INCOME TAX ADVANCE RULING PROVISIONS

Advance ruling has been internationally recognized as “A more or less binding statement from the revenue authorities upon the voluntary request of a non-public person, concerning the treatment and consequence of 1 or series of contemplated future actions or transactions.”

The scheme of advance rulings was introduced in India, through the Finance Act, 1993. Section 245N to 245V of the Income-tax Act provides for the dealing in advance rulings, came into force with effect from 1-6-1993.

Advance Ruling means written opinion or authoritative decision by an Authority empowered to render it with relation to the tax consequences of a transaction or proposed transaction or an assessment in regard thereto.

There are various knowledge sharing materials which are provided by the tax Department for the update of the member.

These materials serves as a guide to the taxpayers, tax professional & tax authorities while complying with the due compliances.

One such knowledge sharing content is with reference to provision associated with advance ruling, sort of application, Fees for filing the applying, Documents to be submitted together with the application, Procedure to be followed on receipt of application for advance ruling, Restriction on further procedure, Powers of the AAR etc.

BRIEF INTRODUCTION

A resident taxpayer might be having taxation issues in relation to a transaction, being undertaken or proposed to be undertaken with a non-resident.

Similarly, a non-resident might be having some taxation issues in relation to transaction, being undertaken or proposed to be undertaken by him in India.

so as to induce clarification on taxation of these transactions, someone can make an application to the Authority for Advance Rulings (‘AAR’). Provisions referring to advance ruling are provided in sections 245N to 245V.

REASONS FOR INTRODUCING ADVANCE RULINGS

The Non-Resident investors always want to measure their liability under the Indian tax laws in reference to their proposed transactions.

Considering the complexities within the Indian tax laws, the govt. introduced the concept of Advance Ruling.

Whenever a taxpayer faces any difficulty regarding liabilities in respect of proposed transactions, he can easily seek advance ruling from the authority.

Advance ruling helps in settling disputes ahead. It helps foreign investors in determining their tax liabilities before so they will assess the transaction that they propose to undertake.

It also brings certainty in determining the liabilities, because the ruling given by the Authority for Advance Ruling is binding on the applicant still as Government authorities.

In this part, you’ll gain knowledge about various provisions referring to advance ruling.

MEANING OF ADVANCE RULING

Section 245N(a) gives the definition of ‘advance ruling’. As per section 245N(a) “Advance Ruling” means:

• Any sought of determination made by the AAR in respect of a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant.
• A sought of determination made by the AAR in respect of the liabilities of a non-resident arising out of a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with such non-resident.
• A determination by the AAR in respect to the liabilities of a resident applicant, arising out of 1 or more transaction valuing Rs.100 crore or more.
• A determination or decision by the AAR in respect of a problem referring to computation of total income which is pending before any income-tax authority or the Appellate Tribunal.
• It shall include the determination or decision of any question of law or of fact regarding such computation of total income laid out in the application.
• A determination or decision by the AAR\ whether a meeting, which is proposed to be undertaken by any individual being a resident or a non-resident, is an impermissible avoidance arrangement as said in Chapter X-A. [Chapter X-A contains provisions regarding General Anti-Avoidance Rule (GAAR)].

MEANING OF APPLICANT

The application for advance ruling may be made by an applicant as defined in section 245N(b). As per section 245N, the term ‘applicant’ means –

• A non-resident Indian, undertaking or proposes to undertake a transaction in India.
• A resident who has undertaken or proposes to undertake a transaction with a non-resident.
• A resident who has undertaken or propose to undertake one or more transactions important of Rs.100 crore or more in total [vide Notification No. 73, dated 28-11-2014]
• A resident falling within notified class or category of persons (presently includes public sector companies).
• Any person (resident or non-resident) making an application for determining whether an appointment, is an impermissible avoidance agreement as stated in Chapter X-A (applicable from 1-4-2015).

