An ‘advance ruling' under the Indian income-tax laws means a determination by the Authority for Advance Rulings (AAR) on a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant or a determination of tax liability of a non-resident arising out of such transactions.

AAR recently refused to admit a number of applications on the ground that if an applicant had already filed a return of income involving an identical transaction on which a question is raised before the AAR, the application will have to be rejected.

AAR further held that the relevant date for considering the question is the date of filing of application and that filing of a return prior to filing of application before AAR would lead to rejection of application. Also, the obligation to file a return can well be fulfilled after moving the application before AAR and the Tax Officer will have to wait for the ruling by the Authority.

Why this ‘kolaveri' on GAAR?

The foreign investor community's angst on the proposed anti-tax avoidance rules are not unfounded. They are upset about the fact that the Finance Bill 2012 does not provide any comfort about the revenue department spelling out the circumstances under which the GAAR would be invoked.

This stance goes contrary to the revised discussion paper of the Direct Taxes Code which had said that the circumstances and the manner under which GAAR would be invoked would be specified by the revenue department.

The foreign investors have little confidence about the maturity level of the Indian taxman, who straightaway presumes an assessee to be guilty until proved otherwise.

Besides the aspect of the General Anti Avoidance Rules (GAAR) overriding the treaties, the foreign investors' are also perturbed that the onus will be on the taxpayer to prove that there was no tax avoidance.

While the DTC had specified that the burden of proof should be on the taxpayer, the Standing Committee on Finance had recommended that the onus should rest on the department.

Although the Standing Committee report was available with the Government on March 9, this was not incorporated in the Finance Bill 2012. The burden of proof will lie with the assessee if one were to go by the Finance Bill.

Undoing tax tribunal decision, again!

While retrospective amendment concerning indirect transfer of assets has drawn attention of the media, due to huge tax demand of over $2 billion in the case of Vodafone, several other retrospective amendments impacting larger population remains missed out.

One such retrospective amendment is the definition of “international transaction” to include payments or deferred payments or receivables or any debt arising during the course of business with effect from April 1, 2002.

Over the years, tax department has made huge transfer pricing adjustments by imputing interest on outstanding balances; which in several cases have been over-ruled by Tax Tribunals, considering that early or late realisation of proceeds is only incidental to the transaction and not a separate ‘international transaction'.

This clarification seeks to nullify the decisions of the Tax Tribunals. Not only the primary transaction, but even subsequent payment/receipt of the amount should adhere to arm's length principle.

Making life difficult for Liaison Office

The recently notified annual statement (Form 49C) for liaison offices by the income-tax department poses cumbersome compliance requirements for the foreign entities as the information sought in this form goes beyond the activities of the LO and includes the activities of the head office and all group companies. For example, it asks for:

details of receipts, income and expenses of the foreign entity from India,

all purchases , sales and services from/to the Indian parties by the foreign entity,

salary payable outside India to any employee working in India or for services rendered in India,

details of agents/distributors in India, other group entities present in India along with their business activities and

group entities operating from the same premises as the office of the LO.

Further, no procedure is prescribed for revising and filing the belated statement. Meeting the deadline of 60 days from the financial year end, that is, by May 30, is impractical.