On Friday, a bench of apex court consisting Justice Sanjay Kishan Kaul and Indu Malhotra recommended the Central Government to make Advance Ruling system more comprehensive as a tool for settlement of Disputes. These observations were the byproduct of the judgement passed in an appeal of the case ‘National Cooperative Corporation v. Commissioner of Income Tax’ as this case resulted in a judicial innovation with the Supreme Court passing orders in Oil and Natural Gas Commission & Anr. v. Collector of Central Excise requiring that such cases must be referred to a Committee to be appointed by the Government to facilitate a resolution of such disputes and that no case should be filed without the approval of this Committee. The facts of the present case made the failure of this system apparent, where the SLP filed by the appellant-Corporation was initially dismissed with liberty to revive the same in case the High Powered Committee granted such a permission which was so granted in a meeting held on 14th August, 2009. The said Committee discussed the legal ramifications, and in some way opined in favour of the appellant-Corporation. But the ball was again lobbed back into the Court to adjudicate the said issue rather than a resolution being reached. This resulted only in revival of the appeal, and the consequent decision which has seen the light of the day only now.

The Court observed that the appeal was filed only to invite a dismissal, so that a certificate of dismissal is obtained from the highest court to put a quietus in the matter of the Government Departments. Undoubtedly, this causes a complete wastage of judicial time and in various orders of this court it has been categorized as “certificate cases”, i.e., the purpose of which is only to obtain a certificate of dismissal.

Court’s further observation and recommendation

The Court said that, Advance Ruling was brought into effect in 1993, and a quasi-judicial tribunal was established as the Authority for Advance Ruling, yet this methodology has proved to be illusionary because there is an increasing number of applications pending before the AAR due to its low disposal rate. Contrary to the expectation that a ruling.

  • would be given 6 months (as per Section 245R (6) of the IT Act), the average time taken is stated to be reaching around 4 years. The reason for this situation is the large number of vacancies and delayed appointments of members of the AAR.
  • The court notices that, through Notification No. 11456 dated 3.8.2000 that public sector companies were added to the definition of ‘applicant’, and in 2014’ it was made applicable to a resident who had undertaken one or more transactions of the value of Rs. 100 crore or more. However, insofar as a resident is concerned, the limit is so high that it cannot provide any solace to any individual, and the Court suggested to reduce the ceiling limit.
  • The Court considered it appropriate to recommend to the Central Government to consider the efficacy of the advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved. A council of Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward.
  • The Court recommended promotion of mediation to settle disputes between Government authorities or Government departments. The Court noted that Administrative mechanism for resolution of CPSEs Disputes was conceptualized to replace the Permanent Machinery of Arbitration and to promote equity through collective efforts to resolve disputes.
  • The Court recommended to have a committee of legal experts presided by a retired judge in such type of resolutions as the bureaucrats are reluctant to accept responsibility of taking such decisions, apprehending that at some future date their decision may be called into question and they may face consequences post retirement, and in order to prevent such apprehensions the committee should be presided by a retired judge.

One of the largest areas of litigation for the Government taxation matters and the petition rate of the tax department before the Supreme Court is at 87%. The court said that a vibrant system of Advance Ruling can go a long way in reducing taxation litigation.

Key Highlights

  • This was CIVIL APPEAL NOS.5105-5107 OF 2009.
  • Case Name: National Co-operative Developmental Corporation v. Commission Of Income Tax, Delhi-V.

Discuss the following provisions:

  • Explain Section 245 N of IT Act.
  • Explain Section 245 R (6) of IT Act.
  • Explain Section 37(1) of IT Act.


Preview attachment 8001_2007_36_1501_23901_Judgement_11-Sep-2020.pdf




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