Filing I-T Return Doesn't Bar Advance Ruling Plea

The Authority for Advance Ruling (AAR) has upheld an application seeking an advance ruling, which the Mitsubishi Corporation filed after submitting its income-tax (I-T) return. The AAR bench held that mere filing of an I-T return does not bar admission of the application.

This ruling, which comes in the wake of a contrary stand taken by the AAR in the recent past, has been welcomed by multinational companies (MNCs) and tax professionals. The mechanism of advance rulings provides tax certainty in a time-bound manner. Either the foreign entity or the Indian resident with whom it has entered into any transaction can file an application with the AAR and seek a ruling on the tax incidence in India arising in respect of a particular transaction in the hands of the foreign entity. This ruling is then binding both on the applicant and the tax authorities and helps avoid long-drawn litigation. Rulings pronounced by the AAR also have a persuasive impact in assessment of similar cases.

However, the Income Tax (I-T) Act provides circumstances under which the AAR cannot accept an application seeking an advance ruling. For instance: If the question raised in the application is already pending before the I-T authorities or the Tax Tribunal, the AAR has to reject the application.

The tax authorities contended that as a tax return had already been filed by Mitsubishi, it should be treated as a matter pending before the I-T authorities and the application made should be rejected by the AAR. The Japanese company had filed its tax return in India on November 30, 2011 before filing the application with the AAR. However, the tax notice under section 143(2) was issued by the tax authorities on August 8, 2012, after the application with the AAR had been filed. In this case, given the chronological pattern, as the notice was issued after the application was filed, the application should be admitted, ruled the AAR.

"The AAR has rightly held that a question can be said to be pending before the tax authorities only when the tax department initiates steps to adjudicate (such as by sending demand notices) based on the return filed by the tax payer. This ruling will help allay the fear that by filing a tax return, access to the AAR is barred," states Sudhir Kapadia, tax leader and partner, EY.

"As the income-tax provisions call for even foreign companies to file a tax return in India, if they wish to claim relief under the treaty provisions, this ruling assumes even more significance," adds Kapadia.

Times of India, New Delhi, 25-12-2013