Burmah Castrol vs. DIT Mumbai

BEFORE THE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX) NEW DELHI ========== PRESENT Hon'ble Mr. Justice. P.V. Reddi (Chairman) Mr. A. Sinha (Member) Rao Ranvijay Singh (Member) A.A.R. NO. 772 OF 2006 Name and Address of Applicant Plc. Burnside Road, Farburn Industrial Estate, Dyce, Aberdeen,AB21 7PB Commissioner concerned Director of Income-tax (International taxation) Mumbai Present for the Department - Present for the Applicant Mr. P.J. Pardiwalla, Advocate The applicant, Burmah Castrol Plc. is a non-resident company incorporated under the laws of England and Wales. The applicant submits that during the financial year 2001- 02, as per the directive of SEBI, it acquired 12,77,292 equity shares of Foseco India Limited (hereinafter referred to as “FIL”), an Indian company, for an acquisition price of Rs. 221.86 per share and also as per those directives paid a further amount of Rs.49.1429 per share for the delay in making the Open Offer. The payment of the said cost of acquisition of Rs. 271.0029 was made in foreign currency i.e. Sterling Pounds. The shares have been held by the applicant for more than 12 months. The shares of FIL are listed on the Bombay Stock Exchange and National Stock Exchange. Cookson Plc. has accepted to buy 12,75,689 shares of FIL from the applicant at a price of Rs. 420 per share – for a total consideration of Rs. 53.38 crores. In respect of capital gain arising therefrom, the applicant seeks advance rulings on the following two questions: i. Whether, on the stated facts and in law, the tax payable on the long term capital gains arising on sale of equity shares of Foseco India Ltd, being listed securities, will be 10 per cent of the amount of capital gains as per the proviso to section 112(1) of the Income-tax Act, 1961? 2 http://www.itatonline.org ii. Whether, on the stated facts and in law, while calculating the amount of long term capital gain chargeable to tax interest paid by the applicant to the shareholders of Foseco India Limited as per the directives of the Securities Exchange Board of India will also be treated as a part of the cost of acquisition of the shares? 2. As regards the first and main question, the applicant has pointed out that the ruling of this Authority in the case of Timken France, SAS, reported in 294 ITR 513 has a direct bearing and it concludes the issue in favour of the applicant. The DIT (international Taxation), Mumbai, opposed the admission of this application on the ground that the applicant had already moved the assessing authority u/s.197 of the Income-tax Act, 1961, seeking an order that the transferee of shares i.e. Cookson Plc., shall be permitted to deduct tax at source on the sale proceeds of the shares of 10 per cent (exclusive of surcharge and cess). The assessing authority by its order dated 17.1.2008 rejected the applicant’s claim and authorized Cookson Plc to deduct tax at source at 21.15 per cent(inclusive of surcharge and cess) on Rs.198.14 per share (representing the excess of sale price over cost). That order passed by the Asstt. Director of Income-tax 3(2), International Taxation, Mumbai, remained in force till 31.3.2008. The Commissioner points out that the applicant having waited till the expiry of the validity of the order, has filed the present application 3 days later. The Commissioner while pointing out that although technically, the applicant is not hit by the bar under section (2) of Section 245R, the question of obtaining advance ruling at this stage should not arise in view of the order passed under s.197. The Commissioner then refers to the decision of Income-tax Appellate Tribunal in the case reported in 293 ITR 1 which this Authority referred to in Timken case and expressed its disagreement with the interpretation of the Tribunal and states thus “The applicant is well aware that it was unlikely to succeed in the assessment proceedings, or before the CIT (A) and even before the ITAT, Mumbai, in view of the decision in the BASF case. Knowing fully well that the Hon’ble AAR has given a ruling on identical issue in the case of Timken SAS (reported in 294 ITR 513), the applicant has preferred this application just to take advantage of the divergent judicial opinion of the respective statutory authorities. If the present application is allowed to be admitted it would only embolden taxpayers to exploit such situations in its’ favour and create judicial disarray. The Authority for Advance Ruling should not be allowed to become a platform for subverting the ordinary process of judicial determination prescribed under the Act. It should not be permitted to be used by assesses to take advantage of conflicting judicial decisions by two different statutory authorities operating independently and create parallel processes for obtaining favourable decision in their own way.” In the next sentence, the Commissioner states that on account of the conflicting orders, “judicial disarray”, has emerged. 3 http://www.itatonline.org 3. In effect, the Commissioner submits that the filing of this application would amount to abuse of the provisions for seeking advance ruling and by entertaining and deciding this application, the Authority will be “subverting the ordinary process of judicial determination prescribed under the Act” and will be created ‘judicial disarray’. 