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?
No, on these facts - and this decision goes no further than that. The Authority allowed the application under section 245R(2) and posted it for hearing; it did not rule on whether the applicant's income from buying gold jewellery in India for export is taxable. The applicant, resident in Singapore, had filed returns for assessment years 2005-06 and 2006-07 claiming no exemption, applied to the Authority on 26 March 2007, and only then filed revised returns on 30 March 2007 claiming the exclusion in Explanation 1 to section 9(1)(i). The Authority held that no question was pending on the date of the application, and that claiming a statutory exemption is not a design for avoidance.
Pronounced by the Authority for Advance Rulings (P. V. Reddi, J. (Chairman) and A. Sinha, Member) on 2007-08-17. 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.
Worth having for the timing rule, and for what it does not decide. The bar in the proviso to section 245R(2) is tested as at the date the application is filed, so a question that surfaces only in a revised return filed afterwards was not already pending; and a notice under section 143(2) issued on a different issue - here arm's length pricing - does not put every question in the return in issue. The Authority also refused the avoidance objection, holding that claiming an exemption the Act gives is not by itself a design for avoidance and that the Department must point to facts. Read it alongside the merits, which this decision expressly leaves for the hearing.
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. He was sole proprietor of Mustafa Gold Mart at Chennai, which purchased, manufactured and sold gold jewellery, and managing director of Mustafas Pte Limited, registered in Singapore. Separately from the Chennai proprietary 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 wholly 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 having been filed on 30 October 2005 and 31 October 2006. Those returns claimed no exemption. He applied to the Authority on 26 March 2007, asking whether the income from these 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 answered none of the three questions. On the Department's objection under clause (i) of the proviso, that the questions were already pending before an income-tax authority, the Authority held that the material date is the date the application is filed, 26 March 2007. On that date the original returns claimed no exemption and put the taxability of the export income in no issue; the claim appeared only in the revised returns filed four days later. The notice already issued under section 143(2) related to arm's length pricing and not to the exemption. So no question could be said to have been pending. On the further objection that the transaction was designed for the avoidance of income-tax, the Authority held 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; some factual foundation is needed before that inference can be drawn.
The Authority read the proviso as a gateway fixed in time. Clause (i) bars an application where the question raised is already pending before an income-tax authority, the Appellate Tribunal or a court. If pendency were tested at the date of hearing rather than the date of filing, the bar would operate differently for different applicants according to how quickly their applications came on, and the Authority declined a construction that made maintainability depend on its own listing. It then asked what was actually in issue on 26 March 2007. The returns on file offered the export income as business income and sought no exemption, so there was no controversy about the exclusion in Explanation 1 to section 9(1)(i) for any authority to be seized of. The section 143(2) notice did not help the Department either, because a scrutiny notice does not put in issue every question the return might have raised; the issue that notice raised was arm's length pricing. The revised returns of 30 March 2007 came after the application and could not be worked backwards to create a pendency. On avoidance the Authority required the Department to do more than point at the claim itself: an assessee who relies on a provision Parliament enacted is using the Act, and to call that a design for avoidance the Department must show facts from which the inference can prima facie be drawn.
The mere fact that the exemption is claimed relying on a particular provision of the IT Act cannot be construed to be a design for avoidance of income-tax.
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Handle my notice → Ask a CA on WhatsAppNo, on these facts - and this decision goes no further than that. The Authority allowed the application under section 245R(2) and posted it for hearing; it did not rule on whether the applicant's income from buying gold jewellery in India for export is taxable. The applicant, resident in Singapore, had filed returns for assessment years 2005-06 and 2006-07 claiming no exemption, applied to the Authority on 26 March 2007, and only then filed revised returns on 30 March 2007 claiming the exclusion in Explanation 1 to section 9(1)(i). The Authority held that no question was pending on the date of the application, and that claiming a statutory exemption is not a design 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. Worth having for the timing rule, and for what it does not decide. The bar in the proviso to section 245R(2) is tested as at the date the application is filed, so a question that surfaces only in a revised return filed afterwards was not already pending; and a notice under section 143(2) issued on a different issue - here arm's length pricing - does not put every question in the return in issue. The Authority also refused the avoidance objection, holding that claiming an exemption the Act gives is not by itself a design for avoidance and that the Department must point to facts. Read it alongside the merits, which this decision expressly leaves for the hearing. If it applies to you, the first step is this: File before the question is put in issue anywhere else, and be able to show what was pending on the date of your application.
