I applied to the Authority on 26 March and filed a revised return claiming an exemption on 30 March. The Department says my question was already pending. Was it?
No. The Authority allowed the application under section 245R(2), rejecting the Department's objection under clause (i) of the proviso. The applicant, resident in Singapore, had filed returns for assessment years 2005-06 and 2006-07 on 30 October 2005 and 31 October 2006 which claimed no exemption; he applied to the Authority on 26 March 2007; and he filed revised returns claiming the exclusion in Explanation 1 to section 9(1)(i) only on 30 March 2007. The Authority held that pendency is judged as on the date of the application, so nothing was in issue on 26 March 2007. It also rejected the objection that the transaction was designed for avoidance.
Pronounced by the Authority for Advance Rulings (P. V. Reddi, J. (Chairman) and A. Sinha, Member) on 2007-08-01. It bears on section 245R(2), section 9(1)(i), section 143(2), section 245N of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
The clearest modern statement that the pendency bar is tested as at the date of filing. Two practical consequences follow. A claim first made in a revised return filed after the application cannot be worked backwards to make the question already pending; and a notice under section 143(2) does not put every question in the return in issue, but only what it raises, which here was arm's length pricing. The Authority also declined to let the Department convert a claim to a statutory exemption into a design for avoidance of income-tax without any factual foundation. The same proviso now governs applications to the Boards for Advance Rulings, so the construction still has work to do.
Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them.
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The applicant was an individual resident in Singapore and non-resident in India. At Chennai he ran a sole proprietary business, Mustafa Gold Mart, which purchased, manufactured and sold gold jewellery, and he was managing director of Mustafas Pte Limited of Singapore. Apart from the Chennai business he purchased gold jewellery in India for export, and purchased gold for conversion into jewellery in India for export, claiming that this activity was unrelated to the proprietary business. He had been filing returns of his business income from local and export sales with the Additional Director of Income-tax (International Taxation), Chennai; the returns for assessment years 2005-06 and 2006-07 were filed on 30 October 2005 and 31 October 2006 and claimed no exemption. He applied to the Authority on 26 March 2007 asking whether the income from those export activities accrued or arose in India and was taxable, and whether it fell within clauses (a) and (b) of Explanation 1 to section 9(1)(i). On 30 March 2007 he filed revised returns claiming that exclusion.
The Authority allowed the application under section 245R(2) of the Act and directed that the date of hearing be intimated in due course. It did not decide the merits. On the Department's objection that the questions were already pending before an income-tax authority within clause (i) of the proviso, the Authority held that the words 'already pending' mean already pending as on the date of the application, so that the crucial date was 26 March 2007. On that date the returns on record claimed no exemption and did not put the exigibility of the export income in issue, so no question could be said to be pending. The notice already issued under section 143(2) went to arm's length pricing and not to the exemption. The Authority also rejected the objection that the transaction was designed prima facie for the avoidance of income-tax, holding that the mere fact that an exemption is claimed in reliance on a particular provision of the Act cannot be construed as a design for avoidance of income-tax.
The Authority's construction of clause (i) rests on a practical objection to any other reading. If the question were whether a matter is pending when the Authority takes up the application, maintainability would turn on the accident of listing: two applicants who filed on the same day would be treated differently according to when their cases came on, and an applicant who filed while nothing was pending could be shut out by events he did not control. The Authority therefore fixed the enquiry at the date of the application and asked what was in issue then. The answer was nothing relevant. The returns for both years had been filed long before, and in them the applicant had offered the export income as his business income and claimed no exclusion. A question is pending before an authority when there is a controversy for that authority to resolve, and there was none. The Department's reliance on the section 143(2) notice failed for a connected reason: the issue that notice raised was arm's length pricing, and a scrutiny notice does not put at large every question the return might have raised. The revised returns of 30 March 2007, being four days later, could not be used to backdate a controversy. On the avoidance objection the Authority required an evidentiary foundation, holding that using a provision Parliament enacted is not by itself a design to avoid tax.
