Advance Rulings

Question
The Authority for Advance Rulings has the powers of compelling the

production of books of account – Examine the correctness or otherwise of

this statement.

Answer
The statement is correct.

Under section 245U, the Authority for Advance Rulings shall have all the

powers vested in the Civil Court under the Code of Civil Procedure, 1908 as

are referred to in section 131.

Accordingly, the Authority for Advance Rulings shall have the same powers

as are vested in a court under the Code of Civil Procedure, 1908, when trying

a suit in respect of the following matters, namely –

1) discovery and inspection;

2) enforcing the attendance of any person, including any officer of a

banking company and examining him on oath;

3) compelling the production of books of account and other documents;

and

4) issuing commissions.

Therefore, the Authority for Advance Ruling has the powers of compelling the

production of books of account.

Question
The term 'Advance Ruling' includes within its scope, a determination by the

Authority for Advance Rulings only in relation to a transaction undertaken by

a non-resident applicant.
Examine the correctness of this statement, with reference to the provisions

of the Income-tax Act 1961.

Answer
The statement is not correct.

The term ‘Advance Ruling’ has been defined in section 245N(a) to mean: -

a) a determination by the Authority in relation to a transaction which has

been undertaken or is proposed to be undertaken by a non-resident

applicant; or

b) 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

c) a determination by the Authority in relation to the tax liability of a

resident applicant, arising out of a transaction which has been

undertaken or is proposed to be undertaken by such applicant, and

such determination shall include the determination of any question of

law or of fact specified in the application.

A resident 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 would be an applicant for

this purpose.

d) a determination or decision by the Authority in respect of an issue

relating to computation of total income which is pending before any

income-tax authority or the Appellate Tribunal and such

determination or decision shall include the determination or decision

on any question of law or of fact relating to such computation of total

income specified in the application

 e) a determination or decision by the Authority 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.

Question
An Irish company, Phi plc., entered into a contract with an Indian company,

Beta Ltd., for provision of technical know-how and made an application to

the Authority for Advance Rulings for advance ruling on the rate of

withholding tax on receipts from Beta Ltd.

Beta Ltd. had also made an application to the Assessing Officer for

determination of the rate at which tax is deductible on the said payment to

Phi plc.

The Authority for Advance Rulings rejected the application of Phi plc. on the

ground that the question raised in the application is already pending before

an income tax authority. Is the rejection of the application of Phi plc. justified

in law?

Answer
This issue came up before the AAR in, Nuclear Power Corporation of India

Ltd. In Re, [2012], wherein it was held that an advance ruling is not only

applicant specific but is also transaction specific.

The advance ruling is on a transaction entered into or undertaken by the

applicant. That is why section 245S specifies that a ruling is binding on the

applicant, the transaction and the PCIT or CIT and those subordinate to him,

and not only on the applicant.

What is barred by the first proviso to section 245R(2) of the Act in the context

of clause (i) thereof is the allowing of an application under section 245R(2) of

the Act where “the question raised in the application is already pending

before any Income-tax authority, or Appellate Tribunal or any court”.

The significance of the dropping of the words, “in the applicant’s case” with

effect from June 1, 2000, cannot be wholly ignored.

On the basis of this view expressed by the AAR in the above case, explaining

the impact of the dropping of the words “in the applicant’s case” with effect

from 1.6.2000, a view can be taken that the AAR can reject the application

made by Phi plc. before the AAR on the ground that similar issue is pending

before the Assessing Officer in respect of the same transaction i.e., provision

of technical know to Beta Ltd.

PREPARED BY: CA RAM PATIL