Ruling in Columbia Sportswear Company v Director of Income Tax, Bangalore, the Supreme Court recently held that orders of the Authority for Advance Rulings (AAR) can be challenged by way of writ petitions in high courts.
Columbia Sportswear had filed a special leave petition to challenge an AAR ruling. The Supreme Court had to consider whether such rulings could be challenged despite their “binding” effect and whether a direct challenge in the Supreme Court was desirable.
The court held that the AAR exercises judicial power and is a “tribunal” whose rulings can be challenged under articles 136 and 227 of the constitution. The Supreme Court “does not encourage an aggrieved party to appeal directly to this court against the order of a tribunal exercising judicial functions unless it appears to the court that a question of principle of great importance arises”.
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It held that when an advance ruling is challenged before a high court, the case should be heard “directly by a division bench of the high court and decided as expeditiously as possible”.
Columbia Sportswear, a US company, had applied for an advance ruling on whether its liaison office in India was a business connection/permanent establishment (PE) and whether its business profits were taxable under India’s Income Tax Act and the double tax avoidance agreement between India and the US. The AAR held that the liaison office was a business connection/PE and the income attributable to the office was taxable in India.
This judgment brings clarity to the finality of orders of the AAR. Previously appealing these orders was difficult, as high courts have refused to admit appeals on the ground that they were binding, and there are only limited grounds for filing appeals to the Supreme Court.
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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
