Advance Ruling under Income Tax Act, 1961

The scheme of Advance Rulings was introduced in the Income Tax Act, 1961 by the Finance Act, 1993​. Chapter XIX-B of the Income-tax Act, which deals with advance rulings, came into force with effect from 01^st June 1993. Under this scheme, the power of giving advance rulings has been delegated to an independent adjudicatory body namely “Authority for Advance Ruling”. 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 under this scheme is simple, economical, expeditious, and authoritative.

In simple language, Advance Ruling means a 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.

Who can apply for the Advance Ruling:-

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

1. a non-resident

2. 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

3. a resident who has undertaken or propose to undertake one or more transactions value of Rs. 100 Crore or more in total, this was inserted by the Central Government vide Notification No. 73, dated 28-11-2014.

4. a notified public sector company

5. 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 arrangement and may be subjected to General Anti Avoidance Rules (GAAR Provisions) or not

6. an applicant as defined in section 28E(c) of the Customs Act, 1962 (Inserted by Finance Act, 2017)

7. an applicant as defined in section 23A(c) of the Central Excise Act, 1944 (Inserted by Finance Act, 2017)

8. an applicant as defined in section 96A(b) of the Finance Act, 1994 (Inserted by Finance Act, 2017)

Salient features of the Advance Ruling

1. Advance Ruling 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.

2. Questions on which ruling can be sought

a) 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. This has been made amply clear by Column No. 8 of the form of application for obtaining an advance ruling (Form No. 34C).

b) 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.

c) 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 to in a brief answer. This may need the breaking up of complex questions into two or more simple questions.

d) 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 the amendment to one or more questions.

e) 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.

f) 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).

3. Time limit for advance ruling:-

The Authority shall pronounce its advance ruling within 6 months of receipt of the application.

4. Binding nature of the 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.

Rejection of Advance Ruling Application: 

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 a 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:-

a) involves the determination of fair market value of any property; or

b) it relates to a transaction or issue which is designed, prima facie for the avoidance of income tax.

The procedure of application for advance ruling:

An applicant desirous of obtaining an advance ruling should apply to the Authority in the prescribed form stating the question on which the ruling is sought. The application has to be made in quadruplicate in Form Nos:

a) 34C– applicable to a non-resident applicant

b) 34D – applicable to a resident having transactions with a non-resident

c) 34DA – applicable to a resident seeking an advance ruling in relation to his tax liability arising out of one or more transactions valuing Rs.100 crore or more in total which has been undertaken or proposed to be undertaken by him

d) 34E – Applicable to Public Sector Company as notified by the Central Government via Notification No.11456, dated 3/8/2000

e) 34EA – for determining whether an arrangement is an impermissible avoidance arrangement as referred to in Chapter X-A or not

Fees for filing the application:-

The fees payable along with the application for advance ruling shall be in accordance with the following table:

Withdrawal of Application

An applicant may withdraw an application within 30 days from the date of the application.

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