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TMI Blog2010 (4) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... shares by the petitioner was in the ordinary course of its business and the income which resulted from this, constitutes business profits and not capital gains. One of the issues which the AAR addressed was whether the gains arising from realization of portfolio investments in India would be treated as part of business profits and would hence be covered by the provisions of article 7 of the Agreement for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains entered into between the Governments of India and of the United Kingdom. On this question the Authority for Advance Rulings held that gains arising from the realization of portfolio investments in India would be treated as part of the company's business profits. The Authority for Advance Rulings also came to the conclusion that the amounts receivable by the petitioner from share transactions in India would not be taxable in India because the petitioner did not have a permanent establishment in the country. The Authority for Advance Rulings ruled that investments in shares were carried out by the petitioner from moneys collected from policy holders for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gains or business income with reference to the latest judicial decisions. In response to the letter, the petitioner in a communication dated August 8, 2007, stated that as part of its insurance business it engaged in the business of buying and selling securities. A copy of the order passed by the Authority for Advance Rulings was annexed to the letter together with an explanatory note on the question as to whether income generated by FIIs in India would constitute capital gains or business income on the basis of recent judicial pronouncements. The Assessing Officer, during the course of the assessment proceedings, called upon the petitioner by a letter dated October 31, 2007 to make further disclosures and to explain as to why the petitioner should not be considered as having a permanent establishment in India and to state as to why the activity involving the sale and purchase of shares should be regarded as trading activity and not as investment. The petitioner responded on November 16, 2007. An order of reassessment under section 143(3) for the assessment year 2005-06 was passed on December 28, 2007. 6. The dispute before the court in these proceedings arises out of a notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2) of section 245S, an advance ruling shall be binding unless there is a change in law or facts on the basis of which the advance ruling has been pronounced. The submission that was urged before the court was that the Assessing Officer had followed the binding ruling of the Authority for Advance Rulings in the assessee's own case. The Commissioner, it was urged, would not be justified in seeking recourse to the jurisdiction under section 263, where the Assessing Officer has followed a binding ruling issued under section 245S. It has also been urged that the ruling in the case of Fidelity Northstar Fund, In re [2007] 288 ITR 641 (AAR) could not constitute a change in law for the purposes of section 245S (2). 8. On the other hand, it has been urged on behalf of the Revenue that: (i)at this stage, only a notice has been issued to the petitioner under section 263 and there is no reason for this court to exercise its extraordinary jurisdiction under article 226 of the Constitution ; and (ii) the Central Board of Direct Taxes had in a circular dated June 15, 2007 ([2007] 291 ITR (St.) 384), directed the Assessing Officers to evaluate whether, in a given case, shares are he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules which are called the Authority for Advance Rulings (Procedure) Rules, 1996 (see [1996] 222 ITR (St.) 1) inter alia deal with the modification of an order passed by the Authority. Rule 18 provides that where the Authority suo motu or on a representation made to it by the applicant or the Commissioner or otherwise, but before the ruling pronounced by the Authority has been given effect to by the Assessing Officer is satisfied, that there is a change in law or facts on the basis of which the ruling was pronounced, it may by order modify such ruling in such respects as it considers appropriate, after allowing the applicant and the Commissioner a reasonable opportunity of being heard. 11. Once a ruling has been pronounced by the Authority, the binding effect of the ruling can only be displaced in accordance with the procedure which has been stipulated in law. At this stage, it would also be necessary to note that under section 245T, where the Authority finds, on a representation made to it by the Commissioner or otherwise, that an advance ruling pronounced by it has been obtained by the applicant by fraud or misrepresentation of facts, the Authority may declare such ruling to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e clear mandate of the statutory provision that a ruling would apply and be binding only on the applicant and the Revenue in relation to the transaction for which it is sought. The ruling in Fidelity cannot possibly, as a matter of the plain intendment and meaning of section 245S, displace the binding character of the advance ruling rendered between the petitioner and the Revenue. 14. That apart, the Commissioner could not possibly have found fault with the Assessing Officer for having followed a binding ruling. Where the Assessing Officer has followed a binding principle of law laid down in a precedent which has binding force and effect, it is not open to the Commissioner to exercise his revisional jurisdiction under section 263. This principle was laid down in a judgment of the Calcutta High Court in Russell Properties Private Limited v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229. In that case, the Tribunal had come to the conclusion in respect of certain previous years, following the decision of the Supreme Court in the case of Karnani Properties Limited v. CIT [1971] 82 ITR 547 (SC), that receipts received by tenants for the maintenance of service charges were assessable under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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