In Re Nuclear Power Corporation of India Ltd. (AAR) – Since the question whether the payment made under the transaction was chargeable to tax under the Act was pending before the authorities under the Act arising out of an assessment against ASE, before the applicant approached this Authority the allowing of this application under Section 245R(2) of the Act is barred. The bar is in entertaining an application where the question raised in the application is already pending before any income-tax authority. Since we have found that the question arising before us, the primary question, if not the only question, is whether the payment to be made by the applicant to ASE on the transaction(s) is chargeable under the Act is already pending in proceedings against the payee, ASE, entertainment of the present application is barred by clause (i) of the proviso to Section 245R(2) of the Act. We, therefore, reject the application.
BEFORE THE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX) NEW DELHI
21st December, 2011
A.A.R. No. 1011 of 2010
Name & address of the applicant- Nuclear Power Corporation of India Ltd.
Commissioner concerned – Commissioner of Income-tax, (Large Tax Payer Unit), Mumbai.
O R D E R
1. The applicant before us is the Nuclear Power Corporation of India Limited (NPCIL). It is a company incorporated in India. It is a Public Sector Company. It has approached this Authority under section 245Q(1) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) on the basis that it has entered into an offshore Services Contract with M/s. Atoms troy Export Russia, (ASE) for setting up a power plant in the State of Tamil Nadu. According to the applicant, the income from such contracts is taxable under section 44BBB of the Act. It had also entered into four Offshore Supply Contracts with ASE. As per those contracts, the equipment and materials were to be sold outside India and the payments were also made outside India. No one connected with ASE who was present in India was involved in the activities associated with the offshore supply of such goods. The sales were on principal to principal basis. According to the applicant, the payments received by ASE under these supply contracts were not taxable in India. Under the Offshore Services and Offshore Supply Contracts, ASE is to make the payment of taxes in India and the applicant, the customer, was to reimburse the amounts to ASE.
2. The applicant has pleaded that ASE was assessed to tax for the years 2006-07 and 2007-08 pursuant to the directions of the Dispute Resolution Panel and it was held that payments received by ASE under Offshore Services Contracts are covered by Section 44BBB of the Act and payments received by ASE in respect of Offshore Supplies Contracts are also covered by Section 44BBB of the Act.
5. In response to the doubt as above expressed, learned Senior Counsel appearing for the applicant, NPCIL, addressed elaborate arguments before us. First of all he submitted that, a second question, which was the primary question as far as the applicant was concerned, arose for Ruling. That question was whether the applicant was liable to withhold tax on the offshore Supply Contract; and f yesat what rates?” He submitted that the applicant being the payer and not the recipient, was concerned with the question of withholding of tax alone and hence that question was the primary question on which the Ruling is sought, or ought to have been sought and the question formulated in the application is only an incidental question that had to be decided to give a Ruling to the applicant on the existence or non-existence of a liability on the applicant to withhold tax.
“(a) is already pending in the applicant’s case before any income tax authority, the Appellate Tribunal or any Court.”
It was amended to read:
“(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.”
9. The form of verification in the form was also simultaneously modified. The following assertion was added in the verification with effect from 3.8.2000.
“I also declare that the question(s) on which the advance ruling is sought is/are not pending in my case before any income-tax authority, the Appellate Tribunal or any Court.”
12. A transaction normally involves more than one party. It must have at least two parties. In the context of the Act, a liability to tax under the Act would arise only if one party earns an income in a transaction with another. In the context of Section 195 of the Act, only a bilateral transaction can lead to an obligation to pay a sum of money to another, leading to an obligation to withhold a part of it towards the income-tax that may found to be payable. It is, therefore, not possible to separate an applicant from a transaction while he is seeking a Ruling, since the Ruling relates to a transaction undertaken by him or to be undertaken by him.
13. We held in Foster (AAR No. 975 of 2009) that if a proceeding in respect of a transaction to which the applicant is one of the parties, is pending before the income-tax authority, though as against the other party to the transaction, the approach of the applicant to this Authority for an Advance Ruling would be barred by clause (i) of the proviso to Section 245R(2) of the Act. We reasoned that the question posed before the income-tax authority and before us, both would be whether the payment made by one there under to the other, would be taxable under the Act or the Double taxation Avoidance Convention and clause (i) of the proviso to Section 245R(2) of the Act stood in the way of our assuming jurisdiction to give a Ruling on that question. If one cannot separate an applicant from a transaction for the purpose of enabling him to get an advance ruling, the position we adopted therein appears to be correct. In the case on hand, the income-tax authority has held that the gains arising out of the transaction(s) relied on before us, are taxable in terms of Section 44BBB of the Act. An appeal has also been filed against it by the other party to the transaction, though subsequent to the filing of the application before us, but the order of assessment preceded the present application. The question raised in the application is whether the said payment is taxable in terms of the Act or the DTAC. Can it be said that the said question is not pending before the income-tax authority, though at the instance of the other party to the transaction? We think not. As we see it, the question of taxability of the amount paid or to be paid by the applicant to ASE was already pending before the income-tax authority when the application was filed and is now pending before the Appellate Tribunal.
