Advance Ruling (C&Q)

8/7/2019 Advance Ruling (C&Q)

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PERSONAL COPY/ NOT FOR SALE OR CIRCULATION (Session 2010-11)

Naveen Mittal [email protected] Page 1 of 4

ADVANCE RULINGS

In order to avoid needless litigation and promote better relations with a non-resident, a

system of „advance rulings‟ has been incorporated under the Income Tax Law by the Finance

Act, 1993.

Meaning of advance ruling: Advance ruling means:

1. A determination, by the Authority in relation to a transaction which has been

undertaken or proposed to be undertaken by a non-resident applicant and such

determination shall include the determination of any question of law or of fact

specified in the application: 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 and such determination shall include

the determination of any question of law or of fact specified in the application: or

3. A determination or decision by the Authority in respect of an issue relating to

computation of total income which is pending before I.T. Authority or the Tribunaland 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.

Meaning of applicant: Applicant means any person, who:

1. is a non-resident mentioned in point (1); or

2. a resident mentioned in point (2); or

3. is a resident falling within any such class or category of persons as the Central

Government may, by notification, specify in this behalf;

4. makes an application under section 245Q.

It is to be noted that under clause (3) given under the heading of „applicant‟, the Central

Government has specified the following class of persons as applicant:

a. Public sector company; and

b. Person seeking advance ruling in relation to the tax liability of a non- resident arising

out of a transaction undertaken or proposed to be undertaken by him with a non-

resident.

Non-resident in which year:

While section 245N stipulates that a non-resident can make an application under chapterXIX-B, it does not say in specific terms that he should be a non-resident as on the date of the

application. In fact, residence or non-residence for the purposes of the Act has to be

determined with reference to a previous year (which is, generally, a financial year) and not

with reference to a particular date.

Authority for Advance Rulings [Sec. 245O]: The Central Government shall constitute an Authority for giving advance rulings. The

Authority shall consist of three members:

1. A chairman, who is retired judge of the Supreme Court;

2. An officer of the Indian Revenue Service who is qualified to be a member of the

Central Board of Direct Taxes;





3. An officer of the Indian Legal Service who is, or is qualified to be an Additional

Secretary to the Government of India.

The Office of the Authority shall be located in Delhi.

Further, no proceedings of the authority will be valid merely on the grounds of the existence

of any vacancy or defect in the constitution of the Authority.

Powers and Procedure of the Authority: The Authority will have all the powers of a civil court in respect of discovery and inspection,

enforcing the attendance of any person including any officer of a banking company and

examining him on oath, issuing commissions and compelling the production of books of

accounts and other records. It will also have the power to regulate its own procedure in all

matters arising out of exercise of its power under the Act. The Authority would be deemed to

be a civil court for the purposes of section 195 of the Code of Criminal Procedure, 1973 and

every proceeding before the Authority shall be deemed to be a judicial proceeding under

certain provisions of the Indian Penal Code.

Further it has been provided that no proceedings of the Authority will be invalid on the

grounds merely of the existence of any vacancy or defect in the constitution of the Authority.

Procedure for filling application for Advance Ruling [Sec. 245Q]: Any applicant desirous of obtaining an advance ruling may make an application in the

prescribed form stating the question on which the advance ruling is sought along with a

demand draft of ` 2,500. The application shall be made in quadruplicate (four copies). Such

an application may be withdrawn with 30 days from the date of application.

The prescribed forms are:

a. Form No. 34C in respect of a non-resident applicant;

b. Form No. 34D in respect of a resident applicant seeking advance ruling in relation to a

transaction undertaken or proposed to be undertaken by him with a non-resident; and

c. Form No. 34E in respect of a resident notified by the Central Government.

Procedure on Receipt of Application [Sec. 245R]: The Authority on receipt of an application will send a copy to the Commissioner concerned

and wherever considered necessary, also call upon the Commissioner to furnish such records.

Such records will be returned to the Commissioner as soon as possible. The Authority may

either allow or reject an application.

However, it cannot reject the application unless an opportunity is given to the applicant of

being heard. Further where an application is rejected, the reasons for such rejection shall be

given in the order. A copy of every order shall be sent to the applicant and to the

Commissioner.

