The Order of the Court was delivered by
A.K Patnaik, J.—
Special Leave Petition (C) No. 31543 of 2011
1. This is a petition under Article 136 of the Constitution of India seeking special leave to appeal against the order dated 8-8-2011 of the Authority for Advance Rulings (Income Tax) constituted under Chapter XIX-B of the Income Tax Act, 1961 (for short “the Act”) in Columbia Sportswear Co. v. Director of Income Tax (International Taxation) AAR No. 862 of 2009.
2. The petitioner is a company incorporated in the United States of America (for short “the USA”) and is 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 Reserve Bank of India (for short “RBI”) in 1995. RBI granted the permission in its letter dated 1-3-1995 subject to the conditions stipulated therein. The permission letter dated 1-3-1995 of 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 RBI. The petitioner also obtained permission on 19-6-2000 from RBI for opening an additional liaison office in Bangalore on the same terms and conditions as mentioned in the letter dated 1-3-1995 of RBI.
3. 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 set out in Annexure II to the application. Questions 1 to 6 as set out in Annexure II to the application of the petitioner before the Authority are extracted hereinbelow:
“(1) Whether based on the nature of activities carried on by the Liaison Office (India LO) of the applicant in India, as listed in the statement of relevant facts (Annexure III), any income accrues or arises in India as per Section 5(2)(b) of the Act?
(2) Whether based on the nature of activities carried on by the India LO, as listed in the statement of relevant facts (Annexure III), the applicant can be said to have a business connection in India as per the provisions of Section 9(1)(i) of the Act read with its Explanation 2?
(3) If the answer to Query 2 is in the affirmative, whether various activities carried out by the India LO, as listed in the statement of relevant facts (Annexure III), are covered under the phrase ‘through or from operations which are confined to the purchase of goods in India for the purpose of export’ as stated in Part (b) of Explanation 1 to Section 9(1)(i) of the Act?
(4) If the answer to Query 3 is in the negative, how would the profits attributable to the ‘operations in India’ be determined and what would be the broad principles to be borne in mind for attributing income to the India LO?
(5) Whether the India LO creates a permanent establishment (PE) for the applicant in India under Article 5(1) of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains entered into between the Government of the Republic of India and the Government of the United States of America (Treaty) read with the PE exclusion available for purchase function in terms of Para 3(d) of Article 5 of the Treaty?
(6) If the answer to Query 5 is in the affirmative, how would the profits attributable to the PE in India be determined and what would be the broad principles to be borne in mind for attributing income to India LO under the Treaty?”
4. The respondent filed his reply dated 10-12-2010 to the aforesaid application of the petitioner before the Authority. The petitioner also filed its response dated 8-2-2011 to the reply of the respondent. The Authority heard the petitioner and the respondent and passed the impugned order dated 8-8-2011 AAR No. 862 of 2009. In para 34 of the impugned order, the Authority gave its ruling on the six questions 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 accrues to the applicant in India.
(2) The applicant has a business connection in India being its liaison office located in India.
(3) The activities of the liaison office in India are not confined to the purchase of goods in India for the purpose of export.
(4) The income taxable in India will be only that part of the income that can be attributed to the operations carried out in India. This is a matter of computation.
(5) The Indian Liaison Office involves 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 is taxable in India.”
Aggrieved, the petitioner has challenged the impugned order on various grounds mentioned in this special leave petition.
5. On 10-2-2012 (2012) 11 SCC 236, we passed orders calling upon the learned counsel for the parties to first address us on the question of maintainability of special leave petitions filed either by the assessee or by the Department against the advance rulings of the Authority.
6. The learned counsel for the parties referred to the provisions of Chapter XIX-B of the Act to show that the Authority is a quasi-judicial Tribunal. They submitted that the order of the Authority is an adjudicating order determining a question of law or fact specified in the application and sub-section (5) of Section 245-R mandates compliance with the principles of natural justice. They further submitted that the Authority is also vested with the powers of a civil court in relation to the discovery and inspection, enforcing the attendance of persons and examining them on oath and compelling the production of books of account, etc. They argued that as the Authority is a quasi-judicial Tribunal, its orders can be challenged before the High Court by way of judicial review under Articles 226/227 of the Constitution or before this Court by way of an appeal under Article 136 of the Constitution. They submitted that this Court may, however, decline to interfere with the order passed by the Authority in exercise of its powers under Article 136 of the Constitution where it feels that it would be more appropriate that the order of the Authority must first be examined by the High Court under Articles 226/227 of the Constitution.
