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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

SPECIAL     LEAVE     PETITION     (C)     No.     31543     of     2011      

Columbia Sportswear Company                         … Petitioner Versus

Director of Income Tax, Bangalore                  … Respondent

WITH

SPECIAL     LEAVE     PETITION     (C)     No.     3318     of     2011  ,  SPECIAL     LEAVE     PETITION     (C)     No.     13760     of     2011  ,

CIVIL     APPEAL     No.     2996     of     20O8,      CIVIL     APPEAL     No.     5839     of     2008,                               

CIVIL     APPEAL     No.     7035     of     2011  , CIVIL     APPEAL     No.     6987     of     2010  , CIVIL     APPEAL     No.     10064     of     2011  ,

AND CIVIL     APPEAL     No.     11327     of     2011  ,

O     R     D     E     R   

A.     K.     PATNAIK,     J.   

SPECIAL     LEAVE     PETITION     (C)     No.     31543     of     2011  :

This is a petition under Article 136 of the Constitution  

of India seeking special leave to appeal against the order  

dated 08.08.2011 of the Authority for Advance Rulings

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(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  

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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.   

3. On 10.12.2009, the petitioner filed an application  

before the Authority for Advance Rulings (for short ‘the  

Authority’) on the questions relating to its transactions in its  

liaison office in India set out in Annexure-II to the  

application.  Questions No. 1 to 6 as set out in Annexure-II  

to the application of the petitioner before the Authority are  

extracted hereinbelow:

“1. Whether based on the nature of  activities carried on by the Liaison Office  [‘India LO’] of the Applicant in India, as  listed in the Statement of relevant facts  [Annexure III], any income accrues or  arises in India as per Section 5(2)9B) of  the Act?

2. Whether based on the nature of  activities carried on by the India LO, as  listed in the Statement of relevant facts  [Annexure III], the Applicant can be said  to have a business connection in India as  per the provisions of Section 9(1)(i) of Act  read with its Explanation 2?

3. If the answer to Query 2 is in the  affirmative, whether various activities  

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carried out by the India LO, as listed in  the Statement of relevant facts [Annexure  III], are covered under the phrase  ‘through or from operations which are  confined to the purchase of goods in  India for the purpose of export’  as stated  in part (b) of Explanation 1 to Section  9(1)(i) of the Act?

4. If the answer to Query 3 is in the  negative, how would the profits  attributable to the ‘operations in India’ be  determined and what would be the broad  principles to be borne in mind for  attributing income to the India LO?

5. Whether the India LO creates a  permanent establishment [‘PE’] for the  Applicant in India under Article 5(1) of  the Agreement for Avoidance of Double  Taxation and Prevention of Fiscal Evasion  with respect to Taxes on Income and  Capital Gains entered into between the  Government of the Republic of India and  the Government of the United States of  America [‘Treaty’] read with the PE  exclusion available for purchase function  in terms of 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  

aforesaid application of the petitioner before the Authority.  

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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.”

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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  

learned counsel for the parties to first address us on the  

question of maintainability of special leave petitions filed  

either by the assessee or by the Department against the  

advance rulings of the Authority.  Learned counsel for the  

parties referred to the provisions of Chapter XIX-B of the Act  

to show that the Authority is a quasi-judicial Tribunal.  

They submitted that the order of the Authority is an  

adjudicating order determining a question of law or fact  

specified in the application and sub-section (5) of Section  

245R mandates compliance with the principles of natural  

justice.  They further submitted that the Authority is also  

vested with the powers of a civil court in relation to the  

discovery and inspection, enforcing the attendance of  

persons and examining them on oath and compelling the  

production of books of account, etc.  They argued that as  

the Authority is a quasi-judicial Tribunal, its orders can be  

challenged before the High Court by way of judicial review  

under Article 226/227 of the Constitution or before this  

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Court by way of an appeal under Article 136 of the  

