Case: Mahindra Bt Investment Company (Mauritius) Limited Vs. The Director of Income Tax (International Taxation) - 11 &amp; Others

breach of the SEBI Guidelines and therefore based on an illegal act. 8. We now have the communication dated 7 May 2013 received by the Director of Income Tax from SEBI. On examination of the letter dated 7 May 2013 we are of the view that it states that the agreement entered into in 2004 between TIL and AT&T was not acted upon due to commercial reasons and that the Draft Prospectus filed with SEBI in 2006 while coming out with the IPO had disclosed the agreement entered into by it with AT&T. From the above, it is clear that on examination of the facts of the Petitioners case SEBI has concluded that there has been no breach of SEBI guidelines. In case there had been any breach of its guidelines and/or an illegal act as suggested by the Authority in its impugned order, SEBI would have issued to the petitioner a notice to show cause. In these circumstances, it must be held that there is in fact no contravention of the SEBI Guidelines even according to SEBI. 9. The Counsel for the respondents does not dispute the above position but his submission is that on the basis of the communication of SEBI dated 7 May 2013, the petitioner move the Authority for either modification or rectification. We see no reason to direct the petitioner to move the Authority for modification and/or rectification as we have already held that in the present facts no application for modification or rectification under Rule 18 or 19 of the Advance Ruling Rules would lie. In the above circumstances the entire controversy can be resolved by setting aside the impugned Order dated 27 August 2012 of the Authority and directing the Authority to give a ruling on the question as framed by the petitioner. 10. In view of the above, we need not examine the other issues with regard to jurisdiction raised by the petitioner. The larger question posed in the petition are whether the Authority after having admitted the questions can refuse to give a ruling on the question of law formulated at the final hearing without there being any change in facts or circumstances and whether an Authority being a creature of the statue can refuse to rule on the question raised before it even if the same is not hit by the proviso under Section 245R(2) of the Act. The above issues are left open to be decided in an appropriate case. 11. However, before parting it, needs to be pointed out that even if it is assumed that in an appropriate case the Authority has a discretion to refuse to give a ruling on a question of law even in respect of matters outside the proviso to Section 245R(2) of the Act, yet this discretion of refusing to rule on a question cannot be arbitrary. The Authority can exercise its discretion not to give a ruling only in cases where fraud and/or illegality is ex facie evident or the fraud or illegality has been established in some proceedings. Such a discretion is not to be exercised on a mere suspicion of illegality or fraud having taken place. Reliance by the Authority on its own decision in the matter of Microsoft Operations Private Limited reported in 310 ITR 408 to conclude that the Authority has discretion even outside the proviso to Section 245R(2) of the Act to refuse to give a ruling in an appropriate case does not apply to the present facts. In Microsoft Operations (supra) the Authority has observed that:- However, as said earlier, the exercise of discretion must be canalized on proper lines. Avoiding abuse of legal process, incompatible decisions concerning the same parties and anomalous situations are relevant considerations that guide the exercise of discretionary power to reject the application. For instance, in spite of a direct decision of the Supreme Court settling the point against an applicant, if the applicant seek advance rulings with a view to stall further proceedings, it may then be a fit case to reject the application at the stage of consideration under section 245R(2). Another instance that can be visualized is in a case where the applicant raises frivolous or hypothetical legal issues without factual foundation. The above observations would have no application to the present facts. None of the situations contemplated in the above case arise here. Moreover, it may be pointed out that the Authority in the Microsoft Operations (supra) exercised its discretion at the time of admission. 12. In this case, we find that the Authority has refused to give a ruling merely on the assumption that an illegality has been committed by the applicant by circumventing SEBI Guidelines. The authorities administering the SEBI provision did not find it so, as is evident from the fact that no show cause notice or adjudication order for contravention of the SEBI Guidelines has been issued to /or against the petitioner. In these circumstances, the Authority is not correct in refusing to give a ruling at the time of final hearing in the absence of any fresh material, merely on the basis of the suspicion. The Authority may be entitled to consider questions of public interest and not answer the questions when the foundation of the transaction is on the face of it coloured by illegality/or misrepresentation of facts in making the application to the Authority. However, where it is not so, then the revenue must bring on record facts to establish the same, failing which, it would not be open to the Authority to proceed on a suspicion that an illegality has taken place and refuse to give a ruling. 