Wp/9358/2018 Of Aberdeen Institutional Commingled Funds Llc And Ors v. The Authority For Advance Rulings (Income Tax) And Anr

IN THE HIGH COURT OF JUDICATURE AT BOMBAYAPPELLATE SIDE CIVIL JURISDICTION WRIT PETITION NO. 9358 OF 2018 1Aberdeen Institutional Commingled ]Funds LLC]with its registered address at 1735, ]Market Street, 32[nd] Floor, ]Philadelphia, PA19103 USA]2Aberdeen Asia Pacific Excluding Japan]Equity Fund, a series of Aberdeen ]Institutional Commingled funds LLC]3Aberdeen Asia Pacific Including Japan]Equity Fund, a series of Aberdeen]Institutional Commingled Funds LLC]4Aberdeen Emerging Markets Equity Fund]a series of Aberdeen Institutional ]Commingled Funds LLC] ..Petitioners.v/s.1The Authority of Advance Rulings ](Income Tax),Mumbai]2Director of Income Tax](International Taxation)-1, Mumbai.]..Respondents. Mr. Porus Kaka, Sr. Advocate with Mr. Manish Kant, Mr. Rajesh Simhanand Ms. Shipra Padhi i/b. Nishith Desai & Co., for the Petitioners.Mr. Tejinder Singh with Mr. Sham Walve, for Respondent No.2. CORAM: AKIL KURESHI & M.S.SANKLECHA, JJ. RESERVED ON : 28[th] FEBRUARY, 2019.PRONOUNCED ON : 8[th] MARCH, 2019. JUDGMENT:- (Per M. S. Sanklecha,j.) This Petition under Article 226 of the Constitution of India,impugns the order dated 21[st] February, 2018 passed under Section 245R(6) of the Income Tax Act, 1961 (the Act) by the Authority for AdvanceRuling (AAR). 2This Petition arises from an application filed by the PetitionerNo.1 before the AAR, seeking an advance ruling on the followingquestion:- “Whether on the facts and in the circumstances of the case,Aberdeen Institutional Commingled Funds, LLC (“Applicant”) isentitled to carry forward accumulated capital loses, as disclosedin the application to the present Assessment Year 2011-12 andthereafter, under section 74 of the Income Tax Act, 1961,notwithstanding the reorganization of the Applicant effectivefrom April 19, 2010?” The impugned order dated 21[st] February, 2018 answered theabove question in the negative Thus, holding that the applicant is notentitled to carry forward accumulated loses to the Assessment Year 2011-12 and, thereafter, under Section 74 of the Act. 3At the very outset, Mr. Tejinder Singh, learned Counsel forthe Respondents raised a preliminary objection with regard to thePetitioner Nos.2,3 and 4 being parties to this Petition. This in view of the fact that, they were not the applicants before the AAR, leading to theimpugned order dated 21[st] February, 2018. It is pointed out that, AAR wasapproached only by Petitioner No.1 herein above as applicant therein,raising the above question for Advance Ruling. The Petitioner Nos. 2 to 4herein, were not parties before the AAR and the impugned order waspassed in the context of the question raised by Petitioner No.1 alone.Therefore, Petitioner Nos. 2 to 4 have no locus to challenge the impugnedorder dated 21[st] February,2018. Thus, Petitioner Nos.2 to 4 be deletedfrom this Petition. 4Mr.Kaka, learned Sr. Counsel appearing in support of thisPetition, does not dispute the fact that, Petitioner Nos. 2 to 4 were notparties to the application made by Petitioner No.1 to the AAR . However,it is submitted that, Petitioner Nos. 2 to 4 are series of the funds run/managed by Petitioner No.1. Therefore, its constituents. It is submittedthat, Petitioner Nos. 2 to 4 are a part of Petitioner No.1 and, therefore,necessary parties in this Petition. The assessment of these parties i.e.Petitioner Nos. 2 to 4 would be affected as a consequence of theimpugned order dated 21[st] February, 2018 passed by the AAR. Thus, it issubmitted that, as Petitioner Nos. 2 to 4 are necessary parties and there isno need to delete them from this Petition. 4Mr.Kaka, learned Sr. Counsel appearing in support of thisPetition, does not dispute the fact that, Petitioner Nos. 2 to 4 were notparties to the application made by Petitioner No.1 to the AAR . However,it is submitted that, Petitioner Nos. 2 to 4 are series of the funds run/managed by Petitioner No.1. Therefore, its constituents. It is submittedthat, Petitioner Nos. 2 to 4 are a part of Petitioner No.1 and, therefore,necessary parties in this Petition. The assessment of these parties i.e.Petitioner Nos. 2 to 4 would be affected as a consequence of theimpugned order dated 21[st] February, 2018 passed by the AAR. Thus, it issubmitted that, as Petitioner Nos. 2 to 4 are necessary parties and there isno need to delete them from this Petition. 