ADVANCE RULING UNDER INCOME TAX ACT, 2025

History

In his Budget Speech of 1992-93, the then Finance Minister had assured that, in the interest of avoiding needless litigation and promoting better taxpayers’ relation in a scheme for giving advance rulings in respect of transactions involving non-residents was being worked out. The concept of Advance Rulings was conceptualized in the Direct Taxes Enquiry Committee, 1971 headed by Justice K. N. Wanchoo.  

Advance rulings were conceived to furnish taxpayers with an avenue where interpretation of tax laws could be sought.

The Authority for Advance rulings was instituted as a mechanism to prevent litigation, plan tax liability, and to generally foster a business-friendly environment where taxpayers may approach Revenue Authorities for ascertaining the proper legal position.

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.

Advance Ruling means written opinion or authoritative decision by an Authority empowered to render it with regard to the tax consequences of a transaction or proposed transaction or an assessment in regard thereto. It has been defined in section 245N (a) of the Income-tax Act, 1961 as amended from time-to-time.

Advance Ruling

Section 380 (a) of the Act defines the expression ‘Advance Ruling’ as-

• a determination by the Board for Advance Rulings in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant; or
• a determination by the Board for Advance Rulings 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; or
• a determination by the Board for Advance Rulings 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; or
• a determination or decision by the Board for Advance Rulings 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 of fact relating to such computation of total income specified in the application; or
• a determination or decision by the Board for Advance Rulings 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 XI (General Avoidance Rule) or not.

Board for Advance Ruling

The give the advance ruling the Act is to establish a Board for Advance Ruling. The Central Government may constitute more than one board as to the requirements. In indirect taxation, there are Authorities for Advance Ruling. Each State has its own Authority for Advance Ruling. One State Officer and one Central Officer will be the technical members besides the judicial member.

This Board shall consist of two members, not below the rank of Chief Commissioner as appointed by the Board.

The Board for Advance Rulings shall have power to regulate its own procedure in all matters arising out of the exercise of its powers under this Act.

No proceeding before, or pronouncement of advance ruling by, the Board for Advance Rulings, shall be questioned or shall be invalid on the ground merely of the existence of any vacancy or defect in the constitution of the Board for Advance Rulings.

The Board for Advance Rulings shall, for the purpose of exercising its powers, have all the powers of a civil court under the Code of Civil Procedure, 1908 as are referred to in section 246 of this Act.

The Board for Advance Rulings shall be deemed to be a civil court for the purposes of section 215 but not for the purposes of Chapter XXVIII of the Bharatiya Nagarik Suraksha Sanhita, 2023 and every proceeding before the Board for Advance Rulings shall be deemed to be a judicial proceeding under sections 229 and 267 and for the purposes of section 233 of the Bharatiya Nyaya Sanhita, 2023.

Procedure

Section 383 of the Act provides that the application for getting advance ruling in the prescribed form (will be notified in the Rule) with the requisite fee. The question for which advance ruling is sought to be noted in the application.

No income-tax authority or the Appellate Tribunal shall proceed to decide any issue for which an application has been made by an applicant, being a resident.

The application for getting advance ruling may be withdrawn. On receipt of an application, the Board for Advance Rulings shall forward a copy thereof to the Principal Commissioner or Commissioner and, call upon him to furnish the relevant records, which shall be returned at the earliest opportunity.

The Board, after considering the application, may call for further documents from the applicant. The same shall be furnished by the applicant within the time stipulated in the notice meant for calling for records/information. On considering the same the Board may, either, allow the application or reject the application.

The application may be rejected on the following grounds-

• the question is already pending before any income-tax authority or Appellate Tribunal except in the case of a resident applicant falling under section 380(b)(iii) or any court;
• the question involves determination of fair market value of any property;
• the question relates to a transaction or issue which is designed prima facie for the avoidance of income-tax except in the case of a resident applicant falling in section 380(b)(iii) or in the case of an applicant falling under section 380(b)(iv).

The application for advance ruling is not rejected unless a reasonable opportunity is given to the applicant. The reasons for such rejection are to be recorded in such order.

The Authority for Advance Ruling considers the submissions of the applicant and also the documents relied on by the applicant on record and render ruling on the question put forth by the applicant for which he sought advance ruling. A reasonable opportunity is also to be given to the applicant.

A copy of every order shall be sent to the applicant and to the Principal Commissioner or Commissioner. A copy of the advance ruling pronounced by the Board for Advance Rulings, duly signed by the Members and certified in such manner, as may be prescribed shall be sent to the applicant and to the Principal Commissioner or Commissioner, as soon as may be, after such pronouncement.

Advance ruling void – when?

Where on a representation made by the Principal Commissioner or Commissioner or otherwise, the Board for Advance Rulings finds, that an advance ruling pronounced has been obtained by the applicant by fraud or misrepresentation, then it may by order, declare such ruling to be void ab initio and thereupon, all the provisions of this Act shall apply (after excluding the period beginning with the date of such advance ruling and ending with the date of order under this sub-section) to the applicant as if such advance ruling had never been made. A copy of the said order shall be sent to the applicant and the Principal Commissioner or Commissioner.

Appeal

The applicant, if aggrieved by any ruling pronounced or order passed by the Board for Advance Rulings or the Assessing Officer, on the directions of the Principal Commissioner or Commissioner, may appeal to the High Court against such ruling or order of the Board for Advance Rulings within 60 days from the date of the communication of that ruling or order, in such form and manner, as may be prescribed.  If the High Court is satisfied, on an application made by the appellant in this behalf, that the appellant was prevented by sufficient cause from presenting the appeal within the limitation period, it may grant further period of 30 days for filing such appeal.

Before parting

The prescribed form for advance ruling, the fee payable, the procedure etc. will be made known when the rule for Income tax Act is framed. It is expected that the rule will be made available in the coming December