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| DATE: | July 31, 2012 (Date of publication) |
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| Click here to download the judgement (columbia_AAR_rulings_challenge.pdf) |
“Binding” AAR Rulings can be challenged but not directly in the Supreme Court
The Petitioner, a USA company, filed an application for advance ruling on the question whether its liaison office in India was a “business connection”/ “permanent establishment” and whether its business profits were taxable under the Act and the DTAA. The AAR held that the liaison office was a business connection/ PE and that the income attributable thereto was assessable to tax in India. The Petitioner filed a SLP directly in the Supreme Court to challenge the AAR’s ruling. The Supreme Court had to consider whether the AAR was a “tribunal”/ “court” and its rulings could be challenged despite their “binding” effect and whether a direct challenge in the Supreme Court was desirable. HELD:
(i) The term “Court” is meant to refer to a Courts of Civil Judicature while the term “Tribunals” means those bodies of men who are appointed to decide controversies arising under certain special laws. U/s 245N, the AAR has the power to determine the tax liability arising out of a transaction and such determination may include a determination of issue of fact or issue of law. U/s 245S, its rulings are binding on the Applicant and the department. Consequently, the AAR is exercising judicial power and is a “tribunal” whose rulings can be challenged under Articles 136 and 227 of the Constitution;
(ii) The fact that the ruling pronounced by the AAR is “binding” does not affect the jurisdiction of the Court under Article 136 or under Articles 226 and 227 of the Constitution to entertain a challenge to the ruling.
(iii) The ruling should in the first instance be challenged before the High Court instead of directly in the Supreme Court. To avoid the matter remaining pending in the High Court for years, which would defeat the objective of enabling the applicant to get an expeditious ruling, the matter should be heard directly by a Division Bench of the High Court and decided as expeditiously as possible;
(iv) Ordinarily, an aggrieved party should not be encouraged to appeal directly to the Supreme Court unless it appears to the Court that the SLP raises substantial questions of general importance or a similar question is already pending before it for decision. On facts, as the SLP did not raise a substantial question of general importance nor was a similar question already pending before the Supreme Court, the Petitioner should move the High Court under Article 226/ 227 of the Constitution.
As I instantaneously recall, the basic issue on which the SC has now given its ruling was the subject matter of a dialogue sometime ago, wrt an artcle @ Auxiliary Activities and Permanent Establishments – Indian … indiacorplaw.blogspot.com/…/auxiliary-activities-and-permanent.htm.
Now, turning to the reported SC Ruling:
The apex court‘s opinion clinching the dispute reads thus: “ …when an advance ruling of the Authority is challenged before the High Court under Articles 226 and/or 227 of the Constitution, the same should be heard directly by a Division Bench of the High Court and decided as expeditiously as possible.”
Such an opinion has come to be handed down empathising with, and by way of setting at rest, “the apprehension of the Authority that a writ petition may remain pending in the High Court for years, first before a learned Single Judge and thereafter in Letters Patent Appeal before the Division Bench and as a result the object of Chapter XIX-B of the Act which is to enable an applicant to get an advance ruling in respect of a transaction expeditiously would be defeated.”
Be that as it may, the points incidentally arising, on which one is not clear, are briefly these:
1. Is ‘the opinion’ generally binding and expected to be abided by and followed by high courts in all such disputes?
2. Would the extant rules of procedure for courts to follow require any change /modification for putting into effect the said opinion?
3. Is it not ,even after the matter is heard and decided upon by a Division Bench of HC, depending on the nature of the issues, stakes involved, etc. in a given case, open to the aggrieved party, to still take up the dispute to the highest court (SC) ? Should that be so, that is – were that to happen, how then the objective of special advance ruling procedure, having the aim of an expeditious settlement of the points raised, be fully met !
May be, these doubts arising impromptu in a common man’s mind, if at all found not unsound or without validity, come to be discussed /debated in legal circles; unless, of course, legal pundits have ready answers up their sleeves.
ADD-0N
It is true that, the SC, for reasons given, been reluctant to to hold that an advance ruling by the AAR “can only be challenged under Article 136 of the Constitution before this Court and not under Articles 226 and/or 227 of the Constitution before the High Court.
Nonetheless, with due respect thereto, following thoughts / reservation which keep nagging in one’s mind, craving for a better answer, may be worthwhile for constitutional experts to deliberate on :
Could not ,- having regard to the adverse consequences, impacting the very objective of enactment bringing into being the authority- AAR,- have a different view been taken, as that would help to resolve any point of dispute more expeditiously than otherwise?
Could it not,- more based on the principle of ” ‘balance’ of convenience”, regardless of the merits or otherwise of the rigid view presently taken (technical or hyper-technical by what ever name one may call it), – have been held that this is ‘fit and proper’ case to hold differently; that is, to give precedence to and go by the course of action / remedy as per the Article 136 of the Constitution.
Besides, it may be equally worthwhile for the government to consider whether or not the extant scheme of the provisions on advance ruling require to be suitably amended / modified so that the view taken by the SC does not come in the way of an expeditious resolution and ensuring finality of advance rulings BEING ACHIEVED IN THE SPEEDIEST WAY POSSIBLE.