5It is an undisputed before us that the AAR was approachedby Petitioner No.1 alone, filing an application for an Advance Ruling onthe above question to AAR. However, in its application, Petitioner No.1did describe Petitioner Nos.2 to 4 as investment series (funds) ofPetitioner No.1. Thus, claiming it to be a constituents/ part of thePetitioner No.1. Nevertheless, the question as proposed by Petitioner No.1 to the AAR was only with regard to it (Petitioner No.1) above beingentitled to carry forward losses. The basis of the claim by the PetitionerNo.1 for the carry forward losses under Section 74 of the Act, was as aconsequence of re-organization of Petitioner No.1 w.e.f. 19[th ]April, 2010.In the circumstances, this Petition seeks a judicial review of the orderdated 21[st] February, 2018 passed by the AAR and the same can only bythe same parties who had made an application before the AAR and nonew parties are entitled to be added in the Petition to challenge the orderof the AAR. The question was answered by the AAR in the context of theapplication filed by Petitioner No.1 alone with regard to its claim. In theabove view, the Petitioner Nos. 2 to 4 are deleted. This Petition as filed isrestricted only to the grievance of Petitioner No. 1 herein. 6Brief facts leading to this Petition, are as under:- (i)On 9[th] December, 1996, Petitioner No.1 was formed as a DelawareStatutory Trust under the laws of State of Delaware, USA. This inthe name of Aberdeen Delaware Business Trust. Thus, it was anentity incorporated/ set up in USA.Statutory Trust under the laws of State of Delaware, USA. This inthe name of Aberdeen Delaware Business Trust. Thus, it was anentity incorporated/ set up in USA. (ii)On 19[th] April, 2010, Petitioner No.1 was re-organized / converted itself from a trust into a Limited Liability Company (LLC) in accordance with the Laws of the State of Delaware, USA. This was pursuant to the Trust Act and LLC Act in State of Delaware, USA. This conversion was pursuant to Section 3821 of the Trust Act andSection 214 of the LLC Act from a statutory trust to LLC. The aboveSections of the Trust Act and LLC Act in Delaware, USA, inter aliaprovides that, when the statutory trust has been converted intoLLC, for the purposes of law of the State of Delaware, USA, the LLCitself from a trust into a Limited Liability Company (LLC) in accordance with the Laws of the State of Delaware, USA. This was pursuant to the Trust Act and LLC Act in State of Delaware, USA. This conversion was pursuant to Section 3821 of the Trust Act andSection 214 of the LLC Act from a statutory trust to LLC. The aboveSections of the Trust Act and LLC Act in Delaware, USA, inter aliaprovides that, when the statutory trust has been converted intoLLC, for the purposes of law of the State of Delaware, USA, the LLC would be deemed to be the same entity as the trust. Therefore, suchconversion will not constitute a creation of a new entity. would be deemed to be the same entity as the trust. Therefore, suchconversion will not constitute a creation of a new entity. (iii)Consequent to the above conversion, Securities and Exchange Boardof India (SEBI) by a communication dated 4[th] August, 2010 addressed to one M/s. Aberdeen Asset Management Ltd., informed it that the name of the following investment series (fund) has been of India (SEBI) by a communication dated 4[th] August, 2010 addressed to one M/s. Aberdeen Asset Management Ltd., informed it that the name of the following investment series (fund) has been changed as under:- wp-9358-2018 This change in the records of SEBI was in effect a constitution of itsearlier Registration. It is pertinent to note that, Petitioner Nos. 2 to 4 arethe same noted as Nos. 1 to 3 above in the communication. (iv)Thereafter, on 16[th] April, 2012, Petitioner made an application tothe AAR, seeking Advance Ruling on the question referred to hereinabove. The applicant after setting out change in the status andname from Aberdeen Delaware Business Trust to AberdeenCommingled Funds LLC, pointed out loses which had been claimed in the return filed by three of its investment series (funds) namely -Aberdeen Asia Pacific Excluding Japan Equity Fund, a series ofAberdeen Institutional Commingled funds LLC, Aberdeen AsiaPacific Including Japan, Equity Fund, a series of Aberdeen,Institutional Commingled Funds LLC Aberdeen Emerging Markets Equity Fund a series of Aberdeen Institutional Commingled FundsLLC. The aforesaid application sought a Ruling from the AAR on the above question. The application of Petitioner No.1 was admitted on 7[th] January, 2017 under Section 245R(2) of the Act. (v)Thereafter, parties were heard by the AAR at the final hearing ofthe application made by the Petitioner No.1. Consequent to theabove, on 21[st] February, 2018, the impugned order was passed bythe AAR, holding that, in the facts and the circumstances of the case, the Petitioner No.1 i.e. applicant before it would not beentitled to carry forward accumulated loses, as there is no provisionin the Act which allows one assessee to carry forward and set offloses incurred by some other assessee. Thus, the above question wasanswered in the negative i.e. against the Petitioner. 