7. The learned counsel for the parties relied upon the decision of this Court in Durga Shankar Mehta v. Raghuraj Singh AIR 1954 SC 520, (1955) 1 SCR 267 in which it has been held that the expression “Tribunal” used in Article 136 of the Constitution includes, within its ambit all adjudicating bodies, provided they are created by the State and are invested with judicial as distinguished from purely administrative or executive functions. They cited the decisions of this Court in Kihoto Hollohan v. Zachillhu 1992 Supp (2) SCC 651, Jyotendrasinhji v. S.I Tripathi 1993 Supp (3) SCC 389, L. Chandra Kumar v. Union of India (1997) 3 SCC 261 and Union of India v. Madras Bar Assn. (2010) 11 SCC 1 in support of their submission that where a tribunal is constituted by an Act of the legislature for adjudicating any particular matter, the power of the constitutional courts under Articles 226/227 or 136 is not ousted even if the Act makes the decision of the tribunal final.
8. The preliminary question that we have to decide is: whether an advance ruling pronounced by the Authority can be challenged by the applicant or by the Commissioner or any income tax authority subordinate to him under Articles 226/227 of the Constitution before the High Court or under Article 136 of the Constitution before this Court? Under Article 226 of the Constitution, the High Court can issue writs of certiorari and prohibition to control the proceedings of not only a subordinate court but also of any person, body or authority having the duty to act judicially, such as a tribunal. Under Article 227 of the Constitution, the High Court has superintendence over all courts and tribunals throughout the territory in relation to which it exercises jurisdiction. Under Article 136 of the Constitution, this Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India. Hence, we have to decide whether the Authority, if not a court, is a tribunal within the meaning of expression in Articles 136 and 227 of the Constitution and whether the Authority has a duty to act judicially and is amenable to writs of certiorari and prohibition under Article 226 of the Constitution.
9. The meaning of the expression “tribunal” in Article 136 and the expression “tribunals” in Article 227 of the Constitution has been explained by Hidayatullah, J., in Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala AIR 1961 SC 1669 in para 32, relevant portion of which is quoted hereinbelow: (AIR p. 1680)
“32. With the growth of civilisation and the problems of modern life, a large number of administrative tribunals have come into existence. These tribunals have the authority of law to pronounce upon valuable rights; they act in a judicial manner and even on evidence on oath, but they are not part of the ordinary courts of civil judicature. They share the exercise of the judicial power of the State, but they are brought into existence to implement some administrative policy or to determine controversies arising out of some administrative law. They are very similar to courts, but are not courts. When the Constitution speaks of ‘courts’ in Articles 136, 227 or 228 or in Articles 233 to 237 or in the Lists, it contemplates courts of civil judicature but not tribunals other than such courts. This is the reason for using both the expressions in Articles 136 and 227.
By ‘courts’ is meant courts of civil judicature and by ‘tribunals’, those bodies of men who are appointed to decide controversies arising under certain special laws. Among the powers of the State is included the power to decide such controversies. This is undoubtedly one of the attributes of the State, and is aptly called the judicial power of the State. In the exercise of this power, a clear division is thus noticeable. Broadly speaking, certain special matters go before tribunals, and the residue goes before the ordinary courts of civil judicature. Their procedures may differ, but the functions are not essentially different. What distinguishes them has never been successfully established.”
