The Authority for Advance Rulings has ruled against me and section 245S says the ruling is binding. Is there anything I can do about it?
Yes. The Supreme Court held that the Authority for Advance Rulings is a tribunal within Articles 136 and 227, exercising judicial power, so its rulings can be challenged in the High Court under Articles 226 and 227 and, in this Court's discretion, under Article 136. Section 245S making a ruling binding on the applicant and the income tax authorities cannot oust a jurisdiction conferred by the Constitution. But the Court will ordinarily send the applicant to the High Court unless a substantial question of general importance arises. Such a writ petition should be heard directly by a Division Bench and decided as expeditiously as possible.
Decided by the Supreme Court (Supreme Court of India - Chief Justice S.H. Kapadia, Justice A.K. Patnaik and Justice Swatanter Kumar (order by A.K. Patnaik, J)) on 2012-07-30, reported as (2012) 346 ITR 161; 2012 (11) SCC 224; AIR 2012 SC 3038; 2012 (7) SCALE 53; 2012 Tax LR 632. It bears on section 245S, section 245N, section 245R of the Income Tax Act 1961, in Appeals and How Tax Law Is Read matters.
This is the decision that settles the route of challenge against an advance ruling, and every adviser handling an unfavourable ruling needs it. It disposes of the finality argument by locating the jurisdiction in the Constitution rather than the Act, following Kihoto Hollohan on the Tenth Schedule and Jyotendrasinhji on section 245-I. It also declines the Authority's own suggestion in Groupe Industrial Marcel Dassault that challenges should go straight to the Supreme Court to save time, because L. Chandra Kumar makes the High Court's power of judicial superintendence over tribunals part of the basic structure. The practical directions matter as much as the principle: go to the High Court, not the Supreme Court, and ask for the matter to be placed before the Division Bench that hears income tax cases. The Court will grant special leave against a ruling only where a question of principle of great importance arises or an identical question is already before it.
Binding on every court and authority in India.
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The petitioner is a company incorporated in the United States which designs, develops, markets and distributes outdoor apparel. To make purchases for its business it opened a liaison office in Chennai in 1995 with the Reserve Bank's permission, granted by letter of 1 March 1995 on terms confining it to purely liaison activities - inspecting quality, ensuring shipments and acting as a communication channel between head office and parties in India - and forbidding any trading, commercial or industrial activity or the making of business contracts in its own name without prior permission. A second liaison office at Bangalore was permitted on the same terms on 19 June 2000. On 10 December 2009 the company applied to the Authority for Advance Rulings with six questions about the transactions of its liaison office. The Authority ruled against it on 8 August 2011 in A.A.R. No. 862 of 2009. The company petitioned the Supreme Court under Article 136. A preliminary question arose, common to a group of petitions and appeals heard together: whether an advance ruling can be challenged at all, given section 245S, and if so, where.
The Authority is a body exercising judicial power conferred on it by Chapter XIX-B and is a tribunal within the meaning of Articles 136 and 227. Section 245S(1), which makes a ruling binding on the applicant in respect of the transaction and on the Commissioner and his subordinates, does not bar the jurisdiction of the Supreme Court under Article 136 or of the High Court under Articles 226 and 227 to entertain a challenge. The Court declined to hold that challenges lie only to the Supreme Court, but directed that where an advance ruling is challenged in the High Court the petition should be heard directly by a Division Bench and decided as expeditiously as possible. On the exercise of its own discretion, the Court found no substantial question of general importance in this petition and no similar question already pending before it, and disposed of the petition granting liberty to move the appropriate High Court, requesting that the writ petition, if filed, be heard by the Division Bench hearing income tax matters. The connected petitions and appeals were disposed of in the same terms.
The Court first asked whether the Authority is a tribunal. On Harinagar Sugar Mills, the test is whether the body is vested by law with the judicial power of the State to pronounce upon rights or liabilities arising under some special law - such bodies are very similar to courts but are not courts, which is why Articles 136 and 227 use both expressions. Applying that to Chapter XIX-B, section 245N(a) shows the Authority determines not merely a transaction but the tax liability arising from it, and may determine the quantum of income, in each case deciding questions of law or of fact. Section 245S makes the determination binding, not advisory. On Seervai, quoting de Smith, an authority acts in a judicial capacity when after investigation and deliberation it makes a binding decision affecting the rights of individuals. The Authority therefore satisfies the test. The Court then held that a statutory finality clause cannot displace a constitutional jurisdiction, following Kihoto Hollohan, where the finality of the Speaker's decision under the Tenth Schedule was held not to exclude review though it might limit its scope, and Jyotendrasinhji, where section 245-I making a settlement order conclusive was held not to bar Articles 226 and 136. It declined the Authority's own suggestion in Groupe Industrial Marcel Dassault that, to preserve expedition, challenges should go directly to the Supreme Court, because on L. Chandra Kumar the High Courts' judicial superintendence over courts and tribunals within their jurisdiction is part of the basic structure; excluding it would negate that. The apprehension about delay was met by directing a Division Bench hearing. Finally, on its own discretion under Article 136, the Court applied Sirpur Paper Mills: it does not encourage direct appeals from a tribunal exercising judicial functions unless a question of principle of great importance arises.
a provision of an Act of legislature making the decision of the Authority final or binding could not come in the way of this Court or the High Courts to exercise jurisdiction vested under the Constitution.
