2013 (6) TMI 74 - HC - Income Tax

Order of AAR - Whether the hon ble Authority for Advance Rulings, is required to pass a detailed reasoned order, while allowing (admitting) an application for advance ruling made under section 245Q of the Income-tax Act, 1961 and whether it is not substantial statutory compliance with the Authority for Advance Rulings to consider the question of bar under clauses (i) and (ii) of the first proviso to section 245R(2) of the Act at the time of pronouncing the ruling? Held that - The entire exercise to be undertaken by the Authority for Advance Rulings under the Act and the Rules for allowing the application is only to verify the records called for whether an advance ruling on the question specified in the application is required to be made or not. There is a clear dichotomy between the threshold stage of allowing the application for advance ruling and pronouncing of advance ruling. If the Authority for Advance Rulings admits the application for pronouncing an advance ruling recording of reasons at that stage is not at all required nor hearing is contemplated to the Commissioner or his authorised representative. Only on such admission before pronouncing its advance ruling hearing of the Commissioner or his authorised representative is provided if the Authority for Advance Rulings considers necessary to hear but not at the threshold stage of admitting the application. The questions are accordingly answered against the petitioners. It is well settled that while exercising the jurisdiction under article 226 of the Constitution of India, if the High Court is of the opinion that there is no other convenient or efficacious remedy open to the petitioner, it will proceed to investigate the case on its merits and if the court finds that there is an infringement of the petitioner s legal rights, it will grant relief, otherwise relief should be rejected. The petitioners failed to substantiate the infringement of legal right conferred on them under the statute while allowing the applications for advance ruling. The writ petitions are devoid of merit and are accordingly dismissed. - Decided against the revenue.

Summary

Issues Involved:
1. Requirement for the Authority for Advance Rulings (AAR) to pass a detailed reasoned order while admitting an application under section 245Q of the Income-tax Act, 1961.
2. Compliance with statutory provisions and principles of natural justice in the proceedings before the AAR.
3. Jurisdiction and procedural requirements for the AAR to consider the threshold bar under section 245R(2) of the Act.
4. Right to reasons and the necessity of recording reasons for decisions by quasi-judicial authorities.
5. Delay and acquiescence in filing the writ petitions.

Issue-Wise Detailed Analysis:

1. Requirement for the AAR to Pass a Detailed Reasoned Order:
The court examined whether the AAR is mandated to provide a detailed reasoned order while admitting an application for advance ruling. It was concluded that section 245R and other provisions of Chapter XIX-B of the Income-tax Act do not explicitly require the AAR to record reasons when allowing an application for further examination leading to an advance ruling under section 245R(4) and (6). The court emphasized that reasons are mandated only when an application is rejected, as per the third proviso to section 245R(2).

2. Compliance with Statutory Provisions and Principles of Natural Justice:
The petitioners contended that the AAR did not provide them with an opportunity to be heard before admitting the application, thus violating principles of natural justice. The court noted that the AAR had forwarded the application to the Central Board of Direct Taxes (CBDT) as required under rule 13 of the AAR Rules, and the CBDT designated the Director of Income-tax (International Taxation), Bangalore (DIT) as the Commissioner. However, the AAR admitted the application before the DIT could submit his comments, which the court found problematic. The court held that the AAR should have waited for the DIT's comments before admitting the application.

3. Jurisdiction and Procedural Requirements for the AAR:
The court analyzed whether the AAR should consider the threshold bar under section 245R(2) as a preliminary issue. It was concluded that while it is not mandatory for the AAR to decide the threshold bar at the preliminary stage, the AAR must examine the application and records to determine if the application is barred by clauses (i) to (iii) of the first proviso to section 245R(2). The court emphasized that the AAR has the discretion to decide the preliminary issue along with the merits of the case.

4. Right to Reasons:
The court discussed the necessity of recording reasons for decisions by quasi-judicial authorities. It was emphasized that giving reasons is a basic principle of natural justice, ensuring transparency and fairness in decision-making. The court concluded that while the AAR is required to give reasons when rejecting an application, there is no statutory requirement to record reasons when allowing an application for further examination.

5. Delay and Acquiescence:
The court considered the delay in filing the writ petitions and the conduct of the petitioners. It was noted that the petitioners did not promptly pursue their objections after the AAR admitted the application. The court observed that the petitioners actively participated in the proceedings before the AAR while simultaneously pursuing the writ petitions. The court held that the delay and acquiescence in the proceedings before the AAR militated against exercising discretionary jurisdiction under article 226 of the Constitution of India.

Conclusion:
The court dismissed the writ petitions, holding that the AAR is not required to record reasons while admitting an application for further examination. The court emphasized the importance of timely advance rulings and the need to avoid unnecessary delays in the process. The court also noted that the petitioners had the opportunity to raise their objections during the proceedings before the AAR and could seek judicial review of the final order if necessary.