HC Quashes ruling of Authority for Advance Ruling

AIT News Network

NEW DELHI. Quashing the ruling of Authority for Advance Ruling (Income-Tax) in case of AIT-2004-80-AAR; HC has ruled AIT-2009-66-HC that

“the activity carried on by the liaison offices in India did not, in any manner, whatsoever, contribute directly or indirectly to the earning of profits or gains by the petitioner in UAE. As indicated above, every aspect of the transaction was concluded in UAE. The commission for the services of remittances offered by the petitioner was also earned in UAE. The activity performed by the liaison offices in India was only supportive of the transaction carried on in UAE. It did not contribute to the earning of profits or gains by the petitioner in UAE.

  The explanation is a pointer to the fact that in order to have a business connection, in respect of a business activity carried on by non-resident through a person situated in India it should involve more than what are supportive or subsidiary to the main function.

  Curiously, while the Authority has returned a finding of fact that none of the activities mentioned in explanation (2) to Section 9(1)(1) is carried on by the petitioner in India, it then went on to apply the ratio of the judgment of the Supreme Court in the case of R.D. Aggarwal (supra) to hold that the activity carried on by the liaison offices of the petitioner, in India, constituted a  “business connection” in India and hence, income shall be deemed to accrue/arise in India, to the petitioner, situated in UAE, from business connection in India. In our opinion, the Authority has clearly erred in applying the ratio of the judgments of Supreme Court in the case of R.D. Aggarwal (supra) and Anglo French Textile Co (supra) which was not applicable in the present case.

  In the circumstances, we quash the impugned order of the Authority.”

  In the application filed under Section 245Q(1) of the Act by the petitioner before the Authority, it had sought an advance ruling by the Authority with respect to the following question :

“Whether any income is accrued/deemed to be accrued in India from the activities carried out by the Company in India?”

  HC also held that it has the jurisdiction to entertain action against the Advance Rulings and Authority for Advance Rulings is also a Tribunal:

“In our view, even though the provisions of Section 245S provide that the orders of the Authority would be binding, this, by itself, cannot exclude the jurisdiction of the Courts by implication or otherwise, as it does not provide for any adequate remedy to mitigate or deal with the grievance of the aggrieved party. Therefore, in our view the Courts would have jurisdiction to entertain actions under Article 226 of the Constitution impugning the ruling given by the Authority under Section 245R of the Act. Section 245S in Chapter XIX-B of the Act cannot be construed as an ouster clause, ousting the jurisdiction of the Courts.

  This brings us to a question as to whether the Authority is a Tribunal within the meaning of Article 227 of the Constitution. The broad test which has been laid down by the Courts are that an Authority shall be construed to be a Tribunal within the meaning of Article 227 of the Constitution of India if it is invested with the judicial power of the State, which is, that it should act judicially after ascertaining the facts placed before it and upon application of the relevant law applicable to the facts obtaining in a case. Broadly, the expression used in various judgments rendered by various Courts is that an Authority would be a Tribunal if it has the “trappings of a Court”.

  Authority constituted under Chapter XIX-B of the Act is a Tribunal as it is invested with powers of a civil court by virtue of provisions of Section 131 of the Act; which includes all such powers a court is vested with under the CPC when trying a suit in respect of matters relating to discovery, inspection, enforcing attendance of persons including officials of banking company and examining such persons on oath, compelling production of books of accounts, summons of accounts etc. Under the provisions of 245R, there is a requirement to give an opportunity of hearing to the applicant and to give reasons for rejecting an application. The cumulative effect of the powers invested and the attributes of the Authority, when gleaned from the provisions of Chapter XIX-B, leave no doubt in our minds that it has the “trappings of a court” and hence, would undoubtedly qualify as a Tribunal within the meaning of Article 227 of the Constitution of India. Thus, the Authority would be amenable to the jurisdiction of this court under Article 227, and more so, under Article 226 of the Constitution of India which, without doubt, has a wider reach being conferred with jurisdiction to issue appropriate writ order or direction to any “person or Authority” for enforcement of fundamental rights under Part-III of the Constitution as also for any other purpose.”

  The petitioner is offering remittance services to NRIs in UAE. The contracts pursuant to which funds are handed over by the NRIs to the petitioner in UAE are entered into between the petitioner and the NRI remitter in UAE. The funds are collected from the NRI remitter by the petitioner in UAE. A one time fee of Dirhams 15 is levied and collected by the petitioner from the NRI remitter in UAE. The funds are transmitted to the beneficiaries of the NRI remitter, in India, either by telegraphic transfer through normal banking channels via banks in India or are remitted by involving the liaison offices of the petitioner in India, who in turn, download the information and particulars necessary for remittance by using computers in India which are connected to the servers in UAE, by drawing cheques on banks in India in couriering/despatching the same to the beneficiaries of the NRI remitter in India.

  The Authority in paragraph 11 of the impugned ruling held that downloading of information by the liaison offices in India with regard to the beneficiaries of the NRI remitters in India and thereupon the act of the cheques or drafts being drawn on banks in India, in the name of beneficiaries and their despatch through couriers to the beneficiaries constitutes an activity, which enabled the petitioner to complete the transaction of remittance, in terms of the contract entered into with the NRIs. From this the Authority has concluded, that there is, therefore, a real and intimate relationship between the business carried on by the petitioner, for which, it receives commission in UAE. Furthermore, the Authority has held that the activities of the liaison offices of downloading of information, printing and preparation of cheques and drafts, and sending the same to the beneficiaries in India, contribute directly or indirectly to the earning of income by the petitioner by way of commission. It also held that there is continuity between the business of the petitioner in UAE and the activities carried on by the liaison offices in India. On this basis, the Authority concluded that the income shall be deemed to accrue or arise to the petitioner in UAE from “business connection” in India.

(Click here for full text of Ruling AIT-2009-66-HC)

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