In Union Budget 2017, the govt. had decided to merge the Authority for Advance Ruling (AAR)# for income-tax, central excise, custom duty and repair tax. Hence, the meaning of ‘applicant ‘is expanded with effect from 1/4/2017 to include-

• An applicant being defined under section 28E(c) of the Customs Act, 1962;
• An applicant being defined under section 23A(c)of the Central Excise Act, 1944;
• An applicant being defined under section 96A(b) of the Finance Act, 1994

The Finance Act, 2021 has amended provisions of section 245N(b) to supply that above three points shall be omitted with effect from such date as appointed by the Central Government by notification within the Official Gazette.

Section 245N to 245V, as provided in Chapter XIX-B, facilitates a scheme for giving advance rulings in respect of transactions involving non-residents and specified residents, with a view to avoid needless litigations and promoting better tax-payer relations.

WHO CAN SEEK ADVANCE RULING?

As per Section 245N following persons is applicant:

• A non-resident.
• A resident-undertaking proposing to undertake a transaction with a non-resident can obtain advance ruling in respect of any question of law or fact in respect to the liabilities of the non-resident arising out of such transaction.
• A resident who has undertaken or proposes to undertake one or more transactions making Rs. 100 crore or more in aggregate, can obtain advance ruling in respect of any question of law or fact in regard to the liabilities of the resident arising out of such transaction
• A notified public-sector company.
• Any person, being a resident or non-resident, can obtain an advance ruling to determine whether a meeting proposed to be undertaken by him is an impermissible avoidance arrangement and should be subjected to General Anti Avoidance Rules or not.
• An applicant being defined under section 28E(c) of the Customs Act, 1962
• An applicant being defined under section 23A(c) of the Central Excise Act, 1944
• An applicant being defined under section 96A(b) of the Finance Act, 1994.

TYPE OF APPLICATION

After understanding the meaning of “Advance Ruling “and “Applicant”, it’s important to grasp the character of application which might be made by an applicant. Following Chart highlights the character of application which may be made by various applicants:

TYPE OF APPLICANT	APPLICATION FORM
NON-RESIDENT OF INDIA	A DETERMINATION BY THE AAR IN RELATION TO A TRANSACTION WHICH HAS BEEN UNDERTAKEN OR IS PROPOSED TO BE UNDERTAKEN BY A NON-RESIDENT APPLICANT. SUCH DETERMINATION SHALL INCLUDE THE DETERMINATION OF ANY QUESTION OF LAW OR OF FACT SPECIFIED IN THE APPLICATION.
RESIDENT INDIAN UNDERTAKING A TRANSACTION WITH NON-RESIDENT OR PROPOSES TO UNDERTAKE A TRANSACTION WITH NON-RESIDENT.	A DETERMINATION BY THE AAR IN RELATION TO THE TAX LIABILITY OF A NON-RESIDENT ARISING OUT OF A TRANSACTION WHICH HAS BEEN UNDERTAKEN OR IS PROPOSED TO BE UNDERTAKEN BY A RESIDENT APPLICANT WITH SUCH NON-RESIDENT. SUCH DETERMINATION SHALL INCLUDE THE DETERMINATION OF ANY QUESTION OF LAW OR OF FACT SPECIFIED IN THE APPLICATION.
RESIDENT INDIAN UNDERTAKING OR PROPOSE TO UNDERTAKE ONE OR MORE TRANSACTIONS OF VALUE OF RS.100 CRORE OR MORE IN AGGREGATE.	A DETERMINATION BY THE AAR IN RELATION TO THE TAX LIABILITY OF A RESIDENT APPLICANT ARISING OUT OF SUCH TRANSACTIONS AND SUCH DETERMINATION SHALL INCLUDE THE DETERMINATION OF ANY QUESTION OF LAW OR OF FACT SPECIFIED IN THE APPLICATION.
RESIDENT INDIAN FALLING WITHIN NOTIFIED CLASS OR CATEGORY OF PERSONS (I.E., A PUBLIC SECTOR COMPANY).	A DETERMINATION OR DECISION BY THE AUTHORITY IN RESPECT OF AN ISSUE RELATING TO COMPUTATION OF TOTAL INCOME WHICH IS PENDING BEFORE ANY INCOME-TAX AUTHORITY OR THE APPELLATE TRIBUNAL AND SUCH DETERMINATION OR DECISION SHALL INCLUDE THE DETERMINATION OR DECISION OF ANY QUESTION OF LAW OR OF FACT RELATING TO SUCH COMPUTATION OF TOTAL INCOME SPECIFIED IN THE APPLICATION.
ANY PERSON MAKING AN APPLICATION FOR DETERMINATION OF WHETHER AN ARRANGEMENT IS AN IMPERMISSIBLE AVOIDANCE AGREEMENT AS REFERRED TO IN CHAPTER X-A. (APPLICABLE FROM 1-4-2015)	A DETERMINATION OR DECISION BY THE AUTHORITY WHETHER AN ARRANGEMENT, WHICH IS PROPOSED TO BE UNDERTAKEN BY ANY PERSON BEING A RESIDENT OR A NON-RESIDENT, IS AN IMPERMISSIBLE AVOIDANCE ARRANGEMENT AS REFERRED TO IN CHAPTER X-A. (APPLICABLE FROM. 1-4-2015)