Constitution.  They submitted that this Court may, however,  

decline to interfere with the order passed by the Authority in  

exercise of its powers under Article 136 of the Constitution  

where it feels that it would be more appropriate that the  

order of the Authority must first be examined by the High  

Court under Article 226/227 of the Constitution.  They  

relied upon the decision of this Court in Durga     Shankar    

Mehta v. Thakur     Raghuraj     Singh     and     Others   [(1955) 1 SCR  

267] in which it has been held that the expression  

“Tribunal” used in Article 136 of the Constitution includes,  

within its ambit all adjudicating bodies, provided they are  

created by the State and are invested with judicial as  

distinguished from purely administrative or executive  

functions.  They cited the decisions of this Court in Kihoto  

Hollohan v. Zachillhu     and     Others   [1992 Supp (2) SCC 651],  

Jyotendrasinhji v. S.I.     Tripathi     and     Others   [1993 Supp (3)  

SCC 389], L.     Chandra     Kumar   v. Union     of     India     and     Others    

[(1997) 3 SCC 261] and Union     of     India   v. R.     Gandhi,    

President,     Madras     Bar     Association   [(2010) 11 SCC 1] in  

support of their submission that where a tribunal is  

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constituted by an Act of the legislature for adjudicating any  

particular matter, the power of the constitutional courts  

under Article 226/227 or 136 is not ousted even if the Act  

makes the decision of the tribunal final.

6.  The preliminary question that we have to decide is  

whether an advance ruling pronounced by the Authority can  

be challenged by the applicant or by the Commissioner or  

any income-tax authority subordinate to him under Article  

226/227 of the Constitution before the High Court or under  

Article 136 of the Constitution before this Court.  Under  

Article 226 of the Constitution, the High Court can issue  

writs of Certiorari and Prohibition to control the proceedings  

of not only a subordinate court but also of any person, body  

or authority having the duty to act judicially, such as a  

tribunal.  Under Article 227 of the Constitution, the High  

Court has superintendence over all courts and tribunals  

throughout the territory in relation to which it exercises  

jurisdiction.  Under Article 136 of the Constitution, this  

Court may, in its discretion, grant special leave to appeal  

from any judgment, decree, determination, sentence or  

order in any cause or matter passed or made by any court  

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or tribunal in the territory of India.  Hence, we have to  

decide whether the Authority, if not a court, is a tribunal  

within the meaning of expression in Articles 136 and 227 of  

the Constitution and whether the Authority has a duty to  

act judicially and is amenable to writs of Certiorari and  

Prohibition under Article 226 of the Constitution.  

7. The meaning of the expression “tribunal” in Article 136  

and the expression “tribunals”  in Article 227 of the  

Constitution has been explained by Hidayatullah, J., in  

Harinagar     Sugar     Mills   v. Shyam     Sunder   [AIR 1961 S.C.  

1669] in paragraph 32, relevant portion of which is quoted  

herein below:

“With the growth of civilisation and the problems  of modern life, a large number of administrative  tribunals have come into existence. These  tribunals have the authority of law to pronounce  upon valuable rights; they act in a judicial  manner and even on evidence on oath, but they  are not part of the ordinary Courts of Civil  Judicature. They share the exercise of the  judicial power of the State, but they are brought  into existence to implement some administrative  policy or to determine controversies arising out of  some administrative law. They are very similar to  Courts, but are not Courts. When the  Constitution speaks of 'Courts' in Art. 136, 227  or 228 or in Art. 233 to 237 or in the Lists, it  contemplates Courts of Civil Judicature but not  

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tribunals other than such Courts. This is the  reason for using both the expressions in Arts.  136 and 227.  

By "Courts" is meant Courts of Civil Judicature  and by "tribunals", those bodies of men who are  appointed to decide controversies arising under  certain special laws. Among the powers of the  State is included the power to decide such  controversies. This is undoubtedly one of the  attributes of the State, and is aptly called the  judicial power of the State. In the exercise of this  power, a clear division is thus noticeable. Broadly  speaking, certain special matters go before  tribunals, and the residue goes before the  ordinary Courts of Civil Judicature. Their  procedures may differ, but the functions are not  essentially different. What distinguishes them  has never been successfully established…..”

Thus, the test for determining whether a body is a tribunal  

or not is to find out whether it is vested with the judicial  

power of the State by any law to pronounce upon rights or  

liabilities arising out of some special law and this test has  

been reiterated by this Court in Jaswant     Sugar     Mills     Ltd.   v.  

Lakshmi     Chand     &     Ors.   [AIR 1963 SC 677], Associated  

Cement     Companies     Ltd  . v. P.N.     Sharma     &     Anr.   [AIR 1965 SC  

1595] and in the recent decision of the Constitution Bench  

in Union     of     India   v. R.     Gandhi,     President,     Madras     Bar    

Association [(2010) 11 SCC 1].   

