INCOME TAX ACT, 1961

Advance ruling - Maintainability -Tax evasion vis--vis transfer of participating interest

Assessee, a Canadian company, was engaged in business of exploration and production of petroleum and natural gas. It held participating interest in three oil blocks in India and proposed to restructure its business in India by transferring its participating interest in one of said blocks to a partnership firm formed between it and its wholly owned subsidiary company incorporated in Canada. Assessee sought for advance ruling in respect of status of proposed firm for purpose of taxation and its tax liability. Revenue contended that proposed restructuring was merely a device for avoidance of tax and, therefore, application should be rejected as per proviso (iii) to section 245R(2). Held: Since, assessee had given a satisfying explanation for restructuring its business and as per its views, transferability of participating interest was commercially a prudent proposition, therefore, future possibility of its exit from said block by transferring its interest to someone else cannot, by itself, be a ground to conclude that entire arrangement was primarily meant to avoid tax.

Income-tax Act, 1961, Section 245R

Decision: In favour of assessee

INCOME TAX ACT, 1961

Firm-Assessment - Assessment as company -Submission of partnership deed

Held: In pursuant of facts, assessee applied for advance ruling and if satisfied the requirements of section 184, it would be construed as partnership firm under Indian Partnership Act, and facts that shares of individual partners had specified in draft partnership agreement in terms of units would not make partnership firm as a company. Hence, taxability of firm was concerned; its residential status was irrelevant, as rate of tax applicable to every firm is 30 per cent as per paragraph (c) of First Schedule of Finance Act, 2008.

Income-tax Act, 1961, Section 184

Decision: In favour of assessee.