APPLICATION NOT ALLOWED

In following circumstances, the application isn’t allowed by the AAR:

• Where the question relates to any pending case already existing before any income-tax authority or appellate tribunal or any Court.
• However, exception will apply within the case of a resident applicant falling within the notified class or category of persons i.e., a public sector company.
• when the question involves determination of fair value of any property.
• when the question relates to a transaction which is intended clear for the avoidance of income-tax. Exception to the current provision:
• (I) resident taxpayer falling within notified class or category of persons i.e., a public sector company and (ii) someone (i.e., resident or non-resident) making an application to see whether a meeting proposed to be undertaken is an impermissible avoidance arrangement under Chapter X-A.

FORM OF APPLICATION ADVANCE RULING

The application of advance ruling is to be made within the form prescribed during this regard. Different forms are prescribed for various applicants.

Following Chart highlights the shape of application applicable to different applicants.

APPLICANT	FORM OF APPLICATION
A NON-RESIDENT APPLICANT.	FORM NO. 34C (APPLICATION SHOULD BE IN QUADRUPLICATE)
A RESIDENT SEEKING ADVANCE RULING IN RELATION TO A TRANSACTION UNDERTAKEN OR PROPOSED TO BE UNDERTAKEN BY HIM WITH A NON-RESIDENT.	FORM NO. 34D (APPLICATION SHOULD BE IN QUADRUPLICATE)
A RESIDENT SEEKING ADVANCE RULING IN RELATION TO HIS TAX LIABILITY ARISING OUT OF ONE OR MORE TRANSACTIONS VALUING RS. 100 CRORE OR MORE IN TOTAL WHICH HAS BEEN UNDERTAKEN OR PROPOSED TO BE UNDERTAKEN BY HIM	FORM NO. 34DA (APPLICATION SHOULD BE IN QUADRUPLICATE)
A RESIDENT FALLING WITHIN ANY SUCH CLASS OR CATEGORY OF PERSON AS IS NOTIFIED BY CENTRAL GOVERNMENT (I.E., A PUBLIC SECTOR COMPANY)	FORM NO. 34E (APPLICATION SHOULD BE IN QUADRUPLICATE)
ANY PERSON (RESIDENT OR NON-RESIDENT) MAKING AN APPLICATION FOR DETERMINATION OF WHETHER AN ARRANGEMENT, IS AN IMPERMISSIBLE AVOIDANCE AGREEMENT AS REFERRED TO IN CHAPTER X-A. (APPLICABLE FROM 1-4-2015)	FORM NO. 34EA (APPLICATION SHOULD BE IN QUADRUPLICATE)

BENEFITS OF SCHEME OF ADVANCE RULING

1. Determination of liabilities ahead.
2. Reducing Litigation.
3. Attract Foreign Direct Investment.
4. It is inexpensive.
5. Rulings are binding on the applicant additionally because the department.
6. Rulings are pronounced within six months from the date of receipt of application.

Thus, so as to produce the power of ascertaining the Income-tax liability of a non-resident, to plan their Income-tax affairs well earlier and to avoid long drawn and expensive litigation.

the scheme of Advance Rulings has been introduced to cater to above problem face under the Income-tax Act, 1961.

