DIT vs. AAR; 352 ITR 185 (AP):
The second Respondent sought an advance Ruling on the question whether the capital gains arising from the sale of shares of a French incorporated entity by the applicant, a French incorporated entity, was liable to tax in France or in India. Notice was given by letter to the CBDT. The Department objected that since proceedings had already been taken in terms of section 195 to 201 in the applicant’s case, the application was hit by the bar in proviso to section 245R(2) of the Income-tax Act, 1961. However, before the objections were received by the Authority for Advance Ruling, the Authority passed an order admitting the application.
In a writ petition filed by the Department, the following question was considered by the Andhra Pradesh High Court:
“Whether while allowing the application filed u/s. 245Q(1) it was essential for the Authority for Advance Rulings to consider the issue of admissibility as a preliminary issue, with regard to the threshold bar u/s. 245R(2), by recording reasons in writing and whether the Department was entitled to a hearing before allowing the application for pronouncing its advance ruling?”
The High Court dismissed the petition and held as under:
“i) S/s. (1) of section 245R, which contemplates forwarding of a copy of such application to the Commissioner, if necessary, calling upon him to furnish the relevant records, does not contemplate the filing of objections or response to the application so made. S/s (2) authorises the Authority, after examining the application and the records called for, by order, either allow or reject the application, but a rider is added by way of proviso that the Authority shall not allow application, inter alia, where the question raised in the application is already pending before any income-tax authority or Appellate Tribunal. The second proviso provides that no application shall be rejected unless an opportunity has been given to the applicant of being heard. If the application is rejected, reasons for such rejection shall be given as per the third proviso to section 245R.
ii) Nowhere does section 245R state that the Commissioner from whom records were called for is to be called upon to make his objections to the admission of application and record reasons when it allowed the application for an advance ruling.
iii) While exercising the jurisdiction under Article 226 of the Constitution, 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.
iv) The entire exercise to be undertaken by the Authority for allowing the application is only to verify the records called for whether an advance ruling on the question specified in the application was 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 admits the application for pronouncing an advance ruling recording of reasons at that stage is not at all required nor is hearing 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 considers necessary to hear but not at the threshold stage of admitting the application.
v) The Director of Income-tax and the Additional Commissioner failed to substantiate the infringement of legal right conferred on them under the statute while allowing the application for advance ruling. The writ petitions were devoid of merit and were accordingly dismissed.”
iii) Therefore, the sum forfeited by the assessee to the Council was allowable u/s. 37(1).”
