Director of Income Tax (International Taxation) and Another vs Authority for Advance Rulings and Another

V.V.S. Rao, J.

Introduction

Whether the Hon''ble Authority for Advance Rulings (Income Tax), New Delhi (the AAR, for brevity) is required to pass a detailed reasoned order, while allowing (admitting) an application for advance ruling made u/s 245Q of the Income Tax Act, 1961 (the Act, for brevity) and whether it is not substantial statutory compliance for the AAR to consider the question of bar under Clauses (i) and (ii) of the first proviso to Section 245R(2) of the Act at the time of pronouncing the ruling? These common issues arise for consideration in these two writ petitions filed by the Director of Income Tax (International Taxation), Bangalore and Additional Director of Income Tax (International Taxation), Hyderabad, assailing the order, dated 17.12.2009 admitting the applications of the second Respondent u/s 245R(2) of the Act and subsequent proceedings dated 03.08.2010 refusing to revoke the order of admission.

Background

(i) The Transaction

Shanta Biotechnics Limited (hereafter, Shantha) is an Indian company with registered office at Hyderabad. Till November, 2006, 50% of its shares were held by residents, non-residents and Overseas Corporate Bodies (OCBs). The remaining capital was held by a Mauritius Company, namely, United Overseas Investment Limited (UOIL). ShanH is a company incorporated in Lyon, France. It is wholly owned subsidiary of Meraux Alliance (MA) having its registered office at Lyon, France. On 06.11.2006, MA through its subsidiary entered into Share Purchase Agreement on 06.11.2006 (first SPA, for brevity). Shantha, MA, UOIL and two directors were signatories to first SPA. Resultantly, ShanH became majority stakeholder. In March, 2009, Grouped Industrial Marcel Dassault (GIMD), another French company acquired 20% stake of ShanH. As on 31.03.2009, MA and GIMD held 80% shares in Shantha. Thus it came under direct control and management of MA group. There was a Share Purchase Agreement on 10.07.2009 (second SPA, for brevity) between MA and Sanofi Pasteur Holding, the vaccine division of Sanofi Aventis Pharma Group, France. Under this agreement, effective as of 31.08.2009, Sanofi acquired more than 80% controlling interest of Shantha from MA and GIMD for consideration of �.550 million euros.

MA filed an application being A.A.R. No. 847 of 2009 for obtaining advance ruling u/s 245Q(1) of the Act before the AAR seeking advance ruling on the questions relating to the transactions under which MA effected sale of shares of ShanH to Sanofi. GIMD also filed a similar application being A.A.R. No. 846 of 2009. In both the applications filed on 20.11.2009, the common question on which advance ruling was sought is as follows.

In terms of the provisions of the double taxation avoidance treaty dated 6th September 1994 as amended from time to time, entered between the Republic of India with the Government of French Republic ("Indo-French Tax Treaty") read with Section 90 of the Income Tax Act, 1961, whether the Capital gains arising from the sale of shares of ShanH (French Incorporated Entity) by the Applicant (French Incorporated Entity) to Sanofi (French Incorporated Entity) is liable to tax in France or in India?

MA also sought the advance ruling on yet another question which is as follows.

Without prejudice to above, whether controlling interest (assuming while denying that it is a separate asset) is liable to be taxed in France under Article 14(6) of the Indo-French Tax Treaty?

A month after the filing of the applications, AAR by two separate proceedings/orders, dated 17.12.2009 while admitting them, recorded that the applications are not hit by the proviso to Section 245R(2) of the Act. Notice of hearing on 08.02.2010 was issued. For ready reference, the order passed in the application made by MA is quoted below:

The applicant - Merieux Alliance - is a French holding company which is part of an international health care Group dedicated to prevention, diagnosis and treatment of infectious diseases. It formed a Joint Venture in 2006 called ShanH, France, Grouped Industrial Marcel Dassault (GIMD) became a part of the JV in March 2007 through significant capital increase. The applicant, GIMD and ShanH are all French incorporated companies of France. They have been paying their taxes in France. ShanH was formed as an entity to pursue the activities in developing countries in the field of immunotherapy and as a part of the larger vision they acquired the shares of an Indian company called Shantha Biotechnics Limited through its representatives by share purchase agreement. The applicant and GIMD sold their equity in ShanH to Sanofi Pasteur Holding as per the transaction that concluded in August, 2009.

In view of this transaction, the applicant seeks the ruling of this Authority on the following question:

In terms of the provisions of the double taxation avoidance treaty dated 6th September 1994, as amended from time to time, entered between the Republic of India with the Government of French Republic ("Indo French Tax Treaty") read with Section 90 of the Income Tax Act, 1961, whether the Capital gains arising from the sale of shares of ShanH (French incorporated Entity) by the applicant (French Incorporated Entity) to Sanofi (French Incorporated Entity) is liable to tax in France or in India?

3 .On examination of the application, we find that it is not hit by the proviso to Section 245R(2) of the Act. The jurisdictional Commissioner has not sent his comments in this regard so far. We feel that it is a fit case to be heard on merits. Accordingly, the application is allowed u/s 245R(2) of the Act.

Issue notice to the parties for hearing on merits on 8th February, 2010.

(ii) The case of the Revenue

After the Sanofi acquisition of Shanta, a survey u/s 133A was conducted on 04.08.2009. The transaction raised the issue of taxability of capital gains in India. Deputy Director of Income Tax (International Taxation) (DDIT) addressed letters to Sanofi about its possible tax liability u/s 195 of the Act. Sanofi sent reply without furnishing a copy of the second SPA as requested. A notice was issued to show cause as to why Sanofi should not be treated as an Assessee in default u/s 201(1) of the Act in respect of payments made by them to MA and GIMD for acquisition of controlling stake in Shantha, for its failure to deduct tax at source (TDS) u/s 195 of the Act. After examining the replies furnished, DDIT passed orders on 25.05.2010 u/s 201(1) and (1A) of the Act treating Sanofi as an Assessee in default for non-deduction of tax in respect of payments made to non-residents for purchasing Shantha shares during financial years 2006-2007 and 2007-2008. Sanofi filed writ petition No. 14212 of 2010 before this Court impeaching the said order. MA and GIMD filed the applications on 20.11.2009 u/s 245Q(1) of the Act. The AAR issued a communication, dated 24.11.2009 to Central Board of Direct Taxes (CBDT) and Director General of Income Tax (International Taxation), New Delhi with a request to notify the Commissioner concerned for the purpose of submission of records and comments within fifteen (15) days. The Director General forwarded the communication to the first Petitioner who received the same on 08.12.2009. After getting necessary information from the second Petitioner, the first Petitioner submitted report to the AAR on 23.12.2009 raising the plea of threshold bar and requested the AAR to reject the applications under Clause (i) to proviso to Sub-section (2) to Section 245R of the Act. A week thereafter on 29.12.2009, the Petitioners allegedly received the proceedings/order dated 17.12.2009. After receiving it, the first Petitioner sent communications, dated 07.01.2010 and 27.01.2010 reiterating their request to consider the preliminary issue of admissibility u/s 245R(2) of the Act. The matter was then adjourned from time to time as the income tax authority took time for want of clearance of CBDT for engaging Special Counsel. On 08.07.2010 and 16.07.2010, the second Petitioner allegedly requested for a specific finding on the issue relating to admissibility. On 26.07.2010, the present writ petitions are filed assailing the order, dated 17.12.2009.

On 26.07.2010, the Petitioners requested the AAR for postponement of the case to any other date on the ground that the Special Counsel was suffering from ill-health. The AAR then called upon the income tax authority to file written submissions on all aspects which was duly complied with. On 03.08.2010, the AAR passed a common order observing that there are no compelling reasons to revoke the earlier order of admission. For ready reference, the said order is quoted below.

The Special Counsel engaged by the Commissioner has filed written submissions raising objections as to the hearing on merits as well as on merits and he sought for personal hearing. No one was present on behalf of the department, on the last occasion and even today none appears for the department, with the result that we have been left with no assistance from the Department''s side. Within the limited time available to the chairman before laying down the office, it is not possible to consider the said written submissions in detail and to pronounce the ruling. Hence, the case be posted for hearing on 22nd September, 2010.

We may, however, advert to one aspect highlighted in the written submissions of the counsel for the Commissioner. The picture is sought to be given that sufficient opportunity was not afforded to the department to furnish the comments before the admission of the application u/s 245R(2) of the Income Tax Act. It is pointed out that 15 days should be counted from the date of receipt of the application by the designated Commissioner from the office of CBDT, Delhi. If the Revenue felt that on account of inter-department correspondence or otherwise, the Commissioner did not get sufficient time to respond, nothing prevented the Commissioner from seeking further time. It is seen that the comments objecting to the admission on the ground of pendency of proceedings was received by this office only on 29.12.2009 by which time the admission order u/s 245R(2) was passed. The Commissioner did not complain within a reasonable time that he did not get sufficient time to send his comments before the admission. Even in the communications sent on 7.1.2010 and 27.1.2010, the circumstances in which the comments objecting to the admissibility could not be sent was not mentioned nor a grievance made out that the Commissioner did not have sufficient opportunity. On the other hand, the Commissioner stated in his communication dated 7.1.2010. "The delay in sending the comments of the Department on the aforesaid application filed before the Hon''ble Authority on 24.11.2009 may kindly be condoned."

Be that as it may, taking note of the representation of the Commissioner at the time of first hearing on 8th July, 2010, this Authority heard the objections of the Department on the issue of admissibility in order to satisfy ourselves whether there was any valid ground to revoke the order of admission passed earlier, leaving aside the question whether it is legally permissible to set aside the order once passed u/s 245R(2). Having been prima facie satisfied that there was no compelling reason to revoke the earlier order of admission and to refuse hearing on merits and that a comprehensive final order could be passed as regard the grounds made out for revoking the admission as well as on the merits, the case was posted for hearing on merits u/s 245R(2) on the specified date. Thereafter a series of requests for adjournment have come from the department''s side.

We are anguished to note that there is an apparent attempt on the part of the Commissioner to defeat or delay the remedy invoked by the applicant under Chapter XIX-B of the Income Tax Act on tenuous pleas, unmindful of the principle that strictly speaking this is not an adversarial proceeding and secondly, the possible impact the move of the Commissioner will have on the image of the tax administration in our country.

The Petitioners would contend that in terms of Section 245R(1) of the Act, it is mandatory for the AAR to cause service of application to the Commissioner concerned and call upon to furnish the relevant records and comments. As the proceedings were initiated by DDIT, Hyderabad, u/s 201 read with Section 195 of the Act, the first Petitioner is necessary party being the designated Commissioner for the purpose of Chapter XIX-B. There was no notice to him. The communication of the Director General, International Taxation, was received by first Petitioner on 08.12.2009. Even before proper comments could be submitted, without waiting for the response of the Petitioners, the AAR passed order of admission on 17.12.2009, without reasons and in violation of principles of natural justice. The same is void and non est. Alternatively, they would submit that when the comments were submitted by the first Petitioner vide communication dated 23.12.2009, the AAR ought to have re-opened the proceedings and heard the admissibility aspect as a preliminary issue. The order, dated 03.08.2010 is also without the reasons and is not in accordance with the scheme of Chapter XIX-B of the Act.

(iii) The case of the second Respondent

MA and GIMD filed separate affidavits in reply, opposing the admission of the writ petitions and interim relief. During the course of the hearing, supplementary affidavits have also been filed, so as to place on record the events, and proceedings that happened and took place before the AAR. The Respondents oppose on the grounds of delay, prematurely and acquiescence. Refraining from joining the issue on the tenability of the applicability of Sections 195 and 201 of Act, the second Respondent entered the demur to the extent relevant to the core administrative law issues. The contents of these affidavits may be summed up as follows. First, the second Respondent has no office in India and is represented by its law firm at Delhi, and therefore, this Court has no territorial jurisdiction because no part of cause of action has arisen within its jurisdiction. Secondly, the notice was given and the Petitioners had an opportunity to appear before the AAR at the pre-admission stage before the impugned order was passed. The writ petition is filed eight months thereafter, and therefore, it is barred by delay. Thirdly, even after admission of the matter, on the request made by the Petitioners, the AAR gave an opportunity to address on the preliminary issue. The AAR has considered Petitioners'' objections and recorded proceedings on 03.08.2010 duly informing the parties that hearing would continue on merits and that an order would be passed encompassing the preliminary issue as well as the merits. Fourthly, the AAR is a statutory creation required to sub-serve the specific purpose of ensuring qualitative and time bound disposal of important tax issues faced by resident/non-resident applicants; that the advance ruling is required to be pronounced within six months and that in the scheme of things, there is no statutory compulsion warranting adjudication of preliminary issues and the main issues separately. The writ petitions are premature. These writ petitions are filed to delay and defeat the proceedings before the AAR because as of now, there is no advance ruling which binds the income tax authority, and lastly, the Department through their Special Counsel proceeded with the matter on 01.02.2011, 02.02.2011, 03.02.2011 and 04.02.2011 and addressed the AAR on the merits of the case as well as the maintainability of the Respondents application u/s 245R(2) of the Act. Therefore, the writ petition ought not to be entertained.

Submissions And Issues

The Senior counsel for the Revenue Sri S.R. Ashok, and the senior counsel for the second Respondent M/s.S. Ganesh, Kaka and S. Ravi, addressed the Court by and large adhering to parties'' position in the pleadings. Therefore, it is not necessary to detail these submissions. The background and the relevant statutory scheme, give rise to the issues, which can be conveniently considered under the headings: Ruling on the preliminary issue; Right to reasons; and Delay and acquiescence.

Ruling On The Preliminary Issue

(i) Relevant provisions of law

The Chapter XIX-B consisting of Sections 245N to 245R was inserted by the Finance Act, 1993 with effect from 01.6.1993. In his Budget speech for 1993-1994, the Minister for Finance does not specifically make a mention regarding "advance rulings". The Finance Bill 1993 has detailed notes on clauses in the Bill. Clause 30 thereof says that a new chapter is introduced, "in order to provide a scheme for giving advance rulings in respect of transactions involving Non Resident Indians (NRIs) with a view to avoid needless litigation and promoting better tax pay relations."

The ''advance ruling'' inter alia means, a determination by the AAR 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 (Section 245N(a)). The chapter provides for the constitution of the AAR at Delhi and the procedure that is to be followed by the AAR. It speaks of timeliness in pronouncement of advance ruling. The proceedings before the AAR shall be judicial proceedings and it shall have all the powers of Civil Court in respect of discovery and inspection, enforcing attendance of any person including any officer of the Banking company and examining them on oath, issuing commission and compelling production of books of accounts. It shall have power to regulate its own procedure while exercising their powers under the Act.

In 1998 and 2000, there were amendments to Sections 245N and 245R of the Act. In 2003 also there were amendments of some significance. For ready reference, we may quote the provisions, as introduced by 1993, 1998, 2000 and 2003 Finance Acts.

