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)