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GENERAL FRAMEWORK
The Authority for Advance
Rulings (AAR) is a body set up under the Act specifically to give rulings to
non-residents on the tax implications of their operations in India. Having
regard to the complexity in tax laws, the Government of India set up AAR to
pronounce ‘advance rulings’ whenever non-residents have doubts about the tax
liability in respect of their intended transactions in India. The prime
objective for setting up the AAR was to avoid needless litigation and for
promoting better relations with the tax-payers. During the year 1993, a
scheme for giving ‘advance rulings’ in respect of the transactions involving
non-residents was worked out and the same was put into operation.
MEANING OF THE TERM ‘ADVANCE
RULING’
Clause (a) of section 245N
of the Income-tax Act, 1961 (the Act) defines the term ‘advance ruling’ to
mean (a) the determination of a question of law or fact to in relation to a
transaction which has been undertaken or is proposed to be undertaken by a
non-resident applicant and also includes the determination of the tax
liability of a non-resident arising out of such transaction with a resident
applicant; (b) the determination or a decision on a question of law or fact
relating to the computation of total income which is pending before any
income-tax authority or the Appellate Tribunal.
Thus, the AAR can rule on a question of law or fact in relation to a
transaction which a non-resident proposes to undertake or which a
non-resident has already undertaken. By obtaining such a ruling, a
non-resident entity could know the tax implications of a transaction that it
proposes to enter into with a resident of India. Similarly, if a resident
entity undertakes to discharge the tax liability of a foreign entity in
respect of a transaction that the resident proposes to undertake with that
foreign entity, the resident too can come to know of his/its tax exposure in
advance.
Notified Resident
applicants (Currently only Public Sector Undertakings) can also seek a
ruling at the stage of assessment when the matter regarding computation is
pending before the Assessing Officer (AO) or the Commissioner of Income-tax
(Appeals) [CIT(A)] or before the Income-tax Appellate Tribunal (ITAT).
As per Finance Act No.2 of
2009 Advance Ruling Authority created under section 245-O of Income Tax Act,
1961 will also be considered as Advance Ruling Authority for Central Excise
& Custom Authority
WHO CAN APPLY FOR AN
ADVANCE RULING
Clause (b) of section 245
of the Act defines the term ‘applicant’ as (a) A non-resident who proposes
to enter into a transaction or has already entered into a transaction in
India or a resident who proposes to enter into such transaction with the non
resident party; (b) A resident falling within such class or category of
persons as the Central Government may, by notification in the Official
Gazette, specify. (Public Sector Undertakings have been notified vide
Notification No. 725(E) dated 3rd August, 2000 (refer to 245 ITR (St.) 5).
CONSTITUTION OF THE AAR
The AAR consists of the
following members who are appointed by the Indian Government:
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A Chairman who is a retired judge of the
Supreme Court;
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An officer of the Indian Revenue Service
(IRS) who is qualified to be a member of the Central Board of Direct
Taxes;
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An officer of the Indian Legal Service who
is, or is qualified to be, an Additional Secretary to the Government of
India.
PROCEDURE FOR OBTAINING AN
ADVANCE RULING
In case a non-resident
desires to obtain an ‘Advance Ruling’, an application has to be filed with
the AAR in Form 34C.
A resident seeking an
Advance Ruling to determine the tax liability of a non-resident in
connection with a transaction which the resident has entered into or is
proposing to enter into with such non resident, has to make an application
to the AAR in Form 34D.
Other resident applicants
(Public Sector Undertakings notified by the Central Government) have to make
an application to the AAR in Form 34E.
The applicant should submit
the application, in person or through an Authorised Representative (AR) to
the Secretary of the AAR or to any Officer that the Secretary may notify in
writing or must be sent by registered post to the Secretary of the AAR. The
application should be submitted in quadruplicate. A fee of Rs. 2,500 (Rupees
Two Thousand Five Hundred only) should accompany each application.
An applicant has an option
to withdraw the application within a period of thirty days from the date of
filing the application.
On receipt of the
application, AAR forwards a copy of the same to the Commissioner of
Income-tax (CIT) and calls upon the CIT, if necessary, to furnish the
relevant records. The AAR may, after examining the application and records
called for, either allow or reject the application. The AAR, however, cannot
reject the application unless an opportunity has been granted to the
applicant of being heard, either in person or through an authorized
representative.
QUESTIONS ON WHICH ADVANCE
RULING CAN BE SOUGHT
The AAR gives an ‘advance
ruling’ on any question of law or fact specified in an application filed by
the applicant before the AAR in relation to a transaction, which has been
undertaken or proposed to be undertaken by the non-resident.
However, it is pertinent to
note that the AAR will not entertain an application where the question
raised in the application —
POWERS OF THE AAR
The AAR has all the powers
of a Civil Court under the Code of Civil Procedure 1908, as are referred to
in Section 131 of the Act.
THE BENEFITS OF OBTAINING AN
ADVANCE RULING
Obtaining an Advance
Ruling:
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Helps non-residents in planning their
income tax affairs well in advance;
-
Brings certainty in determination of the
tax liability;
-
Helps in avoiding long drawn litigation;
and
-
It is relatively inexpensive, expeditious
and binding.
TIME LIMIT FOR THE AAR TO
GIVE ITS RULING
It is mandatory for the AAR
to pronounce its ‘advance ruling’ within a period of six months of the
receipt of the application.
BINDING NATURE OF THE DECISION OF THE AAR
The ‘advance ruling’
pronounced by the AAR is binding —
Thus, the advance ruling is
binding as aforesaid unless there is a change in law or facts on the basis
of which the advance ruling has been pronounced.
CHALLENGE TO THE RULING OF
THE AAR
The decision of the AAR can
be challenged by filing a Special Leave Petition (SLP) before the Supreme
Court.
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