The main legal point established in the judgment is that the AAR's jurisdiction to entertain an application for advance ruling is barred under Section 245R(2) Proviso (1) if the return of income has been filed before the assessing authority.

S.Ravindra Bhat, J.

1. These writ petitions involve decision on identical questions of law, and were, with consent of counsel for parties, taken up for final hearing. All the petitioners question the orders of the Authority on Advance Ruling (AAR) declining to entertain their applications seeking advance rulings.

2. The facts necessary for determination of these petitions are brief. The First Petitioner had filed its return of income under Section 139(1) of the Act on 31.03.2010. The transactions which form the basis of the application before the AAR were entered into on 26.04.2008 and 26.11.2008. The application for advance ruling was filed on 17.06.2010. The Second Petitioner had entered into a sub-contract with Cellseis Geophysical Inc. From this contract it derived an income. Based on this sub-contract, the applicant entered into an agreement with Spectrum USA for hiring a vessel. It withheld taxes under Section 195 ITA on the payments made by it. It filed its return of income for the Assessment Year 2009-2010. After having filed the return, it had filed the application before the AAR on 17.05.2010, raising identical questions. The Third Petition is also filed by Sin Oceanic, and arises out of the same transaction as mentioned in the second writ and is against the same order of the AAR.

3. All the Petitioners had contended before the AAR, that the objective of the mechanism of advance rulings, with respect to applicants entitled to apply, is to cut short the delay in dispute resolution, and therefore the bar enacted under Section 245R(2) must be strictly construed. They also urged that since the purpose of this mechanism was also to attract foreign investment, the AAR should be wary of interpreting the proviso too widely and consequently, of restricting its own jurisdiction. They also contended that restrictions on jurisdiction conferred have to be considered strictly, and jurisdiction ought not to be declined unless the application comes strictly within the clauses of the restricting proviso.

4. The applicants also argued that in consequence, the restriction enacted through Clause (1) of the proviso, only applied to those questions which were raised by the Income Tax Authority and the filing of a return of income did not automatically result in a question being “pending” before the Income Tax Authority. It was contended that unless the assessing authority specifically raised a question, and for instance, issued notice calling the assesee to respond to it, the question would not arise, and consequently, the bar would not apply.

5. The Authority considered these contentions but in its final ruling differed from the Applicants. On the question of what questions “arise” before the assessing authority, when returns are filed before it, the Authority stated that merely by filing the return, all questions that can possibly arise, are ushered into the proceeding, and every question is left at large, such that the AAR cannot exercise jurisdiction to entertain the question. All questions that can possibly arise with respect to that transaction are then within the purview of the assessing authority. This means that once returns are filed before the assessing authority, there are no questions that cannot be raised, and no questions left for the AAR to entertain, thereby effectively ousting its jurisdiction. The AAR held that the jurisdiction did not depend upon such vagaries such as whether the assessing officer or the parties raised all the pertinent questions at the time of filing of returns. When a return is after scrutiny or without scrutiny, the implication is that the questions were answered in favour of the assessee.

6. The AAR also held that it was consistent with the purpose of the Act that applications before it be made at the earliest possible opportunity and not after it invokes or is obliged to invoke the jurisdiction of the assessing authority. The obligation to file returns will be fulfilled in such case, after the