A vital crucial concept in the international taxation field. This is a widely used mechanism when a non-resident enters into a transaction with a resident whereby the complexity of the transaction is involved. However, because of advance ruling, certain judgments have come, through which certain concepts are embedded in the act and rules. Section 245 of Income Tax Act 1961 deals with the advance ruling. Basically, there are two authorities namely authority for advance ruling and appellate authority for advance ruling. Now on account of the advent of GST, the various authorities have been merged for authority for advance ruling.
Who can file an application? Once the application has been filed by the applicant to Authority for advance ruling the applicant cannot seek remedy to the various authorities under Income tax like an appellate tribunal or other authorities. To put it short only one remedy can be sought.
Applicant has been defined under this act as follows
Non-resident - A transaction that is undertaken or proposed to be undertaken.
Resident - Tax liability arising out of resident with non-resident and such determination involves a question of law or fact specified in the application.
Resident of persons notified by central government - However, as per notification, a resident arising in respect of tax liability in respect of one or more transactions is 100 crores or more.
Resident of the person notified by central Government - A resident in respect of an issue in relation to computation of the income tax which is pending before various authorities under Income tax and such determination involves the question of law or fact. (PSU has been notified).
Resident or non-resident - Whether an arrangement is proposed to be impermissible avoidance arrangement under chapter X-A
The authority for advance ruling shall have its headquarters in Delhi. The chairman shall be head for authority for advance ruling in absence of the same it will be done by Vice Chairman.
Applicant as mentioned above can make an application to the authority for advance ruling in form and manner by making prescribed fees. Once an application is made, the same shall not be withdrawn after 30 days. However, in the case of MK Jain Co AAR No 644 of 2004 even after 30 days from the filing of application applicant can withdraw the application if there is reasonable cause.
The fees payable to authority for advance ruling is as follows
- Amount of one or more transaction does not exceed 100 crores - Rs 2 lakhs is the fee payable
- Amount of one or more transaction exceeds 100 crores but does not - Rs 5 lakhs is a fee
- Exceed 300 crores
- Amount of one or more transaction entered into or proposed in respect - Rs 10 lakhs is the fee
- Of ruling exceed 300 crores
- All cases not covered above - Rs 10000.
The advance ruling shall be binding on
- Applicant who had sought
- In respect of a specific transaction in relation to which it sought
- On the principal commissioner or commissioner and the income tax authorities subordinate to the principal commissioner or commissioner in respect of this transaction.
The advance ruling will continue to remain in force unless there is a change in law or fact on the basis of which advance ruling was pronounced.
However, the case law of CIT vs P Sekar Trust (2010) 321 ITR 305 lays down an exception to this rule. Even though the law is clear that advance ruling is only applicant specific transaction specific. It this case law states that it is applicable on other applicant transaction
Section 245 T (advance ruling to be void in certain cases)
An advance ruling can be void ab initio by the AAR if on the representation made by the principal commissioner of income tax or commissioner or otherwise if found that it was obtained by fraudulent means or misrepresentation of facts. All provisions of the act will apply as if no advance ruling has been made. A copy of such order shall be sent to the applicant and principal commissioner or commissioner.
Section 245 R (Procedure on receipt of application)
The authority shall not allow the application by the applicant in the following cases
1) Pending with Income tax authorities/tribunal/court
However, a resident (public sector undertaking) or class notified by the central government can seek advance ruling if the same is pending before a court/tribunal.
2) Determination of fair market value of property
3) Transaction designed for the avoidance of tax
However, a resident or public sector undertaking or even non-resident can seek whether such a transaction was proposed to be undertaken for impossible arrangement.
An applicant can request for an advance ruling either himself or through a representative. The authority will pronounce its ruling within six months from the receipt of the application by the authority and the copy of advance ruling duly signed by members and certified and sent to the applicant and also to PCIT /CIT.
As the government has introduced e-assessment in a faceless manner even advance ruling is getting covered in this. This would be involving complexity in the initial phase but would get settled in a phased manner. An interesting case law is described below to conclude:
CIT vs Ericsson telephone Corporation India
In this case, it was held that foreign company application where it raised before the authority for advance ruling is not pending merely on the ground that Indian company had raised an issue to the income tax authority. The Indian company not for the foreign company with whom it had transactions had sought clarification to assessing the officer but with a view to benefiting the other party.
Therefore based on judicial ruling the authority for advance ruling cannot reject the application.
Tags :income tax