Chapter XIX B of the Income Tax Act 1961 deals with Advance Rulings. Authority for Advanced Rulings is constituted under section 245 O by the Central Government for giving advance rulings. The authority shall consist of a Chairman and two members. The Chairman shall be a retired Judge of the Supreme Court. Of the two other members, one shall be an officer of the Indian Revenue Service who is qualified to be a member of the Central Board of Direct Taxes and the other member shall be an officer of the Indian Legal Service who is, or is qualified to be an Additional Secretary to the Government of India.
Section 245 O further states that the Authority for Advance Rulings shall be located in New Delhi and the Central Government shall provide the Authority with such officers and staff as may be necessary for the efficient exercise of powers of the Authority under the Income Tax Act.
The applicant for Advance Rulings shall be a non resident seeking clarifications about the tax implications or other related aspects in respect of transactions undertaken or to be undertaken in India. However notified residents an also apply for advance rulings. Notified residents eligible to apply for advance rulings are :
- A public sector company as defined in clause (3A) of section 2 of the Income Tax Act, and
- Persons who has undertaken or propose to undertake a transaction with a non resident seeking advance ruling with respect to tax liability of non resident.
Moreover the notified residents can also seek advance rulings in respect of issues related to computation of total income which is pending before any Income Tax Authority or the Appellant Tribunal and such determination or decision shall include the determination or decision of any question of law or fact relating to such computation of total income.
The Act is very clear that the applicant for advance ruling shall be a non resident. However it does not specify that the applicant shall be a non resident as on the date of application. Through various case laws it has been determined that the status of the applicant shall be non resident in the previous year preceding the financial year in which the application is made.
As per section 245Q, the applicant desirous of obtaining an advance ruling shall make an application in Form No. 34C or 34D or 34E whichever is applicable. The application shall be made in quadruplicate and be accompanied by a fee of two thousand five hundred rupees. The mode of payment of fee shall be by way of a demand draft in favor of the Authority for Advance Ruling.
On receipt of an application, the authority shall send a copy to the Commissioner and if necessary, also call upon the commissioner to furnish relevant records. Such records shall be returned to the commissioner as soon as possible. The Authority on examination of the application and the available records, either allow or reject the application.
The applicant has the opportunity to withdraw the application for advance rulings within thirty days from the date of application. Further, the applicant cannot modify the questions as to change the very complexion of the question. But if the applicant wants to confine a question to only some of the aspects or give up some points of the question, there can be no valid objections to such a course.
Where the application has been accepted, the authority shall pronounce its advance ruling within six months. A copy of such a ruling shall be sent to the applicant as well as the commissioner.
On a request received from the applicant, the authority shall, before pronouncing its advance ruling, provide an opportunity to the applicant of being heard either in person or through a duly authorized representative.
The authority shall reject the application where the question raised in the application
- Is already pending before any Income Tax Authority or Appellate Tribunal [except in case of a resident applicant under section 245N(b)(iii)] or any court, or
- Involves determination of the fair market value of any property, or
- Relates to a transaction or issue which is designed prima-facie for avoidance of income tax.
No application shall be rejected without giving an opportunity of being heard. Further, the reasons for rejecting the application will be given in the order.
Provisions relating to the applicability of advance rulings have been stated in section 245S. The advance ruling shall be binding –
- Only on the applicant who has sought it
(b) in respect of transaction in relation to which the ruling had been sought.
(c) On the commissioner and the Income Tax Authorities subordinate to him, in respect of the applicant and the said transaction.
Moreover the applicability of advance rulings shall be subject to change in law or facts on the basis of which the advance ruling has been pronounced.
No income tax authority or an Appellate Tribunal shall proceed to decide any issue in respect of which an application has been made by an applicant, being a resident.
Advance ruling shall be void where the Authority finds, on a representation made by the commissioner or otherwise, that an advance ruling pronounced by it has been obtained by the applicant by fraud or misrepresentation of facts, it may, by order declare such rulings to be void ab initio.
However, no proceeding before or pronouncement of advance ruling by the Authority shall be questioned or shall be invalid on the ground merely of the existence of any vacancy or defect in the constitution of the Authority.
Section 245U states that, the Authority shall for the purpose of exercising its powers have all the powers of a civil court under the code of civil procedure 1908. Every proceeding before the Authority shall be deemed to be a judicial proceeding within the meaning of section 193 and 228 and for the purpose of section 196 of the Indian Penal Code.
The Authority will also have the power to regulate its own procedures in all matters arising out of the exercise of its powers under the Income Tax Act 1961.