In a landmark ruling that could have far reaching implications for tax payers, The Supreme Court has set aside the judgment of the Authority for Advance Ruling for the first time reports CNBC-TV18.

The AAR order would have made offshore supply of equipment and services taxable in India. The SC ruling could impact Morgan Stanley case regarding taxation of BPO services.

The department of income tax (DIT) had earlier told the Supreme Court that it should be able to tax that part of Morgan Stanley's global income on the premise that its Indian BPO activities were an integral part of its overall operations, and played a vital role in its securities trading operations.

AAR orders are binding on both the assessee and the tax department. This is the first instance of an AAR order being set aside. The IT dept has appealed AAR order in Morgan Stanley matter.