The Supreme Court ruling on admissibility of an application by the AAR when the income-tax return has already been filed
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The Supreme Court ruling on admissibility of an application by the AAR when the income-tax return has already been filed

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The issue relating to admission of an application [under Section 245R(2) of the Income-tax Act, 1961] by the Authority for Advance Rulings (AAR) when the income-tax return has already been filed, has ...

The issue relating to admission of an application [under Section 245R(2) of the Income-tax Act, 1961] by the Authority for Advance Rulings (AAR) when the income-tax return has already been filed, has been a subject matter of controversy before the Courts. Recently, the Supreme Court in the case of Sin Oceanic Shipping ASA has dealt with this controversy. The Supreme Court, in the light of AAR ruling in the case of Mitsubishi Corporation Ltd., set aside the High Court and AAR’s rulings and restored the matter back to the AAR for fresh ruling in accordance with the law.

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The Supreme Court ruling on admissibility of an application by the AAR when the income-tax return has already been filed Document Transcript

  • 1. KPMG FLASH NEWS KPMG IN INDIA The Supreme Court ruling on admissibility of an application by the AAR when the income-tax return has already been filed 31 January 2014 Executive summary The issue relating to admission of an application [under Section 245R(2) of the Income-tax Act, 1961 (the Act)] by the Authority for Advance Rulings (AAR) when the income-tax return has already been filed, has been a subject matter of controversy before the Courts. Recently, the Supreme Court in the case of Sin 1 Oceanic Shipping ASA (the taxpayer) has dealt with this controversy. The Supreme Court, in the light of 2 AAR ruling in the case of Mitsubishi Corporation Ltd. , set aside the High Court and AAR’s rulings and restored the matter back to the AAR for fresh ruling in accordance with the law. Our comments under Section 148 and 143(2) of the Act for the assessment year 2007-08 to 2009-10. Further, the 4 AAR while delivering its second ruling in case of SEPCO referred to its earlier ruling and rejected the application for advance ruling on the ground that return of income is already filed. Therefore, it appears that SEPCO’s second ruling may not be read in isolation to conclude that AAR rejected the application based on mere filing of return. Since SEPCO was already going through various assessment proceedings, it appears that it would not be appropriate to conclude that their application was rejected merely on filing of return. Unfortunately, the AAR has not brought out these facts in its second ruling. The AAR dealt with two separate rulings in the case of 3 SEPCO. The facts in SEPCO’s first ruling clearly brings out that various notices were issued to SEPCO _________________ _______________ 1 4 Sin Oceanic Shipping ASA v. AAR [2014] 41 taxmann.com 444 (SC) Mitsubishi Corporation [2013] 40 taxmann.com 335 (AAR) 3 SEPCO III Electric Power Construction Corporation [2012] 340 ITR 225 (AAR) 2 SEPCO III Electric Power Construction Corporation [2012] 340 ITR 231 (AAR) © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  • 2. Subsequently, the AAR has rejected applications of various 5 applicants on the grounds that the applicants had already filed tax returns and therefore, the issue raised in the application would be regarded as a question pending before tax authorities in terms of proviso to Section 245R of the Act. Netapp B V and Sin Oceanic Shipping ASA, aggrieved by the AAR’s order, filed a writ petition with the Delhi High 6 Court. The Delhi High Court held that once the return of income has been filed under Section 139(1) of the Act, it is construed as a question pending before the tax authority and therefore, the AAR cannot allow the application for advance ruling. In August 2013 the AAR in the case of Hyosung 7 Corporation held that mere filing of return of income before filing of the application does not necessarily mean that the question raised in the application is already pending before the tax authority. It is important to note that in this case the notice under Section 143(2) was also issued by the tax authorities. In December 2013, the AAR in the case of Mitsubishi Corporation Ltd. held that the application filed before the AAR, after filing of return of income but before the issue of notice for assessment, cannot be considered as pending for adjudication before the income-tax authorities and therefore, the application is to be admitted. Further, the AAR observed that without issuing notice for assessment under Section 143(2) of the Act, or notice under Section 142(1) of the Act for inquiry before assessment in cases where return of income is not filed, there is no jurisdiction to examine or adjudicate debatable issue claimed or shown in the return of income. Consequently, the return of income filed before such notices is not a bar on admissibility of the AAR application. In the midst of this controversy, Netapp B V and Sin Oceanic Shipping ASA had filed a Special Leave Petition with the Supreme Court. The Supreme Court has now resolved this controversy and sent back the matter to the AAR for fresh ruling in accordance with the law. _________________ 5 Red Hat India (P.) Ltd.[2012] 18 taxmann.com 259 (AAR),Foster Wheeler France SA (AAR 963 of 2010), GTB Invest ASA [2012] 18 taxmann.com 262 (AAR), Wavefield Inseis ASA [2012] 343 ITR 136 (AAR), Netapp B. V. [2012] 347 ITR 461 (AAR) 6 NETAPP B.V. v. Authority for Advance Rulings [2013] 357 ITR 102 (Del) 7 Hyosung Corporation, Korea, [2013] 218 Taxman 36 (AAR) © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  • 3. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903, Near Vodafone House, Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi 4/F, Palal Towers M. G. Road, Ravipuram, Kochi 682 016 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata – 700091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. ©2014 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.