Finance Act, 1993

After the enactment of the Finance Act, 1993 with effect from 01.6.1993, Sections 245N and 245R read as under.

245N. Definitions.-In this Chapter, unless the context otherwise requires,-

(a) "advance ruling" means the determination, by the Authority, of a question of law or fact specified in the application in relation to a transaction which has been undertaken, or is proposed to be undertaken by the a applicant;

(b) "applicant" means a non-resident making an application,

(Other portion is omitted as not relevant) 245R. Procedure on receipt of application.

(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application:

Provided that the Authority shall not allow the application, where the question raised in the application,

(a) is already pending in the applicant''s case before any income tax authority, the Appellate Tribunal or any court;

(b) involves determination of fair market value of any property;

(c) relates to a transaction which is designed prima facie for the avoidance of income tax:

Provided further that no application shall be rejected under this Sub-section unless an opportunity has been given to the applicant of being heard:

Provided also that where the application is rejected, reasons for such rejection shall be given in the order.

Finance Act, 1998

After coming into force of Finance Act (No. 2) 1998 with effect from 01.10.1998, Sections 245N, 245R and 245RR read as under.

245N. 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 and such determination shall include the determination of any question of law or of a fact specified in the application;

(ii) a decision by the Authority in relation to an assessment which is pending before any of the income tax authority or the Tribunal in case of an applicant who is a resident in India and such decision shall include the decision on question of law or fact arising out of the orders of assessment in respect of which an application has been made by a resident applicant;

(b) "applicant" means any person who -

(i) is a non-resident; or

(ii) is a resident falling with any such class or category of persons as the Central Government may, by notification in the Official Gazette, specify in this behalf;

(iii) makes an application under Sub-section (1) of Section 245Q;

245R. Procedure on receipt of application.

(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application:

Provided that the Authority shall not allow the application except in the case of a resident applicant; where the question raised in the application,-

(a) is already pending in the applicant''s case before any income tax authority, the Appellate Tribunal or any court;

(b) involves determination of fair market value of any property;

(c) relates to a transaction which is designed prima facie for the avoidance of income tax:

Provided further that no application shall be rejected under this Sub-section unless an opportunity has been given to the applicant of being heard:

Provided also that where the application is rejected, reasons for such rejection shall be given in the order.

245RR. Appellate authority not to proceed in certain cases.-No income tax authority or the Appellate Tribunal shall proceed to decide any issue in respect to which an application has been made by an applicant, being a resident, under Sub-section (1) of Section 245R.

Finance Act, 2000

After amendment by the Finance Act, 2000 with effect from 01.6.2000, Sections 245N and 245R read as under.

245N. 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 a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with a 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:

(b) "applicant" means any person who-

(i) is a non-resident referred to in Sub-clause (i) of Clause (a); or

(ii) is a resident referred to in Sub-clause (ii) of Clause (a); or

(iii) is a resident falling within any such class or category of persons as the Central Government may, by notification in the Official Gazette, specify in this behalf; and

(iv) makes an application under Sub-section (1) of Section 245Q;

245R. Procedure on receipt of application.

(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application:

Provided that the Authority shall not allow the application where the question raised in the application,-

(i) is already pending before any income tax authority or Appellate Tribunal except in the case of a resident applicant falling in Sub-clause (iii) of Clause (b) of Section 245N or any court;

(ii) involves determination of fair market value of any property;

(iii) relates to a transaction or issue which is designed prima facie for the avoidance of income tax except in the case of a resident applicant falling in Sub-clause (iii) of Clause (b) of Section 245N:

Provided further that no application shall be rejected under this Sub-section unless an opportunity has been given to the applicant of being heard:

Provided also that where the application is rejected, reasons for such rejection shall be given in the order.

Finance Act, 2003

After amendment to the Finance Act 2003 with effect from 01.6.2003, Section 245N reads as under.

245N. 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 Bill, 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 245S;

(b) "applicant" means any person who-

(i) is a non-resident referred to in Sub-clause (i) of Clause (a); or

(ii) is a resident referred to in Sub-clause (ii) of Clause (a); or

(iii) is a resident falling within any such class or category of persons as the Central Government may, by notification in the Official Gazette, specify in this behalf; and

(i) makes an application under Sub-section (1) of Section 245Q;

245R. Procedure on receipt of application (1) On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the Commissioner and, if necessary, call upon him to furnish the relevant records:

Provided that where any records have been called for by the Authority in any case, such records shall, as soon as possible, be returned to the Commissioner.

(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application:

Provided that the Authority shall not allow the application where the question raised in the application,-

(i) is already pending before any income tax authority or Appellate Tribunal except in the case of a resident applicant falling in Sub-clause (iii) of Clause (b) of Section 245N or any court;

(ii) involves determination of fair market value of any property;

(iii) relates to a transaction or issue which is designed prima facie for the avoidance of income tax except in the case of a resident applicant falling in Sub-clause (iii) of Clause (b) of Section 245N:

Provided further that no application shall be rejected under this Sub-section unless an opportunity has been given to the applicant of being heard:

Provided also that where the application is rejected, reasons for such rejection shall be given in the order.

(3) A copy of every order made under Sub-section (2) shall be sent to the applicant and to the Commissioner.

(4) Where an application is allowed under Sub-section (2), the Authority shall, after examining such further material as may be placed before it by the applicant or obtained by the Authority, pronounce its advance ruling on the question specified in the application.

(5) On a request received from the applicant, the Authority shall, before pronouncing its advance ruling, provide an opportunity to the applicant of being heard, either in person or through a duly authorized representative. Explanation.-For the purposes of this Sub-section, "authorized representative" shall have the meaning assigned to it in Sub-section (2) of Section 288, as if the applicant were an Assessee.

(6) The Authority shall pronounce its advance ruling in writing within six months of the receipt of application.

(7) A copy of the advance ruling pronounced by the Authority, duly signed by the Members and certified in the prescribed manner shall be sent to the applicant and to the Commissioner, as soon as may be, after such pronouncement.

(ii) Analysis of Chapter XIX-B

The history of legislation in relation to the ''advance ruling'' would show that initially the jurisdiction of AAR was limited to determination of the tax liability of a non-resident applicant in relation to a transaction which has been undertaken. By subsequent amendments, the scope was enlarged. It may be mentioned that the legislative facilitation of advance ruling system in the field of direct taxes as well as in the field of indirect taxes (Sections 23A to 23H of Central Excise Act, 1944 and Sections 28E to 28M of the Customs Act, 1962) is pursuant to WTO Negotiations on Trade Facilitation which requires the Member States to introduce advance ruling system in a timely manner, to encourage international trade.

India is one of the first countries of the world which introduced such a system. The object is to create enterprise friendly legal structure to attract foreign investment and accelerate economic growth and development. Therefore, while construing the provisions of Chapter XIX-B of the Act, the importance of adherence to timeliness in the advance rulings, cannot be ignored. Further, being essentially machinery provisions, these have to be construed in a manner that they are workable without complexity. The negative impact of delayed rulings by the Court intervention at different stages before issue of advance ruling would be tremendous. A non-resident applicant not able to procure advance ruling within the time may not be willing to pursue any investment proposal with the same vigor and zeal.

An advance ruling shall be binding on the applicant who sought it; in respect of the transaction in relation to which the ruling had been sought. It is also binding on the income tax authority in respect of the applicant and the said transaction. Therefore, timeliness is the key factor which has an effect of doing or undoing NRI participation in economic development of the Nation. The Parliament seems to be very much aware of importance of the timeliness. Therefore, u/s 245V empowered the AAR to regulate its own procedure in all matters arising out of exercise of powers under the Act. The appointment of a retired Judge of the Supreme Court as its Chairman and high ranking officials of Indian Revenue Service and Indian Legal Service as Members of the AAR would reveal the importance attached to the advance ruling in relation to trade or business transaction undertaken by non-resident or other category of applicants.

There are four steps or stages in the advance ruling process. The first step is receiving the application in the prescribed form by the AAR in quadruplicate which shall be accompanied by the prescribed fee. The applicant is required to state the question on which the ruling is sought. Law allows a period of thirty days to the applicant to withdraw the application (Section 245Q). The second step is to issue notice to the CBDT or the jurisdictional Commissioner, as the case may be, and call for the relevant records if the AAR proposes to give an advance ruling (Section 245R(1) and Rule 13 of the Advanced Rulings (Procedure) Rules, 1996 (the AAR Rules, for brevity). The third step is the rejection of the application for advance ruling for any reasons mentioned in the first proviso to Section 245R(2). These are -(i) when the question raised in the application is already pending before any Income Tax Authority or Appellate Tribunal or any Court; (ii) involves determination of fair market value of any property; or (iii) relates to a transaction or issue which is designed for the avoidance of income tax. The power to reject an application in liming is subject to two conditions, namely, (i) it cannot be rejected without giving an opportunity to the applicant of being heard; and (ii) it cannot be rejected without giving reasons for such rejection. The copy of the order of rejection shall be sent to the applicant and to the Commissioner (Section 245R (2) and (3)). The fourth step is alternative to the third step. If the application is not rejected in accordance with Section 245R(2), the AAR shall issue notice of hearing to the Commissioner and to the applicant and shall pronounce advance ruling in writing within six months of the receipt of the application and a copy thereof shall be sent to the parties (Section 245R (4), (5), (6) and (7)).

(iii) The issue of threshold bar

The Chapter XIX-B nowhere indicates that it is mandatory for the AAR to decide the issue of threshold bar u/s 245R(2) of the Act as and when the Commissioner raises objection. Nor it is possible to hold so, on the plain language of the text. The reasons for this conclusion are more than one. A plain reading of the three provisos to Section 245R(2) together in harmonious manner would suggest that the requirement of giving reasons is contemplated only when an application is rejected. Only when an application is allowed for further consideration, the law contemplates a notice to the Commissioner (Rule 13 of the AAR Rules).

The first proviso to Section 245R(2) - to reiterate; bars the AAR from allowing the application where the question raised in the application (i) is already pending before any Income Tax Authority or appellate authority; (ii) involves determination of fair market value of any property and (iii) relates to a transaction or issue which is prima facie designed for the avoidance of income tax. If the question raised falls within the category as contemplated in (ii) above, there would not be any difficulty. Even in a situation as in (iii), the complexity if any may be surmountable. But if it is a case which is allegedly pending before the income tax authority, there would certainly be some difficulty. If such an objection is raised by the Commissioner, it cannot be rejected straight away at the threshold relying on the Clause (i) of the first proviso to Section 245R(2). The situation would be more complex if tax immunity is claimed under relevant Double Taxation Avoidance Treaty (DTAT) between the Central Government and Government of any country outside India.

Wherever deeper probe is required, it would be certainly within the power and jurisdiction of the AAR to refuse to decide the preliminary objection of threshold bar and proceed to consider the application u/s 245R(4) and (6) of the Act. The transaction between the second Respondent and Sanofi indisputably involves the interpretation of Indo-French DTAT. To deny consideration; in such circumstances due to alleged threshold bar, may not be proper and would tantamount to abdication of jurisdiction. The existence of jurisdictional facts is sine qua non for any tribunal or authority to assume jurisdiction. The applicability of proviso to Section 245R(2) of the Act is a matter for enquiry into the facts as pleaded in the application and records produced by the Commissioner. As noticed supra, Parliament itself made a distinction between resident and non-resident applications while fettering the power of the AAR, when a question of inherent lack of jurisdiction is raised. If the enquiry as to existence or non-existence of jurisdictional facts itself involves detailed and in-depth enquiry, the Act a fortiori does not prohibit the AAR to decline adjudication of preliminary issue and proceed with the case.

(iv) Judicial Review of Preliminary Adjudication

The jurisdiction under Article 226 cannot ordinarily be allowed to correct any decision of the tribunal refusing to decide on the preliminary objection as to its jurisdiction. The jurisdiction to adjudicate is sovereign power to subject persons to the process of its Courts or tribunals. It is the power to do something due to sovereign donation and exercisable in relation to limited territory, specified category of persons or classes of transactions. Whether or not a public authority with such power is barred from exercising the power depends on the procedure mandated by the applicable statute. If the Court or tribunal is required to consider all issues in a lis, it is inferred that such public authority is barred from deciding a preliminary issue of ouster of the jurisdiction when the existence of jurisdictional facts is itself an intricate question warranting in-depth enquiry. Generally, given the object of dispensing expeditious justice, the Court is not expected to procrastinate the conclusion by deciding the preliminary issues and retaining the case in the system for long. This would be more so when the relevant statute mandates time bound decisions.

In D.P. Maheshwari Vs. Delhi Administration and Others, deprecating High Courts'' judicial review of preliminary findings by the industrial tribunals and labor Courts, the Supreme Court held.

There was a time when it was thought prudent and wise policy to decide preliminary issues first. But the time appears to have arrived for a reversal of that policy. We think it is better that tribunals, particularly those entrusted with the task of adjudicating labor disputes where delay may lead to misery and jeopardize industrial peace, should decide all issues in dispute at the same time without trying some of them as preliminary issues. Nor should High Courts in the exercise of their jurisdiction under Article 226 of the Constitution stop proceedings before a tribunal so that a preliminary issue may be decided by them. Neither the jurisdiction of the High Court under Article 226 of the Constitution nor the jurisdiction of this Court under Article 136 may be allowed to be exploited by those who can well afford to wait to the detriment of those who can ill afford to wait by dragging the latter from court to court for adjudication of peripheral issues, avoiding decision on issues more vital to them. Article 226 and Article 136 are not meant to be used to break the resistance of workmen in this fashion. Tribunals and courts who are requested to decide preliminary questions must therefore ask themselves whether such threshold part-adjudication is really necessary and whether it will not lead to other woeful consequences. After all tribunals like Industrial Tribunals are constituted to decide expeditiously special kinds of disputes and their jurisdiction to so decide is not to be stifled by all manner of preliminary objections and journeying up and down. It is also worthwhile remembering that the nature of the jurisdiction under Article 226 is supervisory and not appellate while that under Article 136 is primarily supervisory but the court may exercise all necessary appellate powers to do substantial justice. In the exercise of such jurisdiction neither the High Court nor this Court is required to be too astute to interfere with the exercise of jurisdiction by special tribunals at interlocutory stages and on preliminary issues.

