M/s XYZ Limited, an Indian company engaged in providing Engineering Consultancy Services, entered into negotiations with M/s GTW Inc., a…

M/s XYZ Limited, an Indian company engaged in providing Engineering Consultancy Services, entered into negotiations with M/s GTW Inc., a non-resident company incorporated in the USA, for a proposed transaction involving transfer of technical know-how and provision of specialized engineering services. Since the taxability of payments to the non-resident was uncertain, particularly with respect to characterization as royalty, fees for technical services (FTS), or business income under the Income-tax Act, 1961 and the applicable Double Taxation Avoidance Agreement (DTAA), XYZ Limited filed an application before the Board for Advance Ruling seeking determination of: Whether the consideration payable to GTW Inc. would be taxable in India and whether XYZ Limited would be required to deduct tax at source under Section 195 the applicable rate of tax, if any. The Board rejected the application on the ground that the issue raised in the application was already pending before the High Court. Considering the facts given, explain whether such rejection by the Board of Advance Ruling is valid, what precautions the Board of Advance must take before rejecting an application and what remedies are available to the XYZ Limited against such rejection?