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court held that the Authority for Advance Rulings is a tribunal within Articles 136 and 227, exercising judicial power, so its rulings can be challenged in the High Court under Articles 226 and 227 and, in this Court's discretion, under Article 136. Section 245S making a ruling binding on the applicant and the income tax authorities cannot oust a jurisdiction conferred by the Constitution. But the Court will ordinarily send the applicant to the High Court unless a substantial question of general importance arises. Such a writ petition should be heard directly by a Division Bench and decided as expeditiously as possible. This was decided by the Supreme Court (Supreme Court of India - Chief Justice S.H. Kapadia, Justice A.K. Patnaik and Justice Swatanter Kumar (order by A.K. Patnaik, J)) and bears on section 245S, section 245N, section 245R of the Income Tax Act 1961. It is reported as (2012) 346 ITR 161; 2012 (11) SCC 224; AIR 2012 SC 3038; 2012 (7) SCALE 53; 2012 Tax LR 632. This is the decision that settles the route of challenge against an advance ruling, and every adviser handling an unfavourable ruling needs it. It disposes of the finality argument by locating the jurisdiction in the Constitution rather than the Act, following Kihoto Hollohan on the Tenth Schedule and Jyotendrasinhji on section 245-I. It also declines the Authority's own suggestion in Groupe Industrial Marcel Dassault that challenges should go straight to the Supreme Court to save time, because L. Chandra Kumar makes the High Court's power of judicial superintendence over tribunals part of the basic structure. The practical directions matter as much as the principle: go to the High Court, not the Supreme Court, and ask for the matter to be placed before the Division Bench that hears income tax cases. The Court will grant special leave against a ruling only where a question of principle of great importance arises or an identical question is already before it. If it applies to you, the first step is this: Challenge an adverse advance ruling by writ petition in the High Court under Articles 226 and 227, not by special leave, unless the point is one of general importance or is already before the Supreme Court.
The petitioner is a company incorporated in the United States which designs, develops, markets and distributes outdoor apparel. To make purchases for its business it opened a liaison office in Chennai in 1995 with the Reserve Bank's permission, granted by letter of 1 March 1995 on terms confining it to purely liaison activities - inspecting quality, ensuring shipments and acting as a communication channel between head office and parties in India - and forbidding any trading, commercial or industrial activity or the making of business contracts in its own name without prior permission. A second liaison office at Bangalore was permitted on the same terms on 19 June 2000. On 10 December 2009 the company applied to the Authority for Advance Rulings with six questions about the transactions of its liaison office. The Authority ruled against it on 8 August 2011 in A.A.R. No. 862 of 2009. The company petitioned the Supreme Court under Article 136. A preliminary question arose, common to a group of petitions and appeals heard together: whether an advance ruling can be challenged at all, given section 245S, and if so, where. The matter was decided on 2012-07-30 by the Supreme Court (Supreme Court of India - Chief Justice S.H. Kapadia, Justice A.K. Patnaik and Justice Swatanter Kumar (order by A.K. Patnaik, J)). On those facts the Supreme Court held as follows. The Authority is a body exercising judicial power conferred on it by Chapter XIX-B and is a tribunal within the meaning of Articles 136 and 227. Section 245S(1), which makes a ruling binding on the applicant in respect of the transaction and on the Commissioner and his subordinates, does not bar the jurisdiction of the Supreme Court under Article 136 or of the High Court under Articles 226 and 227 to entertain a challenge. The Court declined to hold that challenges lie only to the Supreme Court, but directed that where an advance ruling is challenged in the High Court the petition should be heard directly by a Division Bench and decided as expeditiously as possible. On the exercise of its own discretion, the Court found no substantial question of general importance in this petition and no similar question already pending before it, and disposed of the petition granting liberty to move the appropriate High Court, requesting that the writ petition, if filed, be heard by the Division Bench hearing income tax matters. The connected petitions and appeals were disposed of in the same terms.
The Court first asked whether the Authority is a tribunal. On Harinagar Sugar Mills, the test is whether the body is vested by law with the judicial power of the State to pronounce upon rights or liabilities arising under some special law - such bodies are very similar to courts but are not courts, which is why Articles 136 and 227 use both expressions. Applying that to Chapter XIX-B, section 245N(a) shows the Authority determines not merely a transaction but the tax liability arising from it, and may determine the quantum of income, in each case deciding questions of law or of fact. Section 245S makes the determination binding, not advisory. On Seervai, quoting de Smith, an authority acts in a judicial capacity when after investigation and deliberation it makes a binding decision affecting the rights of individuals. The Authority therefore satisfies the test. The Court then held that a statutory finality clause cannot displace a constitutional jurisdiction, following Kihoto Hollohan, where the finality of the Speaker's decision under the Tenth Schedule was held not to exclude review though it might limit its scope, and Jyotendrasinhji, where section 245-I making a settlement order conclusive was held not to bar Articles 226 and 136. It declined the Authority's own suggestion in Groupe Industrial Marcel Dassault that, to preserve expedition, challenges should go directly to the Supreme Court, because on L. Chandra Kumar the High Courts' judicial superintendence over courts and tribunals within their jurisdiction is part of the basic structure; excluding it would negate that. The apprehension about delay was met by directing a Division Bench hearing. Finally, on its own discretion under Article 136, the Court applied Sirpur Paper Mills: it does not encourage direct appeals from a tribunal exercising judicial functions unless a question of principle of great importance arises. In the words reproduced by the source cited on this page: "a provision of an Act of legislature making the decision of the Authority final or binding could not come in the way of this Court or the High Courts to exercise jurisdiction vested under the Constitution."