FEES FOR FILING THE APPLICATION

The fees payable together with application for advance ruling shall be in accordance with the subsequent table:

CATEGORY OF APPLICANT	CATEGORY OF CASE	FEES
A NON-RESIDENT APPLICANT. A RESIDENT SEEKING ADVANCE RULING IN RELATION TO THE TAX LIABILITY OF A NON-RESIDENT ARISING OUT OF TRANSACTION UNDERTAKEN OR PROPOSED TO BE UNDERTAKEN BY HIM WITH A NON- RESIDENT.A RESIDENT SEEKING ADVANCE RULING IN RELATION TO HIS TAX LIABILITY ARISING OUT OF ONE OR MORE TRANSACTIONS VALUING RS.100 CRORE OR MORE IN TOTAL WHICH HAS BEEN UNDERTAKEN OR IS PROPOSED TO BE UNDERTAKEN BY HIM	AMOUNT OF ONE OR MORE TRANSACTION, ENTERED INTO OR PROPOSED TO BE UNDERTAKEN, IN RESPECT OF WHICH RULING IS SOUGHT DOES NOT EXCEED RS. 100 CRORES.	RS.2,00,000
	AMOUNT OF ONE OR MORE TRANSACTION, ENTERED INTO OR PROPOSED TO BE UNDERTAKEN, IN RESPECT OF WHICH RULING IS SOUGHT EXCEEDS RS. 100 CRORES BUT DOES NOT EXCEED RS. 300 CRORES.	RS.5,00,000
	AMOUNT OF ONE OR MORE TRANSACTION, ENTERED INTO OR PROPOSED TO BE UNDERTAKEN, IN RESPECT OF WHICH RULING IS SOUGHT EXCEEDS RS. 300 CRORES	RS.10,00,000
ANY OTHER APPLICANT	IN ALL CASES	RS.10,000

DOCUMENTS TO BE SUBMITTED ALONG WITH APPLICATION

1. 4 copies of application within the prescribed form.
2. An account-payee demand draft issued in respect of the amount of prescribed fees and made in favour of ‘Authority for Advance Ruling’s payable at Indian capital.

PERSON ENTITLED TO SIGN THE APPLICATION

The application shall be signed by –

1. In The Case of An Individual –

• By the individual himself;
• Where, for any unavoidable reason, it’s unacceptable for the individual to sign the application, the applying will be signed by any individual duly authorised by the individual during this behalf.
• However, in such a case, the person signing the applying shall hold a legitimate power of attorney from the individual to try and do so, which shall be attached to the application.

2. In The Case of HUF –

• By the Karta thereof, and
• Where, for any unavoidable reason, it’s impracticable for the Karta to sign the applying, by the other adult member of such family.

3. In The Case of An Organization –

• by the manager thereof, or where for any unavoidable reason such decision maker isn’t able to sign and verify the applying, or where there’s no decision maker, by any Director thereof;
• Where, for any unavoidable reason, it’s uphill for the decision maker or the Director to sign the application, by any individual duly authorised by the corporate during this behalf.
• However, in such a case, the person signing the applying shall hold a sound power of attorney from the corporate to try and do so, which shall be attached to the applying.

4. In The Case of a Firm –

• by the managing partner of the firm.
• Where for any unavoidable reason such managing partner isn’t ready to sign and verify the application or where there’s no managing partner in and of itself, by any partner of the firm apart from a minor.

6. In Case of An Association of Persons –The signatory to the application, shall be the member of the association or the principal officer appointed.
7. In Case of The Other Person – The signatory to the application, shall be such person or some other person competent to act on behalf of such person.

WITHDRAWN OF APPLICATION

Application once made by the applicant may be withdrawn within a period of 30 days from the date of application.

PROCEDURE ON RECEIPT OF APPLICATION

On receipt of an application, the AAR shall send a replica thereof to the Principal Commissioner or Commissioner and, if necessary, will call upon him to furnish the relevant records.

Where any records are caught up by the Authority in any case, such records shall, as soon as possible, be returned to the Principal Commissioner or Commissioner.