7Thus, this Petition challenges the impugned order dated 21[st]February, 2018 of the AAR. February, 2018 of the AAR. 8Mr. Kaka, learned Sr. Counsel in support of the Petitionsubmits as under:-submits as under:- (i)The Petitioner No.1 was earlier constituted as a statutory trust under the laws of State of Delaware, USA. It was on 19[th] April,2010 that the Petitioner was converted from a statutory trust into aLLC under the laws of the State of Delaware, USA. However, underthe law of Delaware, in particular,in view of Section 3821 of theTrust Act and Section 214 of the LLC Act, the trust when convertedinto a LLC in accordance with the law of State of Delaware, USA,would be deemed to be the same entity as it was before theconversion. Thus, Petitioner No.1 being the same entity both beforeand after its conversion, the Petitioner No.1 is entitled to carryforward its losses for the earlier year under Section 74 of the Act;under the laws of State of Delaware, USA. It was on 19[th] April,2010 that the Petitioner was converted from a statutory trust into aLLC under the laws of the State of Delaware, USA. However, underthe law of Delaware, in particular,in view of Section 3821 of theTrust Act and Section 214 of the LLC Act, the trust when convertedinto a LLC in accordance with the law of State of Delaware, USA,would be deemed to be the same entity as it was before theconversion. Thus, Petitioner No.1 being the same entity both beforeand after its conversion, the Petitioner No.1 is entitled to carryforward its losses for the earlier year under Section 74 of the Act; (ii)In terms of Private International Law, the status of a companywhich is incorporated abroad is determined with reference to theforeign laws. In this case, the laws of State of Delaware, USA and not by laws of India. This continued status would continue to holdin respect of the Petitioner No.1 even in India. Moreover, this issuewhich is incorporated abroad is determined with reference to theforeign laws. In this case, the laws of State of Delaware, USA and not by laws of India. This continued status would continue to holdin respect of the Petitioner No.1 even in India. Moreover, this issue is no longer open to debate in view of the Supreme Courtdecision in Technip S. A. v/s. SMS Holding (P) Ltd., & Others(2005) 5 SCC 465 ; (iii)Reliance was also placed upon the communication dated 4[th] August,2010 of SEBI, allowing the same registration to the five series(funds) even after change of its name. Thus, the same support theview that the status of the parties even after conversions,continues to be the same; 2010 of SEBI, allowing the same registration to the five series(funds) even after change of its name. Thus, the same support theview that the status of the parties even after conversions,continues to be the same; (iv) In any case, under Section 2 (17) of the Act, the company has beendefined for the purposes of the Act, as a body corporate incorporated by orunder the law of the country outside India wouldalso be considered to be a company for the purposes of this Act. Thus, it is entitled to the benefit of the Act; anddefined for the purposes of the Act, as a body corporate incorporated by orunder the law of the country outside India wouldalso be considered to be a company for the purposes of this Act. Thus, it is entitled to the benefit of the Act; and (v)The Ruling sought from the AAR was that the Petitioner be allowedto carry forward loses incurred by the three series (funds) being runby the Petitioners for the Assessment Year 2011-12 and subsequentthereto. As the Petitioner continues to be same person, both in itsearlier status as a trust an now as LLC. Benefit of carry forwardloss should have been extended to the Petitioner No.1 by the AAR. to carry forward loses incurred by the three series (funds) being runby the Petitioners for the Assessment Year 2011-12 and subsequentthereto. As the Petitioner continues to be same person, both in itsearlier status as a trust an now as LLC. Benefit of carry forwardloss should have been extended to the Petitioner No.1 by the AAR. 9As against the above, Mr. Tejvindeer Singh, learned Counselfor the Revenue while opposing the Petition, makes submissions asunder:- (a)The Respondent do not dispute nor does the impugned order of theAAR disputes the position in law that the status of the Petitionerunder the conflict of law is to be decided by the Court in which theAAR disputes the position in law that the status of the Petitionerunder the conflict of law is to be decided by the Court in which the entity was incorporated, in this case, State of Delaware, USA; 9As against the above, Mr. Tejvindeer Singh, learned Counselfor the Revenue