The Authority shall not allow the application in the following cases, where the question

raised in the application:a. is already pending before any Income Tax Authority or the Appellate Tribunal [except

in the case of a resident applicant falling in point (3)] or any Court;

b. involves determination of fair market value of any property;

c. relates to a transaction or issue which is designed prima facie for the avoidance of

income tax [except in the case of a resident applicant falling in point 3].

“ Case already pending” means pending on the data of application. If the return is filed after

submission of application for advance ruling, it will be entertained.





Where an application is allowed, the Authority shall, after examining the material on record

and the material obtained by it, pronounce its advance ruling on the question specified in the

application. The applicant can, on request, appear either in person or can be represented

through a duly authorized representative. The Authority shall pronounce its advance ruling in

writing within 6 months of the receipt of the application and send a copy of its ruling to the

Commissioner and the applicant, as soon as may be, after such pronouncement.

No Income-tax authority or the Appellate Tribunal shall proceed to decide any issue in

respect of which an application has been made by a resident applicant for advance ruling.

Continuance of proceedings after the death, etc., of the applicant:

Where the applicant dies or is wound up or dissolved or disrupted or amalgamated or

succeeded by any other person or otherwise comes to an end, the application shall not abate

and may be permitted by the Authority (where it considers that the circumstances justify it) to

be continued by the executor, administrator or other legal representative of the applicant or

by the liquidator, receiver or assignee, as the case may be, on an application made in this

behalf.

Applicability of Advance Ruling [Sec. 245S]: The advance ruling shall be binding only on the applicant who has sought it and in respect of

the specific transaction in relation to which such advance ruling was sought. It will 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 ruling was pronounced.

Advance Ruling to be void in certain circumstances [Sec. 245T]:

Where an authority finds (on a representation made to it by the Commissioner or otherwise)

that an advance ruling pronounced by it 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 the Act shall apply (after excluding the period beginning with

the date of such advance ruling and ending with the date of order declaring such ruling as

void), to the applicant as if such advance ruling had never been made. However, on receipt of

such representation, a notice shall be issued to the applicant along with a copy of the

representation for rebuttal and reasonable opportunity shall be allowed to the applicant and

the Commissioner for being heard before passing order declaring the advance ruling to be

void.

Powers of Authority [Sec. 245U]:

The Authority will have all the powers of a Civil Court in respect of discovery and

inspection, enforcing the attendance of any person including any officer of a banking

company and examining him on oath, issuing commissions and compelling the production of

books of account and other records. It will also have the power to regulate its own procedure

in all matters arising out of the exercise of its powers under the Act. The Authority would be

deemed to be a Civil Court for the purposes of section 195 of the Code of Criminal

Procedure, 1973, and every proceeding before the Authority shall be deemed to be a judicial

proceeding under certain provisions of the Indian Penal Code.

QUESTIONSCase 1:





Discuss the scheme of advance ruling briefly. (Delhi 1998)

Case 2:Explain the meaning of “advance ruling” under the Income Tax Act in case of non -residents

and enumerate the persons and transactions bound by it. (Delhi 1999)

Case 3:

What is „Advance Ruling‟? When does a ruling become void? (Delhi 2000, 04, 08)

Case 4:

Give the circumstances under which application for advance ruling shall not be allowed by

the Authority for Advance Ruling. (Delhi 2001, 07)

Case 5:

When an advance ruling becomes void? Explain. (Delhi 2002)

Case 6:Mr. „A‟ is a non-resident. The appeal pertaining to the assessment year 2009-10 is pending

before the Appellate Tribunal, the issue involved being computation of income from house

property. The same issue persists for the assessment year 2010-11 also. A‟s friend has

obtained an advance ruling under chapter XIX B from the Authority for Advance Ruling on

an identical point. Mr. „A‟ proposes to use the said ruling for his assessment pertaining to the

assessment year 2010-11. Advise „A‟ suitably. (Delhi 2003)

Solution:

Keeping in view the provisions of section 245S, A cannot use the ruling obtained by his

friend for his assessment.

Case 7:

Discuss the procedure which is followed by Authority for Advance Ruling when an

application is filed before it? (Delhi 2005)

Case 8:

What is advance ruling? Discuss the procedure to be followed by the Authority for Advance

Ruling when an application is filed before it. (Delhi 2009)

Case 9:

Discuss briefly the scheme of Advance Ruling. (Delhi 2010; 7 marks)

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Advance Ruling (C&Q)