Once the conclusion is reached that the application for advance ruling filed under section 245Q is hit by one or all of the embargoes laid down in the proviso to section 245R(2), the Authority has no option but to reject the application in limine; it is not open to the Authority to ignore the legal bar created by the proviso notwithstanding the discretion conferred on the Authority in apparently wide terms under the main provision i.e., sub-section (2).
ADVANCE RULING DETAILS
THE AUTHORITY FOR ADVANCE RULINGS (INCOME-TAX) NEW DELHI
Microsoft Operations Pvt. Ltd., In re
Advance Ruling No.: AAR No. 781 of 2008
Ruling Given on: February 27, 2009
12. Assuming that the question relating to tax deduction at source raised by the applicant can be gone into by this Authority inspite of pendency of the appeal of Gracemec/MOLC, the question is whether we should entertain this application at this stage and hear it on merits. On an anxious consideration, we are of the view that it is not a fit case for admission and handing down a ruling on the questions posed.
12.1 Let us notice the relevant provisions in Chapter XIX(B) bearing the heading “Advance Ruling”. The definition of ‘advance ruling’ is given in clause (a) of Section 245-N. The definition of’ applicant’ is in clause (b). The manner of making the application is set out in Section 245-Q. Section 245-R with which we are concerned lays down the “procedure on receipt of application” . Subsection (1) says that the Authority shall cause a copy of the application forwarded to the Commissioner, and if necessary, call upon him to furnish the relevant records. Sub-section (2) which is relevant for our purpose reads thus :
“(2) The authority may, after examining the application and the records called for, by order, either allow or reject the application : [Provided that the Authority shall not allow the application where the question raised in the application, –
(i) is already pending before any income-tax authority or Appellate Tribunal [except in the case of a resident applicant falling in sub-clause (iii) of clause (b) of section 245N] or any court;
(ii) involves determination of fair market value of any property;
(iii) relates to a transaction or issue which is designed prima facie for the avoidance of income-tax [except in the case of a resident applicant falling in sub-clause (iii) of clause (b) of section 245N]:
Provided further that no application shall be rejected under this sub-section unless an opportunity has been given to the applicant of being heard:
Provided also that where the application is rejected, reasons for such rejection shall be given in the order.
Sub-section (4) says:
“(4) Where an application is allowed under sub-section (2), the Authority shall, after examining such further material as may be placed before it by the applicant or obtained by the Authority, pronounce its advance ruling on the question specified in the application. “
12.2. Thus, the eligibility criteria for being an applicant and the scope and parameters of advance ruling are set out in the definition clause. Unless the advance ruling sought conforms to the said provisions in the definition clause, the Authority cannot proceed to consider the application. Then comes subsection (2) of Section 245R. That provision is couched in a permissive language – “may allow or reject”. The language clearly admits of an element of discretion to this statutory body while passing an order under Section 245 R(2). Going by the clear language, discretion is implicit in the provision. The first proviso however qualifies the operation of the main provision in sub-section (2) by placing certain restrictions or limitations on the exercise of power. Each one of the clauses in the Proviso operates as a legal bar to the entertainment of the application and hearing the same on merits. The Authority is precluded from allowing’ the application if the application is hit by any of the embargoes laid down in the proviso. On the basis of the facts stated in the application and the other documents forming part of the record as well as on the basis of the comments/objections filed by the Revenue, the Authority should first address itself to the question whether any of the three clauses is attracted. Once the conclusion is reached that the application is hit by one or all of the embargoes laid down in the proviso to Section 245-R(2), the Authority has no option but to reject the application in limine. It is not open to the Authority to ignore the legal bar created by the proviso notwithstanding the discretion conferred on the Authority in apparently wide terms under the main provision i.e., sub-section (2). However, it does not follow that the application is bound to be admitted and heard on merits once the factors set out in the proviso do not come in the way of admission. Still, the Authority has the discretion to reject the application, of course, on germane and weighty considerations. That discretion has to be exercised judiciously keeping in view the spirit and purpose of the provisions concerning advance ruling. The discretion may be invoked in exceptional cases but Dower to reject on rounds not expressly spelt out by the Statute cannot be ruled out. In other words, the proviso to Section 245-R(2) does not have the effect of taking away the discretion to reject the application on other unspecified grounds. However, as said earlier, the exercise of discretion must be canalized on proper lines. Avoiding abuse of legal process, incompatible decisions concerning the same parties and anomalous situations are relevant considerations that guide the exercise of discretionary power to reject the application. For instance, in spite of a direct decision of the Supreme Court settling the point against an applicant, if the applicant seeks advance ruling with a view to stall further proceedings, it may then be a fit case to reject the application at the stage of consideration under Section 245-R(2). Another instance that can be visualized is in a case where the applicant raises frivolous or hypothetical legal issues without factual foundation.
13. In the light of the above disquisition on the scope and amplitude of the powers vested in this body under Section 245 R(2), let us take stock of the facts of present case.
13.1 The proceedings against Gracemac were initiated as long back as the year 2003. The applicant must be fully aware of these proceedings. By the date of entering fresh agreement in the year 2006, even the assessments were concluded against Gracemac and the payments received from the applicant were subjected to income tax in the hands of Gracemac. Any reasonable person in the position of the applicant should have been fully aware of the implications relating to withholding of tax. All these years the applicant kept quiet, perhaps watching the outcome of the assessment and appellate proceedings. Now, after the adverse order was passed by the Appellate Commissioner and Gracemac filed the appeal, the present application was filed in 2008. The appeals are now before an independent statutory adjudicating body having jurisdiction to decide both factual and legal issues and there is an early prospect of disposal of the appeals. At this stage, we are not inclined to create a situation of giving rise to conflicting decisions. If the Tribunal’s decision is against Gracemac and this Authority’s ruling is in favour of the applicant, it may give rise to an anomalous situation of the applicant being absolved of the obligation to withhold the tax in Spite of the holding of the Tribunal that the payments received by Gracemac from the applicant are liable to be taxed. It would have been a different matter if the applicant had approached this Authority at the earliest opportunity and in initial stages. Having allowed the proceedings thus far, the applicant cannot as a matter of right seek the ruling from this Authority. Such approach of the applicant flies in the face of the argument that the applicant need not indefinitely wait till the conclusion of all the proceedings against the assessee. No explanation is forthcoming for not approaching this Authority at the initial stages and at the earliest opportunity. In the circumstances, we consider it just and proper not to exercise the discretion implicit in Section 245 R(2) to take up the application for hearing on merits. Accordingly, the application is liable to be rejected under Section 245 R(2) of the Act without expressing any view on merits. We may add that the mere fact that substantial questions do arise for consideration does not by itself afford justification to admit the application, in the peculiar facts and circumstances of the case.