The question cannot therefore be said to be pending on 26.3.2007.
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Handle my notice → Ask a CA on WhatsAppNo. The Authority allowed the application under section 245R(2), rejecting the Department's objection under clause (i) of the proviso. The applicant, resident in Singapore, had filed returns for assessment years 2005-06 and 2006-07 on 30 October 2005 and 31 October 2006 which claimed no exemption; he applied to the Authority on 26 March 2007; and he filed revised returns claiming the exclusion in Explanation 1 to section 9(1)(i) only on 30 March 2007. The Authority held that pendency is judged as on the date of the application, so nothing was in issue on 26 March 2007. It also rejected the objection that the transaction was designed for avoidance. This was decided by the Advance Ruling (P. V. Reddi, J. (Chairman) and A. Sinha, Member) and bears on section 245R(2), section 9(1)(i), section 143(2), section 245N of the Income Tax Act 1961. The clearest modern statement that the pendency bar is tested as at the date of filing. Two practical consequences follow. A claim first made in a revised return filed after the application cannot be worked backwards to make the question already pending; and a notice under section 143(2) does not put every question in the return in issue, but only what it raises, which here was arm's length pricing. The Authority also declined to let the Department convert a claim to a statutory exemption into a design for avoidance of income-tax without any factual foundation. The same proviso now governs applications to the Boards for Advance Rulings, so the construction still has work to do. If it applies to you, the first step is this: Apply before the point is taken anywhere else, and keep a dated record of the state of your assessment on the day you file.
The applicant was an individual resident in Singapore and non-resident in India. At Chennai he ran a sole proprietary business, Mustafa Gold Mart, which purchased, manufactured and sold gold jewellery, and he was managing director of Mustafas Pte Limited of Singapore. Apart from the Chennai business he purchased gold jewellery in India for export, and purchased gold for conversion into jewellery in India for export, claiming that this activity was unrelated to the proprietary business. He had been filing returns of his business income from local and export sales with the Additional Director of Income-tax (International Taxation), Chennai; the returns for assessment years 2005-06 and 2006-07 were filed on 30 October 2005 and 31 October 2006 and claimed no exemption. He applied to the Authority on 26 March 2007 asking whether the income from those export activities accrued or arose in India and was taxable, and whether it fell within clauses (a) and (b) of Explanation 1 to section 9(1)(i). On 30 March 2007 he filed revised returns claiming that exclusion. The matter was decided on 2007-08-01 by the Advance Ruling (P. V. Reddi, J. (Chairman) and A. Sinha, Member). On those facts the Advance Ruling held as follows. The Authority allowed the application under section 245R(2) of the Act and directed that the date of hearing be intimated in due course. It did not decide the merits. On the Department's objection that the questions were already pending before an income-tax authority within clause (i) of the proviso, the Authority held that the words 'already pending' mean already pending as on the date of the application, so that the crucial date was 26 March 2007. On that date the returns on record claimed no exemption and did not put the exigibility of the export income in issue, so no question could be said to be pending. The notice already issued under section 143(2) went to arm's length pricing and not to the exemption. The Authority also rejected the objection that the transaction was designed prima facie for the avoidance of income-tax, holding that the mere fact that an exemption is claimed in reliance on a particular provision of the Act cannot be construed as a design for avoidance of income-tax.
The Authority's construction of clause (i) rests on a practical objection to any other reading. If the question were whether a matter is pending when the Authority takes up the application, maintainability would turn on the accident of listing: two applicants who filed on the same day would be treated differently according to when their cases came on, and an applicant who filed while nothing was pending could be shut out by events he did not control. The Authority therefore fixed the enquiry at the date of the application and asked what was in issue then. The answer was nothing relevant. The returns for both years had been filed long before, and in them the applicant had offered the export income as his business income and claimed no exclusion. A question is pending before an authority when there is a controversy for that authority to resolve, and there was none. The Department's reliance on the section 143(2) notice failed for a connected reason: the issue that notice raised was arm's length pricing, and a scrutiny notice does not put at large every question the return might have raised. The revised returns of 30 March 2007, being four days later, could not be used to backdate a controversy. On the avoidance objection the Authority required an evidentiary foundation, holding that using a provision Parliament enacted is not by itself a design to avoid tax. In the words reproduced by the source cited on this page: "The question cannot therefore be said to be pending on 26.3.2007."
