V Sai Aditya
The Indian Judiciary System dates back to the 18th century and there have been cases long pending of the past 10 – 15 years which are yet to be settled. In the midst of all this, if an assessee’s file is trapped between the webs of such system it may land up like the fate of the earlier cases. Further, the judiciary system is the result of the transactions and events that have already happened and is like an aftermath. If an assessee, who has no idea about the taxability of the transaction, is about to enter into or wishes to obtain clarity on its taxability to avoid future long driven litigation, wants to do so, it might not be possible. Therefore, the scheme of Advance Ruling was introduced by the Finance Act, 1993 in Chapter XIX-B of the Income-tax Act, 1961 (“Act”), which came into force with effect from June1st, 1993. The Authority isan independent adjudicatory body which has been entrusted with the power of giving advance rulings. Accordingly, a high level body headed by a retired Supreme Court Judge has been set-up.
The Authority shall consist of a Chairman and such number of Vice Chairmen, Revenue Ministers and Law Members as the Central Government may by notification, appoint. The qualifications and other conditions for the members are mentioned in section 245-O of the Act.
The main purpose of the Authority is to provide Advance Ruling to an applicant. Advance Ruling can be sought only for:
Under section 245N, advance ruling can be sought by the following applicants:
APPLICATION TO AAR:
Therefore, the doors of the Authority are open to all. Further, the application can be made on a question of law or on a question of fact.
Upon making an application, the Authority determines the tax liability arising out of a transaction mentioned above.
The application is to be made in quadruplicate and filed with the Authority along with the prescribed fee. An option has been provided to the applicants to withdraw the application within 30 days from the date of the application.
Upon receipt of the application, the Authority has the power to wither allow or reject the application. However, certain applications cannot be accepted by the Authority which have been listed in section 245R of the Act.
The Authority shall not allow the application where the question raised in the application:
An opportunity of being heard has to be granted to the applicant before rejecting the application.
The time limit within which the Authority is to pronounce the judgement is six months from the receipt of the application.
Some of the issues on which applications are files and rulings are frequently sought from the Authority are:
The Authority, to a large extent helps the applicants foresee their income tax liability and the total outflow in terms of tax. This in turn, helps in reducing the litigations in the country. It is pertinent to note that the ruling passed by the Authority is binding on the applicant in respect of the transaction for which the ruling is sought. In case, in the forthcoming years, there is a change in facts, the same ruling will not apply and the applicant cannot take shelter under that. The Ruling is also binding on the Commissioner of Income Tax, and the Income tax authorities subordinate to him, in respect of the applicant who had sought it and the transaction in relation to which it had been sought.
The rulings passed by the Authority can also be termed as void in certain cases which have been mentioned in section 245T of the Act.