The Supreme Court on Monday clarified that the orders of the Authority for Advance Rulings(AAR) can be challenged before the respective high courts through writ petitions, a move which could have tax implications for firms involved in cross-border deals.

Until Monday's ruling, an order passed by the AARwas considered final, with the option to appeal being restricted to Supreme Court, that also to a limited extent. However, there was a school of thought which was of the view that the high courts could take up appeals against AAR orders. At the same time the high courts in the past have refused to admit appeals against AAR's orders, saying that such rulings cannot be appealed against. The Supreme Court's order on Monday has cleared the air over appeals against AAR orders.

" With this order AAR has been reduced to the status of Income-tax Appellate Tribunal (ITAT). This order paves way for long drawn out litigation". according to senior chartered accountant T P Ostwal.

The primary function of AAR is to ascertain tax liabilities arising from cross-border transactions and the AAR order is final and binding to the Income-tax department as well as the party concerned. Though AAR's rulings are binding only to the parties to the dispute Income-tax authorities used to claim that its decision can have persuasive value on cases involving similar transactions. The Supreme Court's proceedings in the case has been closely watched by foreign companies keen on investing in India which has a fully developed tax judicial system. (Economic Times)