Besides, the SC clarified that AAR findings in a particular case could set a precedent for other cases of similar nature, as claimed by the tax authorities.
The issue was being closely watched by foreign entities, which seek opinion from AAR on taxation of cross-border transactions involving Indian entities.
AAR was set up to ascertain tax liabilities of non-resident firms, certain categories of residents and PSUs so as to avoid time-consuming and expensive litigation.
Section 245 S of the Income Tax Act, 1961, provides that the advance ruling under the provisions of Section 245R shall be binding on all. A Bench headed by Chief Justice SH Kapadia disposed of a batch of cross-appeals filed by the director of income tax (international taxation) and various international companies against a few AAR rulings.
To cite an instance, Luxembourg-based International Hotel Licensing Company (IHCL), an arm of the Marriott Group, had moved the apex court in 2007 against the ruling of the quasi-judicial body that foreign firms were liable to pay tax on assignment fee charged from Indian companies for promotional activities abroad.
IHLC had challenged the decision of AAR that held it was liable to pay tax on considerations charged for promoting abroad an upcoming hotel of Unitech Hospitality in Noida, Uttar Pradesh.