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Advance Rulings Under the Income Tax Act


Since its inception in the early 1990s, the Authority for Advance Rulings ('AAR') has been an effective tool to gain certainty on the taxation of a non-resident in India. The AAR is a quasi-judicial body and provides a forum for seeking conclusive rulings on taxation of a non-resident in respect of Indian tax implications for transactions entered into or proposed to be entered into by them.

The scheme of AAR and Dispute Resolutions under the DTC is not significantly different from the provisions of the Act. Taxand India discusses these changes in detail below.

Constitution of the AAR and introduction of multiple benches
It is proposed that a Vice-Chairperson, who has been a Judge of a High Court will be appointed on the bench of the AAR. It is also proposed the AAR is to have multiple benches with the principal bench located in Delhi.

New dispute resolution mechanism for PSCs
Under this new mechanism, the following would be entitled to make an application to the AAR for dispute resolution relating to computation of tax bases or any other issue:
(i) a PSC or a Commissioner of Income-Tax ('CIT'), aggrieved by an appellate, penalty or rectification order of CIT (Appeals); and
(ii) a PSC aggrieved by a revision, penalty or rectification order of the CIT or any order of an Assessing Officer passed in pursuance of the direction of the Dispute Resolution Panel.

Will residents be able to approach the AAR?
Under the DTC, 'notified' residents are proposed to be permitted to approach the AAR for an issue relating to computation of 'tax bases' which is pending before any income-tax authority or ITAT.

In the full article, Taxand India discusses the full scope of the proposals


Taxand's Take

While AAR has proved to be an attractive option for obtaining certainty on Indian tax implications on any transaction, the time taken to obtain a ruling often proves to be a stumbling block. The proposed introduction of multiple benches is a welcome change and could work towards disposal of cases by the AAR expeditiously.

The introduction of a separate dispute resolution mechanism for PSCs should also lead to an overall decrease in tax litigations for PSCs. Further, since PSCs will be permitted to directly approach the AAR against rulings of the DRP, PSCs should be able to achieve finality on pending matters in a timely manner as against the long wait associated with appeals filed with the ITAT. However, the trend of courts admitting SLPs against the AAR rulings is worrisome. If that continues, that may reduce the efficacy of this dispute resolution platform.

Your Taxand contacts for further queries are:
Mukesh Butani
T. +91 124 339 5010

Rajeev Dimri
T. +91 124 339 5050

Taxand's Take Author