The Authority may, after examining the applying and therefore the records immersed from the Commissioner, either allow or reject the applying.

However, the AAR may not allow the filing application in certain circumstances. However, no application shall be rejected unless a chance has been given to the applicant of being heard.

Where the applying is rejected, reasons for such rejection shall tend within the order. a duplicate of each such order shall be sent, both to the applicant and to the Principal Commissioner or Commissioner.

Where an application is allowed, the AAR shall, after examining such further material as could also be placed before it by the applicant or obtained by the AAR, pronounce its advance ruling on the question laid out in the application.

On a call for participation received from the applicant, the AAR shall, before pronouncing its advance ruling, provide a chance to the applicant of being heard, either in person or through an authorized representative.

The AAR shall pronounce its advance ruling in writing within six months of the receipt of application.

A copy of the advance ruling pronounced by the AAR, duly signed by the Members and authorized within the prescribed manner shall be sent to the applicant as well as to the Principal Commissioner or Commissioner, on an immediate basis, after such pronouncement.

RESTRICTION ON FURTHER PROCEDURE

No income-tax authority or the Appellate Tribunal shall proceed to determine any issue in regard to which an application has been made to the AAR by an applicant, being a resident.

APPLICABILITY OF ADVANCE RULING

The advance ruling pronounced by the AAR shall be binding only on the applicant who had sought it which too in respect of the transaction in respect to which the ruling had been sought.

Further, it shall be binding on the Principal Commissioner or Commissioner and also the Income-tax authorities subordinate to him, in respect of the applicant and therefore the said transaction.

The advance ruling pronouncement as stated above shall be binding as aforesaid, unless there’s a change, in law, or facts on the idea of which the advance ruling was pronounced.

ADVANCE RULING TO BE VOID IN CERTAIN CIRCUMSTANCES

Where the AAR finds, on a representation made thereto by the Principal Commissioner or Commissioner or otherwise, that an advance ruling pronounced by it’s been obtained by the applicant by fraud or misrepresentation of facts, then the Authority may, by an order, declare such ruling to be void at first and thereupon all the provisions of the Act shall apply to the applicant just like, in case no advance ruling be made by such applicant.

A copy of the said order shall be served to the applicant as well as to the Principal Commissioner or Commissioner.

POWERS OF THE AAR

The AAR shall, for the aim of exercising its powers, have all the powers of a civil court under the Code of Civil Procedure, 1908 as are mentioned in section 131 of this Act.

Powers vested under section 131 are discovery and inspection, enforcing the attendance of any individual, including any officer of a financial organisation and examining him on oath, compelling the assembly of books of account and other documents, and issuing commissions.

it’ll even have the facility to control its own proceeding altogether the matters arising out of the exercise of its powers under the Income-tax Act.

The AAR shall be deemed to be a civil court for the needs of section 195 but not for the needs of Chapter XXVI of the Code of Criminal Procedure, 1973 and each proceeding before the Authority shall be deemed to be a proceeding under certain provisions of the Indian legal code.

DISCONTINUATION OF AUTHORITY FOR ADVANCE RULING                                            

The Finance Bill, 2021 has as long as the Authority for Advance Rulings shall cease to control with effect from such date, as is also notified by the Central Government within the Official Gazette.

BOARDS FOR ADVANCE RULINGS

To provide another method of providing prompt advance ruling to the taxpayers, the Finance Bill, 2021 has inserted a brand-new Section 245-OB to empower the Central Government to constitute one or more Board to be termed as Advance Rulings Board, to provide advance rulings on and after the said date.

Every such Board shall encompass two members, each being an official not below the rank of Chief Commissioner.

Consequential amendments are made under relevant sections of Authority for Advance Rulings to supply a reference of Board for Advance Rulings.

APPEAL AGAINST RULING

A new section 245W is inserted by the Finance Act, 2021 to produce for appeal to supreme court against the order passed or ruling pronounced by the Board for Advance Ruling, as per the directions of PCIT or CIT.

This appeal may be filed by the applicant yet as by the Department. Such appeal shall be filed within 60 days from the date of the communication of such ruling or order, in such form and manner as is also prescribed.

