ADVANCE RULING UNDER INCOME-TAX ACT 1961

General Understanding on Advance Ruling under the Income-tax Act 1961

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 1st June 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 and as amended from time-to-time.

Applicant — Under section 245N an advance ruling can be obtained by the following persons -

a. a non-resident;

b. a resident-undertaking proposing to undertake a transaction with a non-resident can obtain an advance ruling in respect of any question of law or fact in relation to the tax liability of the non-resident arising out of such transaction;

c. a resident who has undertaken or propose to undertake one or more transactions of the value of Rs.100 crore or more in total [vide Notification No. 73, dated 28-11-2014];

d. a notified public sector company;

e. any person, being a resident or non-resident, can obtain an advance ruling to decide whether an arrangement proposed to be undertaken by him is an impermissible avoidance arrangements and may be subjected to General Anti Avoidance Rules or not;

f. an applicant as defined in section 28E(c) of the Customs Act, 1962;

g. an applicant as defined in section 23A(c) of the Central Excise Act, 1944;

h. an applicant as defined in section 96A(b) of the Finance Act, 1994

Salient features —

a. relates to a transaction entered into or proposed to be entered into by the applicant - The advance ruling is to be given on questions specified in relation to such a transaction by the applicant.

b. Questions on which ruling can be sought — 

(i) Even though the word used in the definition is "question", it is clear that the non-resident can raise more than one question in one application. 

(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 facts; therefore, mixed questions of law and fact can also be included in the application. The questions should be so drafted that each question can be replied in a brief answer. This may need breaking-up of complex questiona 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. A question not specified in the application cannot be urged. Normally a question is not allowed to be amended but in deserving cases, the Authority may allow amendment to one or more questions. 

(v) Subject to the limitations, 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.

(vi) Advance Rulings can be obtained to determine 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 or not (General Anti Avoidance Rules).

c. Time-limit for advance ruling - The Authority shall pronounce it advance ruling within 6 months of receipt of the application.

d. Binding nature of advance ruling - The effect of the ruling is stated to be limited to the parties appearing before the authority and the transaction in relation to which the ruling is given. This is because the ruling is rendered on a set of facts before the Authority and cannot be for general application.