AAR-New Delhi : Where return is filed but notice for assessment is issued after filing application before AAR, application is to be admitted under section 245R

Authority For Advance Rulings (Income-Tax), New Delhi

Aircom International Ltd., United Kingdom, In Re

Section : 245R, 143

Justice Dr. Arijit Pasayat, Chairman

And T.B.C. Rozara, Member

A.A.R. No. 1329 Of 2012

January 10, 2014

ORDER

1. Aircom International Ltd. (hereinafter referred to as the Applicant) is a company incorporated in England and Wales having its registered office at Cassini Court, Randalls Research Park, Randalls Way, Leatherhead, Surrey KT22 7TW and is a non-resident Indian.

2. Aircom India is a company incorporated in India under the provision of Companies Act, 1956. It is a wholly owned subsidiary of the applicant and is engaged in business of software sales and consultancy business in the area of telecommunications. The applicant has entered into a Management Service Agreement (MSA) with Aircom India effectively from 1st July, 2007 whereby the applicant provides various Management Support Services to Aircom India with a view to rationalize and standardize the business conducted by Aircom India in India in accordance with the international best practices.

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 circumstances of the case, the payments being made by Aircom International (India) Private Limited (“Aircom India”) to the Applicant under the Management Service Agreement (“MSA”) for the services specified thereunder would be characterized as ‘fees for technical services’ (“FTS”) under Article 13(4) of the Convention between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and capital gains (“the India-UK Treaty”)?

2. Whether based on the facts and circumstances of the case, the payments being made by Aircom India to the Applicant for availing the services specified under the MSA would be in the nature of “royalty” within the meaning of the term in Article 13 of the India-UK Treaty?

3. If the answers to Question (1) and (2) above are in the negative, i.e., the services rendered by the Applicant to Aircom India are neither characterized as FTS nor are in the nature of Royalty, whether the payments received by the Applicant should be treated as business income in the light of the statement of facts attached herewith (Refer Attachment III) and the declaration provided by the Applicant that it does not have a permanent establishment in India in terms of Article 5 of the India-UK Treaty, and will be chargeable to tax in India?

4. Based on the answers to Question (1) to (3) above whether the payments made by Aircom India to the Applicant suffer withholding tax under section 195 of the Act and 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 SEPCOIII Electric Power Construction Corpn., In re [2011] 202 Taxman 149/13 taxmann.com 158 (AAR) and the decision in the case of NetApp B.V v. Authority for Advance Rulings [2013] 213 Taxman 427/[2012] 24 taxmann.com 174 (Delhi), it was submitted that when return of income is filed it should be treated as pending before the Income-tax Authority. In this case return of income for the assessment year 2010-11 was filed on 30.9.2011 and for assessment year 2011-12 on 22.12.2011. Notice under section 143(2) was issued for assessment year 2011-12 and the assessment proceeding is pending. The application was filed on 30.5.2012. The matter is therefore already pending before filing the application before the Income-tax Authorities and the application is barred by proviso 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 Corpn., Korea, In re [2013] 218 Taxman 36/36 taxmann.com 150 (AAR – New Delhi) . 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. In the case of Hyosung Corporation Korea, In re (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 referred 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 return of income was filed before filing application to the Authority for Advance Rulings. However, notice under section 143(2) was issued after the application was filed before the Authority. There is no dispute about the facts. Following our decision in the case of Hyosung Corporation Korea (supra) and in other cases we hold that the question cannot be said to be already pending before the Income-tax Authorities, as no notice under Section 143(2) was issued before filing the application though return was filed. The application is, therefore, admitted under section 245R(2) of the IT Act, 1961.

[Citation : 360 ITR 693]