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8. We may now examine the provisions of Chapter XIX B  

of the Act on Advance Ruling to find out whether the  

Authority pronounces upon the rights or liabilities arising  

out of the Act.  Section 245N(a) of Chapter XIX B which  

defines “advance rulings” is extracted hereinbelow:  

“245N. In this Chapter, unless the context  otherwise requires,—    (a) "advance ruling" means—

(i) a determination by the Authority in  relation to a transaction which has been  undertaken or is proposed to be undertaken  by a non-resident applicant; or

(ii) a determination by the Authority in  relation to the tax liability of a non-resident  arising out of a transaction which has been  undertaken or is proposed to be undertaken  by a resident applicant with such non- resident, and such determination shall  include the determination of any question of  law or of fact specified in the application;

(iii) a determination or decision by the  Authority in respect of an issue relating to  computation of total income which is pending  before any income-tax authority or the  Appellate Tribunal and such determination or  decision shall include the determination or  decision of any question of law or of fact  relating to such computation of total income  specified in the application :

[Provided that where an advance ruling has been  pronounced, before the date on which the Finance  Act, 2003 receives the assent of the President, by  

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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;]”

A plain reading of the very definition of advance ruling in  

Section 245N (a) would show that the Authority is called  

upon to make a determination in relation to a transaction  

which has been undertaken or is proposed to be  

undertaken by a non-resident applicant or in relation to the  

tax liability of a non-resident arising out of such transaction  

which has been undertaken or proposed to be undertaken  

by a resident applicant with such non-resident and such  

determination may be on any question of law or fact  

specified in the application.  Further, the Authority may  

make a determination or decision in respect of a issue  

relating to the computation of total income which is pending  

before any income-tax authority or the Appellate Tribunal  

and such determination or decision may include the  

determination or decision of any question of law or of fact  

relating to such computation of total income specified in the  

application.  Thus, the Authority may determine not only a  

transaction but also the tax liability arising out of a  

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transaction and such determination may include a  

determination of issue of fact or issue of law.  Moreover, the  

Authority may determine the quantum of income and such  

determination may include a determination on a issue of  

fact or issue of law.

9. We also find that the determination of the Authority is  

not just advisory but binding.  Section 245S in Chapter  

XIX-B is quoted hereunder:

“245S. (1) The advance ruling pronounced  by the Authority under section     245R     shall  be binding only—

(a) on the applicant who had sought it;

(b) in respect of the transaction in  relation to which the ruling had been  sought; and

(c) on the Commissioner, and the  income-tax authorities subordinate to  him, in respect of the applicant and the  said transaction.

(2) The advance ruling referred to in sub- section (1) shall be binding as aforesaid  unless there is a change in law or facts on  the basis of which the advance ruling has  been pronounced.”

The binding effect of advance ruling as provided in Section  

245S has been dealt with by the Authority (Chairman and  

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two Members) in Cyril     Eugene     Pereira,     In     re  . [1999] 239 ITR  

650] and at page 672 of the ITR, the Authority held:

“Thus, sub-section (2) of section 245S  has limited the binding nature of the  ruling to the case of the applicant in  respect of the transaction in relation to  which the advance ruling is sought and  to the Commissioner and authorities  subordinate to him only in respect of the  applicant and the transaction involved.  This is not to say that a principle of law  laid down in a case will not be followed in  future.  The Act has made the ruling  binding in the case of one transaction  only and the parties involved in that case  in respect of that transaction.  For other  transactions and for other parties, the  ruling will be of persuasive nature.”

The Authority, thus, held that the advance ruling of the  

Authority is binding in the case of one transaction only and  

the parties involved in respect of that transaction and for  

other parties, the ruling will be of persuasive nature.  The  

Authority, however, has clarified that this is not to say that  

a principle of law laid down in a case will not be followed in  

future.  This decision of the Authority in Cyril     Eugene    

Pereira,     In     re  . (supra) has been taken note of by this Court  

in Union     of     India     &     Anr.   v. Azadi     Bachao     Andolan     &      Anr.    

