RULINGS
P. No. 19 of 1995
Decided On: 18.12.1995
Appellants: In Re: P. No. 19 of 1995
Vs.
Respondent:
Hon’ble Judges:
S. Ranganathan, J. (Chairman), D.B. Lal and R.L. Meena, Members
Subject: Direct Taxation
Acts/Rules/Orders:
Income Tax Act, 1961 – Sections 10B, 80HHB, 80HHC, 80HHD and 80HHE
RULING
1. This is an application under Section 245Q(1) of the Income-tax Act, 1961 (“the Act”). The applicant is a private limited company incorporated in the United Kingdom, the affairs of which are managed in the United Kingdom so that it is a non-resident company for the purposes of the Act.
2. The transactions which the company proposes to enter into and with regard to which an advance ruling from this Authority is sought are set out thus in the application :
“We are in the process of acquiring a number of residential apartments in the U. K. for the purpose of running an apartment letting agency for Indian businessmen and tourists. Instead of collecting the rents for these stays in sterling pounds, we propose to collect these rents in Indian rupees in India through our proposed branch office, to be located in India. As this will lead to a saving in foreign exchange outflow, we desire to know if these earnings of our company in Indian rupees will be treated at par with normal exports in terms of the relevant section of the Income-tax Act, 1961, which grants exemption to such earnings from income-tax.
Our interpretation of the income-tax law is that we are pledging to save the country valuable foreign exchange by collecting rents for overseas stays by Indian nationals in Indian rupees and thus are eligible to be treated in the same category as export of Indian goods which earn foreign exchange. The specific relief we desire is with regard to income-tax exemption on such earnings.”
3. This Authority addressed a letter to the applicant calling upon it to specify the precise provisions of the statute under which rupee earning could be treated as invisible export as also the exact relief in terms of income taxation sought by the company. The company has, however, replied to say that it is not based in India and not fully conversant with the revenue laws in force presently and would therefore seek the support and guidance of the Authority in clarifying its query.
4. Notice of hearing of the application was given to the applicant but there has been no appearance on its behalf though an adjournment was taken at the first hearing. The Authority has, applied itself to the facts set out in the application and the nature of relief sought for by the applicant. Since the applicant will be receiving the rental income of these properties in India, the rents will become liable to tax under the Indian income-tax law. They cannot be considered exempt from income-tax unless they are covered by some specific provision exempting them from tax. The applicant seems to suggest that its earnings should be treated as in the nature of invisible exports by reason of savings in foreign exchange. This assumption is not correct and unless the details of the letting are clearly known, it is not possible to postulate that the rents received from the Indian companies in rupees would necessarily be less than the amount which Indian businessmen and tourists may otherwise have to pay for like accommodation in England. But, even assuming that the course proposed to be adopted by the applicant is likely to result in some saving of foreign exchange to the Indian exchequer in general, the situation cannot be equated to invisible export of goods or services which are exempt from tax under the provisions of the Act. Exemptions in respect of export earning are contained in Sections 10B, 80HHB, 80HHC, 80HHD and 80HHE. None of these sections govern the transactions proposed -to be undertaken by the applicant and the income arising therefrom. Since there is no specific statutory exemption available in respect of the earnings of the applicant as a result of the transactions indicated in the application, we are unable to accept the plea of the applicant that it should be entitled to some sort of exemption, whole or partial, in respect of the transactions proposed.
5. The question for the ruling of this Authority has been framed somewhat cumbrously in the annexure to the application. It reads :
“We would like to collect the rent for these apartments in the U.K. on an ongoing basis from Indian businessmen in India itself through our Indian branch office in Indian rupees. We believe this would lead to a considerable saving in foreign exchange on account of travel expenses abroad being paid for in Indian rupees in India. Would these rupee earnings of ours in India be treated then as invisible exports and be classified to be at par as normal hard currency exports made from India. Of course, if these earnings are not treated at par ? Then it would not be attractive for us to this proposition. Further, could we please be informed of what exact benefits we are entitled to on account of these invisible exports ?”
6. For the reasons discussed above, the Authority pronounces the following ruling on the application of the applicant :
RULING
7. The applicant is not entitled to any exemption in respect of the earnings received in India in terms of rupees for letting out its London properties to Indian parties.