Return to be filed even if benefit under DTAA claimed
18th August, 2012
In a ruling rendered on 14th August, 2012, the Authority for Advance Rulings, India observed that the theory of precedents may not have strict application in proceedings before it and the decisions of High Courts have only persuasive value. It noted that the Authority was not subordinate to any High Court for applicability of Article 227 of the Constitution. The Chairman of AAR said “ I have grave doubts whether the jurisdiction under Article 226 will itself be attracted.”.
The AAR was ruling on the questions posed by the applicant on the taxability of the proposed sale of shares of its Indian entity to its Singapore entity. The AAR considered the averment of the applicant that it had no intention to trade in the impugned shares and they were held as investments. It held that these shares would be considered as capital asset. Based on this answer, it further held that the gain from proposed sale would qualify to be capital gains under the Income-tax Act and under the India-Mauritius DTAC. But such gains would not be taxable in India in view of paragraph 4 of Article 13 of the DTAC.
Citing precedent judgments holding that treaty shopping was not a taboo, on facts, it was ruled that the IT Department could not prove its case of attempt at tax avoidance. Noting that there was no obligation on the applicant to sell the shares through a stock exchange, the charge that proposed sale was intended to avoid Securities Transaction Tax, was not accepted by the Authority.
The Authority held that return under IT Act would be required to be filed on the ground that even if a party was entitled to seek relief under the DTAC, the same had to be claimed by invoking Section 92(2) of the Income-tax Act. It stated "the obligation under Section 139 of the Act cannot simply disappear merely because a person may be entitled to claim the benefit of a DTAC."