Columbia Sportswear Company v. Director Of Income Tax, Bangalore

[2012] 7 S.C.R. 187 COLUMBIA SPORTSWEAR COMPANY DIRECTOR OF INCOME TAX, BANGALORE (Special Leave Petition (C) No. 31543 of 2011) JULY 30, 2012 [S.H. KAPADIA, CJI, A.K. PATNAIK AND SWATANTER KUMAR, JJ.] -Income Tax Act, 1961 Chapter XIX-B; Sections 245N(a} --and 245S Authority for Advance Rulings (Income Tax) C Whether an advance ruling pronounced by the Authority can be challenged u!Article 2261227 of the Constitution before the High Court or u!Article 136 of the Constitution before the Supreme Court - Whether the Authority, if not a court, is a tribunal within the meaning of expression in Articles 136 and D 227 of the Constitution and whether the Authority has a duty to act judicially and is amenable to writs of Certiorari and -Prohibition u!Article 226 of the Constitution Held: The Authority is a body exercising judicial power conferred on it by Chapter XIX-B of the Act and is a tribunal within the E meaning of the expression in Articles 136 and 227 of the -Constitution Sub-section (1) of s.245S of the Act, insofar as, it makes the advance ruling of the Authority binding on the applicant, in respect of the transaction and on the Commissioner and income-tax authorities subordinate to F him, does not bar the jurisdiction of Supreme Court u/Article 136 of the Constitution or the jurisdiction of the High Court ul Articles 226 and 227 of the Constitution to entertain a -challenge to the advance ruling of the Authority It cannot be held that an advance ruling of the Authority can only be G challenged u!Article 136 of the Constitution before Supreme Court and not u!Articles 226 and/or 227 of the Constitution -?efore the High Court However, when an advance ruling of he Authority is challenged before the High Court u!Articles 188 SUPREME COURT REPORTS [2012] 7 S.C.R. A 226 and/or 227 of the Constitution, the same should be heard directly by a Division Bench of the High Court and decided expeditiously- Even if good grounds are made out in a SLP u!Article 136 for challenge to an advance ruling given by the Authority, the Supreme Court may still, in its discretion, refuse B to grant special leave on the ground that the challenge to the advance ruling of the authority can also be made to the High Court u!Artic/es 226 and/or 227 of the Constitution on the self same grounds - Unless, a SLP raises substantial questions of general importance or a similar question is already pending c before the Supreme Court for decision, the Supreme Court does not entertain a SLP directly against an order of the tribunal - The instant SLP neither raised any substantial question of general importance nor was it shown that a similar question was already pending before the Supreme Court for 0 [which the petitioner should be permitted ][to ][approach the ]Supreme Court directly against the advance ruling of the -Authority Instant SLP accordingly disposed of with liberty to the petitioner to move the appropriate High Court u/Article 226 and/or 227 of the Constitution - High Court concerned to E ensure that the Writ Petition, if filed, is heard by the Division Bench hearing income-tax matters and is disposed of expeditiously - Constitution of India, 1950 - Articles 136, 226 and 227. Kihoto Hollohan v. Zachil/hu and Others 1992 Supp (2) F SCC 651: 1992 (1) SCR 686; Jyotendrasinhji v. S.I. Tripathi and Others 1993 Supp (3) SCC 389: 1993 (2) SCR 938; L. Chandra Kumar v. Union of India and Others (1997) 3 SCC 261: 1997 (2) SCR 1186 and Sirpur Paper Mills Ltd. v. Commissioner of Wealth Tax, Hyderabad AIR 1970 SC G 1520: 1971 (1) SCR 304 - relied on. Durga Shankar Mehta v. Thakur Raghuraj Singh and Others (1955) 1 SCR 267 and Union of India & Anr. v. Azadi Bachao Ando/an & Anr. (2003) 263 ITR 706 - referred to. COLUMBIA SPORTSWEAR COMPANY v. DIRECTOR 189 OF INCOME