Advance_Ruling

ADVANCE RULING INTRODUCTION The scheme of advance rulings was introduced by the Finance Act, 1993, Chapter XIX-B of the Income-tax Act, which deals with advance rulings, came into force with effect from 1-6-1993. Under the scheme, the power of giving advance rulings has been entrusted to an independent adjudicatory body. Accordingly, a high level body headed by a retired judge of the Supreme Court has been set up. This is empowered to issue rulings, which are binding both on the Income-tax Department and the applicant. The procedure prescribed is simple, inexpensive, expeditious and authoritative. Advance Ruling, means written opinion or authoritative decision by an Authority empowered to render it with regard to the tax consequences of a transaction or proposed transaction or an assessment in regard thereto. It has been defined in section 245N(a) of the Income-tax Act, 1961 as amended from time to time. Under section 245N, a ruling can be obtained by an applicant (who may be either a non-resident or a resident having a transaction with a non-resident) in respect of any question of law or fact in relation to the tax liability of the non-resident arising out of a transaction undertaken or proposed to be undertaken. In order to provide the facility of ascertaining the Income-tax liability of a non-resident, to plan their Income-tax affairs well in advance and to avoid long drawn and expensive litigation, a scheme of Advance Rulings has been introduced under the Income-tax Act, 1961. Authority for Advance Rulings has been constituted. A non-resident or certain categories of resident can obtain binding rulings from the Authority on question of law or fact arising out of any transaction/proposed transactions which are relevant for the determination of his tax liability. DEFINITIONS According to Section 245N Advance Ruling means:- (i) A determination by the Authority in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant; or (ii) A determination by the Authority 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, And such determination shall include the determination of any question of law or of fact specified in the application; (iii) 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 SCHEME OF ADVANCE RULINGS With a view to avoiding a dispute in respect of assessment of income-tax liability in the case of a non-resident (and also specified categories of residents), a Scheme of Advance Ruling was incorporated in Chapter XIX-B of the Income-tax Act. The Authority for Advance Rulings ( AAR ) pronounces rulings on the applications of the non-resident/residents submitted in the prescribed form following prescribed procedure and such rulings are binding both on the applicant and the income-tax department. Thus, the applicant can avoid expensive and time consuming litigation on any question of law or fact which might arise from normal income-tax assessment proceedings. AAR (Procedure) Rules, 1996 provide detailed procedure for obtaining advance rulings. COMPOSITION OF THE AUTHORITY The Authority for Advance Rulings consists of a Chairman, who is a retired Judge of the Supreme Court and two members of the rank of Additional Secretary to the Government of India, one each from the Indian Revenue Service and the Indian Legal Service. WHO CAN SEEK ADVANCE RULING Any non-resident person whether individual, company, firm, association of persons or other body corporate can make an application for seeking an advance ruling in regard to his/its tax liability. Similarly, certain category on residents can also seek advance rulings: For Non-resident For determination, in relation to a transaction which has been undertaken or is proposed to be undertaken by a Non-resident applicant, on any question of law or fact specified in the application. For Resident 1. A resident who has undertaken or proposes to undertake a transaction with a non-resident may seek a ruling for determination on any question of law or fact in relation to such transaction involving the tax liability of the non-resident. 2. A resident falling within notified categories may seek 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 fact relating to such computation of total income. SALIENT FEATURES OF ADVANCE RULINGS a) The procedure of advance ruling is available only under the Income-tax Act, 1961. b) The advance ruling is to be given on questions specified in relation to such a transaction by the applicant. c) Questions on which ruling can be sought:— i) Even though the word used in the definition is the word "question", it is clear that the non-resident can raise more than one question in one application. This has been made amply clear by Column No. 8 of the form of application for obtaining an advance ruling (Form No. 34C) ii) Though the word "question" is unqualified, it is only proper to read it as a reference to questions of law or fact, pertaining to the income tax liability of the non-resident qua the transaction undertaken or proposed to be undertaken. iii) The question may be on points of law as