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 1-6-1993. 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 ...view middle of the document...
The Authority for Advance Rulings ( AAR ) pronounces rulings on the applications of the non-resident/residents submitted in the prescribed form following prescribed procedure and such rulings are binding both on the applicant and the income-tax department. Thus, the applicant can avoid expensive and time consuming litigation on any question of law or fact which might arise from normal income-tax assessment proceedings. AAR (Procedure) Rules, 1996 provide detailed procedure for obtaining advance rulings.
COMPOSITION OF THE AUTHORITY
The Authority for Advance Rulings consists of a Chairman, who is a retired Judge of the Supreme Court and two members of the rank of Additional Secretary to the Government of India, one each from the Indian Revenue Service and the Indian Legal Service.
WHO CAN SEEK ADVANCE RULING
Any non-resident person whether individual, company, firm, association of persons or other body corporate can make an application for seeking an advance ruling in regard to his/its tax liability. Similarly, certain category on residents can also seek advance rulings:
For determination, in relation to a transaction which has been undertaken or is proposed to be undertaken by a Non-resident applicant, on any question of law or fact specified in the application.
1. A resident who has undertaken or proposes to undertake a transaction with a non-resident may seek a ruling for determination on any question of law or fact in relation to such transaction involving the tax liability of the non-resident.
2. A resident falling within notified categories may seek 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 of any question of law or fact relating to such computation of total income.
SALIENT FEATURES OF ADVANCE RULINGS
a) The procedure of advance ruling is available only under the Income-tax Act, 1961.
b) The advance ruling is to be given on questions specified in relation to such a transaction by the applicant.
c) Questions on which ruling can be sought:—
i) Even though the word used in the definition is the word "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)
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 fact; therefore, mixed questions of law and fact can also be included in the application. The questions should be so drafted that each question is capable of a brief answer....