while opposing the Petition, makes submissions asunder:- (a)The Respondent do not dispute nor does the impugned order of theAAR disputes the position in law that the status of the Petitionerunder the conflict of law is to be decided by the Court in which theAAR disputes the position in law that the status of the Petitionerunder the conflict of law is to be decided by the Court in which the entity was incorporated, in this case, State of Delaware, USA; (b)The applicant is not assessee under the Act as the return of incomehave not been filed by the Petitioner No.1. The return of income isfiled by its three series (funds) who have been individually assignedPermanent Account Number (PAN). It is thus, the three series(funds), each of whom is recognized as assessee under the Act.It is these series (funds) who would be entitled if otherwisepermitted in law to carry forward thelosses, declared in the earlierreturns of income for the subject Assessment Year 2011-12 andsubsequent years in accordance with law; have not been filed by the Petitioner No.1. The return of income isfiled by its three series (funds) who have been individually assignedPermanent Account Number (PAN). It is thus, the three series(funds), each of whom is recognized as assessee under the Act.It is these series (funds) who would be entitled if otherwisepermitted in law to carry forward thelosses, declared in the earlierreturns of income for the subject Assessment Year 2011-12 andsubsequent years in accordance with law; (c)The Petitioner No.1 not having filed any return, much less lossreturn of income, is not entitled to claim benefit of Section 74 ofthe Act. In support, attention was invited to Section 80 of the Actwhich permits the carry forward of losses only when return ofincome is been filed, claiming loss for the purposes of being setoff under Section 74 of the Act. In this case, admittedly,PetitionerNo.1 has not filed any return of income, claiming such loss; andreturn of income, is not entitled to claim benefit of Section 74 ofthe Act. In support, attention was invited to Section 80 of the Actwhich permits the carry forward of losses only when return ofincome is been filed, claiming loss for the purposes of being setoff under Section 74 of the Act. In this case, admittedly,PetitionerNo.1 has not filed any return of income, claiming such loss; and (d)Attention was drawn to the fact that SEBI had allowed the sameregistration even after change in name of five of its series (funds),however, the application made by the Petitioner was in respect of only three of the series (funds) out of the five series (fund),operating in India. It was submitted, if all of them, as contended by the Petitioner constitutes a part of the Petitioner, then the set off of loss and profit in each of the series should have been worked out,inter se and the return of income ought to have been filed by the Petitioner with the income tax authorities. This has admittedly not registration even after change in name of five of its series (funds),however, the application made by the Petitioner was in respect of only three of the series (funds) out of the five series (fund),operating in India. It was submitted, if all of them, as contended by the Petitioner constitutes a part of the Petitioner, then the set off of loss and profit in each of the series should have been worked out,inter se and the return of income ought to have been filed by the Petitioner with the income tax authorities. This has admittedly not 10We have considered the rival submissions. At the very outset,it must be pointed out that neither the AAR nor the Respondent disputethe fact that, in accordance with principles of Private International Law,the status of an entity, incorporated abroad, has to be determined even inIndia, according to the law of the Country, where the entity wasincorporated. This, issue is no longer res integra as it stands covered infavaor of the Petitioner's contention by the Supreme Court in Technip S.A.(supra). Thus, there is no dispute before us that the Petitioner No.1 bothas a trust and as LLC in terms of the law of Delaware, USA, continues tobe the same person. This position is accepted in India. Therefore, gain andloss earned by it in its earlier avtar would in law, not be denied onlybecause of change in status from Trust to LLC. However, we note that theAAR answered the above question for Advance Ruling in the negative noton the above ground of change of status of Petitioner No.1 but on theground that Petitioner No.1 was not possessed of any carry forward lossfor the earlier Assessment Year to be set off in Assessment Year 2011-12and subsequent Assessment Years in terms of Section 74 of the Act. It wasin the context of question framed viz. Whether Petitioner No.1(applicant) is