Facts of the case

In order to ensure finality and certainty as to taxability of income by way of dividends, interest and capital gains that Petitioner earned from sources in India, he made an application to Authority for Advance Ruling.

AAR by applying provisions of India-UAE DTAA held that Petitioner was resident of UAE, Petitioner was not liable to any tax in UAE since there was no levy of income tax on individual in UAE. Capital gains on transfer of movable assets would not be taxable in India. Dividend income accruing in India would be taxed at the rate of 15% and income by way of interest on debentures and bonds would be taxable at the rate of 12.5%.

Petitioner filed its return of income by applying ruling pronounced by AAR.
Subsequently, Income Tax Officer (ITO) issued notice under section 148. In the reasons recorded for re-opening it was concluded that income has escaped assessment in as much as benefits of DTAA were wrongly given to Petitioner. ITO made said conclusion on the basis that AAR in its subsequent ruling in case of another applicant concluded that the benefits of DTAA would not be applicable as the applicant therein was not chargeable to tax in UAE. Accordingly, ITO concluded that the ratio of subsequent ruling would be applicable to Petitioner and Petitioner would therefore not be entitled for the benefits applicable under the provisions of DTAA.

Issue under consideration

Issue under consideration is that whether in view of the binding nature of the ruling pronounced under section 245-R by AAR which is binding on applicant, jurisdictional assessing officer and the transactions for which ruling was sought, can the Assessing Officer by relying on ruling in case of another applicant where AAR has taken a different view, form a reason to believe that income chargeable to tax has escaped assessment.

Observations of the Court

Section 245-S states that ruling pronounced by AAR is binding on applicant, transactions in respect of which ruling is sought and jurisdictional Assessing Officer in respect of applicant. Sub-section (2) of section 245S stated that ruling shall be binding unless there is change in law or facts on the basis of which advance ruling has been pronounced.

In the given case, the ruling in case of another applicant cannot bind the Petitioner nor displace the binding character of ruling rendered in case of Petitioner. There was no change in law or facts of Petitioner. The ruling in the case of another applicant cannot be covered under sub-section (2) of section 245S. The said ruling does not constitute change in law.

Decision of court

It was held that merely because AAR in case of another applicant had taken a different view that by itself cannot be reason to believe that income chargeable to tax has escaped assessment. Accordingly, notice under section 148 was quashed.