It was decided by the Supreme Court on 2012-07-30 and is reported as (2012) 346 ITR 161; 2012 (11) SCC 224; AIR 2012 SC 3038; 2012 (7) SCALE 53; 2012 Tax LR 632. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 245S, section 245N, section 245R, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Authority is a body exercising judicial power conferred on it by Chapter XIX-B and is a tribunal within the meaning of Articles 136 and 227. Section 245S(1), which makes a ruling binding on the applicant in respect of the transaction and on the Commissioner and his subordinates, does not bar the jurisdiction of the Supreme Court under Article 136 or of the High Court under Articles 226 and 227 to entertain a challenge. The Court declined to hold that challenges lie only to the Supreme Court, but directed that where an advance ruling is challenged in the High Court the petition should be heard directly by a Division Bench and decided as expeditiously as possible. On the exercise of its own discretion, the Court found no substantial question of general importance in this petition and no similar question already pending before it, and disposed of the petition granting liberty to move the appropriate High Court, requesting that the writ petition, if filed, be heard by the Division Bench hearing income tax matters. The connected petitions and appeals were disposed of in the same terms. It arises in Appeals and How Tax Law Is Read matters, on section 245S, section 245N, section 245R of the Income Tax Act 1961, and was decided by Supreme Court of India - Chief Justice S.H. Kapadia, Justice A.K. Patnaik and Justice Swatanter Kumar (order by A.K. Patnaik, J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. When filing, ask the High Court to place the petition before the Division Bench that hears income tax matters and to take it up expeditiously, relying on the direction in this order. Meet the section 245S argument by pointing out that the binding effect is statutory and cannot curtail a constitutional jurisdiction. Remember that a ruling binds only the applicant, that transaction and the Commissioner and his subordinates in relation to them; for anyone else it is persuasive only, so a ruling against another taxpayer is not conclusive against your client.
Still good law. A three judge Supreme Court order read in full, including the operative disposal of the lead petition and the connected matters; it binds unless a larger Bench departs from it, and the harvested page records it as cited in 45 later decisions. I have not checked whether Chapter XIX-B has since been amended in ways that affect the reasoning - the Authority has been reconstituted in later years - though the constitutional holding does not depend on the detail of the Chapter. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line listed section 246A; the order does not deal with appeals to the Commissioner (Appeals) at all. Sections 245N and 245R are in the order; the operative holding is about section 245S. The Court decided only the preliminary question of the route of challenge and expressly did not touch the merits of the Authority's ruling on the liaison office, so this record says nothing about whether the Chennai and Bangalore offices constituted a permanent establishment or gave rise to taxable income. The six questions the company had put to the Authority are set out in the harvested text but the Authority's answers are not. The order describes the outcome as disposing of the petition with liberty, not as allowing it. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Authority is a body exercising judicial power conferred on it by Chapter XIX-B and is a tribunal within the meaning of Articles 136 and 227. Section 245S(1), which makes a ruling binding on the applicant in respect of the transaction and on the Commissioner and his subordinates, does not bar the jurisdiction of the Supreme Court under Article 136 or of the High Court under Articles 226 and 227 to entertain a challenge. The Court declined to hold that challenges lie only to the Supreme Court, but directed that where an advance ruling is challenged in the High Court the petition should be heard directly by a Division Bench and decided as expeditiously as possible. On the exercise of its own discretion, the Court found no substantial question of general importance in this petition and no similar question already pending before it, and disposed of the petition granting liberty to move the appropriate High Court, requesting that the writ petition, if filed, be heard by the Division Bench hearing income tax matters. The connected petitions and appeals were disposed of in the same terms.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
I bought shares of an Indian company from two Mauritius sellers holding valid tax residency certificates. Must I withhold tax on the price, and can the Authority refuse a ruling by calling the structure tax avoidance?
Two non-residents sold shares of a foreign company that draws only part of its value from Indian assets. Does Explanation 5 to section 9(1)(i) make those gains taxable in India, and must the buyer withhold?
Our US fund buys and sells Indian shares through local brokers and a custodian bank. Are our gains business profits or capital gains, and does the custodian give us a permanent establishment?
The Department says my advance ruling application is barred because scrutiny of my return had already begun. Does a section 143(2) notice issued before I applied shut me out?