The Taxpayer had initiated MAP under India-USA Double Tax Avoidance Agreement (US DTAA) through its US Competent Authority (US CA) in respect of its Indian transactions for certain specific tax years. Having regard to the Memorandum of Understanding regarding Deferment of Assessment and/or Suspension of Collection of Taxes during Mutual Agreement Procedure (MOU) entered into between CAs of India and the US, the Indian Tax Authority had, for these tax years, passed orders confirming nil tax withholding while making payments to the Taxpayer. The Taxpayer thereafter requested CA of the US to include one more tax y
ear in the pending MAP proceedings. The Taxpayer submitted an application to the Indian Tax Authority for nil withholding tax order in respect of such subsequent tax year. This application was not favorably considered on the basis that, up to the date of passing of order for nil withholding tax order, the application for including subsequent tax year in the original MAP application was not formally admitted by Indian CA. Obtaining of confirmation from Foreign Tax Division (FTD) of Central Board of Direct Taxes (CBDT) to the effect that MAP application has been admitted by Indian CA was considered to be a necessary requirement by the Indian Tax Authority.
The Bombay HC directed the Indian Tax Authority to issue a nil withholding tax order for the subsequent tax year as well. The HC concluded that the MOU specifically refers to suspension of collection proceedings for prior, current or “future” taxable years as well in relation to withholding tax on income that are the subject of MAP proceedings, provided the taxpayer furnishes bank guarantee to protect the interest of revenue. Further, having regard to MOU, it was inappropriate to expect that the relief was conditional upon confirmation from FTD about admission of the proceedings.
This decision clarifies that if a subsequent tax year is tagged along with the original MAP application, the relevant reference date for seeking relief of suspension of proceedings and tax collection is the date when the taxpayer moves such an application with its home country CA in the matter of recovery. The subsequent acknowledgement or consideration by the Indian CA at a later date should not adversely impact tax consequences for the MAP applicant.
In another case relating to MAP, the Punjab and Haryana HC in the case of Motorola Solutions India Pvt. Ltd. quashed the demand recovery notices raised by the Indian Tax Authority. The demand was sought to be sustained on an argument that an internal confirmation on admission of MAP was yet to be received from the Indian CA in terms of the internal Indian instruction. In this context, the HC noted that it is rather surprising or distressing that an artificial distinction was drawn between "pendency” and “admittance” and was used as a device to proceed and appropriate an amount, recovery of which had already been stayed. Such assumption of jurisdiction in violation of the DTAA is clearly erroneous and bordering on the malafide.
These decisions provide clarity on the scope of relief which a taxpayer can expect as per MOU and should be useful in instilling confidence amongst the taxpayers seeking resolution of their tax disputes under MAP. It may also be noted that where a MAP resolution has been arrived at and accepted in respect of a particular issue for a relevant tax year, it has effect for the taxpayer for that relevant tax year and for that particular issue. Such a taxpayer also has the option to either accept the MAP resolution or follow the course of appeal prescribed under the domestic tax laws. Also, a provision comparable to the US MOU keeping tax demand in abeyance is presently available in relation to India’s DTAAs with UK and Denmark in addition to that of the US.
ear in the pending MAP proceedings. The Taxpayer submitted an application to the Indian Tax Authority for nil withholding tax order in respect of such subsequent tax year. This application was not favorably considered on the basis that, up to the date of passing of order for nil withholding tax order, the application for including subsequent tax year in the original MAP application was not formally admitted by Indian CA. Obtaining of confirmation from Foreign Tax Division (FTD) of Central Board of Direct Taxes (CBDT) to the effect that MAP application has been admitted by Indian CA was considered to be a necessary requirement by the Indian Tax Authority.
The Bombay HC directed the Indian Tax Authority to issue a nil withholding tax order for the subsequent tax year as well. The HC concluded that the MOU specifically refers to suspension of collection proceedings for prior, current or “future” taxable years as well in relation to withholding tax on income that are the subject of MAP proceedings, provided the taxpayer furnishes bank guarantee to protect the interest of revenue. Further, having regard to MOU, it was inappropriate to expect that the relief was conditional upon confirmation from FTD about admission of the proceedings.
This decision clarifies that if a subsequent tax year is tagged along with the original MAP application, the relevant reference date for seeking relief of suspension of proceedings and tax collection is the date when the taxpayer moves such an application with its home country CA in the matter of recovery. The subsequent acknowledgement or consideration by the Indian CA at a later date should not adversely impact tax consequences for the MAP applicant.
In another case relating to MAP, the Punjab and Haryana HC in the case of Motorola Solutions India Pvt. Ltd. quashed the demand recovery notices raised by the Indian Tax Authority. The demand was sought to be sustained on an argument that an internal confirmation on admission of MAP was yet to be received from the Indian CA in terms of the internal Indian instruction. In this context, the HC noted that it is rather surprising or distressing that an artificial distinction was drawn between "pendency” and “admittance” and was used as a device to proceed and appropriate an amount, recovery of which had already been stayed. Such assumption of jurisdiction in violation of the DTAA is clearly erroneous and bordering on the malafide.
These decisions provide clarity on the scope of relief which a taxpayer can expect as per MOU and should be useful in instilling confidence amongst the taxpayers seeking resolution of their tax disputes under MAP. It may also be noted that where a MAP resolution has been arrived at and accepted in respect of a particular issue for a relevant tax year, it has effect for the taxpayer for that relevant tax year and for that particular issue. Such a taxpayer also has the option to either accept the MAP resolution or follow the course of appeal prescribed under the domestic tax laws. Also, a provision comparable to the US MOU keeping tax demand in abeyance is presently available in relation to India’s DTAAs with UK and Denmark in addition to that of the US.
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