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AAR not bound by own rulings. Transfer pricing & ROI filing provisions apply despite no income. Foreign company is liable for MAT u/s 115JB
The applicant, a Mauritius company, sold shares of Burroughs Wellcome (India) Ltd. The resultant capital gains were not chargeable to tax under the India-Mauritius DTAA. The AAR had to consider whether, as the Applicant had no income chargeable to tax in India, (a) the transfer pricing provisions were applicable to its, (b) section 115JB (MAT) was applicable to it and (c) it was liable to file a return of income. The AAR had to also consider whether it was bound by its own earlier rulings. HELD by the AAR:
(i) The theory of precedents does not have strict application to the AAR. It is bound only by the decisions of the Supreme Court. The decisions of High Courts have only persuasive value. The AAR is not subordinate to any High Court for even Article 227 of the Constitution to apply and there are grave doubts whether the jurisdiction under Article 226 will be attracted to the AAR. While the AAR should be slow in disagreeing with propositions of law laid down in earlier rulings, it should not be deterred from taking a contrary view if it is convinced that the earlier view is not correct;
(ii) Though in Praxair Pacific 326 ITR 276, Vanenburg Group 289 ITR 464 & Dana Corporation 32 DTR 1, it was held that the transfer pricing provisions were machinery provisions and could not apply if the income was not chargeable to tax, this view is not correct because first the computation of the “income” arises before considering its’ chargeability. The fact that the income is not taxable and the transfer pricing exercise may not be fruitful cannot affect the applicability of the statutory provisions;
(iii) A return of income has to be filed u/s 139(1) even if the income is not chargeable to tax;
(iv) Though in Timken 326 ITR 193 (AAR), it was held that s. 115JB does not apply to foreign companies, this view is not correct because s. 115JB applies to every “company” and makes no distinction between a resident company and a non-resident company. S. 2(17) defines a “company” to include a “foreign company”. The fact that the foreign company has no permanent establishment in India makes no difference to the applicability of s. 115JB. There may be practical difficulties for foreign companies to prepare accounts in terms of Schedule VI to the Companies Act but that is no reason to whittle down the scope of s. 115JB. Advance Ruling P No. 14 (234 ITR 335) & Niko Resources 234 ITR 828 followed)
“While the AAR should be slow in disagreeing with propositions of law laid down in earlier rulings, it should not be deterred from taking a contrary view if it is convinced that the earlier view is not correct;…..”
This is not to be mistaken to be the first case of its kind in which the above referred proposition has come to be underlined and endorsed by the AAR. It is worthwhile to recall, this very proposition succinctly but graphically embedded in the doctrine known as STARE DECISIS (the other known concept of ‘precedent’ has a different connotation) has come to be viewed by the SC but in a different light; further, a diametrically opposite opinion has been candidly handed down in the oft cited judgment (also cited in this case but on a different point of issue) in re. Azadi Bachao Andolan.
The AAR’s previous ruling on this limited proposition in a couple of cases (one being Cyril Eugene Periera’s cited herein) has also not been unanimous but mutually contradicting. For a critique, one may look up the published article, (2008) 166 Taxman 72.
When there is no INCOME chargable to Tax,why should the company be saddled with the Transfer Pricing Provisions and having to obtain the report and file it before the due date and even face the T.P Assessment? may be it is good for the professionals.
When there is no income as per the DTAA, why should you first compute using the arms length’s Price…. and waste your time and resources.