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Obtaining Advance Rulings
OBTAINING ADVANCE RULINGS
General
The Finance Act, 1993 had inserted Chapter XIX-B entitled ‘Advance Ruling’ in respect of transactions involving non-residents. The purpose of introducing the chapter was to avoid needless litigation and promote better tax payer relations. It is in a way a dispute resolution mechanism.
Provisions for Advance Ruling – An overview.
The law and procedure relating to advance rulings are contained in the following provisions:-
  • Chapter XIX-B of the Income Tax Act, comprising of sections 245N to 245V (both inclusive).
  • Rules 44E and 44f of the Income Tax Rules.
  • Authority for Advance Rulings (Procedure) Rules, 1996.
Meaning of Advance Ruling [Section 245N]
  1. As per section 245N(a), the term “advance ruling” means:--
    1. 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
    2. 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,
    3. 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 of any question of law or of fact relating to such computation of total income specified in the application: PROVIDED that where an advance ruling has been pronounced, before the date on which the Finance Act, 2003 receives the assent of the President, by the Authority in respect of an application by a resident applicant referred to in sub-clause (ii) of this clause as it stood immediately before such date, such ruling shall be binding on the persons specified in section 245S.
    4. a determination or decision by the Authority whether an arrangement, which is proposed to be undertaken by any person being a resident or a non-resident, is an impressible avoidance arrangement as referred to in Chapter XA or not.
What constitutes the Authority for Advance Ruling [Sections 245O & 245P].
Under Section 245-O of the Act, the Authority for Advance Ruling consists of a chairman, who is retired judge of the Supreme Court and two other members are respectively from the Indian Revenue Service and Indian Legal Service. The head quarter of the Authority is in Delhi.
Who can file an application for Advance Rulings?
Any non-resident/ resident dealing with a non-resident can seek advance rulings in respect of any transaction that has been undertaken or is proposed to be undertaken by him.
Any resident falling within any such class or category of persons as the Central Government may, by notification in the Official Gazette, specify in this behalf.
However, as per the classificatory amendment by the Finance Act, 2003, Advance ruling would determine the tax liability of a non-resident arising out of the transaction which has been or is proposed to be undertaken by a resident applicant with such non-resident as mentioned in point (i) above and not the tax liability of the resident.
Transactions which qualify for seeking an application for Advance Rulings.
An applicant can seek advance ruling to determine the question of law or fact arising out of a transaction. However, in case of non-resident’s/ resident’s dealing with a non-resident application will not be entertained in respect of following questions:-
  • Any question pending in the applicant’s case before any Income-tax Authority, Appellate Tribunal or Court,
  • Any question that involves determination of fair market value of any property, and
  • Any question in relation to a transfer which is designed prima facie of the avoidance of income-tax.
Procedure for filing an application for Advance Rulings
  1. An application desirous for obtaining an advance ruling shall be made in quadruplicate in the following Forms:--
    1. in Form 34-C in respect of non-resident applicant,
    2. in Form 34-D in respect of resident applicant seeking an advance ruling in relation to a transaction undertaken or proposed to be undertaken by him, with a non-resident,
    3. in Form 34-E in respect of a resident falling within such class or category of persons as may be notified by the Central Government.
  2. The application should state the question on which the advance ruling is sought.
  3. The application should be accompanied by a fees of Rs.2,500 in the form of demand draft in favour of Authority of Advance Rulings.
  4. The application should be accompanied by a power of attorney in favour of the authorized person.
  5. The applicant may withdraw the application within 30 days of making the application.
The Authority for Advance Ruling shall pronounce its advance ruling within six months of the receipt of application.
Binding nature of the Advance Rulings.
The advance rulings shall be binding –
  1. on the applicant who had sought it, and
  2. in respect of specific transactions in relation to which the advance ruling was sought.
It shall also be binding on the Commissioner and the Income-tax Authorities subordinate to the Commissioner.
The advance ruling will continue to remain in force unless there is a change either in law or in fact on the basis of which the advance ruling was pronounced.
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