Reassessment Can’t Be Initiated On Grounds Of Subsequent Contradictory Ruling By AAR: Bombay High Court

The Bombay High Court has held that reassessment can’t be initiated on the grounds of a subsequent contradictory ruling by the Authority of Advance Ruling (AAR).

The bench of Justice K. R. Shriram and Justice Firdosh P. Pooniwalla has observed that merely because the AAR in the case of another Applicant has taken a different view, it cannot be a sufficient basis on which the department could ever have any reason to believe that income chargeable to tax has escaped assessment.

The petitioner/assessee was a non-resident Indian and was regularly assessed tax in India in respect of income that accrued or arose to him in India, arisen in India, or was received by him in India. The assessee had invested in shares and debentures issued by Indian Companies as well as units issued by mutual funds registered in India. The assessee was a resident of the UAE within the meaning of the Double Taxation Avoidance Agreement (DTAA) entered into between India and the UAE.

The petitioner sought an advance ruling on the taxability at which tax is payable on income earned by him by way of dividends, interest, and capital gains from sources in India.

AAR held that, in terms of Article 10 of the DTAA, the dividend income accruing to the assessee from shares held in India would be taxed at the rate of 15%. The income accruing to the assessee by way of interest on debentures and bonds as well as the balance in the partnership firm could be taxable at the rate of 12.5%.

The Petitioner received notices in which the department stated there were reasons to believe that the assessee's income for the relevant Assessment Years has escaped assessment. Therefore, it was proposed to re-assess income, and the assessee was called upon to file his return of income.

Later, the assessee received reasons to believe that income chargeable to tax had escaped assessment for all the Assessment Years.

It is stated in the reasons that income has escaped assessment inasmuch as the benefits of the DTAA were wrongly given to the assessee. The Department has noted that the claim was made on the basis of the ruling made by AAR, but the ruling was only relevant to A.Y. 1995–96. The Department noted that the AAR in the assessee’s case has pronounced its ruling on the basis of its earlier ruling, but the AAR in its subsequent ruling concluded that the benefit of DTAA would not be applicable as the applicant was not chargeable to tax in the UAE.

The assessee contended that the ruling rendered in the other matter cannot bind Petitioner, nor could it displace the binding effect of the ruling rendered in the case of Petitioner. The ruling must continue to operate and be binding between the petitioner and the department.

The court noted that the department has not personally formed the belief that income liable to tax has escaped assessment and has abdicated her jurisdiction. The re-opening is therefore invalid.

Case Title: Mrs. Usha Eswar Versus Rajeshwari Menon

Case No.: Writ Petition No. 1106 Of 2003

Date: 7/07/2023

Counsel For Petitioner: P. J. Pardiwalla

Counsel For Respondent: Akhileshwar Sharma

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