13. In view of the letter dated 7 May 2013 of SEBI to the Director of Income Tax (International Taxation), we set aside the impugned order dated 27 August 2012. We further restore the questions formulated to the Authority and direct the Authority to give a ruling on the question framed by them on the petitioners application for Advance Ruling.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]We find that the Authority has proceeded to refuse to give a ruling on the basis that the petitioner had contravened the SEBI Guidelines. The Authority has conceded in the impugned order that the issue whether or not there is a circumvention of the SEBI Guidelines is to be determined by the authorities implementing the SEBI Guidelines. In spite of the above, the Authority refused to give a ruling on the ground that the transactions underlying the questions formulated were in breach of the SEBI Guidelines and therefore based on an illegal actWe now have the communication dated 7 May 2013 received by the Director of Income Tax from SEBI. On examination of the letter dated 7 May 2013 we are of the view that it states that the agreement entered into in 2004 between TIL and AT&T was not acted upon due to commercial reasons and that the Draft Prospectus filed with SEBI in 2006 while coming out with the IPO had disclosed the agreement entered into by it with AT&T. From the above, it is clear that on examination of the facts of thes case SEBI has concluded that there has been no breach of SEBI guidelines. In case there had been any breach of its guidelines and/or an illegal act as suggested by the Authority in its impugned order, SEBI would have issued to the petitioner a notice to show cause. In these circumstances, it must be held that there is in fact no contravention of the SEBI Guidelines even according to SEBIThe Counsel for the respondents does not dispute the above position but his submission is that on the basis of the communication of SEBI dated 7 May 2013, the petitioner move the Authority for either modification or rectification. We see no reason to direct the petitioner to move the Authority for modification and/or rectification as we have already held that in the present facts no application for modification or rectification under Rule 18 or 19 of the Advance Ruling Rules would lie. In the above circumstances the entire controversy can be resolved by setting aside the impugned Order dated 27 August 2012 of the Authority and directing the Authority to give a ruling on the question as framed by the petitionerIn view of the above, we need not examine the other issues with regard to jurisdiction raised by the petitioner. The larger question posed in the petition are whether the Authority after having admitted the questions can refuse to give a ruling on the question of law formulated at the final hearing without there being any change in facts or circumstances and whether an Authority being a creature of the statue can refuse to rule on the question raised before it even if the same is not hit by the proviso under Section 245Rabove issues are left open to be decided in an appropriate caseIn this case, we find that the Authority has refused to give a ruling merely on the assumption that an illegality has been committed by the applicant by circumventing SEBI Guidelines. The authorities administering the SEBI provision did not find it so, as is evident from the fact that no show cause notice or adjudication order for contravention of the SEBI Guidelines has been issued to /or against the petitioner. In these circumstances, the Authority is not correct in refusing to give a ruling at the time of final hearing in the absence of any fresh material, merely on the basis of the suspicion. The Authority may be entitled to consider questions of public interest and not answer the questions when the foundation of the transaction is on the face of it coloured by illegality/or misrepresentation of facts in making the application to the Authority. However, where it is not so, then the revenue must bring on record facts to establish the same, failing which, it would not be open to the Authority to proceed on a suspicion that an illegality has taken place and refuse to give a rulingIn view of the letter dated 7 May 2013 of SEBI to the Director of IncomeInternational Taxation), we set aside the impugned order dated 27 August 2012. We further restore the questions formulated to the Authority and direct the Authority to give a ruling on the question framed by them on the petitioners application for Advance Ruling.