entitled to carry forward losses for earlier years underSection 74 of the Act, that the AAR held that the Petitioner was not theassessee who had claimed a loss in the earlier Assessment Year. ThePetitioner No.1 had admittedly filed no return of income and is notallotted any PAN. In the above factual position, the impugned order of theAAR placed reliance upon Section 80 of the Act and the decision of theA. P. High Court in K.V.K. Raju v/s. CIT reported in 252 ITR 754 –wherein it has been held that, before a carry forward loss can be claimed by the assessee, it is necessary that, a loss a has been determined inpursuance of a return filed for the earlier Assessment Year under Section139 of the Act. 11The submission on behalf of the Petitioner in rejoinder thatSection 80 of the Act only prescribed the time period within which thereturn of income should be filed, is not correct. In fact, Section 139(3) ofthe Act itself provides that any person who has sustained a loss in theprevious year, under the head 'profits and gains of business or profession' orunder the head 'capital gain' and claims that such loss or any part thereof,should be carried forward, inter alia section 74 of the Act, then he mustfurnish a return of income. The loss return in the prescribed form as to befiled, as if it was a regular return of income under Section 139(1) of theAct. It is not the case of the Petitioner either before the AAR or evenbefore us that, it had filed any return of income even under the Act.Therefore, though in principle, there can be no dispute that the decisionof the Supreme Court in Technip (supra) would in Private InternationalLaw decide that the status of the Petitioner No.1 as LLC would continuein law to be the same as it was in its earlier avtar/ before conversion, as aTrust. However, the same would not by itself meet with the requirementsprovided under the Act so as to enable the party to carry forward the lossunder Section 74 of the Act. In fact, this distinction is brought out by theSupreme Court in Technip (supra) in paragraph 18 thereof, which readsas under:- “This general rule regarding determination of status bythe lex incorporationis will not apply when the issue relates tothe discharge of obligations or assertion of rights by acorporation in another country, whether such obligation is imposed by or right arises under the statute or contract, whichis governed by the law of such other country.” “This general rule regarding determination of status bythe lex incorporationis will not apply when the issue relates tothe discharge of obligations or assertion of rights by acorporation in another country, whether such obligation is imposed by or right arises under the statute or contract, whichis governed by the law of such other country.” 12The reliance by the Petitioner upon the communication dated4[th] August, 2010 by SEBI as the Regulatory Authority, allowing the series(funds) to continue with its earlier Registration, even after the change ofits name does not assist the Petitioner. This for the reason that, before theAAR, it is not the series (funds) who are seeking to carry forward thelosses but the Petitioner No.1 who has admittedly filed no return ofincome and is not assessed under the Act. Besides, the requirement of theAct has to be independently satisfied by the Petitioner No.1 before theAAR to carry forward the losses. As pointed out above, this has not beensatisfied by the Petitioner No.1 as correctly held by the AAR. 13One cannot loose sight of the fact that, the ruling of the AARon the question as proposed would necessarily depend upon context, inwhich, the question has been raised. In this case, the Petitioner No.1 wasseeking to carry forward accumulated loses under Section 74 of the Actwhen admittedly it had not filed any return of income, claiming loses forthe earlier Assessment Year under the Act and it was not an Assesseeunder the Act. Thus, no fault can be found with the impugned order of theAAR, answering the question as posed for its consideration by thePetitioner No.1 in the negative. However, it is made clear that, thisdecision will not impact the case of the three series (funds) to claim thebenefit of carrying forward losses under Section 74 of the Act, if they areotherwise entitlement to it in law. Neither the AAR nor we had anyoccasion in the present proceedings to decide whether or not, the threeseries (funds), for whom the Petitioner is claiming benefit in its hands, are entitled to the benefit of carry forward loses under Section 74 of the Actor not. Their claim, if any, in their individual capacity is left untouched bythis order to be decided in appropriate proceedings, if claimed by them. 14In the above view, Petition is dismissed. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.)