(emphasis supplied)

The AAR is headed by a retired Judge of the Supreme Court, an Officer of Indian Revenue Service who is qualified to be a member of CBDT and an officer of Indian Legal Service who is, or is qualified to be, an Additional Secretary to Government of India. Section 245V empowers the AAR to regulate its own procedure in all matters arising out of the exercise of powers under the Act. In exercise of this power the Rules have been made by the AAR. Rule 16 is to the effect that on the prescribed day the AAR shall hear the applicant or his authorized representative in cases where it is proposed to reject the application. The AAR is required to hear the Commissioner or his authorized representative before pronouncing its advance ruling only when it considers it necessary. From a conjoint reading of the first proviso to Section 245R(2) and Rule 17 of the AAR Rules, it is inevitable to conclude that at the stage of considering the application with reference to first proviso to Section 245R(2) read with the other two provisos, the Commissioner or his authorized representative are nowhere in the picture. In a given case, the AAR can even refuse to admit or reject the application even without calling for records even though a copy of the application has had been forwarded to the Commissioner as per Section 245R(1). The exclusive jurisdiction to decline to allow an application for advance ruling is vested in the AAR manned by men of outstanding ability, having special knowledge of direct taxes and business accounts. Their opinion on the issue of allowing an application must be subjected to deferential review. A strict scrutiny or a deeper probe is not called for. Needless to say that any advance ruling is subject to judicial review by this Court under Article 226, when findings on all the issues can be reviewed.

The AAR as a tribunal, is not subject to the supervisory jurisdiction of the High Court under Article 227. The judicial review, therefore, must be only within the scope of Article 226 of the Constitution. In Surya Dev Rai Vs. Ram Chander Rai and Others, relying on Umaji Keshao Meshram and Others Vs. Radhikabai and Another, the difference between the exercise of the original jurisdiction under Article 226 and the supervisory jurisdiction under Article 227 was considered. It was held that the power to issue a writ of Certiorari is to be exercised sparingly and only in appropriate cases, where the judicial conscience of the High Court dictates it to act lest a gross failure of justice or grave injustice would occasion. When a certiorari is issued there must exist the conditions that the decision maker acted without jurisdiction by assuming jurisdiction where there exists none, or in excess of jurisdiction by overstepping or crossing the limits of jurisdiction, or acted in flagrant disregard of the law or the rules of procedure or in violation of principles of natural justice thereby occasioning failure of justice. Jurisdiction under Article 227 is exercised over the subordinate Courts and tribunals within the High Court territory when they assume jurisdiction which did not have or fail to exercise jurisdiction which they have or the jurisdiction though available was exercised in a manner not permitted by law. Importantly it was also held that if an error of jurisdiction can be corrected at a later stage or the wrong done if any could be set right subsequently, ordinarily, the jurisdiction either under Article 226 or 227 is not exercised.

The ouster of jurisdiction of the AAR on mere asking by the Commissioner for any of the reasons in Clauses (i), (ii) and (iii) of the first proviso to Section 245R(2) can neither be readily inferred nor would be justified. It is axiomatic that the plain language of the statute calls for literal interpretation. It is not open to opt another construction when the language of the provision permits only one meaning. In common law, it is well accepted, unless Parliament/legislature expressly ousts the jurisdiction of the Court, the law must be interpreted in a manner of conferring jurisdiction. The ouster of Courts'' jurisdiction - whether express or implied must be clear and unambiguous. The assumption of jurisdiction cannot ordinarily be negative by implying limitations. If the language is not clear, the Courts must interpret the restrictive clause in a narrow manner and sustain the jurisdiction of a Court Hakam Sing Vs. Gammon (India) Ltd.,

In respect of statutory creations - adjudicatory bodies and/or tribunals - the principles are however different. A tribunal established under an Act of competent legislature is not empowered to examine the vires of creating statute L. Chandra Kumar Vs. Union of India and others, Similarly such a tribunal cannot act outside the purview of the statute nor make ultra vires procedural regulations. Even when a dispute arises whether the tribunal has jurisdiction to deal with a matter, the Endeavour of the Court ought to find the jurisdiction rather than deny the same. "The rules of construction are attracted where two or more reasonably possible constructions are open on the language of the statute; any construction which results in denying the Court''s jurisdiction is not favored" (see Shri Kihota Hollohon Vs. Mr. Zachilhu and others, The rule has been pithily stated in ''Principles of Statutory Interpretation'' by Justice G.P. Singh (2010 Twelfth edn., pp.748-750), which reads as under.

The rule that the exclusion of jurisdiction of civil courts is not to be readily inferred is based on the theory that civil courts are courts of general jurisdiction and the people have a right, unless expressly or impliedly debarred, to insist for free access to the courts of general jurisdiction of the State. Indeed, the principle is not limited to civil courts alone, but applies to all courts of general jurisdiction including criminal courts. ... Exclusion of jurisdiction of ordinary criminal courts can be brought about by setting up courts of limited jurisdiction in respect of the limited field, only if the vesting and the exercise of that limited jurisdiction is clear and operative and there is an adequate machinery for the exercise of the limited jurisdiction. But the rule against exclusion of jurisdiction of courts like other rules of construction is attracted only where two or more reasonably possible constructions are open on the language of the statute and not where the legislative intent is plain and manifest to oust the jurisdiction.

(v) The Impugned Order of the AAR

The assumption that the AAR did not consider the threshold bar before passing the impugned order, dated 17.12.2009 is not correct. Equally, the plea that there was no notice to the first Petitioner is misconceived. The criticism of the senior counsel that the AAR proceeded with the application made by Respondents without hearing the objections of the Petitioners is without merit nor we can countenance the submission that notice sent to CBDT on 24.11.2009 u/s 245R(1) is not adequate notice. Section 245R(1) read with Rule 13 does not contemplate any notice at the stage of taking cognizance of an application for the advance ruling. It contemplates the calling for the records. As per Rule 13(1) if there is any doubt about a designated Commissioner, a copy of the application shall be forwarded to CBDT calling upon it to specify or designate within a period of two weeks the Commissioner for the purpose of application, failing which, the application may be decided without hearing the Commissioner. There is no dispute that the AAR sent the notice to CBDT on 24.11.2009. In turn, they sent it to the Director of International Taxation, Bangalore (DIT) which was received on 08.12.2009, who then forwarded to the jurisdictional Additional Commissioner of Income Tax - second Petitioner, who received it on 11.12.2009. Thus due to delayed response to the notice by them, the time of two weeks granted by the AAR expired. Only thereafter the AAR passed orders on 17.12.2009 allowing the application observing that the application is not hit by the proviso to Section 245R(2) of the Act.

After receiving the order of the AAR admitting the application, the Petitioners appear to have not dealt with the matter promptly. The chronology of events after the admission of the applications of the second Respondent would justify such a comment. The first Petitioner addressed a communication, dated 23.12.2009 to the AAR raising preliminary objection for rejecting the application as barred under Clauses (i) and (iii) of the proviso to Section 245R(2) of the Act. After receiving the same on 31.12.2009, it was posted to 15.03.2010 for hearing. For a period of about four months, the Petitioners did not pursue the same with right earnest nor approached this Court immediately after receiving the impugned order of admission. The writ petitions have been filed on 27.10.2010 after about seven months.

The application raising objection was adjourned at least at the instance of the department. On 08.07.2010, the arguments were heard on the preliminary objection raised by the department and the matter was posted for further hearing on merits on 16.07.2010. Again the department sought time on the ground of counsel''s ill-health. From 16.07.2010 to 02.08.2010, and even thereafter, the parties before the AAR filed written submissions and made oral submissions in relation to the preliminary objection as well as on the merits of the case. Presumably for this reason on 03.08.2010, the AAR passed yet another order that there were no compelling reasons to revoke the earlier order of admission. The AAR expressed its anguish noting that there is an apparent attempt on the part of the Commissioner to defeat or delay the remedy under Chapter XIX-B of the Act on tenuous pleas, unmindful of the principle that it is not an adversarial proceeding and the possible impact, the move of the Commissioner will have on the image of the tax administration in the country.

When the hearing in these writ petitions commenced, the matter was heard before the AAR. The Petitioners filed written submissions and made oral submissions to abort the advance ruling proceeding. We are, therefore, convinced that the AAR considered the question of threshold bar under the first proviso to Section 245R(2) of the Act after providing adequate opportunity to the Petitioners twice. As the AAR also expressed the view that all issues can be considered finally, no prejudice is caused to the Petitioners. We, therefore, reject the plea of the Petitioners and hold that in each and every case, it is not mandatory for the AAR to consider the question of threshold bar under the first proviso to Section 245R(2); and that if any preliminary objection requires a thorough examination of facts and law, it is always within the powers of the AAR to decide preliminary objection and proceeding with the examination before passing order u/s 245R(4) and (6). We also hold that the law requires only to forward copy of the application and call for the records from the Commissioner at the stage of admission. There is no requirement of hearing the Commissioner at the stage of admission. Such requirement would arise only when the AAR decides to proceed with the application for pronouncing the advance ruling when a notice has to be issued to the Commissioner. In this case, all the legal requirements have been complied with and the exercise of jurisdiction by the AAR is unexceptionable.

Right To Reasons

(i) The Rule of Law

The rule of law means that the people shall be ruled by the law and subject to it. The basic principles of rule of law are: (i) all laws should be prospective, open and clear; (ii) laws should be relatively stable; (iii) the making of particular laws should be guided by transparent general rules; (iv) the independence of judiciary must be guaranteed; (v) the principles of natural justice must be observed; (vi) the Courts have review powers over the implementation of norms and principles; (vii) the Courts should be easily accessible; (viii) the discretion of the crime preventing agencies should not be allowed to pervert the law Cases and Materials on ''Constitutional and Administrative Law'' by Michael J Allen and others -Third edition; Lawman (India) Private Limited, New Delhi 1995.. The application of the law needs to be transparent, fair, unbiased and comply with the principles of natural justice. The judicial and no judicial decision making is subject to the rule of law and therefore, the proceedings must be fair. In determining (i) the facts, (ii) the applicable principle, and (iii) applying the principle to the determined facts the decision maker is expected to apply mind. This should manifest in the decision. Professor De Smith''s Judicial Review of Administrative Action, sixth edn., by Harry Woolf et al; Sweet &Maxwell, London, 2007. points out that the public authority''s failure to give reasons is procedurally unfair and indicates that the decision might be irrational. A reviewing Court cannot effectively scrutinize if a decision is bereft of reasons. Though there is universal acceptance of these norms, there are variations in regard to the extent, the content, the elaborateness of giving reasons by the public authorities.

(ii) Public Functions and Duty to give Reasons

The theory of separation of powers postulates trifurcation of public functions: legislative, judicial and administrative. Depending on the nature of functions, the extent of duty to support the decisions with reasons; the stage of furnishing them, and quality of reasons would differ. Herein below, we will briefly deal with the nature of Legislative, Judicial, Administrative and Quasi-Judicial functions and the right to reasons.

(iii) Legislative Functions and the Requirement of Reasons

The ''legislative function'' is the creation and promulgation of general rule of conduct without reference to a particular case. Ordinarily, what the majority decides is the ''will'' of the people and is to be enforced by the administrative authorities. The legislators make law, amend law and repeal the law. They would not implement the law or enforce the law. Legislators with an exception or two in the case of contempt of the Legislative House or impeachment proceedings - do not make any judicial decisions. The legislators make law for the people and the people have to enforce their rights through judicial process.

The competent legislature is presumed to know the need and requirement of the people. They are entitled to rely on any information received from any source. In addition to the general power of taxing, they have also power of eminent domain and police powers. When a law is made, in any of these areas, there is no constitutional rule requiring the legislature to give reasons. The object and reasons for the legislation are to be gathered from the statement of objects and reasons which generally accompanies the modern statutes and from the statute itself. In the matter of necessity for making a law, final decision rests with the legislature and other two organs of the State are precluded from questioning the legislative wisdom although in a democracy the judiciary can scrutinize a law for its constitutional compliance.

(iv) Judicial Functions and Duty to give to Reasons

The judicial functions of public authority - mostly the Courts and Tribunals - are distinct and distinguished from legislative and administrative functions. If a law (a decision of legislative body) is violated, the same decision maker has no say. Likewise, if an administrative decision is not put into effect, in many situations, administrative authorities cannot penalize the beneficiary. However, when once a judicial decision is made, the same is binding and cannot ordinarily be impeached in collateral proceedings. The judicial proceedings are privileged. They are immune from action for defamation.

It would be curious to mention that, "Courts themselves are not obliged at common law to give reasons for their decisions" (para 7-089 Professor De Smith''s Judicial Review, sixth edn.,). In Som Datt Datta Vs. Union of India (UOI) and Others, a Constitution Bench while observing that in English law, there is no general rule apart from the statutory requirement that the statutory tribunal should give reasons, quoted with approval the following rule as stated by Lord Denning in Rex v. North umber Land Compensation Appeal Tribunal [1952] All ER 122:"if there was a speaking order, a writ of Certiorari could be granted to quash the decision of an inferior Court or statutory Tribunal on the grounds of error on the face of record ...; that the record must at least contain a document which initiates the proceedings and the adjudication nor the reasons unless the tribunal chooses to incorporate them in the decision. If the reasons are stated and are found to be wrong in law, a writ of Certiorari might be granted by the High Court quashing the decision". The law however; for the good of it -has undergone tremendous changes. It is now universally accepted that not only the higher Courts, but all Courts, are under obligation to give reasons because it is the human right of litigants to know the reasons for the decisions to which they are parties.

The common law countries for over more than a century there is increasingly codified common law. In India, the Code of Civil Procedure, 1908 (CPC), Code of Criminal Procedure, 1973 (CrPC) and the Evidence Act, 1872 form the trinity of procedure law. These cast duty on the Courts trying the causes to record reasons for the conclusions arrived after adjudication (Sections 2(9), 33 and Order XX of CPC and Sections 235, 354(1)(a), 361 of Code of Criminal Procedure).

In CCT v. Shukla and Brothers (2010) 4 SCC 785, the Supreme Court reiterated the rationale of a reasoned judgment. The observations read as under.

By practice adopted in all courts and by virtue of judge-made law, the concept of reasoned judgment has become an indispensable part of basic rule of law and, in fact, is a mandatory requirement of the procedural law. Clarity of thoughts leads to clarity of vision and proper reasoning is the foundation of a just and fair decision. In Alexander Machinery (Dudley) Ltd v. Crabtree 1974 ICR 120 (NIRC) there are apt observations in this regard to say "failure to give reasons amounts to denial of justice". Reasons are the real live links to the administration of justice. With respect we will contribute to this view. There is a rationale, logic and purpose behind a reasoned judgment. A reasoned judgment is primarily written to clarify own thoughts; communicate the reasons for the decision to the concerned and to provide and ensure that such reasons can be appropriately considered by the appellate/higher court. Absence of reasons thus would lead to frustrate the very object stated hereinabove.

(v) Administrative Functions and Right to Reasons

The function of public authority concerning broad areas of government activity, in which the depositories of power exercise over class of statutory functions is called ''administrative function''. The functions discharged by ministers are also executive or administrative. They are neither judicial nor legislative. These administrative functions involve taking policy decisions, conducting inspections and enquiries, issuing licences, ultimate conclusions, findings and the decision based on them, which is binding. In Rai Sahib Ram Jawaya Kapur and Others Vs. The State of Punjab, the Supreme Court opined that, "ordinarily the executive power connotes the residue of governmental functions that remain after legislative and judicial functions are taken away. ... ... The executive function comprises both the determination of the policy as well as carrying it into execution. This evidently includes the initiation of legislation, the maintenance of order, the promotion of social and economic welfare, the direction of foreign policy, in fact the carrying on or supervision of the general administration of the State."