10. Thus, the test for determining whether a body is a tribunal or not is to find out whether it is vested with the judicial power of the State by any law to pronounce upon rights or liabilities arising out of some special law and this test has been reiterated by this Court in Jaswant Sugar Mills Ltd. v. Lakshmi Chand AIR 1963 SC 677, Associated Cement Companies Ltd. v. P.N Sharma AIR 1965 SC 1595 and in the recent decision of the Constitution Bench in Union of India v. Madras Bar Assn. (2010) 11 SCC 1
11. We may now examine the provisions of Chapter XIX-B of the Act on advance rulings to find out whether the Authority pronounces upon the rights or liabilities arising out of the Act. Section 245-N(a) of Chapter XIX-B which defines “advance ruling” is extracted hereinbelow:
“245-N. Definitions.—In this Chapter, unless the context otherwise requires—
(a) ‘advance ruling’ means—
(i) a determination by the Authority in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant; or
(ii) a determination by the Authority in relation to the tax liability of a non-resident arising out of a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with such non-resident,
and such determination shall include the determination of any question of law or of fact specified in the application;
(iii) a determination or decision by the Authority in respect of an issue relating to computation of total income which is pending before any income tax authority or the Appellate Tribunal and such determination or decision shall include the determination or decision of any question of law or of fact relating to such computation of total income specified in the application:
Provided that where an advance ruling has been pronounced, before the date on which the Finance Act, 2003 receives the assent of the President, by the Authority in respect of an application by a resident applicant referred to in sub-clause (ii) of this clause as it stood immediately before such date, such ruling shall be binding on the persons specified in Section 245-S;”
12. A plain reading of the very definition of “advance ruling” in Section 245-N(a) would show that the Authority is called upon to make a determination in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant or in relation to the tax liability of a non-resident arising out of such transaction which has been undertaken or proposed to be undertaken by a resident applicant with such non-resident and such determination may be on any question of law or fact specified in the application. Further, the Authority may make a determination or decision in respect of a issue relating to the computation of total income which is pending before any income tax authority or the Appellate Tribunal and such determination or decision may include the determination or decision of any question of law or of fact relating to such computation of total income specified in the application. Thus, the Authority may determine not only a transaction but also the tax liability arising out of a transaction and such determination may include a determination of issue of fact or issue of law. Moreover, the Authority may determine the quantum of income and such determination may include a determination on a issue of fact or issue of law.
13. We also find that the determination of the Authority is not just advisory but binding. Section 245-S in Chapter XIX-B is quoted hereunder:
“245-S. Applicability of advance ruling.—(1) The advance ruling pronounced by the Authority under Section 245-R shall be binding only—
(a) on the applicant who had sought it;
(b) in respect of the transaction in relation to which the ruling had been sought; and
(c) on the Commissioner, and the income tax authorities subordinate to him, in respect of the applicant and the said transaction.
(2) The advance ruling referred to in sub-section (1) shall be binding as aforesaid unless there is a change in law or facts on the basis of which the advance ruling has been pronounced.”
14. The binding effect of advance ruling as provided in Section 245-S has been dealt with by the Authority (Chairman and two members) in Cyril Eugene Pereira, In re (1999) 239 ITR 650 (AAR) and at pp. 672-73 of ITR, the Authority held:
“Thus, sub-section (2) of Section 245-S has limited the binding nature of the ruling to the case of the applicant in respect of the transaction in relation to which the advance ruling is sought and to the Commissioner and authorities subordinate to him only in respect of the applicant and the transaction involved. This is not to say that a principle of law laid down in a case will not be followed in future. The Act has made the ruling binding in the case of one transaction only and the parties involved in that case in respect of that transaction. For other transactions and for other parties, the ruling will be of persuasive nature.”
The Authority, thus, held that the advance ruling of the Authority is binding in the case of one transaction only and the parties involved in respect of that transaction and for other parties, the ruling will be of persuasive nature. The Authority, however, has clarified that this is not to say that a principle of law laid down in a case will not be followed in future. This decision of the Authority in Cyril Eugene Pereira, In re (1999) 239 ITR 650 (AAR) has been taken note of by this Court in Union of India v. Azadi Bachao Andolan (2004) 10 SCC 1, (2003) 263 ITR 706, SCC at p. 43 : ITR at p. 742 to hold that the advance ruling of the Authority is binding on the applicant, in respect of the transaction in relation to which the ruling had been sought and on the Commissioner and the Income Tax Authorities subordinate to him and has persuasive value in respect of other parties. However, it has also been rightly held by the Authority itself that this does not mean that a principle of law laid down in a case will not be followed in future.
15. As Section 245-S expressly makes the advance ruling binding on the applicant, in respect of the transaction and on the Commissioner and the income tax authorities subordinate to him, the Authority is a body acting in judicial capacity. H.M Seervai in his book Constitutional Law of India (4th Edn.) while discussing the tests for identifying judicial functions in Para 16.99 quotes the following passage from Prof. de Smith's Judicial Review on p. 1502:
“An authority acts in a judicial capacity when, after investigation and deliberation, it performs an act or makes a decision that is binding and collusive and imposes obligation upon or affects the rights of individuals.”
We have, therefore, no doubt in our mind 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.
16. The fact that sub-section (1) of Section 245-S 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 and the transaction would not affect the jurisdiction of either this 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 rulings 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 this 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. We may cite some authorities in support of this view.
