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| Can we secure advance for future transactions? |
| HP Agarwal / Jun 14, 2010, 00:39 IST |
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The provisions relating to Authority for Advance Rulings (AAR) had been enacted with a view to ent-rust the power of giving adv-ance rulings to an indepen-dent adjudicatory body and to further ensure that the procedure is simple, inexpensive, expeditious and authoritative. The advance rulings from the AAR can be sought on any question of law or fact in relation to the tax liability of a non-resident arising out of a transaction which has already been undertaken, or which is proposed to be undertaken.
In most of the cases, the ruling is sought in respect of the transactions which have already been undertaken in pursuance of the agreements, and in other cases, in respect of transactions which are proposed to be undertaken in future, based upon the agreements already entered into. In other words, in all such cases, the factual details even in respect of future transactions are well known at the time of making application to the AAR.
There may however be a situation where the ruling of the AAR is desired in res-pect of a transaction which is proposed to be undertaken but no final agreement has been entered into by the app-licant till the date of making application for the ruling.
A question arises whether AAR is authorised to prono-unce a ruling on future tra-nsactions?
In this respect, it is felt that the function of the AAR is different from that of the Tribunal or other Courts. In the case of Tribunal, transactions which have already been concluded can be referred. No advance decision can be obtained on the transactions which are proposed in the future. On the other hand, the AAR has specifically been granted the power to give rulings on the transactions which are proposed to be undertaken in future.
Reference in this connec-tion may be made to a recent decision of the AAR in the case of KSPG Netherlands Holding B.V. dated 25.02.2010. Brie-fly, the facts of the case are as under:
The applicant is a company incorporated in the Netherl-ands and is a resident of Neth-erland. The applicant is a 100 per cent holding company of PG India. Among the vari-ous questions raised, the applicant sought the ruling as to whether it would be liable to tax in India on the capital gains that may accrue to it in future from the transfer of shares in PG India to another non-resident. It is to be noted here that the applicant has not entered into any agreement with other non-resident for the purpose of sale of shares. It likes to obtain the ruling merely on the assumption that it might sell the shares of PG India at any future time.
The Revenue pointed out that no details are available now in respect of the transaction on which the ruling is sought, and therefore the question cannot be adjudicated by AAR at this stage. The Revenue argued that the contemplated transfer of share is neither a proposed transaction much less a transaction already undertaken.
The AAR rejecting Revenue’s contention held:
“……We do not think that in the absence of details such as the number of shares, the consideration and the name of the non-resident tra-nsferee, this Authority shall desist from giving a ruling on the legal issue ………. We find no force in such argument. We agree with the applicant’s submission that it is closely linked to the investments already made and to be made by the applicant and the question cannot be characterised a hypothetical one…….”
Thus, it is clear from the above ruling that the AAR can give its ruling in respect of future transactions also.
The ruling is binding both on the assessee as well as on the Department. However, by virtue of section 245S (2), the ruling shall cease to have any binding force in case of change in law or in facts at the time when the transaction actually takes place.
The author is a Senior Partner in S.S. Kothari Mehta & Co.
E-mail: hp.agrawal@sskmin.com
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