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2023 (7) TMI 862 - HC - Income TaxReassessment u/s 147 - Applicability of Advance Rulings in the own case of assessee or Advance Rulings in case of any other assessee - Whether in view of the binding nature of the ruling pronounced under Section 245-R by AAR, which is binding on applicant and revenue in respect of applicant and the said transactions, can the AO, relying on ruling in the case of another Applicant where AAR has taken a different view, form a reason to believe that income chargeable to tax has escaped assessment? - HELD THAT - AO has manifestly exceeded his jurisdiction while proposing to re-open Petitioner s assessment relying on ruling of AAR in the case of Cyril E. Pereira 1999 (5) TMI 582 - AUTHORITY FOR ADVANCE RULINGS The ruling in Cyril E. Pereira (supra) while considering the provisions of Section 245-S of the Act cannot bind Petitioner nor can it displace the binding effect of ruling in Petitioner s case. There was no dispute before the Court that the transaction in respect of which Petitioner sought a ruling and in respect of which AAR had issued ruling to Petitioner is of the same nature as that for the Assessment Years in question. In view of the clear mandate of Section 245-S of the Act that a ruling would apply and be binding only on the Applicant and the Revenue in relation to the transaction for which it so sought, it is clearly evident that the Assessing Officer has ignored this clear mandate. The ruling in Cyril E. Pereira (supra) cannot as a matter of plain intendment and meaning of Section 245-S of the Act displace the binding character of the ruling rendered between Petitioner and the Revenue. Section 245-S of the Act states that advance pronouncement binds the authority under Section 245-R. It was binding on the Applicant who had sought in respect of the transactions in relation to which the ruling had been sought and on the Commissioner and the Income Tax Authority subordinate to him in respect of Applicant and the said transaction. Sub-section 2 of Section 245-S of the Act constitutes that the ruling shall be binding unless there is change in law or facts on the basis of which Advance Ruling has been pronounced. There was no change in law or facts that has taken place before us or mentioned in the reasons to believe. The subsequent ruling in Cyril E. Pereira (supra) cannot be stated to be covered under sub-section (2) of section 245-S of the Act. It cannot be considered as a ruling that changes the law. For the reasons mentioned above, the impugned notices have to be quashed and set aside. Merely because the AAR in the case of another Applicant has taken a different view, cannot be sufficient basis on which Respondent No. 1 could ever have any reason to believe that income chargeable to tax has escaped assessment. It can also be stated that Respondent No. 1 has not personally formed the belief that income liable to tax has escaped assessment and has abdicated her jurisdiction. The re-opening therefore is invalid. Respondent No. 2 has plainly ignored the relevant provisions of law. We cannot hold that the Assessing Officer had any tangible material to come to the conclusion that there was an escapement of income. Hence, the power to re-open the assessment could not have been exercised. Decided in favour of assessee.
Issues Involved:
1. Legality and validity of notices issued under Section 148 of the Income Tax Act, 1961. 2. Binding nature of the Authority for Advance Ruling (AAR) under Section 245-R. 3. Change in law or facts affecting the binding nature of AAR rulings. Summary: Issue 1: Legality and Validity of Notices Issued Under Section 148 of the Income Tax Act, 1961 The Petitioner challenged the legality and validity of notices issued under Section 148 of the Income Tax Act for Assessment Years 1997-98, 1998-99, 1999-2000, and 2000-2001. The Petitioner argued that these notices were issued without satisfying the jurisdictional condition necessary to make a re-assessment. The Court noted that the Petitioner had obtained an advance ruling from the AAR which concluded that the Petitioner was a resident of UAE and thus entitled to the benefits of the Double Taxation Avoidance Agreement (DTAA) between India and UAE. The AAR ruling determined the taxability of dividends, interest, and capital gains earned by the Petitioner from sources in India. Issue 2: Binding Nature of the Authority for Advance Ruling (AAR) Under Section 245-R The Court examined whether the Assessing Officer could rely on a different view taken by the AAR in another case to form a reason to believe that income chargeable to tax had escaped assessment. The Court emphasized that under Section 245-S of the Act, an advance ruling is binding on the applicant, the Commissioner, and the Income Tax Authorities subordinate to him, in respect of the applicant and the said transactions. The Court cited the case of Prudential Assurance Co. Ltd., where it was held that a ruling by the AAR binds the applicant and the revenue in relation to the transaction for which it was sought, and a subsequent ruling in another matter cannot displace this binding effect. Issue 3: Change in Law or Facts Affecting the Binding Nature of AAR Rulings The Respondent argued that the subsequent ruling in the case of Cyril E. Pereira constituted a change in law, thus affecting the binding nature of the advance ruling obtained by the Petitioner. The Court rejected this argument, stating that a subsequent ruling in another case does not constitute a change in law or facts under Section 245-S(2) of the Act. The Court also referred to the Supreme Court's decision in Azadi Bachao Andolan, which clarified that "liable to taxation" does not mean actual payment of tax but a legal situation of liability to taxation. Conclusion The Court concluded that the Assessing Officer had exceeded his jurisdiction by proposing to re-open the Petitioner's assessment based on a subsequent AAR ruling in another case. The Court held that the notices issued under Section 148 were invalid and quashed them. The ruling in the Petitioner's case remained binding, and there was no change in law or facts to justify the re-opening of the assessment. Therefore, the impugned notices were quashed and set aside.
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