Relief for Pvt Co - Advance Ruling Mechanism made available

Established under Section 245-O of the Income-tax Act, 1961, Authority of Advance Ruling has served as one of the most stable mechanism for tax planning and compliance for Non-resident tax payers in India.  While it does have its own set of lacunas, such as subsequent delays caused on account of appeals against its orders going to High Courts instead of Supreme Court directly, it does save a lot of time at the assessment and first appellate levels.

On similar lines Authority for Advance Rulings (Central Excise, Customs & Service Tax) was set up to give binding rulings, in advance for indirect tax related matters. The AAR(CECS) assumed importance as it gave substantial certainty to foreign investors for their indirect tax exposures in India.

However, one of the prominent drawback was that AAR (CECS) was not made available to the resident private limited companies.  This July 11, 2014, this drawback was cured through a Ministry of Finance Notification No.15 /2014-Service Tax.  Through this notification, the sub-clause (iii) of clause (b) of Section 96A of the Finance Act, 1994 has been amended to include Resident Private Limited Companies in the definition of “Applicant.”

To further clarify the matter, Private limited Companies shall have the same meaning as assigned in clause (68) of Section 2 of the Companies Act 2013 and “Resident” shall have the same meaning as assigned in clause (42) of section 2 read with sub-section (3) of section 6 of the Income-tax Act, 1961.

This amendment is welcome relief for resident private companies in the fast changing indirect tax landscape.  With impending implementation of Goods and Services Tax, option of advance rulings shall help the private players in India to atleast sleep with some peace in night.

It would be further beneficial if the Government could also bring in Limited Liability Partnerships also under the ambit of AAR(CECS).  This might also act as a positive nudge for corporatization of loosely formed and regulated partnership firms.

You can download the notification at /forum/ministry-of-finance-notification-no-15-2014-service-tax-299647.asp#.U9IeHUCeKbE

For a broader understanding of functioning of AAE (CECS), please refer http://www.cbec.gov.in/aar/auth.htm