2012 (8) TMI 105 - SC - Income Tax

Income accrues or arises in India - liaison office in India of company incorporated in USA - special leave petitions filed against the advance rulings of the Authority - Held that - As Section 245S expressly makes the Advance Ruling binding on the applicant, in respect of the transaction and on the Commissioner and the income tax authorities subordinate to him, the Authority is a body acting in judicial capacity and the transaction would not affect the jurisdiction of either this Court under Article 136 of the Constitution or of the High Courts under Articles 226 and 227 of the Constitution to entertain a challenge to the advance ruling pronounced by the Authority. It cannot be hold that an advance ruling of the Authority can only be challenged under Article 136 of the Constitution before this Court and not under Articles 226 and/or 227 of the Constitution before the High Court - the power vested in the High Courts to exercise judicial superintendence over the decisions of all courts and tribunals within their respective jurisdictions is part of the basic structure of the Constitution. Therefore, to hold that an advance ruling of the authority should not be permitted to be challenged before the High Court under Articles 226 and/or 227 of the Constitution would be to negate a part of the basic structure of the Constitution - no substantial question of general importance arises in SLP - dispose of this SLP granting liberty to the petitioner to move the appropriate High Court under Article 226 and/or 227 of the Constitution.

Summary

Issues Involved:
1. Whether the Authority for Advance Rulings (AAR) is a tribunal within the meaning of Articles 136 and 227 of the Constitution.
2. Whether the advance ruling pronounced by the AAR can be challenged under Articles 226/227 of the Constitution before the High Court or under Article 136 of the Constitution before the Supreme Court.
3. The binding nature of the advance ruling pronounced by the AAR.
4. The discretion of the Supreme Court to entertain a Special Leave Petition (SLP) under Article 136.

Issue-wise Detailed Analysis:

1. Tribunal Status of AAR:
The Supreme Court examined whether the AAR qualifies as a tribunal under Articles 136 and 227 of the Constitution. The Court cited precedents, including Harinagar Sugar Mills v. Shyam Sunder and Union of India v. R. Gandhi, President, Madras Bar Association, to determine that a tribunal is an adjudicating body created by the State, vested with judicial functions, and capable of pronouncing on rights or liabilities arising out of special laws. The Court concluded that the AAR, being vested with judicial power under Chapter XIX-B of the Income Tax Act, qualifies as a tribunal.

2. Challenge to Advance Rulings:
The Court considered whether the advance rulings of the AAR can be challenged under Articles 226/227 before the High Court or under Article 136 before the Supreme Court. It was noted that the AAR's rulings are binding under Section 245S of the Income Tax Act but this does not oust the jurisdiction of constitutional courts. The Court referenced cases like Kihoto Hollohan v. Zachillhu and Others and Jyotendrasinhji v. S.I. Tripathi and Others to affirm that constitutional provisions for judicial review and appeal remain unaffected by statutory finality clauses.

3. Binding Nature of Advance Rulings:
The Court examined Section 245S, which makes AAR rulings binding on the applicant and the Commissioner of Income Tax. The Court cited the decision in Cyril Eugene Pereira, In re, which clarified that while the ruling is binding for the specific transaction and parties involved, it has persuasive value for other transactions. The Court upheld that the binding nature of the ruling does not preclude judicial review by higher courts.

4. Discretion of the Supreme Court:
The Court deliberated on whether to entertain the SLP directly or direct the petitioner to approach the High Court first. The Court emphasized its discretion under Article 136, noting that it typically does not encourage direct appeals unless substantial questions of general importance are raised. The Court cited Sirpur Paper Mills Ltd. v. Commissioner of Wealth Tax, Hyderabad, to support its stance of preferring High Court review first unless exceptional circumstances exist.

Conclusion:
The Supreme Court held that the AAR is a tribunal within the meaning of Articles 136 and 227 of the Constitution. It affirmed that advance rulings can be challenged under Articles 226/227 before the High Court or under Article 136 before the Supreme Court. The Court recognized the binding nature of AAR rulings but maintained that this does not bar judicial review. Exercising its discretion, the Court disposed of the SLP, granting liberty to the petitioner to approach the High Court, and requested the High Court to expedite the hearing.

Disposition:
The Special Leave Petition (C) No. 31543 of 2011 was disposed of with liberty to the petitioner to move the appropriate High Court under Article 226 and/or 227 of the Constitution. The Court requested the High Court to ensure expeditious disposal by a Division Bench. Other related petitions and civil appeals were disposed of in similar terms.