However, where the judicature is satisfied, on an application made during this behalf, that the appellant was prevented by sufficient cause from presenting the appeal within the amount per this section, it should allow an extra period of 30 days for filing such appeal.

The Central Government is empowered to provide for a scheme for filing of appeal by the Assessing Officer in order to have greater efficiency, transparency and accountability by optimising the utilisation of resources by means of economies of scale along with functional specialisation and introducing a system with dynamic jurisdiction.

The Central Government may, to provide effect to the scheme, by notification within the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as is also laid out in the notification.

Every such notification shall, as soon as is also after the notification is issued, be laid before each House of Parliament.

IMPORTANT POINTS

1. As per the Finance Act’ 2017 the following points have been inserted under section 245-O –

• • In the event of the occurrence of any vacancy within the office of the Chairman by reason of his death, resignation or otherwise, the senior-most Vice-chairman shall act because the Chairman until the date on which a replacement Chairman, appointed in accordance with the provisions of this Act to fill such vacancy, enters upon his office.
  • just in case the Chairman is unable to discharge his functions due to absence, illness or the other cause, the senior-most Vice-Chairman shall discharge the functions as a Chairman till the date by which such Chairman resumes their duties.

2. Further Section 245-O to control the Qualifications, terms and conditions of service of Chairman, Vice-Chairman and Members.

• • The qualifications, appointment, term of office, salaries and allowances, resignation, removal and therefore the other terms and conditions of service of the chairman, Vice-Chairman and other members of the authority appointed after 26.05.2017, being the date on which the provisions of part XIV of chapter VI of the Finance Act’2017 came into force, would be governed by the provisions of section 184 of Finance Act’ 2017.
  • However, the chairman, Vice-Chairman and member appointed before 26.05.2017 would still be governed by the provisions of the taxation Act’ 1961 and therefore the rules made there under as if the provisions of section 184 of the Finance Act’ 2017 had not inherit force.

3. Vacancies, etc., to not invalidate proceedings: No proceeding before, or pronouncement of advance ruling by, the Authority shall be questioned or shall be invalid on the bottom merely of the existence of any vacancy or defect within the constitution of the Authority.

COMPOSITION OF AUTHORITY FOR ADVANCE RULINGS

• The Central Government is required to constitute an Authority for providing advance rulings, and they shall be termed as “Authority for Advance Rulings”:
• Provided that the Authority shall cease to act as an Authority for Advance Rulings for the needs of Chapter V of the Customs Act, 1962 on and from the date when such person is appointed by the Customs Authority as the Advance Rulings under section 28EA of that Act.
• On and from the date of appointment of the Customs Authority for Advance Rulings referred above, the Authority shall act as an Appellate Authority, for the aim of Chapter V of the Customs Act, 1962.
• The Authority shall comprise a boss and such number of Vice-chairmen, revenue Members and law Members because the Central Government may, by notification, appoint.

QUALIFICATION FOR APPOINTMENT

CHAIRMAN	WHO HAS BEEN A JUDGE OF THE SUPREME COURT OR THE CHIEF JUSTICE OF A HIGH COURT OR FOR AT LEAST SEVEN YEARS A JUDGE OF A HIGH COURT?
VICE- CHAIRMAN	WHO HAS BEEN JUDGE OF A HIGH COURT?
REVENUE MEMBER	(I) FROM THE INDIAN REVENUE SERVICE, WHO IS, OR IS QUALIFIED TO BE, A MEMBER OF THE BOARD; OR (II) FROM THE INDIAN CUSTOMS AND CENTRAL EXCISE SERVICE, WHO IS, OR IS QUALIFIED TO BE, A MEMBER OF THE CENTRAL BOARD OF EXCISE AND CUSTOMS, ON THE DATE OF OCCURRENCE OF VACANCY.
LAW MEMBER	FROM THE INDIAN LEGAL SERVICE, WHO IS, OR IS QUALIFIED TO BE, AN ADDITIONAL SECRETARY TO THE GOVERNMENT OF INDIA ON THE DATE OF OCCURRENCE OF VACANCY.