[2003] 263 ITR 706 at 742] to hold that the advance ruling  

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of the Authority is binding on the applicant, in respect of  

the transaction in relation to which the ruling had been  

sought and on the Commissioner and the income-tax  

authorities subordinate to him and has persuasive value in  

respect of other parties.  However, it has also been rightly  

held by the Authority itself that this does not mean that a  

principle of law laid down in a case will not be followed in  

future.   

10. As Section 245S expressly makes the Advance Ruling  

binding on the applicant, in respect of the transaction and  

on the Commissioner and the income tax authorities  

subordinate to him, the Authority is a body acting in  

judicial capacity.  H.M. Seervai in his book “Constitutional  

Law of India”  (Forth Edition) while discussing the tests for  

identifying judicial functions in paragraph 16.99 quotes the  

following passage from Prof. de Smiths Judicial Review on  

page 1502:

“An authority acts in a judicial capacity  when, after investigation and deliberation, it  performs an act or makes a decision that is  binding and collusive and imposes  obligation upon or affects the rights of  individuals.”

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We have, therefore, no doubt in our mind that the Authority  

is a body exercising judicial power conferred on it by  

Chapter XIX-B of the Act and is a tribunal within the  

meaning of the expression in Articles 136 and 227 of the  

Constitution.  

11.   The fact that sub-section (1) of Section 245S makes  

the advance ruling pronounced by the Authority binding on  

the applicant, in respect of the transaction and on the  

Commissioner and the income-tax authorities subordinate  

to him in respect of the applicant and the transaction would  

not affect the jurisdiction of either this Court under Article  

136 of the Constitution or of the High Courts under Articles  

226 and 227 of the Constitution to entertain a challenge to  

the advance ruling pronounced by the Authority.  The  

reason for this view is that Articles 136, 226 and 227 of the  

Constitution are constitutional provisions vesting  

jurisdiction on this Court and the High Courts and a  

provision of an Act of legislature making the decision of the  

Authority final or binding could not come in the way of this  

Court or the High Courts to exercise jurisdiction vested  

under the Constitution.  We may cite some authorities in  

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support of this view.  In Kihoto     Hollohan   v. Zachillhu     and    

Others (supra), the question raised before this Court was  

whether Paragraph 6(1) of Schedule–X of the Constitution  

providing that the decision of the Speaker or the Chairman  

on the question of disqualification of a member of the  

Legislature will be final would exclude judicial review under  

Articles 136, 226 and 227 of the Constitution and this  

Court held that the finality clause in Paragraph 6 of the  

Schedule-X of the Constitution does not completely exclude  

the jurisdiction of the Courts under Articles 136, 226 and  

227 of the Constitution, though it may limit the scope of  

this jurisdiction.  In Jyotendrasinhji v. S.I.     Tripathi     and    

Others (supra), this Court held that the provision in Section  

245-I of the Income Tax Act, 1961, declaring that every  

order of settlement passed under sub-section (4) of Section  

245D shall be conclusive as to the matters stated therein  

would not bar the jurisdiction of the High Court under  

Article 226 of the Constitution or of this Court under Article  

136 of the Constitution.  Considering the settled position of  

law that the powers of this Court under Article 136 of the  

Constitution and the powers of the High Court under  

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Articles 226 and 227 of the Constitution could not be  

affected by the provisions made in a statute by the  

Legislature making the decision of the tribunal final or  

conclusive, we hold that sub-section (1) of Section 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 him, does not bar the jurisdiction  

of this Court under Article 136 of the Constitution or the  

jurisdiction of the High Court under Articles 226 and 227 of  

the Constitution to entertain a challenge to the advance  

ruling of the Authority.

12. In a recent advance ruling in Groupe Industrial Marcel  

Dassault, In re [2012] 340 ITR 353 (AAR)], the Authority  

has, however, observed:

“….. But permitting a challenge in the High  Court would become counter productive since  writ petitions are likely to be pending in High  Courts for years and in the case of some  High Courts, even in Letters Patent Appeals  and then again in the Supreme Court.  It  appears to be appropriate to point out that  considering the object of giving an advance  ruling expeditiously, it would be consistent  with the object sought to be achieved, if the  

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Supreme Court were to entertain an  application for Special Leave to appeal  directly from a ruling of this Authority,  preliminary or final, and render a decision  thereon rather than leaving the parties to  approach the High Courts for such a  challenge. …”  