Every executive action must be supported by reasons although some decisions do not require any reasons. Some times, the policy laid down by the political executive would itself be a sufficient reason for executive action. It must, however, be noted that when an action is taken under a statute, which itself requires a decision to be supported by reasons, they should be supported by reasons. But, in all situations the law does not require an administrative order to contain the reasons. In India, the decisions are taken at different levels of administration commencing from an office assistant and ultimate authority would finally approve a particular course of action. The file dealing with such administrative process would contain reasons which are to be gathered when the decision is subjected to judicial scrutiny.

In Union of India and others Vs. E.G. Nambudiri, the Supreme Court held that there is no statutory duty cast upon an administrative authority to record reasons when an application for some benefit, concession or largesse is rejected. It would be suffice if minimum reasons are recorded for doing so. It was also observed that reasons need not be at one place by one officer and reasons can be gathered from the entire file. It was held.

In the absence of any statutory rule or statutory instructions requiring the competent authority to record reasons in rejecting a representation made by a government servant against the adverse entries the competent authority is not under any obligation to record reasons. In the absence of any statutory or administrative provision requiring the competent authority to record reasons or to communicate reasons, no exception can be taken to the order rejecting representation merely on the ground of absence of reasons. No order of an administrative authority communicating its decision is rendered illegal on the ground of absence of reasons ex facie and it is not open to the court to interfere with such orders merely on the ground of absence of any reasons. However, it does not mean that the administrative authority is at liberty to pass orders without there being any reasons for the same. In governmental functioning before any order is issued the matter is generally considered at various levels and the reasons and opinions are contained in the notes on the file. The reasons contained in the file enable the competent authority to formulate its opinion. If the order as communicated to the government servant rejecting the representation does not contain any reasons, the order cannot be held to be bad in law. If such an order is challenged in a court of law it is always open to the competent authority to place the reasons before the court which may have led to the rejection of the representation. It is always open to an administrative authority to produce evidence aliened before the court to justify its action.

(emphasis supplied)

Although in a different context, to the same effect are the following observations from the recent judgment of the Supreme Court in Jasbir Singh Chhabra and Others Vs. State of Punjab and Others,

It must always be remembered that in a democratic polity like ours, the functions of the Government are carried out by different individuals at different levels. The issues and policy matters which are required to be decided by the Government are dealt with by several functionaries some of whom may record nothings on the files favoring a particular person or group of persons. Someone may suggest a particular line of action, which may not be conducive to public interest and others may suggest adoption of a different mode in larger public interest. However, the final decision is required to be taken by the designated authority keeping in view the larger public interest.

(vi) Quasi Judicial Functions and Right to Reasons

An administrative authority empowered to act in accordance with the principles of fairness while deciding adversarial rights, is presumed to be discharging duties akin to judicial functions and referred to as quasi judicial function. In ''The Oxford Companion to Law'' by David M. Walker, 1980 edn., the expression ''quasi-judicial'' is explained as follows -the term is often used of the functions and acts of persons and bodies not strictly called judicial, not being courts or judges, but similar thereto in having authority or discretion to decide issues involving other persons; it is a term commonly used of decisions involving discretion, but following on a judicial-type investigation, as where a minister, after local inquiry, decides to confirm a compulsory purchase order; but this can equally, well, or better, be called an administrative function". In ''Black''s Law Dictionary'' (6th edn.,), ''quasi-judicial'' is defined as, "a term applied to the action, discretion, etc., of public administrative officers or bodies, who are required to investigate facts, or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them, as a basis for their official action, and to exercise discretion of a judicial nature. ... The power of an administrative agency to adjudicate the rights of the persons before it, is ''quasi-judicial'' power". According to ''Advanced Law Lexicon'' by P. Ramanatha Aiyar (Book 4, 3rd edn., Reprint 2007), when the law commits an officer the duty of looking into certain facts not in a way which it specially directs, but after discretion in its nature judicial, the function is quasi-judicial.

In Province of Bombay Vs. Kusaldas S. Advani and Others, a Constitution Bench of the Supreme Court, formulated two tests for determining whether function of a public authority is quasi-judicial. These are: (i) if a statute empowers an authority, not being a Court in the ordinary sense, to decide disputes arising out of a claim made by one party under the statute which claim is opposed by another party and to determine the respective rights of the contesting parties who are opposed to each other, there is a lis and prima facie in the absence of anything in the statute to the contrary it is the duty of the authority to act judicially and the decision of the authority is a quasi-judicial act; and (ii) if a statutory authority has power to do any act which will prejudicially affect the subject, then, although there are not two parties apart from the authority and the contest is between the authority proposing to do the act and the subject opposing it, the final determination of the authority will yet be a quasi-judicial act provided the authority is required by the statute to act judicially.

In State of Himachal Pradesh Vs. Raja Mahendra Pal and Others, the Supreme Court held that, "quasi-judicial acts are such acts which mandate an officer the duty of looking into certain facts not in a way which it specially directs but after a discretion, in its nature judicial. The exercise of power by such tribunal or authority contemplates the adjudication of rival claims of the persons by an act of the mind or judgment upon the proposed course of official action as to an object of the corporate power, for the consequences of which the official will not be liable, although his act was not well-judged. A quasi-judicial-function has been termed to be one which stands midway a judicial and an administrative function. The primary test is as to whether the authority alleged to be a quasi-judicial, has any express statutory duty to act judicially in arriving at the decision in question. If the reply is in affirmative, the authority would be deemed to be quasi-judicial, and if the reply is in the negative, it would not be. The dictionary meaning of the word ''quasi'' is, "not exactly". "

The exercise of quasi judicial powers invariably has judicial trappings - pleadings, rules of evidence and procedure for adjudication. The quasi judicial decisions affect personal liberty, rights, livelihoods, employment and sometimes impose legal sanctions. All quasi judicial decisions by no judicial decision makers are amenable to judicial review. Not only to render such review effective and purposeful but to enable the affected party to know as to why he received an adverse decision, compulsion to give reasons for quasi judicial decisions is treated as part of the doctrine of fairness and the principles of natural justice. This is subject to well accepted exception. If the statute specifically excludes the reasons for the final decision or the preliminary decision or leaves the choice to the decision maker to give reasons, the Courts have always leaned in interpreting the law as not obliging the public authority to record reasons.

The principles summed up infra - though not exhaustive; are culled out from Madhya Pradesh Industries Ltd. Vs. Union of India and Others (UOI), , Bharat Raja Vs. The Union of India (UOI) and Others, , Travancore Rayon Ltd. Vs. Union of India (UOI), Mahabir Prasad Santosh Kumar Vs. State of Uttar Pradesh and Others, , Union of India (UOI) Vs. Mohan Lal Capoor and Others, , Woolcombers of India Ltd. Vs. Woolcombers Workers Union and Another, , The Siemens Engineering and Manufacturing Co. of India Ltd. Vs. The Union of India (UOI) and Another, , Tara Chand Khatri Vs. Municipal Corporation of Delhi and Others, , S.N. Mukherjee Vs. Union of India, and Shukla and Brothers.

(i) A quasi judicial authority is required to give reasons if the statute expressly requires the recording of reasons as mandatory (Mahabir Prasad Santosh Kumar, M.L. Capoor and Siemens Engineering).

(ii) If the statute does not lay down expressly the requirement of recording reasons, the reasons have to be inferred from the facts and circumstances of the case and on that ground, the order cannot be invalidated (Bhagat Raja, Som Datt and S.N. Mukherjee).

(iii) If the order of the quasi judicial authority is subject to appeal or revision, the necessity for recording reasons is greater because the appellate or revisional authority cannot exercise their powers effectively without knowing the reasons which weighed with the quasi judicial authority (M.P. Industries, Bhagat Raja, Travancore Rayons Limited and Mahabir Prasad Santosh Kumar).

(iv) Every quasi judicial order which is subject to judicial review by the High Court ought to be speaking order. Without reasons, the judicial scrutiny would be ineffective and violates rule of law (Bhagat Raja, Travancore Rayons Limited and Mahabir Prasad Santosh Kumar).

(v) The extent, elaboration, nature of the reasons depend on each case; but quasi judicial decision without reasons would negate the rule of law. If the reasons reveal the rationale nexus between the facts considered and conclusions reached, it would be sufficient compliance (M.P. Industries, Bhagat Raja, M.L. Capoor, Woolcombers and Tara Chand).

(vi) Irrespective of the requirement as to the stage at which an authority has to record reasons, if the applicable statute excludes the reasons for the decision, the order cannot be invalidated only on the ground of lack of reasons (Som Datt and S.N. Mukherjee).

We may emphasize that if the statute excludes the requirement of giving reasons by quasi judicial decision maker, it cannot be insisted upon. Professor De Smith, referring to R v. Secretary of State for the Home Department I (1994) ACC 531 comments that, "as a general proposition, it is still accurate to say that the law does not at present recognize a general duty to give reasons for an administrative decision", and that strictly speaking there is no obligation to give reasons, if a statute does not oblige to do so.

''The English Public Law'' (first edition 2004 edited by Professor David Freedman) reiterates that, "a duty to give reasons that would otherwise arise may be excluded where there is compelling public interest and the strength of the public interest is balance against the interest of the complaint". The law as to statutory exclusion of reasons by a statute is stated thus.

15.56 The common law requirements of procedural fairness can be excluded by statute, expressly or by necessary implication; where that is done, and the outcome is also incompatible with a person''s rights under the Human Rights Act 1998 (HRA), a declaration of incompatibility on the latter ground can of course be made. However, the obligation, where appropriate, to comply with natural justice or requirements of procedural fairness is one of the ''constitutional principles which are not easily displaced by a statutory text'' by virtue of the principle of legality.

15.57 Examples of express exclusion are relatively unusual. A more common argument is that the expression of some procedural steps is to be taken as impliedly excluding others. The courts today are inclined to attach less weight to linguistic arguments of this kind and more to the extent to which the circumstances of the case call for fairness, the dictum of Lord Bridge in Lloyd v. McMahon [1987] ACC 625 commonly being cited. The code, however, will not be supplemented where that would frustrate the statutory purpose.

In Som Datt and S.N. Mukherjee - both by Constitution Benches - having regard to Sections 162, 164 and 165 of the Army Act, 1950 and the Rules 61 and 62 of the Army Rules, 1954 held that a statutory tribunal is not obliged to give reasons if there is express exclusion by the statute itself. In Som Datt, a Court of enquiry under Chapter VI of the Army Rules, 1954, was ordered against the Appellant followed by a Court Martial for an offence u/s 302 of the Indian Penal Code for the death of Serjeant Bishwanath Singh, who died in an internecine scuffle on the raising day of the unit commanded the delinquent officer. The Court Martial found guilty of culpable homicide not amounting to murder and of the charge of being a member of unlawful assembly. He was sentenced to cashiering and six years imprisonment. He filed a petition u/s 164 of the Army Act. The Chief of Army Staff confirmed the conviction and sentence by the Court Martial. Som Datt then unsuccessfully filed an appeal u/s 165 of the Army Act to Central Government. Thereafter, he filed writ petition in the Supreme Court invoking Article 32 of the Constitution.

It is necessary to point that Section 162 of the Army Act, provides that the proceedings of every summary Court Martial shall be forwarded to the officer commanding the division or brigade within which the trial was held or to the Chief of the Army Staff, who may "for reasons based on the merits of the case" set aside the proceedings or reduce the sentence. Section 164 provides that any person aggrieved by an order passed by the Court Martial may present a petition to the authority empowered to confirm any finding. It further stipulated that the confirming authority may take such steps as may be considered necessary to satisfy itself as to the correctness, legality or propriety of the order passed or to the legality of the proceeding, to which an order relates. Under Sub-section (2) of Section 164, a further remedy is provided by way of a petition to the Central Government, the Chief of Army Staff or any prescribed officer superior in Command to the one who confirmed the finding and u/s 165 power is vested in the Central Government or the Chief of Army Staff or any prescribed authority to annul the proceedings of the Court Martial if they are found to be illegal and unjust.

It was contended that the order of the Chief of Army Staff confirming the proceedings u/s 164 of the Army Act is illegal since no reason had been given in support of the order. The Constitution Bench negative the contention, observing as under.

In the present case it is manifest that there is no express obligation imposed by Section 164 or by Section 165 of the Army Act on the confirming authority or upon the Central Government to give reasons in support of its decision to confirm the proceedings of the Court Martial. Mr Dutta has been unable to point out any other section of the Act or any of the Rule made therein from which necessary implication can be drawn that such a duty is cast upon the Central Government or upon the confirming authority. Apart from any requirement imposed by the statute or statutory rule either expressly or by necessary implication, we are unable to accept the contention of Mr Dutta that there is any general principle or any rule of natural justice that a statutory tribunal should always and in every case give reasons in support of its decision ... ...

... ... As already stated, there is no express obligation imposed in the present case either by Section 164 or by Section 165 of the Indian Army Act on the confirming authority or on the Central Government to give reasons for its decision. We have also not been shown any other section of the Army Act or any other statutory rule from which the necessary implication can be drawn that such a duty is cast upon the Central Government or upon the confirming authority. We, therefore, reject the argument of the Petitioner that the order of the Chief of the Army Staff, dated May 26, 1967 confirming the finding of the Court Martial u/s 164 of the Army Act or the order of the Central Government dismissing the appeal u/s 165 of the Army Act are in any way defective in law.

(emphasis supplied)

The question whether it was incumbent for the Chief of the Army Staff, while confirming the findings and the sentence of the Court Martial, and for the Central Government, while rejecting the post-confirmation petition, to record their reasons for the orders passed by them, came to be considered again by another Constitution bench in S.N. Mukherjee. It was contended therein that Som Datt to the extent it holds that there is no general principle or rule of natural justice that the statutory tribunal should always and in every case give reasons in support of its decision needs re-consideration. The unanimous Bench affirmed Som Datt and held thus.

With regard to post-confirmation proceedings we find that Sub-section (2) of Section 164 of the Act provides that any person subject to the Act who considers himself aggrieved by a finding or sentence of any court martial which has been confirmed, may present a petition to the Central Government, the Chief of the Army Staff or any prescribed officer superior in command to the one who confirmed such finding or sentence and the Central Government, the Chief of the Army Staff or other officer, as the case may be, may pass such orders thereon as it or he thinks fit. Insofar as the findings and sentence of a court martial and the proceedings for confirmation of such findings and sentence are concerned it has been found that the scheme of the Act and the Rules is such that reasons are not required to be recorded for the same. Has the legislature made a departure from the said scheme in respect of post-confirmation proceedings? There is nothing in the language of Sub-section (2) of Section 164 which may lend support to such an intention. Nor is there anything in the nature of post-confirmation proceedings which may require recording of reasons for an order passed on the post-confirmation petition even though reasons are not required to be recorded at the stage of recording of findings and sentence by a court martial and at the stage of confirmation of the findings and sentence of the court martial by the confirming authority. With regard to recording of reasons the considerations which apply at the stage of recording of findings and sentence by the court martial and at the stage of confirmation of findings and sentence of the court martial by the confirming authority are equally applicable at the stage of consideration of the post-confirmation petition. Since reasons are not required to be recorded at the first two stages referred to above, the said requirement cannot, in our opinion, be insisted upon at the stage of consideration of post-confirmation petition u/s 164(2) of the Act.