4. We do not find any merit in the strongly worded objection raised by the Commissioner for admitting this application under section 245R (2) of the Act. On the one hand, the Commissioner concedes that in “technical sense”, the applicant is entitled to maintain this application, for the obvious reason that the applicant is eligible to apply for ruling and none of the embargos laid down in sub-section(2) of section 245R are attracted. If at all, the relevant clause of s. 245 R(2) is clause (i) which created a bar against the Authority entertaining the application, if the question raised in the application is already pending before any income-tax authority or appellate Tribunal or court. Admittedly, the question raised in the application is not presently pending before any income-tax authority or Tribunal or Court. The application filed under section 197 has already been disposed of and the order passed therein worked itself out by reasons of expiry of validity period. Moreover, the proceeding initiated before the assessing authority was in connection with tax deduction at source. Deduction and withholding of tax at source by the payer is, it is well settled, is in the nature of tentative determination as pointed out by the Supreme Court in the case of Transmission Corporation of A.P. Ltd. Vs. CIT *. The final view has to be taken in the course of regular assessment. If before such assessment proceeding is initiated, this Authority gives a ruling in exercise of jurisdiction conferred by the Act, that ruling is binding on the assessing authority and it has to be followed. The order passed u/s 197 as a tentative measure does not in anyway fetter the jurisdiction of this Authority to proceed with the application. In fact, the rejection of this application at the admission stage under section 245R (2) would amount to failure to exercise the jurisdiction vested in this Authority. 5. There is nothing illegal or improper in the course chosen by the applicant in approaching this Authority. From the comments of the Commissioner, it is clear that the assessing authority felt itself bound by the ITAT’s decision in preference to the ruling of this Authority and, therefore, passed an order, that too an unreasoned order, under section 197 of the IT Act rejecting the applicant’s submission. The applicant has a choice of either abiding by that order without prejudice to the further remedies open to it or challenging the same in proper proceedings. The applicant has chosen the former course and suffered tax deduction at 20 per cent (plus surcharge and cess) in accordance with the order under section 197. That order has lapsed. In order to avoid multiplicity of proceedings and prolonged uncertainty in future, the applicant has resorted to a remedy, undoubtedly, conferred by law i.e. by seeking ruling from this Authority under section 245Q of the Act. We are unable to perceive any abuse of the process of law or dubious ingenuity on the part of the applicant to circumvent any provision of law. 4 http://www.itatonline.org The applicant is only acting in conformity with the law in seeking redressal of its grievance. There is nothing in law which prevents the applicant from seeking advance ruling merely because the Appellate Tribunal, in another case, has decided a similar issue in favour of the Revenue. The pejorative comments against the applicant for availing of a remedy conferred by law are unwarranted. 6. It is trite that this Authority, the applicant and the Revenue are bound by the provisions of statute and nothing shall be done or suggested which has the effect of nullifying the clear provisions creating a speedy remedy under the aegis of an independent adjudicating body. The apparent attempt to denude this Authority of its undoubted jurisdiction and raising a bogey of creating “judicial disarray” even when this Authority is seeking to exercise its legitimate jurisdiction without in any way outstepping the contours assigned by law is not in keeping with healthy traditions. We can only express our dismay at the language chosen by the Commissioner. The stand taken by the Commissioner would come to this: Whenever there is a decision of the Tribunal favourable to Revenue, the AAR must stay its hands off and decline to entertain the application unless, for sure, the Authority toes the same line as that set by the Tribunal; otherwise, the Authority will be created a ‘judicial disarray’ or chaos. Such an attempt to belittle the role of this Authority in the statutory scheme of adjudication cannot be countenanced. Such argument has no sanction of law and has the potential of stifling the statutory remedies available to the eligible applicant. The remedial provisions, if at all, should be liberally construed so as to advance the remedy rather than scuttling it. So long as the applicant comes within the four corners of the statutory provision, there is no impropriety in resorting to a remedy conferred by law. It is not the case of the Commissioner that the application is barred under any provision of the statute. Hence, viewed from any angle, we are of the view that the objection raised by the learned Commissioner is unsustainable. 7. The Commissioner has stated that the department has decided to file SLP against the ruling of this Authority in the case of Timken SAS and “is presently under process by the Central Law Agency”. On this vague averment and without definite information as to the present stage and the likely date of hearing, it is not proper to defer the admission of this application. 8. We, therefore, allow the application under section 245R (2) of the Income-tax Act, 1961 and direct the matter to be posted for hearing on merits under Section 245R (4) on 17th October, 2008. Sd/- Sd/- Sd/- (A. SINHA) (P.V. REDDI) (RAO RANVIJAY SINGH)