[Columbia Sportswear Co. v. DIT, Bangalore (2012) 346 ITR 161 (SC)]
The Petitioner, a company incorporated in the United States of America (for short ‘the USA’) was engaged in the business of designing, developing, marketing and distributing outdoor apparel. For making purchases for its business, the petitioner established a liaison office in Chennai with the permission of the Reserve Bank of India (for short “the RBI”) in 1995. The RBI granted the permission in its letter dated 01.03.1995 subject to the conditions stipulated therein. The permission letter dated 01.03.1995 of the RBI stated that the liaison office of the petitioner was for the purpose of undertaking purely liaison activities viz. to inspect the quality, to ensure shipments and to act as a communication channel between head office and parties in India and except such liaison work, the liaison office will not undertake any other activity of a trading, commercial or industrial nature nor shall it enter into any business contracts in its own name without the prior permission of the RBI. The petitioner also obtained permission on 19.06.2000 from the RBI for opening an additional liaison office in Bangalore on the same terms and conditions as mentioned in the letter dated 01.03.1995 of the RBI.
On 10.12.2009, the petitioner filed an application before the Authority for Advance Rulings (for short ‘the Authority’) on the questions relating to its transactions in its liaison office in India.
The Authority heard the petitioner and the respondent and passed the order dated 08.08.2011. In para 34 of the said order, the Authority gave its ruling on the six questions raised before it as follows:
(1) A portion of the income of the business of designing, manufacturing and sale of the products imported by the applicant from India accrued to the applicant in India.
(2) The applicant had a business connection in India being its liaison office located in India.
(3) The activities of the Liaison Office in India were not confined to the purchase of goods in India for the purpose of export.
(4) The income taxable in India would be only that part of the income that could be attributed to the operations carried out in India. This was a matter of computation.
(5) The Indian Liaison Office involved a ‘Permanent Establishment’ for the applicant under Article 5.1 of the DTAA.
(6) In terms of Article 7 of the DTAA only the income attributable to the Liaison Office of the applicant was taxable in India.
Aggrieved, the petitioner challenged the said order of the Authority on various grounds mentioned in special leave petition, before the Supreme Court.
The Supreme Court held that the Authority is a body exercising judicial power conferred on it by Chapter XIX-B of the Act and is a tribunal within the meaning of the expression in Articles 136 and 227 of the Constitution. The fact that subsection (1) of Section 245S makes the advance ruling pronounced by the Authority binding on the applicant, in respect of the transaction and on the Commissioner and the income tax authorities subordinate to him in respect of the applicant, would not affect the jurisdiction of either the Supreme Court under Article 136 of the Constitution or of the High Courts under Articles 226 and 227 of the Constitution to entertain a challenge to the advance ruling pronounced by the Authority. The reason for this view is that Articles 136, 226 and 227 of the Constitution are constitutional provisions vesting jurisdiction on the Supreme Court and the High Courts and a provision of an Act of legislature making the decision of the Authority final or binding could not come in the way of this Court or the High Courts to exercise jurisdiction vested under the Constitution.
The Supreme Court noted that in a recent advance ruling in Groupe Industrial Marcel Dassault, In re [2012] 340 ITR 353 (AAR), the Authority had, observed as under:
“But permitting a challenge in the High Court would become counter productive since writ petitions are likely to be pending in High Courts for years and in the case of some High Courts, even in Letters Patent Appeals and then again in the Supreme Court. It appears to be appropriate to point out that considering the object of giving an advance ruling expeditiously, it would be consistent with the object sought to be achieved, if the Supreme Court were to entertain an application for Special Leave to appeal directly from a ruling of this Authority, preliminary or final, and tender a decision thereon rather than leaving the parties to approach the High Courts for such a challenge.”
The Supreme Court after considering the aforesaid observation of the Authority, felt that it could not hold that an advance ruling of the Authority can only be challenged under Article 136 of the Constitution before this Court and not under Articles 226 and 227 of the Constitution before the High Court. The Supreme Court observed that in L. Chandra Kumar v. Union of India and Others [(1997) 3 SCC 261], a Constitution Bench of the Supreme Court has held that the power vested in the High Courts to exercise judicial superintendence over the decisions of all courts and tribunals within their respective jurisdictions was part of the basic structure of the Constitution. Therefore, to hold that an advance ruling of the authority should not be permitted to be challenged before the High Court under Articles 226 and/or 227 of the Constitution would be to negate a part of the basic structure of the Constitution. Nonetheless, the Supreme Court appreciated the apprehension of the Authority that a writ petition may remain pending in the High Court for years, first before a learned Single Judge and thereafter in Letters Patent Appeal before the Division Bench and as a result the object of Chapter XIX-B of the Act which is to enable an applicant to get an advance ruling in respect of a transaction expeditiously would be defeated. The Supreme Court, therefore, opined that when an advance ruling of the Authority is challenged before the High Court under Articles 226 and/or 227 of the Constitution, the same should be heard directly by a Division Bench of the High Court and decided as expeditiously as possible.
The Supreme Court accordingly disposed of the Special Leave Petition granting liberty to the petitioner to move the appropriate High Court under Article 226 and/or 227 of the Constitution. The Supreme Court requested the concerned High Court to ensure that the Writ Petition, if filed, is heard by the Division Bench hearing income-tax matters and further requested the Division Bench to hear and dispose of the matter as expeditiously as possible.