The applicant was an individual resident in Singapore and non-resident in India. He was sole proprietor of Mustafa Gold Mart at Chennai, which purchased, manufactured and sold gold jewellery, and managing director of Mustafas Pte Limited, registered in Singapore. Separately from the Chennai proprietary 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 wholly 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 having been filed on 30 October 2005 and 31 October 2006. Those returns claimed no exemption. He applied to the Authority on 26 March 2007, asking whether the income from these 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 2007-08-17 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 answered none of the three questions. On the Department's objection under clause (i) of the proviso, that the questions were already pending before an income-tax authority, the Authority held that the material date is the date the application is filed, 26 March 2007. On that date the original returns claimed no exemption and put the taxability of the export income in no issue; the claim appeared only in the revised returns filed four days later. The notice already issued under section 143(2) related to arm's length pricing and not to the exemption. So no question could be said to have been pending. On the further objection that the transaction was designed for the avoidance of income-tax, the Authority held 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; some factual foundation is needed before that inference can be drawn.
The Authority read the proviso as a gateway fixed in time. Clause (i) bars an application where the question raised is already pending before an income-tax authority, the Appellate Tribunal or a court. If pendency were tested at the date of hearing rather than the date of filing, the bar would operate differently for different applicants according to how quickly their applications came on, and the Authority declined a construction that made maintainability depend on its own listing. It then asked what was actually in issue on 26 March 2007. The returns on file offered the export income as business income and sought no exemption, so there was no controversy about the exclusion in Explanation 1 to section 9(1)(i) for any authority to be seized of. The section 143(2) notice did not help the Department either, because a scrutiny notice does not put in issue every question the return might have raised; the issue that notice raised was arm's length pricing. The revised returns of 30 March 2007 came after the application and could not be worked backwards to create a pendency. On avoidance the Authority required the Department to do more than point at the claim itself: an assessee who relies on a provision Parliament enacted is using the Act, and to call that a design for avoidance the Department must show facts from which the inference can prima facie be drawn. In the words reproduced by the source cited on this page: "The mere fact that the exemption is claimed relying on a particular provision of the IT Act cannot be construed to be a design for avoidance of income-tax."
It was decided by the Advance Ruling on 2007-08-17. 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 answered none of the three questions. On the Department's objection under clause (i) of the proviso, that the questions were already pending before an income-tax authority, the Authority held that the material date is the date the application is filed, 26 March 2007. On that date the original returns claimed no exemption and put the taxability of the export income in no issue; the claim appeared only in the revised returns filed four days later. The notice already issued under section 143(2) related to arm's length pricing and not to the exemption. So no question could be said to have been pending. On the further objection that the transaction was designed for the avoidance of income-tax, the Authority held 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; some factual foundation is needed before that inference can be drawn. 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 notice under section 143(2) is thrown at you, get the notice and identify what issue it actually raises; a notice on one issue does not make every question in the return pending. Meet an avoidance objection by asking which facts are relied on; claiming a statutory exemption is not enough. Do not read this decision as an answer on the purchase-for-export exclusion, because it does not decide that question.
Still good law. Checked the current official text of section 245R. Clause (i) of the proviso to sub-section (2), barring 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. What has changed is the forum: 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. The timing rule therefore still holds but is now applied by the Board. 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.
Two problems with the note this entry was written from, both material. First, the note describes this as the ruling on the purchase-for-export exclusion in Explanation 1(b) to section 9(1)(i). It is not: the Authority answered none of the three questions, allowed the application under section 245R(2) and ended by saying the date of hearing would be intimated in due course. Second, the text at this Indian Kanoon page, which that site dates 17 August 2007, is word for word the text at Indian Kanoon doc 91924, which it dates 1 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 mr-mustaq-ahmed-vs-commissioner-concerned-director-of-in-aar-2007. 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 answered none of the three questions. On the Department's objection under clause (i) of the proviso, that the questions were already pending before an income-tax authority, the Authority held that the material date is the date the application is filed, 26 March 2007. On that date the original returns claimed no exemption and put the taxability of the export income in no issue; the claim appeared only in the revised returns filed four days later. The notice already issued under section 143(2) related to arm's length pricing and not to the exemption. So no question could be said to have been pending. On the further objection that the transaction was designed for the avoidance of income-tax, the Authority held 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; some factual foundation is needed before that inference can be drawn.
TaxSphere, “In re Mustaq Ahmed (admission)”, https://taxnotice.vittsphere.com/caselaw/case/mustaq-ahmed-vs-unknown-aar-2007/ (validity last checked 2026-09-02)
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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?
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?
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?
I have become resident in India by the time I want an advance ruling, and I have filed my return in the meantime because the due date came round. Can the Authority still hear my application?
