Provisions relating to the Authority for Advance Rulings (AAR) were introduced by the Finance Act 1993. The intent was to create an independent adjudicatory body and to ensure that the procedure is simple, inexpensive, expeditious and authoritative.
In order to make sure that the rulings of AAR are obeyed by the department as well as by the person seeking the rulings, it was provided in section 245S of the Income-tax Act that the ruling shall be binding on the applicant and on the income-tax authorities.
It was therefore believed that the tax issues relating to foreign companies would be settled expeditiously without any necessity to take the matter to the courts.
However, the experience of the last two decades shows that the rulings pronounced by the Authority are often sought to be challenged by the agitating parties.
The Income-tax Act does not contain any provision for appeal against the Authority’s orders.
Therefore, an issue arises whether an assessee can file any further appeal against the ruling of the AAR? If yes, then which is the right forum for the appeal? This issue was considered by the Authority itself in case of Groupe Industrial Marcel Dassault [340 ITR 353], wherein the Authority observed as under:
“Before proceeding to deal with the various contentions, it appears to be proper to observe that the object of creating this Authority for Advance Rulings is likely to be defeated if parties are given the opportunity to challenge the rulings either at the first stage or at the subsequent stage before High Courts……
Permitting a challenge in the High Court would become counter productive since writ petitions are likely to be pending in High Courts for years….
It appeals to be appropriate to point out that considering the object of giving and advance ruling expeditiously, it would be consistent with the object sought to be achieved, if the Supreme Court were to entertain an application for special leave to appeal directly from a Ruling of this Authority, preliminary or final, and render a decision thereon rather than leaving the parties to approach the High Courts for such challenge.”
Thus the Authority is clearly of the view that its rulings, if at all to be challenged should be challenged before the Supreme Court by way of writ under Article 136 of the Constitution, challenge in High Court, in the opinion of Authority, is not desirable.
But, on this point, the view of Supreme Court is different. In this context, reference may be made to the recent decision of Columbia Sportswear Company v DIT in [SLP (C) No. 31543 of 2011] dated 30.07.2012. In this case, the Hon’ble Apex Court held that the AAR is exercising judicial power and is a “tribunal” whose rulings can be challenged under Articles 136 and 227 of the Constitution. It was further held that the ruling should in the first instance be challenged before the High Court instead of directly in the Supreme Court.
Accordingly, in case of Columbia Sports Company (supra) the Hon’ble Apex Court held that ‘it will not entertain an SLP directly against the order of Authority unless the SLP raises substantial question of general importance or a similar question is already pending before the Supreme Court for decision.
The Court granted liberty to the petitioner to move to the appropriate High Court.In the above context it is important to note that the Hon’ble Supreme Court took note of the apprehension of the Authority that if a writ petition is to be filed in High Court it may remain pending in the High Court for years defeating the objective of expeditious disposal of the matter. Therefore, the court directed that when a writ is filed against Authority’s ruling ‘the same should be heard directly by a Division Bench of the High Court and decided as expeditiously as possible.’
It has been noticed in several cases decided by the Authority that it does not consider the High Court decisions as binding on it. Reference in this regard may be made to the case of Castleton Investment Limited, [AAR No. 999 of 2010] wherein the AAR in its order dated 14.08.2012 observed that
“It appears to me that the theory of precedents may not have strict application in proceedings before this Authority. This Authority is bound only by the decisions of the Supreme Court. The decisions of High Courts have only persuasive value. This Authority is not subordinate to any High Court.
It is a settled law that the court in lower hierarchy shall follow the decision of the courts in higher hierarchy. This view has been upheld by the Hon’ble Apex Court in the case of Dunlop India Ltd 154 ITR 172 whereas it was held that in the hierarchical system of courts which exist in our country, it is necessary for each lower tier, including the High Court, to accept loyally the decision of the higher tiers.
The legal position is now settled by the Supreme Court that Authority is like a ‘Tribunal’ whose rulings may be challenged under Article 227 before the High Court. Therefore, following hierarchical judicial system, the Authority should loyally accept the decisions given by the High Caurt.
H.P. Agrawal e-mail: hp.agrawal@sskmin.com