well as on fact; therefore, mixed questions of law and fact can also be included in the application. The questions should be so drafted that each question is capable of a brief answer. This may need breaking-up of complex question into two or more simple questions. iv) The questions should arise out of the statement of facts given with the application. No ruling will be given on a purely hypothetical question. No question not specified in the application can be urged. Normally a question is not allowed to be amended but in deserving cases the Authority may allow amendment of one or more questions. v) Subject to the limitations to be presently referred to, the question may relate to any aspect of the non-resident's liability including international aspects and aspects governed by double tax agreements. The questions may even cover aspects of allied laws that may have a bearing on tax liability such as the law of contracts, the law of trusts and the like, but the question must have a direct bearing, on and nexus with the interpretation of the Indian Income-tax Act. d) The Authority shall pronounce it advance ruling within 6 months of receipt of the application. e) The effect of the ruling is stated to be limited to the parties appear before the authority and the transaction in relation to which the ruling was given. This is because the ruling was rendered on a set of facts before the Authority and can not be of general application. Question precluded Under section 245R, certain restrictions have been imposed on the admissibility of an application, if the question concerned is pending before other authorities. According to it, the authority shall not allow an application where the question raised by the non-resident applicant (or a resident applicant having transaction with a non-resident) is already pending before any income-tax authority or appellate Tribunal or any court of law. Further, the authority shall not allow the application where the question raised in it:— i) involves determination of fair market value of any property; or ii) It relates to a transaction or issue which is designed prima facie for the avoidance of income-tax. APPLICATION FOR ADVANCE RULING The applicant may seek advance ruling by making an application to the Authority in the prescribed form i.e. Form No. 34C, 34D or 34E, as the case may be in the manner indicated therein and following the procedure as prescribed in AAR (Procedure) Rules, 1996. SIGNING OF APPLICATION The application including the documents annexed thereto shall be signed in the manner indicated in the prescribed form. Where a person signing the application and other documents claims to have been duly authorizing to do so, the application must include a power of attorney, authorizing him to sign and an affidavit setting out the unavoidable reasons which entitle him to sign it. AUTHORISED REPRESENTATIVE The applicant is entitled to represent his case before the Authority either personally or through an authorized representative e.g., a Chartered Accountant, Advocate, any other tax practitioner etc. If the applicant desires to be represented by an authorised representative, a power of attorney authorising him to appear for the applicant should be enclosed in original. PAYMENT OF FEE The application should be accompanied by a fee of Rs 2,500/- (Two Thousand Five Hundred Indian rupees) through a bank draft drawn in favour of the ‘Authority for Advance Rulings’ payment at New Delhi. WITHDRAWAL OF APPLICATION The applicant may withdraw his application within 30 days from the date of filing the application, thereafter only with the leave of the Authority. TIME LIMIT FOR PRONOUNCING THE RULING The advance ruling is required to be pronounced by the Authority within six months of the receipt of a valid application. ADVANCE RULING BINDING Advance ruling pronounced by the Authority would be binding: • On the Commissioner and the income-tax authorities subordinate to him in respect of the applicant; • On the applicant who has sought it. • In respect of the transaction in relation to which the ruling had been sought ADVANCE RULING TO BE VOID IN CERTAIN CIRCUMSTANCES Where the Authority finds, on a representation made to it by the Commissioner or otherwise, that an advance ruling pronounced by it under sub-section (6) of section 245R has been obtained by the applicant by fraud or misrepresentation of facts, it may, by order, declare such ruling to be void ab initio and thereupon all the provisions of this Act shall apply (after excluding the period beginning with the date of such advance ruling and ending with the date of order under this sub-section) to the applicant as if such advance ruling had never been made. POWERS OF THE AUTHORITY 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. CONCLUSION Thus advance ruling helps non-residents in planning their income tax affairs well in advance, and brings certainty in determining the tax liability. It also helps avoiding long drawn and expensive litigation. Hence it is inexpensive, expeditious and binding.