We have considered the aforesaid observations of the  

Authority but we do not think that we can hold that an  

advance ruling of the Authority can only be challenged  

under Article 136 of the Constitution before this Court and  

not under Articles 226 and/or 227 of the Constitution  

before the High Court.  In L.     Chandra     Kumar   v. Union     of    

India     and     Others   (supra), a Constitution Bench of this Court  

has held that the power vested in the High Courts to  

exercise judicial superintendence over the decisions of all  

courts and tribunals within their respective jurisdictions is  

part of the basic structure of the Constitution.  Therefore, to  

hold that an advance ruling of the authority should not be  

permitted to be challenged before the High Court under  

Articles 226 and/or 227 of the Constitution would be to  

negate a part of the basic structure of the Constitution.  

Nonetheless, we do understand the apprehension of the  

Authority that a writ petition may remain pending in the  

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High Court for years, first before a learned Single Judge and  

thereafter in Letters Patent Appeal before the Division  

Bench and as a result the object of Chapter XIX-B of the Act  

which is to enable an applicant to get an advance ruling in  

respect of a transaction expeditiously would be defeated.  

We are, thus, of the opinion that when an advance ruling of  

the Authority is challenged before the High Court under  

Articles 226 and/or 227 of the Constitution, the same  

should be heard directly by a Division Bench of the High  

Court and decided as expeditiously as possible.

13.   The only other question which we have to consider is  

whether we should entertain this petition under Article 136  

of the Constitution or ask the petitioner to approach the  

High Court under Articles 226 and/or 227 of the  

Constitution.  Article 136 of the Constitution itself states  

that this Court may, “in its discretion”, grant special leave  

to appeal from any order passed or made by any court or  

tribunal in the territory of India.  The words “in its  

discretion”  in Article 136 of the Constitution makes the  

exercise of the power of this Court in Article 136  

discretionary.  Hence, even if good grounds are made out in  

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a Special Leave Petition under Article 136 for challenge to  

an advance ruling given by the Authority, this Court may  

still, in its discretion, refuse to grant special leave on the  

ground that the challenge to the advance ruling of the  

authority can also be made to the High Court under Articles  

226 and/or 227 of the Constitution on the self same  

grounds.  In fact, in Sirpur     Paper     Mills     Ltd.   v. Commissioner  

of     Wealth     Tax,     Hyderabad   [AIR 1970 SC 1520] it has been  

observed that this Court does not encourage an aggrieved  

party to appeal directly to this Court against the order of a  

Tribunal exercising judicial functions unless it appears to  

the Court that a question of principle of great importance  

arises.  Unless, therefore, a Special Leave Petition raises  

substantial questions of general importance or a similar  

question is already pending before this Court for decision,  

this Court does not entertain a Special Leave Petition  

directly against an order of the tribunal.  

14.   In this Special Leave Petition, we do not find that a  

substantial question of general importance arises nor is it  

shown that a similar question is already pending before this  

Court for which the petitioner should be permitted to  

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approach this Court directly against the advance ruling of  

the Authority.  We accordingly dispose of this Special Leave  

Petition granting liberty to the petitioner to move the  

appropriate High Court under Article 226 and/or 227 of the  

Constitution.  We request the concerned High Court to  

ensure that the Writ Petition, if filed, is heard by the  

Division Bench hearing income-tax matters and we request  

the Division Bench to hear and dispose of the matter as  

expeditiously as possible.          

SPECIAL     LEAVE     PETITION     (C)     No.     3318     of     2011  ,  SPECIAL     LEAVE     PETITION     (C)     No.     13760     of     2011,    CIVIL     APPEAL     No.     2996     of     20O8,     CIVIL     APPEAL     No.    5839     of     2008,   CIVIL     APPEAL     No.     7035     of     2011  , CIVIL  APPEAL     No.     6987     of     2010  , CIVIL     APPEAL     No.     10064     of    2011, AND CIVIL     APPEAL     No.     11327     of     2011  ,  

Delay condoned in Special Leave Petitions.

These Special Leave Petitions and Civil Appeals are  

disposed of in terms of our order passed in Special Leave  

Petition (C) No.31543 of 2011.  

.…………………….CJI. (S.H. Kapadia)

.……………………….J.                                                        (A. K. Patnaik)

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New Delhi,    ………………………..J.     July 30, 2012.            (Swatanter Kumar)  

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