Authority for Advance Rulings - The Chamber of Tax Consultants

Transcription

Authority for Advance Rulings - The Chamber of Tax Consultants
_Authority for Advance Rulings – Concept & Scope of Advance Rulings under Direct Taxes _
Paras S. Savla, Advocate and CA. Dharan V. Gandhi
Authority for Advance Rulings
– Concept & Scope of Advance Rulings under Direct Taxes
Disputes between the Income-tax Department
and the taxpayers is a never ending
phenomenon. Three ways could be perceived to
resolve such disputes. Firstly, there could be a
consensus between the parties; secondly, there
could be an adjudication, which is presently
the recognised process. Thirdly, there could be
an advance ruling on the question involving
substantive issues.
Advance Rulings so that they are not saddled
with problems of uncertainty with regard to the
taxability of income arising out of the activities
or transactions undertaken or proposed to be
undertaken in India. This scheme sought to
expedite the resolution of disputes between the
Incomes-tax authorities and the taxpayers to
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scheme are:
The first one namely, consensus, is the most
unlikely solution because the tax department and
the taxpayers are not likely to have consensus
in most cases. Though, lately, some steps
are being taken by the Government to bring
about consensus between the two parties by
way of Advance Pricing Agreement. Second
solution viz., adjudication is a long drawn
process until certainty is achieved. In 1991,
when the doors of Indian economy were opened
by the then Finance Minister to take India
out of the economic turbulence and when the
investors abroad were welcomed with red
carpets, investors were wary about the uncertain
tax atmosphere, including the time consuming
litigation process, subsisting in India.
a.
The non-resident investor can be sure of
its liability towards income-tax even before
the start of investment in India. Hence, it
can plan its investment accordingly and
it would be able to avoid long-drawn
litigation.
b.
The AAR is best suited to sort out
complex issues of taxation including
those concerning interpretation of Double
Taxation Avoidance Agreements (DTAA)
which arise consequent to difference of
opinion between the tax collectors and the
taxpayers.
c.
The rulings of the AAR are binding on
the applicant as well as the Commissioner
of Income-tax and authorities below
him, not only for one year but for all the
years unless the facts or the law change;
therefore, having obtained the ruling on a
given set of facts the taxpayer may be sure
about his tax liability in future.
The scheme of advance rulings (Chapter XIX-B)
was, introduced from 1st June, 1993 in the
Income-tax Act, 1961 (‘Act’) for the benefit of
non-residents so as to enable them to obtain
a ruling in advance from the Authority for
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d.
The AAR is to pronounce its ruling
within six months of the receipt of the
application. This enables the investor to
obtain the ruling without undue delay
and with certainty regarding its tax
implications.
e.
The statute does not preclude the AAR,
if the circumstances so warrant, from
allowing the applicant to modify or
reframe the questions, agreements or
projects till the time of hearing. Such a
facility is generally not available before
other courts or tribunals.
f.
Under the rules, the proceedings before
the AAR are not open to the general
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is maintained by the AAR as contents
of the application are not revealed to
any unauthorised person. Thus, there is
no danger of the business secrets of the
applicant being leaked out to its rivals or
others.
g.
Protracted hearing of the application is
avoided. If a complicated issue of law or
fact is not involved and the point of view
put forward by the applicant is acceptable,
a ruling will be pronounced by the AAR
without personal hearing. In other cases,
the applicant, if he so desires and, if
considered necessary, a representative
of the Department will be heard and a
reasoned ruling will be given by the AAR
in writing.
With the above background, let us have a look at
the framework of Authority for Advance Rulings
[AAR] – Section 245-O
The AAR is located at New Delhi. Recently,
vide Finance Act (No. 2) of 2014, the Central
Government also enacted provision for having
more than one bench of AAR at such places as
the Central Government may by notification
specify.
SS-VII-9
The AAR consist of (a) one Chairman, who
is a retired judge of the Supreme Court; (b)
such number of vice-chairmen, who are retired
judges of the High Court; (c) Revenue members
from Indian Revenue Service who are either
a Principal Chief Commissioner or Principal
Director General or Chief Commissioner or
Director General and (d) Law Members from
Indian Legal Service, who are Additional
Secretary to the Government of India. The
Benches of AAR shall be presided over by either
the Chairman or the Vice Chairman and shall
consist of one Revenue Member and one Law
Member.