(emphasis supplied)

(vii) Whether Reasons are to be given by the AAR?

Whether there is statutory requirement to record reasons while admitting an application for advance ruling? There cannot be any doubt that the AAR exercises quasi-judicial jurisdiction, although in stricto sensu there is no lis for adjudication nor proceedings are adversarial. There is no dispute that the first Petitioner delayed the response to the notice issued u/s 245R(1), that the AAR admitted the application of the second Respondent after recording a finding that they are not hit by the proviso to Section 245R(2) and that after hearing the Petitioners again on 03.08.2002, the AAR found no compelling reasons to revoke earlier order of admission. Therefore, it is not a case where the AAR has not considered the objections raised by the Petitioners. Even otherwise, as we presently show the plain reading of the provisions would show that AAR is required to give reasons only when an application is rejected. There is no such requirement while admitting an application.

In the advance ruling process, the applications under 243Q of the Act and Rule 10 of the AAR Rules shall have to be made in Form 34C of the Income Tax Rules, 1962. The form has thirteen columns. In column 8, the applicant is required to mention the questions relating to the transaction on which advance ruling is required, and the statement of relevant facts having a bearing on the questions has to be included in column 9. On hearing the applicant and also the Commissioner, the AAR then pronounces the advance ruling u/s 245R(4) and (6). The consideration of the question and pronouncing the ruling thereon in relation to a transaction undertaken or proposed to be undertaken by the applicant would certainly involve the recording of reasons for the ruling on the questions before it. As noticed above, as required under third proviso to Section 245R(2), when the application is rejected the authority is required to give reasons for the same. There is yet another context in which the AAR is required to pass a reasoned order. Such a situation is contemplated u/s 245T. It confers power on the AAR to declare an advance ruling to be void ab initio when a representation is made by the Commissioner that such advance ruling pronounced by it had been obtained by fraud or misrepresentation of the facts.

Thus, except in three situations as above, the statute either expressly or impliedly does not require the AAR to record reasons for any other decisions. On receiving an application u/s 245R(1) of the Act read with Rule 10 of the AAR Rules, if the AAR accepts the application for further examination leading to pronouncement of advance ruling, no reasons need be recorded. In a given case, even when the CBDT or the Commissioner who are given notice u/s 245R(1) read with Rule 13(1) of the AAR Rules raise objections, at the threshold there is no requirement of giving reasons.

In addition to textual interpretation, the contextual interpretation also supports the conclusion that there is no express or implied requirement of recording reasons when the AAR decides to examine the application before pronouncing the advance ruling on the questions raised in the application. The reasons for this conclusion are as follows. First, a plain reading of Section 245R(1) of the Income Tax Act and Rule 13(2) of the AAR Rules would reveal that the application and enclosures thereto shall be forwarded to the Commissioner notifying the date and place of hearing of the application and if necessary requiring the Commissioner to furnish the relevant records. There is no scope to construe these provisions as enabling the income tax authority to press for a preliminary ruling on the assumption of the jurisdiction. They may, of course -bring to the notice of the AAR about such bar under the first proviso to Section 245R(2). Secondly, a perusal of Sub-sections (4) (5) and (6) of Section 245R and Rule 16(1) of the AAR Rules makes it clear that even at the stage of final consideration it is not mandatory for the AAR to hear the Commissioner. If the AAR considers it not necessary, they may do so and pronounce the advance ruling providing an opportunity to the applicant of being heard. Thirdly, as a quasi-judicial authority, though the AAR is required to give reasons when the application is rejected, or when the advance ruling is pronounced or when the advance ruling is declared to be void ab initio, a specific provision requiring the reasons for assumption of jurisdiction is conspicuous by its absence. The ratio in Som Datt and S.N. Mukherjee applies and no reasons are required to be given while allowing the application for advance ruling. Fourthly, the scheme of Chapter XIX-B and the Rules show the anxiety of the Legislature for arranging expeditious advance rulings in relation to trade transactions (six months as per Section 245R(6)). Therefore, if Section 245R(2) is construed as mandating the recording of reasons while allowing the applications filed u/s 245Q, the same would defeat the object of ensuring expeditious advance rulings. And lastly, the provisions for advance rulings are intended to facilitate economic growth and development by attracting foreign investment, and therefore, the issue of advance rulings cannot be allowed to be impeded by too many Court interventions. If any objection is raised by the CBDT or the Commissioner, it will be within the powers of the AAR to deal with all objections while pronouncing advance rulings and if so persuaded can decline to pronounce advance ruling solicited by an applicant.

Delay And Acquiescence

The judicial review under Article 226 of Constitution of India is discretionary jurisdiction. Even if the Petitioner is able to show that the quasi judicial authority acted unlawfully or an order is vitiated by error apparent on the face of record, the Court can refuse to exercise discretion. Generally, exclusion of judicial review would arise when there is alternative remedy, delay in approaching the Court, prematurely, absence of prejudice and sometimes acquiescence in the quasi judicial jurisdiction.

A petition for judicial review can be refused if there is delay on the part of the Petitioner. It would be a sound and wise exercise of discretion for the Courts to refuse to exercise the powers under Article 226 in the case of persons who do not approach it expeditiously for relief and who standby and allow things to happen and then approach the Court ( P.S. Sadasivaswamy Vs. State of Tamil Nadu, . But in situations where no prejudice would be caused to third parties, the Court may ignore the delay and grant relief ( Ramchandra Shankar Deodhar and Others Vs. The State of Maharashtra and Others, What is the reasonable period for seeking judicial review? The aggrieved must approach the Court as early as possible after exhausting alternative remedies. The time within which a petition may be moved under Article 226 would depend on facts of each case. There may be situations where even a delay of a day or week would be fatal and the Court may feel compelled to deny judicial review for any relief might harm good governance or have the effect of wiping out competing rights. Ordinarily, a period of six months for filing writ petition is considered reasonable S.S. Rathore Vs. State of Madhya Pradesh,

In a case where the judicial review is sought in relation to the exercise of preliminary jurisdiction like -admitting a case for further enquiry, issuing show cause notice, issuing summons to produce records, issuing summons to appear for recording statement, the prematurely is a ground for exclusion of judicial review. Equally important is when knowing the rights a party submits to the jurisdiction and simultaneously pursues the remedy of judicial review. In both these case, ordinarily, discretionary jurisdiction is withheld.

The relevant factual background for consideration of the point has been discussed above (paras 31 to 34 supra). The Senior Counsel for the second Respondent has placed before this Court various orders/proceedings of the AAR. These indisputably would show that after receiving the communication from the AAR, it is only on 23.12.2009 the first Petitioner sent a communication to the AAR raising preliminary objections. The record further shows that the matter stood posted to 15.03.2010 and thereafter for a period of four months the Petitioners acted tardily. About a year after submitting objections, they filed instant writ petition on 27.10.2010. No explanation is forthcoming for the delay, which in the facts of the case, in our opinion, militates against exercising the discretionary jurisdiction.

This Court heard the matter on 10.11.2010, 30.11.2010, 07.12.2010, 11.02.2011 and 14.02.2011. Simultaneously before the AAR the Petitioners appeared through Senior Counsel, filed written submissions raising preliminary objections, and also opposing the applications for advance rulings on merits. Oral submissions were also made in the last week of January and first week of February, 2011. Thus, on one hand, the Petitioners appeared before the AAR, and actively participated in the proceedings and on the other hand, pursued these writ petitions. When the AAR has spent considerable time for hearing the matter, at the belated stage, in our considered opinion, this Court ought not to interfere with the proceedings. As of now, no prejudice would be caused to the Petitioners for they can as well await the final order u/s 245R(4) and (6) of the Act and in case the same is adverse to them, they can seek judicial review of the order raising all the grounds including the question of threshold bar. It is therefore not a fit case to exercise the discretion under Article 226 of the Constitution of India.

Conclusion

In the result, on an analysis of the issues as above, we hold that Section 245R and other provisions of Chapter XIX-B of the Income Tax Act do not require the AAR to decide a preliminary issue as to the threshold bar or to record reasons while admitting an application for further examination leading to giving or not giving an advance ruling u/s 245R(4) and (6) of the Act.

These writ petitions are devoid of any merit, and they are accordingly dismissed without any order as to costs.

Ramesh Ranganathan, J.

These two Writ Petitions are filed by the Director of Income Tax (International Taxation), Bangalore, (DIT), and the Additional Director of Income Tax (International Taxation), Hyderabad, (ADIT) to declare the order of the authority for Advance Ruling (AAR) dated 17.12.2009, admitting the applications filed by the 2nd Respondent u/s 245Q(1) of the Income Tax Act, 1961, (hereinafter called "the Act"), as illegal, void and inoperative . A further direction is sought to the 1st Respondent to consider the objections of the Petitioners, to the admissibility of the applications filed by the 2nd Respondent, afresh.

The Petitioners would submit that a survey, u/s 133-A of the Act, was conducted on 4.8.2009 in the office premises of M/s Shantha Biotechnics Ltd, (hereinafter called "Shantha") a company incorporated under the provisions of the Indian Companies Act, 1956, based on information that Sanofi Aventis (for short ''SA''), a French pharmaceutical group was to acquire more than 80% of the stake in "Shantha" through M/s Shan H SAS (''ShanH'' for short), a subsidiary of Merieux Alliance (MA for short), of France for a consideration of more than Rs. 2600.00 Crores. They claim to have obtained information about the past acquisition of shares of "Shantha" by "MA" through its subsidiary "ShanH" from different NR Is, and would submit that there was a possibility of TDS, u/s 195 of the Act, on payments made by ShanH to NR Is. According to the Petitioners, MA acquired majority stake in "Shantha" in November, 2006 through its newly created subsidiary ShanH pursuant to a sale/purchase agreement executed on 6.11.2006 between MA and the other major stake holders in "Shantha" i.e., United Overseas Investment Ltd (UOIL) and its Directors; in March 2007, Grouped Industrial Marcel Dassault (for short ''GIMD''), a company incorporated in France, acquired 20% stake in MA''s French subsidiary ShanH; as on 31.3.2009 MA, together with GIMD and their subsidiary ShanH, held approximately 80% of the shares of "Shantha"; on the share-purchase agreement coming into force in the year 2006 "Shantha" had become part of the MA group through its subsidiary ShanH; as a result thereof the overall control and management of "Shantha" must be deemed to have been taken over by MA; a strategic agreement was entered into between SA group and MA and GIMD on 10.7.2009, for acquisition of the majority stake in "Shantha", on purchase of shares in the subsidiary ShanH; this transaction, contemplated in the share-purchase agreement of 2009, was completed on 31.8.2009 and Sanofi Pasteur Holding (hereinafter called "Sanofi"), a group entity of SA, became the owner of "Shantha" by virtue of acquisition of ShanH from MA/GIMD; the total value of the share purchase transaction was fixed at Euro 600 Million (approximately Rs. 3,600 Crores); on verification of the past share transactions it was found that MA, through ShanH, had acquired shares of "Shantha" from various NR Is and OC Bs worth Rs. 16.94 Crores during the financial year 2007-08, and Rs. 74.72 Crores during the financial year 2008-09; ShanH had purchased shares of "Shantha" from UOIL during the financial years 2006-07, 2007-08 and 2008-09 amounting to Rs. 369 crores, after UOIL had acquired those shares directly from various NR Is; both ShanH and UOIL were liable to deduct tax u/s 195 of the Act on the payments made to the NR Is; proceedings u/s 201(1)/(1A) of the Act, for non-deduction of tax u/s 195 of the Act, was completed raising demands in these cases; the share purchase agreement of 2009 was an arrangement primarily and exclusively carried out for transferring control and management of "Shantha", through ShanH, to the SA group by transfer of 80% of the equity stake in Shantha; this transaction was akin to transfer of capital assets located in India by alienation of equity shares of an Indian company "Shantha" through transfer of a French entity ShanH by one controlling entity of France to another; and these, and other, transactions involved effective transfer of capital assets located in India, and alienation of equity shares representing participating rights in the Indian company "Shantha" by one controlling entity of France to another. Reference is made to several letters issued to "Sanofi", after the survey in August, 2009, including the show cause notice dated 17.9.2009. The Petitioners would state that other proceedings continued till May, 2010 when a final order, u/s 201(1)/(1A) of the Act, was passed on 25.5.2010 treating Sanofi as an Assessee in default. Reference is also made to W.P. No. 14212 of 2010 filed by Sanofi against the order dated 25.5.2010 passed u/s 201(1)/(1-A) of the Act. The Petitioners would further state that, after survey was conducted in August, 2009, both MA and GIMD were made aware of their possible capital gains tax liability; they were requested to examine their advance tax liability u/s 209 of the Act and to make necessary arrangement for payment of tax under the Act; after detailed correspondence and, after issuance of the show cause notice dated 17.9.2009 to Sanofi, both GIMD and MA had filed filing two separate applications, u/s 245Q(1) of the Act, on 20.11.2009 i.e., AAR Applications Nos. 846 and 847 of 2009 seeking the ruling of the AAR on the taxability of the subject transaction. They sought a ruling by the AAR on the following question:

Whether, in terms of the provisions of the double taxation avoidance treaty dated 6th September, 1994, as amended from time to time, entered between the Republic of India with the Government of French Republic ("Indo-French Tax treaty") read with Section 90 of the Income Tax Act, 1961, whether the Capital gains arising to the Applicant from the sale of shares of ShanH (French Incorporated Entity) by the applicant (French Incorporated Entity) to Sanofi (French Incorporated Entity) is liable to tax in France or in India?

