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Advance ruling under income tax law

A resident taxpayer may have some taxation issues in respect of a transaction which has been undertaken or proposed to be undertaken with a non-resident. Similarly, a nonresident may have some taxation issues in respect of transaction which has been undertaken or proposed to be undertaken by him in India. In order to get clarification on taxation of those transactions, a person can make an application to the Authority for Advance Rulings (‘AAR’). Provisions relating to advance ruling are provided in sections 245N to 245V. In this part, you can gain knowledge about various provisions relating to advance ruling.

Meaning of advance ruling:-

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Section 245N(a) gives the definition of ‘advance ruling’. As per section 245N(a) “Advance Ruling” means :

  • A determination by the AAR in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant.
  • A determination by the AAR 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.
  • A determination by the AAR in relation to the tax liability of a resident applicant, arising out of one or more transaction valuing Rs.100 crore or more [vide Notification No. 73/2014, dated 28-11-2014] in total which has been undertaken or is proposed to be undertaken by such applicant and such determination shall include the determination of any question of law or of fact specified in the application.
  • A determination or decision by the AAR in respect of an issue relating to computation of total income which is pending before any income-tax authority or the Appellate Tribunal. It 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.
  • A determination or decision by the AAR\ whether an arrangement, which is proposed to be undertaken by any person being a resident or a non-resident, is an impermissible avoidance arrangement as referred to in Chapter X-A. [Chapter XA contains provisions relating to General Anti-Avoidance Rule (GAAR)].

Meaning of Applicant:-

The application for advance ruling can be made by an applicant as defined in section 245N(b). As per section 245N an ‘applicant’ would mean the following:

  • A non-resident who has undertaken or proposes to undertake a transaction in India.
  • A resident who has undertaken or proposes to undertake a transaction with a nonresident.
  • A resident who has undertaken or propose to undertake one or more transactions of value of Rs.100 crore or more in total[vide Notification No. 73, dated 28-11-  2014]
  • A resident falling within notified class or category of persons (presently includes public sector companies).
  • Any person (resident or non-resident) making an application for determining whether an arrangement, is an impermissible avoidance agreement as referred to in Chapter X-A (applicable from 1-4-2015).

In Union Budget 2017, the Government had decided to merge the Authority for Advance Ruling (AAR)1 for income-tax, central excise, custom duty and service tax. Hence, the meaning of ‘applicant’ is expanded with effect from 1/4/2017 to include-

  • An applicant as defined in section 28E(c) of the Customs Act, 1962;
  • An applicant as defined in section 23A(c)of the Central Excise Act, 1944;
  • An applicant as defined in section 96A(b) of the Finance Act, 1994

(1) Authority shall cease to act as an Authority for Advance Rulings for the purposes of Chapter V of the Customs Act, 1962 on and from the date of appointment of the Customs Authority for Advance Rulings under section 28EA of the Customs Act, 1962.

Applicant vis-a-vis the application:-

Nature of applicant Nature of application
A non-resident applicant A determination by the AAR in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant. Such determination shall include the determination of any question of law or of fact specified in the application.
A resident applicant who has undertaken a transaction with non-resident or proposes to undertake a transaction with non-resident. A determination by the AAR 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. Such determination shall include the determination of any question of law or of fact specified in the application.
A resident who has undertaken or propose to undertake one or more transactions of value of Rs.100 crore or more in total; or A determination by the AAR in relation to the tax liability of a resident applicant arising out of such transactions and such determination shall include the determination of any question of law or of fact specified in the application.
A resident falling within notified class or category of persons (i.e., a public sector company). 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.
Any person (resident or non-resident) making an application for determination of whether an arrangement is an impermissible avoidance agreement as referred to in Chapter X-A. (applicable
from 1-4-2015)
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 impermissible avoidance arrangement as referred to in Chapter X-A. (applicable from. 1-4-2015)

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