16. That was a case where at the time of allowing of the application under section 245R(2) of the Act, the objection based on clause (i) of the proviso was not raised. But at the time of hearing under section 245R(4) of the Act, the question was raised. Against the payee an order of assessment had been passed finding it liable to pay tax on the payment involved in the transaction between it and the Airports Authority of India, the applicant and an appeal against that order of assessment had also been filed by the payee, before the payer, the applicant approached this Authority for a Ruling. Two arguments were raised on behalf of the applicant in that case on that objection of the Revenue. The first was that the question relating to the payees liability to pay income-tax was pending before the Appellate Authority, not in the case of the applicant and the second was that the re framed question in the application for advance ruling was in regard to the liability of the applicant to deduct tax at source and that was not the question pending before the Appellate Authority. This Authority stated:
“Section 195(1) pre-supposes that the sum payable to the nonresident/foreign company must be chargeable to tax under the provisions of the Income-tax Act. That means the question of tax deduction is linked up with the tax liability of the non-resident/foreign company to whom the payment has to be made by the applicant under the transaction entered into with the non-resident. The applicant, therefore, seeks determination that the foreign company –Raytheon is not liable to pay income-tax in India on the amounts received by it from the applicant and, therefore, the applicant is under no obligation to deduct tax under section 195(1). It is true that in the process of deciding the applicant’s legal obligation under section 195(1), the non-resident’s liability to pay income tax on the said sum has to be decided, but, on that account the question or issue about tax deduction cannot be said to be pending before the income-tax appellate authority. In the case of appeal of Raytheon, its liability under the provisions of Income-tax Act, read with DTAA arises for consideration directly and that is the sole question to be decided in appeal but in the present application the question to be decided at the instance of the applicant is about tax deduction at source. No doubt, Raytheon’s liability to pay income-tax looms large in the proceedings before this Authority also but the decision on this question is incidental to the determination of the applicant’s obligation to deduct tax at source. They may be inter-related or allied issues but the question raised before this Authority cannot be said to be identical nor can it be said to be the very same question pending determination by the appellate authority. This distinction, though appears to be subtle, is real. “
19. “Incidental”, according to the Dictionary, means “occurring as a minor accompaniment, occurring by chance in connection with something else”. We are not able to see the question of chargeability to tax of the payment as an incidental question while ruling on the question whether there is a liability to deduct to tax under section 195(1) of the Act.
20. In the recent decision in GE India Technology Centre Pvt. Ltd. v. CIT  327 ITR 456, the Supreme Court while explaining the scope of Section 195 of the Act has stated:
“The most important expression in Section 195(1) consists of the words “chargeable under the provisions of the Act”. A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Income-tax Act.”
21. This means that the whole obligation to withhold tax under section 195(1) of the Act, depends on the chargeability of the amount to tax under the Income-tax Act. The Supreme Court went on to lay down that Section 195(1) of the Act “…………. in clear terms lay down that tax at source is deductible only from „sums chargeable under the provisions of the Income-tax Act, i.e. chargeable under Sections 4, 5 and 9 of the Income-tax Act.”
22. This, in our view, leads to the position that the main question to be decided or the primary question to be decided when the question of liability for the withholding of tax under Section 195 of the Act is brought before us, is the question whether the payment is chargeable to tax under the Income-tax Act. The decision on that question cannot be said to be only a decision on an incidental question. In view of what the Supreme Court has held in the above decision, we find it difficult to adopt the line of reasoning in Airport Authority Ruling relied on by Senior Counsel for the applicant.
25. Since the question whether the payment made under the transaction was chargeable to tax under the Act was pending before the authorities under the Act arising out of an assessment against ASE, before the applicant approached this Authority the allowing of this application under Section 245R(2) of the Act is barred. The bar is in entertaining an application where the question raised in the application is already pending before any income-tax authority. Since we have found that the question arising before us, the primary question, if not the only question, is whether the payment to be made by the applicant to ASE on the transaction(s) is chargeable under the Act is already pending in proceedings against the payee, ASE, entertainment of the present application is barred by clause (i) of the proviso to Section 245R(2) of the Act. We, therefore, reject the application.
26. Accordingly, the order is pronounced on this 21st day of December, 2011.
(V.K. Shridhar) (P.K.Balasubramanyan)