These applications were forwarded by the AAR to the Central Board of Direct Taxes (CBDT) on 24.11.2009. Copies of the said applications were received by the DIT, from the CBDT, on 8.12.2009. On the very same day, the said applications were forwarded by the DIT to the ADIT and, consequently, a report was submitted by the ADIT to the DIT on 18.12.2009 and 22.12.2009. A report was, in turn, sent by the DIT to the AAR on 23.12.2009 contending that the application was hit by the threshold bar contained in Clauses (i) and (iii) to the proviso to Section 245R(2) of the Act, and the same was liable to be rejected; in view of the fact that proceedings u/s 201 read with Section 195 of the Act had been initiated in relation to the current year by issue of notice to Sanofi (i.e., the deduct or) as early as on 17.9.2009, and information had been called for from the deducted i.e., the 2nd Respondent by letters dated 7.8.2009, 31.8.2009, 15.10.2009, 6.11.2009 and 17.9.2009 calling upon them to examine their advance tax liability, and to ensure payment of tax, the transaction or issue had already been initiated and must be deemed to be pending before the income tax authorities within the meaning of Clause (i) of the proviso to Section 245R(2) of the Act which is as a threshold bar for maintenance of the application before the AAR; and further it involved formulation of own designed plan of evasion of income tax in Indian territory which is also a bar for admission of the application under Clause (iii) of the proviso to Section 245R(2) of the Act. In the interregnum the AAR admitted the applications by order dated 17.12.2009.

The Petitioners would assert that, by the time the letter of the AAR was received in the office of the ADIT where the case was initiated after survey operations u/s 133 of the Act, the stipulated period of 15 days had already elapsed; an ex-party order of admission was passed on 17.2.2009; and, consistent with the scheme of the Act, it has been the practice of the AAR to cause service of notice on the Commissioner concerned, or the designated Commissioner, for submission of his report.

The Petitioners received letter dated 29.12.2009 from the AAR informing them that the order, as to the admission of the application, had already been passed on 17.12.2009. The Petitioner, subsequently, addressed letter dated 7.1.2010 requesting the AAR to reconsider the issue of admissibility u/s 245R(2) of the Act taking into account the department''s letter dated 23.12.2009. According to the Petitioners, as they had received communication from the AAR on 8.12.2009, and had submitted their comments within 15 days thereof on 23.12.2009, the objections filed by them could not be said to be belated. Reference is made by the Petitioners to certain events subsequent thereto which are wholly irrelevant for deciding the Petitioner''s contentions that the order of the AAR dated 17.12.2009 is required to be set aside for violation of principles of natural justice, and as the said order is bereft of reasons. Suffice to note that, as the AAR had fixed 28.7.2010 as the date of enquiry for considering the merits of the case, the Petitioners invoked the jurisdiction of this Court, by filing these two Writ Petitions, on 26.7.2010.

In its order dated 03.08.2010, the AAR observed that it had heard the objections of the department, on the issue of admissibility, in order to satisfy itself whether there was any valid ground to revoke the order of admission passed earlier, leaving aside the question whether it was legally permissible to set aside the order once passed u/s 245R(2); and, having been prima facie satisfied that there was no compelling reason to revoke the earlier order of admission or to refuse a hearing on merits, and that a comprehensive final order could be passed as regards the grounds made out for revoking the admission as well as on the merits, the case be posted for hearing on merits u/s 245R(4) of the Act.

No interim order was initially passed, and we invited counter-affidavits from the 2nd Respondent. On completion of pleadings we heard counsel on either side. At the fag end of oral submissions, we noticed that the order dated 03.08.2010 passed by the AAR, subsequent to the filing of the Writ Petitions, were not subjected to challenge in these writ proceedings. We gave liberty to the Petitioners to file applications to amend the prayer in both the Writ Petitions. Applications were filed seeking amendment of the prayer to include a challenge to the order dated 03.08.2010. The 2nd Respondent also filed its counter-affidavits thereto referring to the subsequent hearings before the AAR. They objected to the amendment of the prayer contending that the amendment petition had the potential to jeopardize the smooth and efficient functioning of the AAR by subjecting every admission order of the AAR to scrutiny in Writ Proceedings.

An affidavit dated 11.02.2011 was filed by the 2nd Respondent wherein it is stated that the applicants had put forth both oral and written submissions before the reconstituted AAR; the matter has been finally posted to 15.02.2011 for rejoinder arguments; the Petitioners herein had not sought deferment of the hearing before the AAR; and had in fact questioned the order of the AAR dated 17.12.2009, allowing the application u/s 245R(2), even in the written submissions filed before the reconstituted AAR.

As noted hereinabove we did not earlier inject the AAR from proceeding with the hearing and, as such, the Petitioners could not have objected to the AAR proceeding with the hearing of the applications. We reserved orders on the Writ Petitions on 14.02.2011. An interlocutory order was passed on the same day requesting the AAR to withhold pronouncement of its advance ruling for a period of four weeks.

As the validity of the order of the AAR dated 17.12.2009 is subjected to challenge, since the order of the AAR dated 03.08.2010 was passed subsequent to the filing of the Writ Petitions, and as no delay will ensue by reason of the amendment petition, we consider it appropriate to allow the petition and to amend the prayer in the Writ Petitions to include a challenge to the validity of the order of the AAR dated 03.08.2010.

Sri S.R. Ashok, Learned Senior Counsel appearing on behalf of the Petitioners, would submit that the order of AAR dated 17.12.2009 was passed without the AAR putting the Petitioners on notice, and without giving them a reasonable opportunity of being heard; the said order is in violation of principles of natural justice; the order is also a non-speaking order bereft of reasons; in the absence of a power of review being conferred upon it under the Act, the AAR could not review its earlier order dated 17.12.2009; the order of the AAR dated 03.08.2010 is also bereft of reasons; and the AAR, having heard the Petitioner''s objections could not have passed the order dated 03.08.2010 postponing passing of a reasoned order till the advance ruling was pronounced.

Sri S. Ganesh and Sri S. Ravi, Learned Senior Counsel appearing on behalf of the 2nd Respondent in both these Writ Petitions, would submit that the Petitioners were seeking to interfere with the judicial process of the AAR, and prevent it from giving its ruling; the scheme of the AAR is to ensure expeditious disposal of cases and, accordingly, the process followed by the AAR ought to be respected; a copy of the application was served on the Petitioners, and the comments of the jurisdictional officer in relation to the admissibility of the application was specifically requested by the AAR; as no comments were received from them, the AAR had proceeded to pass the order dated 17.12.2009 admitting the applications to be heard on merits; only after the order dated 17.12.2009 was passed by the AAR did the Petitioners file their comments on 23.12.2009; as is its practice, the AAR informed both the parties that the hearing would continue on merits, and, thereafter, a combined judgment, on the preliminary issue and on merits, would be passed; there is no ruling of the AAR which either binds the Petitioner or against which they can approach this Court; the AAR is statutorily created for ensuring qualitative and expeditious disposal of important tax issues faced by resident/non-resident applicants; the scheme of the AAR, u/s 245R(6) of the Act, requires it to pronounce its advance ruling within six months from the date of receipt of the application; to sub-serve this object, the constitution of the AAR mandates that it is presided by an ex-judge of the Supreme Court, and other members with recognized skill and experience on tax issues; the present Writ Proceedings are actuated solely with the intention of delaying and defeating the proceedings before the AAR; the income tax department was given notice, and had an opportunity to appear before the AAR prior to the order dated 17.12.2009 being passed; despite the opportunity, the income tax department had failed to appear; the AAR had specifically mentioned, in its order dated 03.08.2010, that it would give its reasons along with the order on merits as was done in an earlier case; the income tax department had participated in the further hearings and proceedings before the AAR, and had sought time on various occasions to prepare their case on merits; the income tax department had first sought a hearing on admissibility from the AAR; they were now seeking to have the admission and the proceedings before the AAR set aside substantially re-inventing its cause of action; the entire proceedings initiated before this Court is premature as the matter was heard by the AAR in part; if every order of admission of the AAR is to be vulnerable to a review by the High Court, under the extra-ordinary jurisdiction conferred under Article 226 of the Constitution of India, then the entire functioning of the AAR would come to a stand still; the question of the threshold bar, provided by the first proviso to Section 245R(2) of the Act in relation to admitting the application by the AAR, would be dealt with by the AAR in its final order; and this Court should refrain from ruling on the same.

Scheme Of Advance Rulings Under Chapter XIX-B Of The Act:

Before examining the rival contentions, it is useful to briefly refer to the scheme of "Advance Ruling" under Chapter XIX-B of the Act. As is evident, from the title of Chapter XIX-B, the Ruling which the AAR is required to give should be in "advance". The word "advance" means made or given ahead of time. It is only a ruling given ahead of time which is an "advance ruling". The object of giving a ruling in advance, as is evident from Section 245S(1)(b) is to ensure uniformity in orders of assessment, appellate and revisional orders in respect of the transactions in relation to which the ruling is given, thereby avoiding conflicting orders being passed by different assessing /appellate/revisional authorities under the Act. It is in furtherance of this object that Clauses (i) to (iii) of the first proviso to Section 245R(2), and 245RR, of the Act respectively prohibit the AAR, and the income tax authorities or the Income Tax Appellate Tribunal, from entertaining an application seeking a ruling, or to decide the issue in respect of which an application has been made u/s 245Q(1) of the Act. The effect of these two provisions is that the applicant is required to seek a ruling from the AAR prior to proceedings being initiated against them by the income tax authorities. Likewise, the AAR is prohibited from entertaining an application filed under the Act when the quasi judicial/judicial authorities under the Act have already initiated appropriate proceedings for, in such an event, the ruling given by the AAR would no longer be an advance ruling, and would fetter exercise of quasi-judicial functions under the Act. The statutory bar u/s 245RR would require the income tax authorities/ITAT to defer passing of assessment/appellate/ revisional orders under the Act, and await the ruling of the AAR. The binding effect of the Ruling, u/s 245S(1), on the Commissioner and income tax authorities subordinate to him, would ensure uniformity in the quasi-judicial orders passed by them as all of them are statutorily bound to follow the ruling of the AAR. The advance ruling of the AAR, u/s 245R(4), would not bind the ITAT or the High Court while exercising jurisdiction under Sections 252 and 260-A of the Act respectively.

Forwarding A Copy of The Application To The CBDT - Is It In Sufficient Compliance With Section 245R(1) of The Act:

The question which necessitates examination is whether forwarding a copy of the application filed by the 2nd Respondent, u/s 245Q(1) of the Act, to the CBDT is sufficient compliance with the requirement of Section 245R(1) of the Act.

The Additional Commissioner of income tax (Secretary to the AAR), vide letter dated 24.11.2009, informed the Joint Secretary, CBDT that the office of the AAR had received an application, u/s 245Q(1) of the Act, submitted by the 2nd Respondent seeking advance ruling on the stated questions of law/facts; as per the provisions of Section 245R(1) of the Act a copy of the application was to be forwarded to the concerned Commissioner of income tax for compliance with the provisions of Chapter XIX-B of the Act; and, since the applicant was not assessed to tax in India, Rule 13(1) of the Rules required a copy of such application to be forwarded to the CBDT for designating a Commissioner. The CBDT was requested to designate a Commissioner, and to forward a copy of the application to the Commissioner so designated with the request that he should send his comments along with the records, if any, to the office of the AAR within fifteen days. The CBDT was further requested to endorse a copy, of the communication addressed to the concerned Commissioner, to the office of the AAR also.

The Director General of income tax, New Delhi, vide letter dated 05.12.2009, forwarded a copy of the letter dated 24.11.2009, along with the application filed by the 2nd Respondent u/s 245Q(1), to the DIT informing him that he had been designated for sending comments to the AAR along with the records, if any, on the application filed by the applicant; and the same may be sent to the Additional Commissioner of income tax in the office of the AAR. A copy of the said letter was also marked to the Additional Commissioner of Income Tax in the office of the AAR. That the AAR received a copy of the letter dated 05.12.2009, designating the DIT as the designated Commissioner, is evident from the order of the AAR dated 17.12.2009 wherein the Commissioner concerned is shown as the DIT. A copy of the order dated 17.12.2009 is also marked to him.

On receipt of the said letter dated 05.12.2009, on 8.12.2009, the DIT, vide letter No. 53/DIT(IT)/AAR-847/2009-10/1253 dated 08.12.2009, forwarded a copy of the letter dated 24.11.2009, and the letter of the Director General of income tax, to the ADIT along with the application preferred, u/s 245Q(1) of the Act, by the 2nd Respondent with a request to forward his comments by 14.12.2009. On receipt of the report from the ADIT, the DIT, vide letter in AAR/MARIEUX/2009-10 dated 23.12.2009, informed the Additional Commissioner of income tax in the office of the AAR that the application for advance ruling should be rejected, without going into the merits, as it was covered under Clause (i) and (iii) of the proviso to Section 245R(2) of the Act.

u/s 245R(1) of the Act, on receipt of the application filed u/s 245Q(1), the AAR is required to cause a copy thereof to be forwarded to the Commissioner and, if necessary, to call upon him to produce the relevant records. u/s 2(16) of the Act, the "Commissioner" is defined to mean a person appointed to be a Commissioner of income tax u/s 117(1) of the Act. Section 117(1) of the Act empowers the Central Government to appoint such persons as it thinks fit to be the income tax authorities. u/s 116(c), the income tax authorities include the Director of income tax or the Commissioner of income tax. Section 2(12) of the Act defines "Board" to mean the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (hereinafter called the "Revenue Act"). The Revenue Act is an Act to provide for the constitution of separate Boards of Revenue for Direct Taxes and for Excise and Customs, and to amend certain enactments for the purpose of conferring powers and imposing duties on the said Boards. Section 2(a) thereof defines "Board" to mean the Central Board of Direct Taxes or the Central Board of Excise and Customs constituted u/s 3. Section 3(1) of the Act requires the Central Government to constitute two separate Boards of Revenue to be called the Central Board of Direct Taxes and the Central Board of Excise and Customs, in the place of the Central Board of Revenue, and for such Board, subject to the control of the Central Government, to exercise such powers and perform such duties as may be entrusted to them by the Central Government or by or under any law. It is evident, therefore, that the "Central Board of Direct Taxes" is not the "Commissioner" referred to in Section 245R(1) of the Act to whom alone is a copy of the application, filed u/s 245Q(1), required to be forwarded to.

It is only if the applicant, who has sought the ruling, has been assessed under the Act would it be possible for the AAR to know who the relevant Commissioner is and, in cases where the applicant is not so assessed, it may not be possible for the AAR to identify the Commissioner to whom the application is to be forwarded to in terms of Section 245R(1) of the Act. It is with a view to overcome this difficulty that Rule 13(1) of the Rules requires a copy of the application to be forwarded to the CBDT in cases where the applicant has not been assessed, or no Commissioner has been designated, calling upon them to specify or designate, within a period of two weeks, the Commissioner for the purposes of the application. As noted hereinabove the AAR was informed, vide letter dated 5.12.2009, that the 1st Petitioner had been designated as the Commissioner for the purposes of Chapter XIX-B of the Act. Even the CBDT may be unaware whether filing of the application, u/s 245Q(1), is barred in view of Clauses (i) to (iii) of the first proviso to Section 245R(2), and it is only the Commissioner concerned who may be so aware. The salutary purpose of an intimation to the Commissioner, u/s 245R(1), is to enable the AAR, in case the said Commissioner brings any such bar to its notice, to decide whether or not the application should be allowed u/s 245R(2) of the Act. On being intimated that the DIT has been designated as the Commissioner, the Secretary to the AAR should have, in accordance with Section 245R(1) of the Act, intimated the 1st Petitioner-DIT. Intimation to the CBDT, in terms of Rule 13(1), is only for the limited purpose of designating the Commissioner, and is no substitute for the mandate of Section 245R(1) of an intimation to the Commissioner.