It was decided by the Advance Ruling on 2007-08-01. Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them. An advance ruling binds only the applicant who sought it, only for the transaction it was sought on, and only the Commissioner and the officers under him in relation to that applicant and that transaction — and only until the law or the facts change. That is section 245S, and it means the ruling is not a precedent and binds nothing in your case. You cite it because the Authority reasoned the point out, often first and most fully, and the Tribunal and the courts treat a considered ruling as persuasive. Check before you rely on one: most of these were pronounced before 2009, and a great deal of cross-border tax has been rewritten since by amendment, protocol and judgment. On section 245R(2), section 9(1)(i), section 143(2), section 245N, 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 allowed the application under section 245R(2) of the Act and directed that the date of hearing be intimated in due course. It did not decide the merits. On the Department's objection that the questions were already pending before an income-tax authority within clause (i) of the proviso, the Authority held that the words 'already pending' mean already pending as on the date of the application, so that the crucial date was 26 March 2007. On that date the returns on record claimed no exemption and did not put the exigibility of the export income in issue, so no question could be said to be pending. The notice already issued under section 143(2) went to arm's length pricing and not to the exemption. The Authority also rejected the objection that the transaction was designed prima facie for the avoidance of income-tax, holding that the mere fact that an exemption is claimed in reliance on a particular provision of the Act cannot be construed as a design for avoidance of income-tax. It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 245R(2), section 9(1)(i), section 143(2), section 245N of the Income Tax Act 1961, and was decided by P. V. Reddi, J. (Chairman) and A. Sinha, Member. 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. If a section 143(2) notice is relied on against you, obtain the notice and show what issue it actually raises. Do not file a revised return raising the very question before you apply; here the sequence is what saved the applicant. Where avoidance is alleged, ask the Department to identify the facts it relies on beyond the claim itself.
Still good law. Checked the current official text of section 245R. Clause (i) of the proviso to sub-section (2), which bars a question already pending before any income-tax authority or Appellate Tribunal or any court, stands as the Authority read it, having last been substituted by the Finance Act 2000, so the timing construction is unaffected. The forum is not the same: the Authority for Advance Rulings has been replaced by Boards for Advance Rulings constituted under section 245-OB by Notification Nos. 96/2021 and 97/2021 dated 1 September 2021, and an appeal now lies to the High Court under section 245W, so a Board applying this construction can be taken up on appeal in a way the Authority could not. I found no High Court or Supreme Court decision dealing with this decision. 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 text at this Indian Kanoon page is word for word the text at Indian Kanoon doc 770037, which that site dates 17 August 2007 - the same opening paragraph, the same nineteen numbered paragraphs, the same filing date of 26 March 2007. Neither page prints an AAR application number, and I could not establish whether the applicant filed two applications decided in identical terms or whether one decision has been indexed twice. The library carries the other page under the slug mustaq-ahmed-vs-unknown-aar-2007. The input note for this entry described the decision accurately. 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 allowed the application under section 245R(2) of the Act and directed that the date of hearing be intimated in due course. It did not decide the merits. On the Department's objection that the questions were already pending before an income-tax authority within clause (i) of the proviso, the Authority held that the words 'already pending' mean already pending as on the date of the application, so that the crucial date was 26 March 2007. On that date the returns on record claimed no exemption and did not put the exigibility of the export income in issue, so no question could be said to be pending. The notice already issued under section 143(2) went to arm's length pricing and not to the exemption. The Authority also rejected the objection that the transaction was designed prima facie for the avoidance of income-tax, holding that the mere fact that an exemption is claimed in reliance on a particular provision of the Act cannot be construed as a design for avoidance of income-tax.
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