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2016 Supreme(Del) 748
IN THE HIGH COURT OF DELHI AT NEW DELHI
S. MURALIDHAR, VIBHU BAKHRU, JJ.
HYOSUNG CORPORATION - Petitioner
Versus
THE AUTHORITY FOR ADVANCE RULINGS & ANR - Respondents
W.P.(C) 5818/2013
W.P.(C) 7788/2013 & CM 16560/2013
W.P.(C) 7789/2013 & CM 16562/2013
W.P.(C) 7790/2013 & CM 16564/2013
W.P.(C) 7791/2013 & CM 16566/2013
W.P.(C) 8086/2013 & CM 17073/2013
W.P.(C) 8088/2013 & CM 17077/2013
Decided on : 11-02-2016
Mr.Deepak Chopra, Mr. Amit Srivastava and Ms. Manasvini Bajpai, Advocates.
Mr.Ashok K. Manchanda, Senior Standing counsel with Ms. Vibhooti and Mr.Aamir Aziz, Advocates.
Mr. Vivek Goyal, CGSC for UOI.
The main legal point established in the judgment is the interpretation of the term 'pending' in the context of the AAR entertaining an application for advance ruling and the constitutional validity of clause (i) of the proviso to Section 245R(2) of the Income Tax Act, 1961.
Headnote:
Taxability - Offshore Sales - Income Tax Act, 1961, Section 245R(2) - The court discussed the constitutional validity of clause (i) of the proviso to Section 245R(2) of the Income Tax Act, 1961, and the interpretation of the term 'pending' in the context of the AAR entertaining an application for advance ruling. The court found that the applications for AY 2008-09 and 2009-10 were rightly rejected by the AAR as the questions raised were already pending before the income tax authorities. However, the court set aside the rejection of the applications for AY 2010-11 and restored them to the AAR for a decision afresh.
Fact of the Case:
The case involved writ petitions filed by Hyosung Corporation challenging the rejection of its applications by the Authority for Advance Rulings (AAR) regarding the taxability of its profits arising from offshore sales. The AAR rejected the applications, citing the bar under clause (i) of the proviso to Section 245R(2) of the Income Tax Act, 1961.
Finding of the Court:
The court found that the applications for AY 2008-09 and 2009-10 were rightly rejected by the AAR as the questions raised were already pending before the income tax authorities. However, the court set aside the rejection of the applications for AY 2010-11 and restored them to the AAR for a decision afresh.
Issues: The main issues were the constitutional validity of clause (i) of the proviso to Section 245R(2) of the Income Tax Act, 1961, and the interpretation of the term 'pending' in the context of the AAR entertaining an application for advance ruling.
Ratio Decidendi: The court held that the term 'pending' should be related to the date of filing of the application and not what happens subsequent to the filing of such application. It also found that the applications for AY 2008-09 and 2009-10 were rightly rejected by the AAR, but set aside the rejection of the applications for AY 2010-11 and restored them to the AAR for a decision afresh.
Final Decision: The court dismissed the writ petitions and pending applications for AY 2008-09 and 2009-10, but set aside the rejection of the applications for AY 2010-11 and restored them to the AAR for a decision afresh.
Dr. S.Muralidhar, J.:
CM No. 16561/2013 (for exemption) in W.P.(C) 7788/2013
CM No. 16563/2013 (for exemption) in W.P.(C) 7789/2013
CM No. 16565/2013 (for exemption) in W.P.(C) 7790/2013
CM No. 16567/2013 (for exemption) in W.P.(C) 7791/2013
1. Exemption allowed subject to all just exceptions.
2. The applications are disposed of.
Introduction
3. The challenge in these writ Petitions filed by Hyosung Corporation, having its office in South Korea, is to an order passed by the Authority for Advance Rulings (‘AAR’) on 7th August 2013, rejecting the applications filed by the Petitioner, for determination of the question regarding taxability of its profits arising from offshore sales. The AAR rejected the applications accepting the plea of the Respondent Income Tax Department that the bar under clause (i) of the proviso to Section 245R (2) of the Income Tax Act, 1961 (‘Act’) to the AAR allowing the applications stood attracted.
4. These petitions challenge inter alia the said impugned order of the AAR and constitutional validity of clause (i) of the proviso to 245R (2) of the Act on the ground that the said provision is discriminatory and violative of Article 14 of the Constitution of India as well Article 25 of the Double Taxation Avoidance Agreement (‘DTAA’) between India and the Republic of South Korea.
5. At the outset, it requires to be noticed that this Court by its decision in Net App BV and Sin Oceanic Shipping ASA v. The Authority for Advance Rulings (2013) 357 ITR 102 (Del) held that where a return of income has been filed, the bar in terms of clause (i) of the proviso to Section 245R (2) of the Act would be attracted and the AAR would be justified in such a case in declining to entertain the application for advance ruling at the instance of a non-resident. The said decision of this Court was set aside by the Supreme Court in Sin Oceanic Shipping ASA v. AAR (2014) 223 Taxman 102 (SC). The Supreme Court took note of the fact that the AAR itself had subsequently, by an order dated 13th December 2013, taken the view that the mere filing of a return would not constitute a bar to entertaining an application for advance ruling in terms of Section 245N of the Act.
Relevant facts
6. The facts of the present case are that the Petitioner is a company incorporated in South Korea. It states that it is a comprehensive energy solution provider and manufactures transformers, switchgears, motors, decelerators and industrial pumps and is also engaged in the wind energy business. It supplies transformers to customers all over the world including in India. The Petitioner states that it has been engaged in several projects in India and has been regularly assessed to income tax since the Assessment Year (‘AY’) 2008-09. It is further stated that, it being a resident of South Korea, it is entitled to the benefit of the DTAA between the India and South Korea.
7. It is stated that Power Grid Corporation of India Ltd. (‘PGCIL’) floated tenders inviting global bids for setting up sub-stations in various locations in India. The Petitioner being a successful bidder, supplied equipments for the said projects. The case of the Petitioner is that supply of the equipment was effected outside India and all work related thereto was also to be performed outside India. As far as the on shore portion, including transportation, was concerned that was to be carried out in India by Larsen and Toubro Ltd. (‘L&T’) in terms of a memorandum of understanding (‘MOU’) entered into between the Petitioner and L&T.
8. It is stated that in relation to the invoices raised by the Petitioner on PGCIL for the supply of equipment, PGCIL released advance payment to the Petitioner after deducting tax at source. There were supplies of equipment by the Petitioner to PGCIL during AYs 2008-09, 2009-2010 and 2010-2011 for the various projects of PGCIL. Some portion of the payment was made
