Section 245R

Section 245R — the law in short

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

• Columbia Sportswear Company v DIT Supreme CourtHelps taxpayer
  The Authority for Advance Rulings has ruled against me and section 245S says the ruling is binding. Is there anything I can do about it?
  Yes. The Supreme Court held that the Authority for Advance Rulings is a tribunal within Articles 136 and 227, exercising judicial power, so its rulings can be challenged in the High Court under Articles 226 and 227 and, in this Court's discretion, under Article 136. Section 245S making a ruling binding on the applicant and the income tax authorities cannot oust a jurisdiction conferred by the Constitution. But the Court will ordinarily send the applicant to the High Court unless a substantial question of general importance arises. Such a writ petition should be heard directly by a Division Bench and decided as expeditiously as possible.
• Serco BPO Pvt Ltd v Authority for Advance Rulings High CourtHelps taxpayer
  I bought shares of an Indian company from two Mauritius sellers holding valid tax residency certificates. Must I withhold tax on the price, and can the Authority refuse a ruling by calling the structure tax avoidance?
  No withholding was required. The Punjab and Haryana High Court quashed the Authority's order declining a ruling under section 245R and, rather than remand, decided the questions itself. It held the Mauritius sellers were residents of Mauritius on their certificates of residence, which the Revenue could not go behind, that 'liable to taxation' in Article 4 does not mean tax actually paid, and that under Article 13(4) of the India-Mauritius treaty gains on alienation of property other than that in paragraphs 1 to 3 — which includes shares, with no limitation by situs — are taxable only in Mauritius. No capital gains tax was payable and the purchaser was not liable to withhold under section 195.
• DIT v Copal Research Limited, Mauritius High CourtHelps taxpayer
  Two non-residents sold shares of a foreign company that draws only part of its value from Indian assets. Does Explanation 5 to section 9(1)(i) make those gains taxable in India, and must the buyer withhold?
  No. The Delhi High Court dismissed the Revenue's writ petitions and upheld the Authority for Advance Rulings. Explanation 5 to section 9(1)(i) is a legal fiction confined to its purpose, and 'substantially' in it must be read as principally, mainly or at least a majority. Gains on the sale of shares of a company incorporated overseas which derives less than 50 per cent of its value from assets in India are not taxable under section 9(1)(i) read with Explanation 5. The Court also rejected the case that the structure was a device: the transactions had a commercial rationale, and the Mauritian companies were not shell companies whose corporate identity could be ignored.
• Hyder Consulting Ltd v CIT Advance RulingCuts both waysNo later treatment found
  The State government paying our consultancy fee is deducting tax at 42.85 per cent when the India-UK treaty caps technical fees at 15 per cent, and it - not we - has already gone to the Assessing Officer under s.195(2). Can we still get an advance ruling on the rate?
  Yes on maintainability, and yes on the rate. The Authority held the application maintainable because the s.195(2) reference had been made by the Government of Orissa as payer, not by the applicant, so nothing was pending in the applicant's own case within clause (a) of the proviso to s.245R(2). On the substance it held the receipts were fees for technical services and that deduction was to be made at 15 per cent of the gross amount under article 13 of the India-UK agreement, not at the 42.85 per cent the Income-tax Officer (TDS) had arrived at. It refused to rule on whether the sums routed through the applicant to its Indian sub-consultant were its income at all - that was a question of fact for the Assessing Officer. The ruling binds only Hyder Consulting.
• Monte Harris v CIT Advance RulingHelps taxpayerSuperseded by amendment
  I have become resident in India by the time I want an advance ruling, and I have filed my return in the meantime because the due date came round. Can the Authority still hear my application?
  Yes, on both objections. The Authority held that residential status for Chapter XIX-B is tested by the financial year immediately preceding the year in which the application is made, so an American software manager who had become resident in 1994-95 was still a non-resident applicant when he applied on 31 March 1995. It also held that the bar in clause (a) of the proviso to s.245R(2) bites only where the question was already pending on the date of the application, so a return filed afterwards does not defeat it. On the merits it ruled that he was a technician in information technology within the notified field and entitled to exemption under s.10(5B). The ruling binds only Monte Harris.
• Jagtar Singh Purewal v CIT Advance RulingHelps taxpayerSuperseded by amendment
  My tenant has paid me a lump sum of back rent after a long-delayed rent revision. Is that taxable as house property income in the year I receive it?
  No - on the law as it stood in 1994, and only then. The Authority ruled that Jagtar Singh Purewal, a non-resident with a one-sixth share in a Jalandhar building let to Madras Rubber Factory Ltd, was not liable to tax on his Rs. 1,05,083 share of arrears of rent for periods up to 31 March 1992, received on 6 July 1992. Income from house property computed under s.23 cannot exceed the actual rent for the previous year in question, and the Act as it then stood made no provision for taxing the excess referable to earlier years. Nor could the sum be taxed as income from other sources, on the principle in Nalinikant Ambalal Mody. Parliament has since reversed the outcome by enacting a specific charge on arrears of rent.

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.