TAX, BANGALORE Cyril Eugene Pereira, In re. (1999) 239 ITR 650 and Groupe Industrial Marcel Dassault, In re (2012) 340 ITR 353 (AAR) - referred to. [ 2012 ] 7 136 "Constitutional Law of India" (Fourth Edition) by H.M. Seervai - referred to. --Words and Phrases Expression "tribunal" Meaning of - Held: The test for determining whether a body is a tribunal or not is to find out whether it is vested with the judicial power of the State by any law to pronounce upon rights or liabilities arising out of some special law. Harinagar Sugar Mills v. Shyam Sunder AIR 1961 S.C. 1669: 1962 SCR 339; Jaswant Sugar Mills Ltd. v. Lakshmi Chand & Ors. AIR 1963 SC 677: 1963 Suppl. SCR 242; Associated Cement Companies Ltd. v. P.N. Sharma & Anr. AIR 1965 SC 1595: 1965 SCR 366; Union of India v. R. Gandhi, President, Madras Bar Association (2010) 11 · SCC 1: 2010 (6) SCR 857 - relied on. Case Law Reference: 190 SUPREME COURT REPORTS [2012] 7 S.C.R. CIVIL APPELLATE JURISDICTION : SLP (Civil) No. 31543 of 2011 etc. From the Judgment & Order dated 08.08.2011 of the Authority for.Advanced Rulings (Income Tax}, New Delhi in MR c No. 862 of 2009. WITH SLP (C) Nos. 3318 & 13760 of 2011, C.A. Nos. 2996, 5839 of 2008, 6987 of 2010 & 7035, 10064, 11327, 9768 & 9775 of 2011. Mohan Parasaran, Gaurab Banerjee, ASG, Harish N. Salve, Ambhoj Kumar Sinha, Nageswar Rao, Shayari, Sumit Goel, Nishith Desai, Ashish Kabra, Shashank Kunwar, Ekansh Mishra, Dhruv Sanghvi, Pratibha Jain (for Parekh & Co.), E Mukesh Butani, H. Raghavendra Rao, Arijit Prasad, Rahul Yadav, Mahesh Agarwal, Rishi Agrawala, E.G. Agrawala, Neha Nagpal, Nakul Mohta, Shikha Sarin, D.L. Chidananda, Gaurav Dhigra, A.K. Srivastava, Vikas Malhotra, Anil Katiyar (for B.V. Balaram Das}, Vanita Bhargava, Ajay Bhargava, Sanjay F Shanghvi, Nitin Mishra (for Khaitan & Co.), F.V. Irani, Rustom B. Hathikhanawala, Balbir Singh, Rupender Sinhmar, Abhishek Singh Baghel, Deepal, Rajesh Kumar, Kamal Mohan Gupta, Vivek B. Saharya, Vishnu B. Saharya, V.B. Saharya (for Saharya and Co.) for the appearing parties. G The order of the Court was delivered by A.K. PATNAIK, J. SPECIAL LEAVE PETITION (C) No. 31543 of 2011: 1. This is a petition under Article 136 of the Constitution COLUMBIA SPORTSWEAR COMPANY v. DIRECTOR 191 OF INCOME TAX, BANGALORE [A.K. PATNAIK, J.] of India seeking special leave to appeal against the order dated 08.08.2011 of the Authority for Advance Rulings (Income Tax) constituted under Chapter XIX-B of the Income Tax Act, 1961 (for short 'the Act') in A.A.R. No.862 of 2009. 2. The petitioner is a company incorporated in the United States of America (for short 'the USA') and is engaged in the business of designing, developing, marketing and distributing outdoor apparel. For making purchases for its business, the petitioner established a liaison office in Chennai with the permission of the Reserve Bank of India (for short 'the RBI') in 1995. The RBI granted the permission in its letter dated 01.03.1995 subject to the conditions stipulated therein. The permission letter dated 01.03.1995 of the RBI stated that the liaison office of the petitioner was for the purpose of undertaking purely liaison activities viz. to inspect the quality, to ensure shipments and to act as a communication channel between head office and parties in India and except such liaison work, the liaison office will not undertake any other activity of a trading, commercial or industrial nature nor shall it enter into any business contracts in its own name without the prior permission of the RBI. The petitioner also obtained permission on 19.06.2000 from the RBI for opening an additional liaison office in Bangalore on the same terms and conditions as mentioned in the letter dated 01.03.1995 of the RBI. ( 2003 ) 263 ( 2012 ) 340 1971 ( 1 ) 3. On 10.12.2009, the petitioner filed an application before the