16.1 In Kihoto Hollohan v. Zachillhu 1992 Supp (2) SCC 651, the question raised before this Court was whether Para 6(1) of Schedule X of the Constitution providing that the decision of the Speaker or the Chairman on the question of disqualification of a member of the legislature will be final would exclude judicial review under Articles 136, 226 and 227 of the Constitution and this Court held that the finality clause in Para 6 of Schedule X of the Constitution does not completely exclude the jurisdiction of the courts under Articles 136, 226 and 227 of the Constitution, though it may limit the scope of this jurisdiction.
16.2 In Jyotendrasinhji v. S.I Tripathi 1993 Supp (3) SCC 389 this Court held that the provision in Section 245-I of the Income Tax Act, 1961, declaring that every order of settlement passed under sub-section (4) of Section 245-D shall be conclusive as to the matters stated therein would not bar the jurisdiction of the High Court under Article 226 of the Constitution or of this Court under Article 136 of the Constitution.
17. Considering the settled position of law that the powers of this Court under Article 136 of the Constitution and the powers of the High Court under Articles 226 and 227 of the Constitution could not be affected by the provisions made in a statute by the legislature making the decision of the tribunal final or conclusive, we hold that sub-section (1) of Section 245-S of the Act insofar as it makes the advance ruling of the Authority binding on the applicant, in respect of the transaction and on the Commissioner and income tax authorities subordinate to him, does not bar the jurisdiction of this Court under Article 136 of the Constitution or the jurisdiction of the High Court under Articles 226 and 227 of the Constitution to entertain a challenge to the advance ruling of the Authority.
18. In a recent advance ruling in Groupe Industrial Marcel Dassault, In re (2012) 340 ITR 353 (AAR) the Authority has, however, observed:
“… But permitting a challenge in the High Court would become counterproductive 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 render a decision thereon rather than leaving the parties to approach the High Courts for such a challenge.”
We have considered the aforesaid observations of the Authority but we do not think that we can 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/or 227 of the Constitution before the High Court.
19. In L. Chandra Kumar v. Union of India (1997) 3 SCC 261 a Constitution Bench of this Court has held that:
“79. … the power vested in the High Courts to exercise judicial superintendence over the decisions of all courts and tribunals within their respective jurisdictions is also 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, we do understand 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. We are, thus, of the opinion 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.
20. The only other question which we have to consider is: whether we should entertain this petition under Article 136 of the Constitution or ask the petitioner to approach the High Court under Articles 226 and/or 227 of the Constitution?
21. Article 136 of the Constitution itself states that this Court may, “in its discretion”, grant special leave to appeal from any order passed or made by any court or tribunal in the territory of India. The words “in its discretion” in Article 136 of the Constitution makes the exercise of the power of this Court in Article 136 discretionary. Hence, even if good grounds are made out in a special leave petition under Article 136 for challenge to an advance ruling given by the Authority, this Court may still, in its discretion, refuse to grant special leave on the ground that the challenge to the advance ruling of the authority can also be made to the High Court under Articles 226 and/or 227 of the Constitution on the selfsame grounds. In fact, in Sirpur Paper Mills Ltd. v. CWT (1970) 1 SCC 795, AIR 1970 SC 1520 it has been observed that this 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. Unless, therefore, a special leave petition raises substantial questions of general importance or a similar question is already pending before this Court for decision, this Court does not entertain a special leave petition directly against an order of the tribunal.
22. In this special leave petition, we do not find that a substantial question of general importance arises nor is it shown that a similar question is already pending before this Court for which the petitioner should be permitted to approach this Court directly against the advance ruling of the Authority. We accordingly dispose of this special leave petition granting liberty to the petitioner to move the appropriate High Court under Articles 226 and/or 227 of the Constitution. We request the High Court concerned to ensure that the writ petition, if filed, is heard by the Division Bench hearing income tax matters and we request the Division Bench to hear and dispose of the matter as expeditiously as possible.
Special Leave Petitions (C) Nos. 3318 and 13760 of 2011, Civil Appeals Nos. 2996 and 5839 of 2008, 7035, 10064 and 11327 of 2011, 6987 of 2010
23. Delay condoned in special leave petitions. These special leave petitions and civil appeals are disposed of in terms of our order passed in Special Leave Petition (C) No. 31543 of 2011.