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Whether the present application filed under section 245 Q (1) is maintainable under section 2245

R clauses (i) and (iii)?

The counsel humbly submits that this application is maintainable in the AAR maintainable under
section 245 R clauses (i) and (iii).

i) The first step of filing an ROI does not render a question pending

This question was in great debate until it was finally solved by a Supreme Court in its landmark
judgment of, Sin Ocean Shipping ASA v. AAR1, where the court clearly held that mere filing of
return of income does not start the pendency of proceeding and thereby AAR cannot claim an
application not maintainable solely because of that reason. The court had over ruled the Delhi
High Court judgment in NETAPP BV v. AAR2

The Supreme Court admitted the instant SLP on the basis of case of In re: Mitsubishi
Corporation, Japan3. In case of Mitsubishi, the authority admitted the application of applicant,
seeking advance ruling and it held that mere filing of return prior to filing of application of
advance ruling does not attract bar on filing of application under Section 245R(2);

Accordingly, the order in the case of NetApp B.V. v. Authority for Advance Rulings4 was set aside
and the order in, In re: GTB Invest ASA5 was remanded back.

ii) The second step of issuance of notice under section 143(2) cannot be ground to reject
AAR application

1 (2014) 269 CTR 15 (SC)

2 (2012) 357 ITR 102 (Del)

3 A.A.R. No.1309 of 2012.

4 (2012) 357 ITR 102 (Del)

5 [2012] 262 (AAR - New Delhi)


Recently, the Delhi High court in the case of Sage Publications Ltd U.K. v. DCIT 6, held that the
AAR cannot reject the application since the scrutiny notice issued by the Assessing Officer under
section 143(2) of the Income Tax Act, 1961, does not address any specific question and it does
not even disclose the application of mind to the income-tax return except the fact that they
conform to the instructions which compelled the AO to issue a notice.

Also, the Delhi High Court in the case of Hyosung Corporation and L.S. Cable & System
Limited had dealt with the identical notices and held that such notices ipso facto would be
insufficient to attract the automatic rejection route under the proviso to section 245 R(2) of the
Act. Consequently, it was held that the AAR ruling rejecting the application is untenable.

In the present case also, the AO issues a notice requesting for clarification in relation to certain
points, which we can see is that very general in nature and does not address any specific issue at
all and hence we humbly submit that this application is maintainable under Section 245 R (2)
proviso (i) taking into consideration the above cases.

iii) That this transaction is not prima facie designed to avoid tax

Liquidation is considered as a primary method to reduce complexity of group structure and


increase efficiency.

There are many benefits available to those corporates that simplify their group structures. Senior
managers and board members are increasingly recognising that simplifying the legal structure of
a group can reduce the regulatory compliance and corporate governance burden on a business
and increase transparency.

At the same time, there is a growing understanding of the consequences of a misalignment of the
operational and legal structure and the negative impact on business efficiency that comes with
maintaining a number of non-trading or dormant entities. Historically, tax consequences, stamp
duty and operational issues have been hurdles to simplifying corporate structures. But many of
these have been removed and the availability of a variety of stamp duty exemptions for corporate
reorganisations and liquidations means there has never been a better time for corporates to

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simplify their group structures. Company structures have become more unwieldy and costly for
businesses. Maintaining a large number of registered companies comes at a significant cost.

Redundant corporate entities can overcomplicate group structures and erode profits through
unnecessary costs each year. A corporate simplification program is a careful review of the
corporate structure which identifies those entities which can be removed from the structure,
which do not contribute to the value chain, resulting in savings, improved corporate governance
and transparency and a reduction of any potential directors exposure.

In the present case, our humble submission is that the liquidation happened for the best of
interests, where we can see that M Co. in Mauritius was more of redundant and unnecessary
group entity which did not contribute to the value chain. As the facts stated that, F Co. had a
direct interest in T Co. as it was F Co.s BPO and in between M Co. does not play any role at all.
It is also stated that T Co. does not pay any dividends to M Co. Hence, F Co. liquidated M co.
with the view to reduce to complexity in group structure and increase efficiency.