Authority for Advance Rulings (for short 'the Authority') on the questions relating to its transactions in its liaison office in India set out in Annexure-11 to the application. Questions No. 1 to 6 as set out in Annexure-11 to the application of the petitioner before the Authority are extracted hereinbelow: "1. Whether based on the nature of activities carried on by the Liaison Office ['India LO'] of the Applicant in India, as listed in the Statement of relevant facts [Annexure 111], any income accrues or arises in India as· per Section 5(2)98) of the Act? 2. Whether based on the nature of activities carried on by the India LO, as listed in the Statement of relevant facts [Annexure 111], the Applicant can be said to have a business B connection in India as per the provisions of Section 9(1)(i) of Act read with its Explanation 2? 3. If the answer to Query 2 is in the affirmative, whether various activities carried out by the India LO, as listed in the Statement of relevant facts [Annexure Ill], are covered under the phrase 'through or from operations which are confined to the purchase of goods in India for the purpose of export' as stated in part (b) of Explanation 1 to Section 9( 1 )(i) of the Act? 4. If the answer to Query 3 is in the negative, how would the profits attributable to the 'operations in India' be determined and what would be the broad principles to be borne in mind for attributing income to the India LO? 5. Whether the India LO creates a permanent establishment ['PE'] for the Applicant in India under Article 5(1) of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains entered into between the Government of the Republic of India and the Government of the United States of America ['Treaty') read with the PE exclusion available for purchase function in terms of paragraph 3(d) of Article 5 of the Treaty? 6. If the answer to Query 5 is in the affirmative, how would the profits attributable to the PE in India be determined and what would be the broad principles to be borne in mind for attributing income to India LO under the Treaty?' 4. The respondent filed his reply dated 10.12.2010 to the COLUMBIA SPORTSWEAR COMPANY v. DIRECTOR 193 OF INCOME TAX, BANGALORE [A.K. PATNAIK, J.] aforesaid application of the petitioner before the Authority. The petitioner also filed its response dated 08.02.2011 to the reply of the respondent. The Authority heard the petitioner and the respondent and passed the impugned order dated 08.08.2011. In para 34 of the impugned order, the Authority gave its ruling on the six questions as follows: "(1) A portion of the income of the business of designing, manufacturing and sale of the products imported by the applicant from India accrues to the applicant in India. (2) The applicant has a business connection in India being its liaison office located in India. (3) The activities of the Liaison Office in India are not confined to the purchase of goods in India for the purpose of export. (4) The income taxable in India will be only that part of the income that can be attributed to the operations carried out in India. This is a matter of computation. (5) The Indian Liaison Office involves a 'Permanent Establishment' for the applicant under Article 5.1 of the DTAA. (6) In terms of Article 7 of the DTAA only the income attributable to the Liaison Office of the applicant is taxable in India." Aggrieved, the petitioner has challenged the impugned order on various grounds mentioned in this special leave petition. 5. On 10.02.2012, we passed orders calling upon the NONE NONE NONE .earned counsel for the parties to first address us on the question of maintainability of special leave petitions filed either by the assessee or by the Department against the advance rulings of the Authority. Learned counsel for the parties referred to the provisions of Chapter XIX-8 of the Ac