, the applicant in the application under section 245Q of the Act, it was submitted that the application under Rule 19 of the Rules is not maintainable since there is no mistake apparent from the record capable of being corrected under the rule. It is also submitted that subsequent to the ruling rendered by this Authority, the Officer dealing with withholding tax, has given effect to the Order by modifying the withholding tax Order. Hence the condition that the correction can be made only before the Assessing Officer has given effect to the ruling of this Authority, is not satisfied.

The objection that the ruling has been given effect to by the Assessing Officer cannot be fully accepted. It has been given effect to in the proceeding which was only a withholding order authorizing the company to deduct tax in terms of the ruling given. This Authority has repeatedly noticed that an order under section 195 or 197 does not stand in the way of this Authority entertaining the application for advance ruling and giving a ruling on the liability to be assessed. An order under section 195 or 197 has been understood only as a provisional order. So even if I ignore the assertion in the certificate granted to the company that the giving of the certificate is not to be considered in any way as giving effect to the ruling of this Authority, the fact remains that it is only a provisional certificate subject always to a regular assessment. Consistent with the status of the proceedings under section 195 or 197 of the Act as expounded by this Authority and clarified by the Supreme Court, the modification of the certificate granted to the company by the officer cannot stand in the way of the application for rectification being entertained on merits.

It is contended on behalf of the company that what is sought for by the Revenue is not the correction of a mistake or rectification of a mistake apparent from the record but it was really a case of seeking of a review. This plea is met by the Revenue by pointing out that if the assessing unit is an AOP, then the contract for supply has to be considered on the basis that the assessee is an AOP and the applicant, an individual or a member of the AOP, cannot seek to be assessed individually. Hence there occurred an error which was apparent on the face of the record.

On going through the ruling rendered by us it is seen that there is a clear omission to consider the impact of the finding that the consortium which has been entrusted with the contract and of which one of the members was an Indian resident, had the status of an AOP under the Act. Once the status of an AOP has been assigned to the consortium, then the consortium can be assessed only as an AOP and not its members individually. Therefore, the logical conclusion to the ruling should have been that the transaction of offshore supplies which was part of the contract undertaken by the consortium, had to be considered on the basis that it was an activity carried on by the consortium. I am therefore satisfied that the ruling of this Authority to the effect that the offshore supplies is not liable to tax in India is a ruling inconsistent with the finding that the assessing unit is an AOP. To that extent, the mistake is apparent and it requires to be corrected and can be corrected by exercise of power under Rule 19 of the Rules.

I may notice here that the parties were fully heard in support to the application and on the merits of the contentions raised and this order is being pronounced only thereafter. I am therefore, satisfied that the ruling requires to be corrected to the effect that the transaction has to be found taxable in the hands of the AOP consisting of the applicant and its joint venture partner. It will be necessary to find out as to what would be consequence of this finding on the ruling to be given. In fairness it appears to me that, that part of the ruling dealing with the assessability of the income from the offshore supplies on the basis that the assessee would be an AOP, has to be reopened and the application heard afresh on that aspect. I am satisfied that this would be the fair procedure to be adopted in the circumstances. I therefore, allow the application filed by the Revenue to the extent of reopening that part of the ruling which rules that the amount received/receivable from the applicant from the offshore supplies in terms of the contract dated 17.11.2009 is not liable to tax in India under the provisions of the Act in view of the decision the Supreme Court in IHHI. I post the main application for a fresh hearing on the question whether an AOP found to have come into in existence is liable to be assessed on the said income. The main application will be posted for hearing on that question alone afresh.

[Citation : 350 ITR 174]