Rules Made Under An Act Must Be Read Harmoniously With The Provisions of The Parent Act:

Rules made u/s 245V of the Act do not, and cannot, run contrary to Section 245R(1) of the Act. These rules are subject to the provisions of Chapter XIX-B of the Act including 245R. The rules so made must be read harmoniously with the provisions of Chapter XIX-B of the Act and not as running contrary thereto. In case of conflict, between the provisions of the Act and the Rules, the former will prevail. The Rules should be interpreted in a manner so as to be in conformity with the provisions of the Act. (Ispat Industries Ltd. v. Commr. of Customs (2006) 12 SCC 583) and not the other way round. A rule has to be read as supplemental to the provisions of the parent Act. It cannot be interpreted in a way as to come into conflict with the parent Act. ( The S.T.O., Moradabad and Another Vs. H. Farid Ahmed and Sons, . A piece of subordinate legislation should be read in the light of the statutory scheme of the Act. Bombay Dyeing and Mfg. Co. Ltd. Vs. Bombay Environmental Action Group and Others, . Rules made for carrying out the purposes of the Act cannot be so framed as not to carry out the purpose of the Act, and cannot be in conflict therewith. ( Laghu Udyog Bharati and Another Vs. Union of India and Others, ). Rules should be consistent with the provisions of the Act. The State of Uttar Pradesh and Others Vs. Babu Ram Upadhya, . A statutory rule cannot enlarge or restrict the meaning of a Section. If a rule goes beyond, or is contrary to, what the Section contemplates the rule must yield to the Statute. The Central Bank of India Vs. Their Workmen, . As Section 245R(1) stipulates that a copy of the application shall be forwarded by the AAR to the Commissioner, service of notice on, and forwarding a copy of the application to, the CBDT is neither a substitute for, nor is it in sufficient compliance with, the mandate of Section 245R(1) of the Act.

Rule 2(i) of the "Advance Rulings (Procedure) Rules, 1996", (hereinafter called the "Rules"), defines "Commissioner" to mean (1). the Commissioner as defined in Section 2(16) of the Act in respect of an applicant assessed under the Income Tax Act; and (2). the Commissioner designated by the Central Board of Direct Taxes in this behalf in respect of an applicant not hitherto assessed. Rule 2(m) defines "Secretary" to mean the Commissioner of Income Tax designated as the Secretary of the Authority and includes an Additional Commissioner of income tax, and the Deputy Commissioner of income tax, appointed to assist the Secretary in his functions. Under Rule 13 (2), on receipt of an application u/s 245Q in respect of which there is a Commissioner as defined in Rule 2(i)(1) or a Commissioner has been designated by the Board under Rule 2(i)(2) or under Sub-rule (1), the Authority shall notify the applicant and the Commissioner of the date and place of hearing of the application, and forward a copy of the application to the Commissioner calling upon him to furnish the relevant records of the case along with his comments, if any, on the contents of the application and nominate his authorized representative if he desires.

A harmonious reading of Section 245R(1) of the Act with Rule 13 of the Rules would require the Secretary of the AAR, in cases where the applicant is not assessed under the Act, to request the CBDT, in terms of Rule 13(1), to designate a Commissioner within two weeks and, after a Commissioner is so designated, to forward a copy of the application filed u/s 245Q(1) of the Act to him giving him a reasonable opportunity to furnish the records. As the AAR may not be aware whether or not the application filed u/s 245Q(1) of the Act is barred, by any one or more of Clauses (i) to (iii) of the first proviso to Section 245R(2) of the Act, it is for the designated Commissioner, on receipt of intimation under Rule 13(2), to submit his objections to the application being allowed i.e., entertained by the AAR. After the Director General of income tax had designated the DIT as the Commissioner, by his letter dated 05.12.2009, the Secretary to the AAR, in compliance with the requirements of Section 245R(1), ought to have forwarded a copy of the application to the designated Commissioner (the 1st Petitioner) herein, and only after it was served on the first Petitioner, and a reasonable opportunity had been afforded to him to furnish the records (and/or submit his objections), if any, could the AAR have proceeded to decide upon the admissibility of the application. The power conferred on the Secretary to the AAR, under Clauses (v) and (vi) of Rule 7 (3), of service of notices and requisitioning the records can, in case of urgency and in terms of Rule 9, be exercised by intimation even by FAX. It is necessary to note that by 08.12.2009, when the DIT was intimated by the Director-General of income tax, New Delhi, the 15 days time granted by the Secretary to the AAR in the letter dated 24.11.2009 had almost expired. It is not as if the DIT slept over the matter and took an unduly long time to submit his objections, for the objections were filed by letter dated 23.12.2009. Strict compliance with Section 245R(1) read with Rule 13 of the Rules by the Secretary to the AAR would have obviated an order being passed by the AAR on 17.12.2009 without giving the 1st Petitioner a reasonable opportunity of being heard. As the first Petitioner has not been intimated by the AAR, as required u/s 245R(1) of the Act, the impugned order dated 17.12.2009 must be set aside.

Order Passed By The AAR, u/s 245R(2), Should Contain Reasons:

Section 245R(2) enables the AAR, after examining the application and the records called for, by order, to either allow or reject the application. The power conferred on the AAR, u/s 245R(2), is either to entertain the application or reject it at the threshold. It is only if an application is allowed (entertained), u/s 245R(2) of the Act, does Section 245R(4) require the AAR, after examining such further material as may be placed before it, to pronounce its advance ruling on the question specified in the application.

The first proviso to Section 245R(2) prohibits the AAR from allowing the application, (entertaining the application for the purpose of pronouncing its advance ruling), where the question raised in the application (i) is already pending before any income tax authority or Appellate Tribunal except in the case of a resident applicant falling in Section 245N(b)(iii) of the Act, or any Court; and (iii) it relates to a transaction or issue which is designed, prima facie, for the avoidance of income tax except in the case of a resident applicant falling u/s 245N(b)(iii) of the Act. If any one of the eventualities specified in the first proviso to Section 245R(2) arises, the AAR is barred from allowing the application and is bound to reject it. It is true that the third proviso to Section 245R(2) requires reasons, for rejection of an application, to be given in the order. This, according to Sri S. Ganesh and Sri S. Ravi, Learned Senior Counsel appearing on behalf of the 2nd Respondent in these two Writ Petitions, would mean that where the AAR allows an application, in the sense that it decides to entertain it for the purpose of pronouncing its advance ruling thereupon, no reasons need be assigned as, according to them, the Act has by necessary implication excluded the requirement of giving reasons in such an event.

Where an authority makes an order, in the exercise of its quasi-judicial functions, it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons. The rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process. This rule must be observed in its proper spirit and mere pretence of compliance with it would not suffice. The Siemens Engineering and Manufacturing Co. of India Ltd. Vs. The Union of India (UOI) and Another, ; and S.N. Mukherjee Vs. Union of India,

When important rights of parties, of far-reaching consequence to them, are adjudicated upon the Tribunal should tell the party why the decision is going against him. Bharat Raja Vs. The Union of India (UOI) and Others, . The compulsion of disclosure of mind guarantees consideration. It introduces clarity and gives satisfaction to the party against whom the order is made. It also enables an appellate or supervisory court to keep the Tribunals within bounds. A reasoned order is a desirable condition of judicial disposal. Madhya Pradesh Industries Ltd. Vs. Union of India and Others (UOI),

The giving of reasons in support of their conclusions by judicial and quasi-judicial authorities, when exercising initial jurisdiction, is essential for various reasons. It is calculated to prevent unconscious unfairness or arbitrariness in reaching the conclusions. The very search for reasons will put the authority on the alert and minimize the chances of unconscious infiltration of unfairness in the conclusion. Unreasoned conclusions may be just but they may not appear to be just to those who read them. Reasoned conclusions, on the other hand, will also have the appearance of justice. A judgment, which does not disclose the reasons, will be of little assistance to the Court. Travancore Rayon Ltd. Vs. Union of India (UOI), ; Woolcombers of India Ltd. Vs. Woolcombers Workers Union and Another, ; and S.N. Mukherjee8). The recording of reasons, which lead to the passing of the order, is basically intended to serve a two-fold purpose: (1) that the "party aggrieved", in the proceedings acquires knowledge of the reasons and, in a proceeding before the High Court, has the opportunity to demonstrate that the reasons which persuaded the authority to pass an order adverse to his interest were erroneous, irrational or irrelevant; and (2) the obligation to record reasons and convey the same to the party concerned operates as a deterrent against possible arbitrary action by the quasi-judicial authority. ( C.B. Gautam Vs. Union of India and Others,

Power of Judicial Review Under Article 226 of The Constitution of India Cannot Be Barred By Plenary Legislation:

Though no limits can be placed upon the discretionary powers of the High Courts, under Article 226 of the Constitution, they are exercised along recognized lines and subject to certain self-imposed limitations. The expression "for any other purpose" in Article 226 makes the jurisdiction of the High Courts more extensive, but yet its exercise is with certain restraints and within certain parameters. Director of Settlements, Andhra Pradesh and Others Vs. M.R. Apparao and Another, . Unlike the jurisdiction conferred upon a statutory tribunal, which must be construed in terms of the Statute under which it was created, the power of judicial review of the High Court is of wide amplitude. It is subject to certain restrictions which the High Court imposes on itself as a measure of self-discipline. The scope of judicial review may vary from case to case depending upon the nature of the matter, as also the statute to be dealt with by the Court. Cellular Operators Association of India and Others Vs. Union of India (UOI) and Others, While the jurisdiction of the High Courts, under Article 226 of the Constitution, remains unaffected by legislative provisions, such power is to be exercised to effectuate the regime of law, and not for abrogating it. Even while acting in exercise of the said constitutional power, the High Court cannot ignore the law nor can it override it. The power under Article 226 is conceived to serve the ends of law and not to transgress them. Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, We are conscious, and need not be reminded, that the High Court in exercise of its jurisdiction under Article 226 of the Constitution of India would not, ordinarily, exercise its discretion to interfere with the order of the AAR considering its composition and that it is an expert body whose chairman is a retired Judge of the Supreme Court. That does not, however, mean that the High Court is barred from exercising jurisdiction under Article 226 of the Constitution of India in every case where the AAR allows the application filed u/s 245Q(1), and proceeds to hear it in order to pronounce its advance ruling thereupon. The power of judicial review vested in the High Courts under Article 226 is an integral and essential feature of the Constitution, constituting part of its basic structure. L. Chandra Kumar Vs. Union of India and others, Article 226 of the Constitution is couched in the widest possible terms. The power of the High Court there under can be exercised when any action is against any provision of law. K. Venkatachalam Vs. A Swamickan and Another, There are no unbelievable discretions under the constitutional dispensation. The overall constitutional function, to ensure that constitutional/statutory authorities function within the sphere of their respective constitutional/statutory authority, is that of the Courts, including the High Court. Election Commissioner of India Vs. Union of India (UOI) and Others, . The function of determining whether the act of a statutory functionary falls within the legislative conferment of power is a matter for the Court. Epuru Sudhakar and Another Vs. Govt. of A.P. and Others, ; Kehar Singh and Another Vs. Union of India (UOI) and Another, . If exercise of the power of Judicial review under Article 226 cannot be barred even by a constitutional provision, as it forms part of the basic structure of the Constitution, it does not stand to reason that the power of judicial review can be barred by Legislation - plenary or subordinate.

It is only if the order of the AAR contains reasons as to why it has chosen to allow the application, i.e., to entertain it for the purpose of pronouncing its advance ruling, would the High Court, while exercising its power of judicial review under Article 226 of the Constitution of India, be in a position to decide whether the order necessitates interference or not. The consequences which, an order bereft of reasons, may entail is that the High Court, acting as a Court of first instance, could determine whether or not the application, filed u/s 245Q(1) of the Act, should be rejected on the touchstone of Clauses (i) to (iii) of the first proviso to Section 245R(2) of the Act.

Principles Of Natural Justice Must Be Read Into The Unoccupied Interstices of A Statute:

It is no doubt true that the implication of natural justice being presumptive may be excluded by express words of the statute or by necessary intendment. Swadeshi Cotton Mills Vs. Union of India (UOI), ; Union of India and Another Vs. Tulsiram Patel and Others, It must, however, be borne in mind that the aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate in areas not covered by any law validly made. They do not supplant the law but supplement it. If a statutory provision can be read consistently with the principles of natural justice, the courts should do so as it must be presumed that the Legislature intended that the statutory authorities act in accordance with principles of natural justice. A.K. Kraipak and Others Vs. Union of India (UOI) and Others, There is no express prohibition in Chapter XIX-B of the Act excluding the requirement of giving reasons. In the light of what we have stated hereinabove, we do not see any reason to hold that the statute, by necessary implication, excludes the requirement of reasons being given by the AAR when an application is allowed i.e., entertained for the purpose of pronouncing its advance ruling. Principles of natural justice must be read into the unoccupied interstices of the statute unless there is a clear mandate to the contrary. Institute of Chartered Accountants of India Vs. L.K. Ratna and Others, . When so read the requirement of giving reasons, which is a facet of the principles of natural justice, would apply even in cases where the AAR allows the application made u/s 245Q(1) of the Act.

The AAR Is A Creature of The Act And Its Jurisdiction Is Cirumscribed By The Provisions of The Act And The Rules Made There under:

This matter can be examined from another angle also. The first proviso to Section 245(R(2) bars the AAR from exercising jurisdiction to pronounce its advance ruling in cases where any of the three eventualities mentioned in Clauses (i) to (iii) therein arise. The AAR is a tribunal created under XIX-B of the Act and, being a creature of the Act, has limited jurisdiction and has to function within the four-corners of the Statute creating them. Om Prakash Gupta Vs. Rattan Singh and Another, . It is not open to the AAR to travel beyond the provisions of the Act. D. Ramakrishna Reddy and Others Vs. The Addl. Revenue Division Officers and Others, . The jurisdiction of the AAR is confined to the provisions of the Act under which it has been created. While the Act, in Section 245R(2), confers jurisdiction on the AAR to decide whether or not to allow an application i.e., to entertain it for the purpose of pronouncing its advance ruling, the AAR cannot conclusively decide its jurisdiction in this regard.

