Facts of the Case

The present writ petition was filed by the Income Tax Department challenging the order dated 24 June 2019 passed by the Authority for Advance Rulings (AAR). The challenge was based on the contention that the AAR assumed jurisdiction in violation of the statutory bar under the proviso to Section 245R(2) of the Income Tax Act, 1961.

The petitioners argued that the issue relating to taxability of royalty income of Crocs Europe BV was already pending before the Assessing Officer during scrutiny proceedings initiated under Section 143(2). Hence, the AAR should not have entertained the application.

Issues Involved

  1. Whether issuance of notice under Section 143(2) amounts to a “pending proceeding” under proviso to Section 245R(2)(i) of the Income Tax Act?
  2. Whether the Authority for Advance Rulings had jurisdiction to entertain the application when scrutiny proceedings were initiated?
  3. Whether the impugned AAR ruling was liable to be quashed for lack of jurisdictional fact?

Petitioner’s Arguments

  • The petitioner contended that the AAR lacked jurisdiction as the same issue (taxability of royalty income) was already pending before the Assessing Officer.
  • It was argued that once notice under Section 143(2) is issued, the matter is deemed pending, thereby attracting the bar under Section 245R(2).
  • The petitioner further submitted that the AAR failed to properly examine records and statutory notices.
  • Reliance was placed on the Supreme Court judgment in Sudhir Chandra Nawn vs Wealth Tax Officer to support jurisdictional interpretation.

Respondent’s Arguments

  • The respondents contended that mere issuance of notice under Section 143(2) does not indicate application of mind or pendency of a specific issue.
  • It was argued that the question raised before AAR (taxability of royalty under DTAA on receipt basis) was distinct and not the subject matter of scrutiny notice.
  • Therefore, the bar under Section 245R(2) was not attracted.

Court’s Findings / Judgment

  • The Delhi High Court upheld the AAR’s order and dismissed the writ petition.
  • The Court held that mere issuance of notice under Section 143(2) does not constitute “pendency” of a question unless there is application of mind to the specific issue.
  • It relied on earlier judgments:
    • Hyosung Corporation vs AAR (2016)
    • Sage Publication Ltd. vs DCIT (2016)
  • The Court observed that the scrutiny notice was general in nature and did not deal with the royalty taxation issue raised before AAR.
  • Consequently, the jurisdictional bar under Section 245R(2)(i) was not applicable.

Important Clarifications

  • A standard notice under Section 143(2) is insufficient to establish “pendency” of a specific legal issue.
  • For invoking the bar under Section 245R(2), there must be clear application of mind and specific issue pending before the Assessing Officer.
  • The judgment reinforces that AAR jurisdiction cannot be ousted merely due to initiation of scrutiny proceedings.
  • The Court clarified that the reliance on Sudhir Chandra Nawn was misplaced as it dealt with a different legal context.

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:2640-DB/MMH27082020CW56682020_174514.pdf

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