Section 245R(2)

Section 245R(2) — the law in short

What the courts have decided on section 245R(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• AAR v Tiger Global International II Holdings Supreme CourtHelps departmentNo later treatment found
  I hold a Mauritius TRC. Can the department still deny me treaty relief on the capital gains?
  Yes. A Tax Residency Certificate is a necessary eligibility requirement under s.90(4) but is not sufficient or conclusive evidence of residence, beneficial ownership or entitlement to treaty benefits, and the authorities may examine the substance of the arrangement. The Supreme Court set aside the High Court's judgment, restored the AAR's rejection and held the gains taxable in India.
• In re Airports Authority of India (Raytheon contracts) Advance RulingCuts both waysSuperseded by amendment
  We send faulty equipment abroad for repair by a US supplier and separately pay it to maintain the software. Do we deduct tax on either, and at what rate?
  It depends on which contract. The Authority ruled that the payment to Raytheon for hardware repair support was not taxable in India and that the applicant was not required to deduct tax on it: the repairs were done outside India, delivery was taken outside India and Raytheon had no permanent establishment here, so article 7 left those business profits to the United States. The software maintenance contract went the other way. The deputation of an engineer created no permanent establishment, but the payments were fees for included services under article 12, the applicant having a conditional right to use the software rather than an outright purchase. Tax was to be withheld at 10 per cent apart from surcharge.
• In re Mustaq Ahmed (admission) Advance RulingHelps taxpayer
  The Department says my advance ruling application is barred because scrutiny of my return had already begun. Does a section 143(2) notice issued before I applied shut me out?
  No, on these facts - and this decision goes no further than that. The Authority allowed the application under section 245R(2) and posted it for hearing; it did not rule on whether the applicant's income from buying gold jewellery in India for export is taxable. The applicant, resident in Singapore, had filed returns for assessment years 2005-06 and 2006-07 claiming no exemption, applied to the Authority on 26 March 2007, and only then filed revised returns on 30 March 2007 claiming the exclusion in Explanation 1 to section 9(1)(i). The Authority held that no question was pending on the date of the application, and that claiming a statutory exemption is not a design for avoidance.
• Mustaq Ahmed v DIT (International Taxation) Advance RulingHelps taxpayer
  I applied to the Authority on 26 March and filed a revised return claiming an exemption on 30 March. The Department says my question was already pending. Was it?
  No. The Authority allowed the application under section 245R(2), rejecting the Department's objection under clause (i) of the proviso. The applicant, resident in Singapore, had filed returns for assessment years 2005-06 and 2006-07 on 30 October 2005 and 31 October 2006 which claimed no exemption; he applied to the Authority on 26 March 2007; and he filed revised returns claiming the exclusion in Explanation 1 to section 9(1)(i) only on 30 March 2007. The Authority held that pendency is judged as on the date of the application, so nothing was in issue on 26 March 2007. It also rejected the objection that the transaction was designed for avoidance.
• In re Morgan Stanley and Co. Inc. Advance RulingCuts both waysPartly overruled — read this first
  Our Indian subsidiary does back-office work for us and we pay it cost plus a mark-up, and we send some of our own people over. Is the subsidiary our permanent establishment, and can the Revenue attribute anything more to us once the subsidiary has been paid an arm's length price?
  It depends on which limb. The Authority ruled that Morgan Stanley Advantage Services was not a fixed-place permanent establishment of Morgan Stanley & Co. Inc., because the US company did not carry on its business through MSAS's premises, and not an agency permanent establishment, because MSAS could not conclude contracts, held no stock and secured no orders. But it would be a service permanent establishment under article 5(2)(l) if employees were sent to India for more than 90 days, whether for stewardship or on deputation. On attribution, once MSAS was remunerated at arm's length no further income could be attributed to the permanent establishment. The ruling binds only that applicant.
• In re Rotem Company and Mitsubishi Corporation Advance RulingHelps taxpayer
  We are in a consortium supplying rolling stock to Delhi Metro. Our returns are filed and a writ about the TDS rate is pending. Can we still get an advance ruling?
  Yes. The Authority held the applications maintainable and allowed them so that rulings could be pronounced. On the bar in clause (i) of the proviso to section 245R(2) it held that the mere filing of returns by the applicants would not fall within the mischief of that clause, no notice under section 143(2) having been issued to them before the date of the applications. The proceedings that were on foot - applications under section 197 for determination of the rate of deduction, an appeal against the order on them and a writ petition - concerned the rate of tax for deduction at source, and did not involve the questions the Authority was being asked to decide.
• In re Amir Zai Sangin Advance RulingHelps taxpayerSuperseded by amendment
  I am a Swedish national deputed to India to set up a digital cellular network. Am I a technician for section 10(5B), and does a return filed after applying spoil my application?
  Yes to the first, no to the second. The Authority rejected the Department's objection that the question was already pending because the applicant had filed his return after applying to the Authority: the prohibition operates only on questions being agitated in another forum on the date of the application. On the merits it held that he was a technician within section 10(5B). It refused the Department's narrow reading of information technology as confined to computer and software systems, holding that a cellular network is a medium for dissemination through the system of computers and is essentially a computer network. The exemption was therefore available to him.
• David Kenneth White v CIT Advance RulingHelps taxpayerSuperseded by amendment
  I am a British engineer working for an Indian joint venture on a cellular network and my employer pays my tax. Am I a technician entitled to the exemption?
  Yes, on both counts. The Authority first rejected the Department's preliminary objection that the question was already pending because the applicant had filed his return after applying: what the proviso to section 245R(2) prohibits is raising before the Authority questions that were being agitated in other fora on the date of the application. It then held that the applicant was a technician in the field of information technology for section 10(5B), rejecting the argument that information technology means only computer data processing, because a cellular network is a medium for dissemination through a system of computers and is essentially a computer network. All four statutory conditions being met, the exemption was available.
• DLJMB Mauritius Investment Company v CIT Advance RulingHelps taxpayerSuperseded by amendment
  We are a Mauritius company set up to channel US money into Indian securities. Are we entitled to the India-Mauritius treaty on our dividends, interest and capital gains?
  Yes, in substance. The Authority ruled that DLJMB Mauritius Investment Company was resident in Mauritius within the meaning of article 4 of the India-Mauritius agreement and entitled to the benefits flowing from it, notwithstanding that it had been placed in Mauritius partly for regulatory convenience and partly for the treaty. Capital gains on the transfer of securities, long-term and short-term, were not taxable in India by force of article 13. Income from units of mutual funds fell to the residuary article and was not taxable in India. Interest on approved debt instruments was exempt only so far as Indian law provided. Two questions were withdrawn or not pressed.
• In re Advance Ruling No. P-9 of 1995 Advance RulingHelps departmentSuperseded by amendment
  Two Mauritius companies my UK parent set up hold shares in an Indian bank. Can we get the India-Mauritius treaty rate on the dividends and exemption on the eventual share gains?
  No, and the Authority refused to rule at all. It accepted that the two Mauritius companies were residents of Mauritius under article 4, their effective management being there and not in India, so that on the face of the treaty article 13(4) would leave gains on the shares taxable only in Mauritius. But it then rejected both applications under clause (c) of the proviso to section 245R(2), holding the arrangement prima facie designed for the avoidance of income-tax: newly formed Mauritius subsidiaries wholly owned by a British bank served no purpose the bank could not serve by investing directly. The rejection binds only those applicants.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.