Order of The Aar To Allow An Application u/s 245R(2): Not Conclusive:

The word ''jurisdiction'' has both a narrow and a wider meaning. In the sense of the former, it means the authority to embark upon an enquiry; in the sense of the latter it is used in several aspects, one of which is that the decision of the tribunal is not in compliance with the provisions of the Act. (Cellular Operators Assn. of India15). A tribunal, conferred with the power to act under a statute, has the jurisdiction to satisfy itself that the conditions for the exercise of that power exists, and that the case calls for the exercise of that power. Such an adjudication relating to its own jurisdiction, which could be called a decision on jurisdictional facts, is not, generally, final unless it is made so by the Act constituting the tribunal. Unless the tribunal satisfies itself that the conditions for exercise of its power exist, it cannot accede to a request made to it for the exercise of the conferred power. (SBP and Co. v. Patel Engg. Ltd. (2005) 8 SCC 618). The jurisdiction of the Tribunal, which is a creature of a statute, is conferred by the statute under which it is created. If a jurisdictional question is disputed before a tribunal, it must necessarily decide it unless the statute provides otherwise. (Cellular Operators Assn. of India15; Judicial Review of Administrative Law by H.W.R. Wade and C.F. Forsyth, p. 260). Although the tribunal may have jurisdiction to enter on the enquiry, it may have made a decision which it had no power to make. It may have failed in the course of the enquiry to comply with the requirements of natural justice. It may, in perfect good faith, have misconstrued the provisions giving it power to act. It may have refused to take into account something which it was required to take into account. Or it may have based its decision on some matter which, under the provisions setting it up, it had no right to take into account. But if it decides a question without committing any of these errors it is as much entitled to decide that question wrongly as it is to decide it rightly. (Anisminic Ltd. v. Foreign Compensation Commission (1969) 2 W.L.R. 163; Cellular Operators Assn. of India15).

Where the Commissioner, appearing in opposition to the application filed before the AAR u/s 245Q(1) of the Act, contends that the application should not be allowed in view of the bar under Clauses (i) and (iii) of the first proviso to Section 245R(2) of the Act the AAR has, of necessity, to decide the issue in the first instance for, until it holds that its jurisdiction is not so barred, it cannot enter on the further enquiry which, by Section 245R(4) of the Act, it is directed to cause. The AAR cannot confer jurisdiction on itself by a wrong decision on this preliminary condition to its jurisdiction. The AAR is a tribunal of limited jurisdiction constituted under Chapter XIX-B of the Act. The exercise of jurisdiction by the AAR to pronounce its advance ruling u/s 245R(4) would depend on its having jurisdiction to allow an application u/s 245R(2) of the Act. Once the AAR is deprived of its jurisdiction over the subject-matter, in view of the bar under Clauses (i) to (iii) of the first proviso to Section 245R(2), it can no more proceed with the application which was earlier filed. If it has lost its jurisdiction over the application, in view of the bar under Clauses (i) to (iii) of the first proviso to Section 245R(2), the AAR will have to decline jurisdiction to pronounce an advance ruling on the question stated in the application filed u/s 245Q(1) of the Act. (See: Durga Hotel Complex Vs. Reserve Bank of India and Others,

Where the jurisdiction of a tribunal depends upon the fulfillment of some condition precedent this issue is collateral to the actual matter which the tribunal has to try, and the determination of whether it is fulfilled or not is logically, and in sequence, prior to the determination of the actual question which the tribunal has to try. In such a case, in certiorari proceedings, a court can enquire into the correctness of the decision of the inferior tribunal as to the collateral issue and may reverse that decision if it appears to it, on the materials before it, to be erroneous. ( Raman and Raman Ltd. Vs. The State of Madras and Another, Halsbury''s Laws of England, 3rd Edn., Vol. 11.). When the legislature lays down that the power can be exercised only if a certain state of facts exists, the authority cannot act if the condition is not fulfilled. If it wrongly holds that the condition exists, although it actually does not, its assumption of jurisdiction would be unsupportable, and can be removed by a writ of certiorari. ( Province of Bombay Vs. Kusaldas S. Advani and Others, . A quasi-judicial authority cannot confer jurisdiction on itself by deciding a jurisdictional fact wrongly. The question whether the jurisdictional fact has been rightly decided or not is a question that is open for examination by the High Court in an application for a writ of certiorari. ( Raza Textiles Ltd. Vs. Income Tax Officer, Rampur, . If the tribunal deciding the case has misconstrued the provisions of the relevant Act, or has misunderstood the scope of its jurisdiction, the constitutional power of the High Court under Articles 226 can be invoked to set right such errors and prevent gross injustice to the party complaining. ( State of Andhra Pradesh Vs. P.V. Hanumantha Rao (D) thr. Lrs. and Another, . The High Court would exercise its power of judicial review on a question of law, or on a mixed question of fact and law, decided by a tribunal. It would quash an error of fact if the erroneous and decisive fact is either jurisdictional or is found on the basis of no evidence. Likewise the Court will quash errors of law for any decisive error as all errors of law are jurisdictional. (Cellular Operators Assn. of India15; Judicial Review of Administrative Law by H.W.R. Wade and C.F. Forsyth, p. 260). It is always open to the High Court, in an appropriate case, to decide whether or not the AAR has jurisdiction to allow the application, i.e., entertain it for the purpose of pronouncing its advance ruling, or whether its jurisdiction to do so is barred consequent upon any of any of the three eventualities stipulated in Clauses (i) to (iii) of the first proviso to Section 245R(2) having arisen. It is only if a reasoned order is passed by the AAR in this regard would the High Court be in a position to decide whether the AAR has acted within or in excess of its jurisdiction, and whether or not it should exercise its discretion to interfere.

Learned Senior counsel, appearing both on behalf of the Petitioners and the 2nd Respondent, did not address this Court on the question whether the AAR had the jurisdiction to pass the order dated 17.12.2009 allowing the application filed by the 2nd Respondent u/s 245Q(1), or whether the bar under Clauses (i) and (iii) of Section 245R(2) applied. Learned Senior Counsel submitted that it would suffice if this Court were to decide on the construction to be placed on Section 245R(2), the first and third provisos thereto, and Section 245R(4), and it was wholly unnecessary for this Court, whichever view it may take, to examine whether or not the AAR had the jurisdiction to allow the application filed by the 2nd Respondent in the light of the contention of the Petitioners that Clauses (i) to (iii) of the first proviso to Section 245R(2) barred such an application being allowed u/s 245R(2) of the Act.

Section 245R(6): Requirement of Pronouncing The Advance Ruling Within Six Months:

Learned Senior Counsel, appearing on behalf of the 2nd Respondent, would contend that, in view of the stipulation in 245R(6) which prescribes six months as the time within which the AAR is required to pronounce its advance ruling, it would not be appropriate for this Court to now examine whether the AAR ought to have considered the objections raised by the Petitioners, to the exercise of its jurisdiction u/s 245R(2), as the AAR by its order dated 3.8.2010, and even after it was reconstituted, has afforded an opportunity of hearing to the Petitioners both on the question of maintainability of the application and on merits. Learned Senior Counsel would submit that, since the AAR has given a post-decisional hearing, it is in sufficient compliance with the statutory requirement of Section 245R(2) of the Act. Reliance is placed by them on Canara Bank Vs. V.K. Awasthy,

The importance attached to the threshold scrutiny u/s 245R(2), by the scheme of "Advance Rulings" under Chapter XIX-B of the Act, cannot be over emphasized. Once an application u/s 245Q(1) is made before the AAR, the income tax authorities and the ITAT are prohibited, u/s 245RR, from deciding a similar issue. But for the threshold scrutiny u/s 245R(2), the income tax authorities and the Appellate Tribunal would be disabled from deciding the issue on which a ruling has been sought, u/s 245Q(1), by the applicant before the AAR till the advance ruling has been pronounced. The income tax authorities under the Act include both the assessing authority and the first appellate Authority i.e., the Commissioner of Income Tax (Appeals). Consequently, once an application is filed u/s 245Q(1) before the AAR, neither can an order of assessment be passed on the same issue nor can appeals pending either before the Commissioner of Income Tax (Appeals) or the income tax Appellate Tribunal be decided till the AAR pronounces its advance ruling u/s 245R(4) of the Act. Accepting the contention of the Learned Senior Counsel, appearing on behalf of the 2nd Respondent, that the order of the AAR admitting an application is not subject to judicial review by the High Court as, otherwise, it would bring the functioning of the AAR to a stand still, would mean that, even if the order is ex-facie without jurisdiction, the Revenue must await the advance ruling to challenge the validity of the order of the AAR admitting the application filed u/s 245Q(1) of the Act. Even if the application merited acceptance u/s 245R(4), and the question raised therein may be required to be answered in favor of the applicant, the threshold bar under the clauses to the first proviso to Section 245R(2) would disable the AAR from allowing/admitting/entertaining the application for the purpose of pronouncing its advance ruling there upon.

The advance ruling pronounced by the AAR u/s 245R(4) would, in terms of Section 245S(1)(c), bind the Commissioner, and the income tax authorities subordinate to him, in respect of the applicant and the said transaction. As the advance ruling of the AAR binds the assessing authority he is required to pass an order of assessment following the ruling given by the AAR. The Commissioner of income tax is also not entitled to revise an order of assessment, u/s 263(1) of the Act, contrary to the ruling of the AAR, as the said ruling is binding on him also. In cases where the AAR has erroneously assumed jurisdiction, and has allowed the application u/s 245R(2), and thereafter pronounced its advance ruling in favor of the applicant and against the Revenue, despite the application being barred under any one or more of Clauses (i) to (iii) of the first proviso to Section 245R(2), the only recourse which the Income Tax department has is to question the order of the AAR allowing the application u/s 245R(2), along with the advance ruling pronounced u/s 245R(4), by way of judicial review proceedings before the High Court under Article 226 of the Constitution of India. While the time limit specified u/s 245R(6) for the AAR to pronounce its advance ruling is six months, (which, in the present cases, has not been adhered to despite this Court refraining from passing an interim order till 14.02.2011), it cannot also be lost sight of that an erroneous assumption of jurisdiction by the AAR even in a case where, ex-facie, the application ought not to have been entertained, in view of the bar under Clauses (i) to (iii) of the first proviso to Section 245R(2) of the Act, may well result in huge loss of public revenue to the department as a challenge to an adverse composite order, both on the admissibility of the application and the advance ruling, may well take a few years before it is finally decided by the High Court. In the interregnum, the loss which the revenue may suffer could well run into several crores.

Post-Decisional Hearing Impermissible As The AAR Has Not Been Conferred The Power To Review Its Earlier Order:

A post-decisional hearing, after the application is allowed u/s 245R(2), is prohibited by Chapter XIX-B of the Act. The first proviso to Section 245R(2) prohibits the AAR from allowing an application, (i.e., entertaining an application for pronouncement of its advance ruling), if any one of the three eventualities mentioned in Clauses (i) to (iii) there under has arisen. It is only in cases where the application, filed u/s 245Q(1), is allowed u/s 245R(2) does Section 245R(4) permit the AAR to examine further material and, thereafter, pronounce its advance ruling on the questions stated in the application filed u/s 245Q(1) of the Act. A post-decisional hearing would mean that the AAR, even after it has allowed the application u/s 245R(2), can review and revoke the said order if it is satisfied that the threshold bar under the first proviso to Section 245R(2) is attracted. The power of review is not an inherent power. Where a Tribunal or a quasi-judicial authority, having jurisdiction to adjudicate on merits, proceeds to do so, its order can be reviewed only if the Tribunal or the quasi-judicial authority is vested with the power of review by express provision or by necessary implication. ( Dr (Smt.) Kuntesh Gupta Vs. Management of Hindu Kanya Mahavidyalaya, Sitapur (U.P.) and Others, ; Patel Narshi Thakershi and Others Vs. Shri Pradyumansinghji Arjunsinghji, ; State Bank of India and Others Vs. S.N. Goyal, ; Kapra Mazdoor Ekta Union Vs. Management of Birla Cotton Spinning and Weaving Mills Ltd. and Another, and H.C. Suman and another Vs. Rehabilitation Ministry Employees Co-operative House Building Society Ltd. New Delhi and others, . Except in case of fraud and misrepresentation of facts, falling within the ambit of Section 245T, Chapter XIX-B of the Act does not confer powers on the AAR to review its earlier orders.

In V.K. Awasthy35, the Respondent-employee did not raise any objection, regarding violation of principles of natural justice, either in the memorandum of appeal or at the time of personal hearing, before the Appellate Authority. He did not also show that he was prejudiced thereby. The Supreme Court held that the findings of the enquiry officer and the disciplinary authority were challenged in the appeal before the appellate authority; the question of prejudice did not, therefore, arise; and that, in a given case, post-decisional hearing could obliterate the procedural deficiency of a pre-decisional hearing. The law laid down in V.K. Awasthy35 has no application to the case on hand. The scheme of Chapter XIX-B of the Act bars the AAR from examining the application filed u/s 245Q(1) on merits, and in pronouncing its Advance Ruling u/s 245R(4), unless the application is allowed in terms of Section 245R(2) of the Act. In the absence of any express power conferred on the AAR to review the order passed by it u/s 245R(2), a post-decisional hearing would be of no avail.

It is no doubt true that, even after the application was allowed by order dated 17.12.2009, the AAR gave the Petitioners'' an opportunity of hearing on the objections raised by them to the admission of the application, and passed orders thereupon on 03.08.2010. The order dated 03.08.2010 also suffers from the vice of absence of reasons. The AAR has not been conferred the power to review its earlier order dated 17.12.2009. Until and unless the order dated 17.12.2009 is set aside, the AAR is disabled from either hearing the objections to the admission of the application or pass an order afresh thereupon.

We have noted with concern the anguish expressed by the AAR in several of its proceedings, including the proceedings dated 03.08.2010. As we have confined our order only to the Scheme of Advance Rulings under Chapter XIX-B of the Act, and on the legal submissions of Senior Counsel on either side, we refrain from making any observations either on merits or on the conduct of parties before the Hon''ble AAR.

Examining the application, filed u/s 245Q(1) of the Act, on the touchstone of the threshold bar under the first proviso to Section 245R(2) goes to very root of the jurisdiction of the AAR, as it is only in cases where the threshold bar does not apply can the AAR entertain an application and pronounce its advance ruling. An application, filed u/s 245Q(1) of the Act, cannot be allowed as a matter of course for it is only if AAR is satisfied, for reasons to be recorded in writing, that the threshold bar, under any one or more of Clauses (i) to (iii) of the first proviso to Section 245R(2) of the Act, are not attracted can it allow the application, examine further material, if any, placed before it, and then pronounce its advance ruling on the question stated in the application filed u/s 245Q(1) of the Act.

On both counts, i.e., as the first Petitioner was not intimated by the AAR as required u/s 245R(1), and as it is bereft of reasons, the orders of the AAR dated 17.12.2009 allowing the application u/s 245R(2) of the Act are quashed. As submissions, both oral and written, are stated to have been made before the AAR, even after it was recently reconstituted, we request the honorable AAR to pass a reasoned order u/s 245R(2) of the Act.

Both the Writ Petitions are allowed. However, in the circumstances, without costs.