By virtue of the provisions of section 24SU(1),
the Authority has been provided with all the
powers of a Civil Court under the Code of Civil
Procedure, 1908 as are referred to in section
131 of the Income-tax Act when trying a suit.
Further, under section 245U(2), the Authority is
deemed to be a Civil Court for the purposes of
section 195 of the Code of Criminal Procedure
and every proceeding before the Authority is
deemed to be a judicial proceeding within the
meaning of sections 193 and 228, and for the
purpose of section 196 of the Indian Penal Code.
One of the objectives of the AAR scheme was
to bring a certainty about the tax implications
of the transactions undertaken or proposed to
be undertaken by a non-resident investor. To
achieve the same, section 245S provides for
the binding force of the ruling. Section 245S
(1) specifies that the ruling would be binding
on the applicant who had sought it. Further,
the Ruling would be binding only in respect of
the transaction in relation to which the ruling
had been sought. The ruling would also be
binding on the Commissioner and the Incometax authorities subordinate to them, in respect of
the applicant and the said transaction. Therefore,
Rulings pronounced by the Authority would
not be binding in case of any other assessee
or the departmental authorities. However,
such rulings would have persuasive value and
may be relied upon by the AAR itself or by
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_Authority for Advance Rulings – Concept & Scope of Advance Rulings under Direct Taxes _
the Applicant/department in their cases. Subsection (2) of section 245S provides that the
ruling shall be binding unless there is a change
of law or facts on the basis of which the ruling
was pronounced. Accordingly, if there was an
amendment to the law, the ruling would not be
binding. Similarly, if there is a change in facts –
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be applicable.
Section 245T enables the authority to declare a
ruling pronounced by it as void ab initio if such
ruling is obtained by the Applicant by fraud or
misrepresentation of facts. As a consequence, all
the provisions of the Income-tax Act shall apply
to the applicant as if such ruling had never been
made
Advance Rulings system in other
countries
The Advance Rulings system is in vogue in
many countries, albeit with substantial
variations. Advance Rulings is internationally
recognised as "A more or less binding statement
from the revenue authorities upon the voluntary
request of a private person, concerning the
treatment and consequences of one or a series
of contemplated future actions or transactions”.
Despite the fact that Advance Rulings facility
serves similar purposes in all countries, there are
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in the various countries. In most countries,
tax authorities are generally willing to answer
inquiries made by taxpayers even without a
formalised ruling procedure whereas in some
countries there is a statutory back up procedure
for pronouncing such rulings on questions of
fact or law emanating from the queries of the
taxpayers.
Rulings in certain countries like USA, Sweden
can be obtained only if the question is a question
of law, whereas in countries like Germany and
India, advance rulings can be obtained on factual
as well as legal questions.
In most countries, taxpayer or the representative
of the taxpayer are entitled to apply for a ruling.
Some countries allow only the residents to apply
for advance rulings. India, by contrast, has
formal ruling procedure applying specifically
to non-residents. In Sweden, the tax authorities
may also apply for an advance ruling.
In many countries, the advance rulings are
issued by the Revenue Department as an
administrative measure; the three exceptions are
Sweden, Denmark and India. In India, unlike
most other countries, advance rulings are given
as a quasi-judicial pronouncement by a high
level statutory and independent authority.
In so far as the binding effect of the rulings are
concerned, in some countries the ruling does
not have a binding effect like in Austria and
Canada. Further, the countries like USA, France,
Netherlands, Germany, Sweden, the taxpayer
has the right to renounce the ruling as against
India where the ruling is binding both on the
taxpayer and the department.
Certainly, the concept of AAR is a win–
win situation for the taxpayer as well as the
department, and consequently to the economy
as a whole. AAR has been able to achieve
most of its objectives. However, one believes
that there are many areas for improvement.
The major area of concern is the increasing
pendency of applications before the AAR and
as a result of which, time limit for disposal of
matters provided in the statute is not adhered to.
Unless this is assured, the entire intention of the
framework of the AAR fails. The recent vacancy
in the appointment of chairman of the AAR has
led to delays in the disposal of the applications.
Further, it was only vide Finance Act (No. 2) of
2014 that provision for increasing the number of
benches have been inserted in the statute book.
However, no such benches have been notified
yet. Government should immediately act upon
this and in order to make the AAR function to
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and constitute more benches.
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