Section 245R of the Income-tax Act, 1961 - Advance ruling

Last updated: 25 September 2007

Court :
AUTHORITY FOR ADVANCE RULING (INCOME TAX), NEW DELHI

Brief :
Section 245R of the Income-tax Act, 1961 - Advance ruling - Procedure on receipt of application for - Assessment years 2005-06 and 2006-07 -Whether in order to decide whether question raised in application is already pending before income-tax authority, as laid down in proviso to section 245R(2), crucial point of time to be taken into account is date on which application was filed before authority and it is on that date, that factual position as regards pendency of question has to be decided - Held, yes - Whether mere fact that exemption is claimed by assessee relying on a particular provision of Act cannot be construed to be a design for avoidance of income-tax, and in order to clamp bar under clause (iii) of proviso to section 245R(2) at threshold, there must be necessary facts pointing to prima facie inference of a design to avoid tax by illegal or improper means - Held, yes - Whether where assessee/applicant made claim for relief/exemption under provisions of Act for first time in revised return subsequent to filing of application before AAR seeking advance ruling on issue of said claim for relief/exemption, no question or issue can be said to be pending before Assessing Officer on date of filing application before AAR, so as to reject application in terms of proviso to section 245R(2) - Held, yes Facts The applicant was the sole proprietor of a business under the name and style of ‘M Mart’ at Chennai engaged in the purchase, manufacture and sale of gold jewellery. The applicant was also the managing director of Mustafa Pte. Limited, having its registered office in Singapore. Apart from the business as above, the applicant was also engaged in the activity of purchasing gold jewellery in India for the purpose of export. The applicant had been submitting its returns of business income derived from local sales and export sales with Assistant Director (International Taxation), Chennai. The returns for the assessment years 2005-06 and 2006-07 were filed on 30-10-2005 and 31-10-2006, respectively. In the returns, the income included the income derived from purchase and export of gold ornaments. However, the applicant filed revised returns on 30-3-2007 claiming exemption of the income relating to purchase of gold ornaments for export under Explanation’s (a) and (b) to section 9(1)(i). He also filed advance ruling application on 26-3-2007 seeking advance ruling on the question as to whether the income derived by the applicant on the purchase in India and export of gold jewellery accrues or arises in India and is taxable in India. Before authority applicant submitted that the income arising from the operations confined to purchase of gold ornaments and gold converted into ornaments for the export purpose does not accrue or arise in India and, therefore, not liable to be included in his total income assessable to tax. The revenue raised objection that the application is liable to be rejected in terms of proviso to section 245R(2) on the ground that the question raised in the application is already pending for adjudication before the assessing authority.

Citation :

Held The embargo laid down in the proviso to section 245R(2) is not attracted in the instant case. In order to decide whether the question raised in the application is already pending before the income-tax authority, the crucial point of time to be taken into account is the date on which the application was filed before the authority. It is on that date, that the factual position as regards the pendency of the question has to be decided. If on the date of filing the application, the assessee and the revenue were at issue as regards the question raised in the application, the bar under the proviso does operate. Viewed from another angle, the income-tax authority has no means of knowing on the date of filing the application, that a question similar to the one raised in the application will come up for consideration before him. In such a situation, it cannot be said that the question was pending before him on the date of filing the application. [Para 8] On the facts presented by the revenue, it was crystal clear that no controversy, no issue or dispute could be said to have arisen either explicitly or by necessary implication on the crucial date of filing the application i.e., 26-3-2007. It was only the claim for exemption made a few days later in the revised return that could have possibly set the department in motion to dispute the claim. Till then, the question did not figure in the mind of the income-tax authority. The question could not, therefore, be said to be pending on 26-3-2007. [Para 9] The mere fact that the assessee, by the date of filing of the application, made up his mind to claim the relief was no ground to conclude that the controversy or point at issue between the applicant and the department had arisen on or before the date of filing the application. The notice under section 143(2) which was issued prior to the filing of revised return in respect of the assessment years in question and the application before the authority were not for the purpose of probing into this issue or deciding this question. It was done as a matter of routine in accordance with the guidelines of CBDT to take up cases involving international transactions of more than Rs. 5 crores for scrutiny when the arms-length price has to be determined. [Para 10] In the instant case the original return was filed before the filing of application under section 245Q, no exemption was claimed therein nor the question of exigibility of income-tax under the Explanation to section 9(1)(i) was put in issue. It was only in the revised return filed subsequent to the filing of the application that the claim for exemption/exclusion was made, albeit without mentioning the details. [Para 12] To put in other words, as the claim for exemption was made for the first time on 30-3-2007 along with the revised return, no question or issue could be said to be pending before the Assessing Officer on 26-3-2007. [Para 15] There was a faint attempt on the part of the revenue to invoke the bar under clause (iii) of the proviso to section 245R(2) as well. The mere fact that the exemption is claimed relying on a particular provision of the Act cannot be construed to be a design for avoidance of income-tax. In order to clamp this bar at the threshold, there must be necessary facts pointing to prima facie inference of a design to avoid tax by illegal or improper means. No facts or circumstances leading to such inference had been placed before the authority. Hence, that objection of the revenue was to be overruled. [Para 16] In the light of the foregoing discussion, the bar under any of the clauses of the proviso to section 245R(2) was not attracted and the application deserved to be allowed for the purpose of pronouncement of advance ruling under sub-section (4) of section 245R. [Para 17] In the result, the application was allowed under section 245R(2).