Procedure on receipt of application by the AAR

In the last two articles, we have discussed the 'Concept of Advance Ruling under Income Tax Act' 1961' and 'Application for seeking Advance Ruling under Income Tax Act' 1961.'

In this article, we will discuss the procedure on receipt of the application by the AAR. Section 245R prescribes procedure on receipt of the application by AAR.

The authority on receipt of application will forward the application to the concerned commissioner and if required, call upon him to furnish the relevant records.

The Authority may, after examining the application and the records called for, by order, either allow or reject the application i.e. after examining the records, the authority may either admit or reject the application.

Rejection of Application:

In the following cases, the authority shall not allow the application:

1. The question raised in the application is already pending before any income-tax authority or Appellate Tribunal or any court. However, in case of notified residents, this bar is only when the issue is pending in a court.

The Honorable Supreme Court in the case of CIT v/s Hyosung Corporation [2017] held that:

'No bar in filing application before AAR just because sec. 143(2) notice was already issued: SLP dismissed.”

SLP dismissed against High Court's ruling that a notice under section 143(2) merely asking for certain information from assessee though issued prior to filing of application before AAR will not constitute bar in terms of clause (i) to proviso to section 245R(2), on AAR entertaining and allowing application

2.The question raised in the application involves determination of fair market value of any property.

3. The question raised in the application relates to issue which is designed prima facie for the avoidance of income-tax. However, this clause is not applicable to notified residents or in the case of resident or non-resident for determination of arrangement proposed to be undertaken by him is an impermissible avoidance arrangement.

No application shall be rejected unless an opportunity has been given to the applicant of being heard. Also, where the application is rejected, reasons for such rejection shall be given in the order.

On a request received from the applicant, The Authority shall, before pronouncing its advance ruling, provide an opportunity to the applicant of being heard, either in person or through a duly authorized representative.

Time limit for Passing Order by AAR:

The Authority shall pronounce its advance ruling in writing within six months of the receipt of application.

Copy of Order:

The copy of Order shall be sent to the applicant and to the concerned commissioner.

The income tax authority or the Appellate Tribunal shall not proceed in case of the resident applicant to decide any issue raised in respect of which the application is made before AAR.

Applicability of Advance Ruling:

The advance ruling is binding on:

1. on the applicant who had sought it.
2. on the Principal Commissioner or Commissioner, and the income-tax authorities subordinate to him, in respect of the applicant and the said transaction.

However, it is binding in respect of the transaction in relation to which the ruling had been sought. Also, it is important to note that, the advance ruling will continue to remain in force unless there is a change in law or facts on the basis of which the advance ruling has been pronounced.

Thus, the applicant cannot challenge the advance ruling pronounced by the authority. However, the applicant can invoke, in appropriate cases, the writ Jurisdiction of the High Courts in terms of Article 226 and 227 of the constitution. Similarly, extraordinary jurisdiction as conferred upon the Supreme Court of India under Article 136 of the Constitution of India can also be invoked in appropriate cases.

Advance ruling to be void in certain circumstances:

Where the ruling has been obtained by the applicant by fraud or misrepresentation of facts, the AAR may, by order, declare such ruling to be void ab initio.

Once the ruling is declared void, the provisions of Income Tax 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.

Powers of the Authority:

1. The authority shall have all the powers of a Civil Court under the Code of Civil Procedure, 1908 (5 of 1908) as are referred to in section 131 of the Income Tax Act.

2. The Authority shall be deemed to be a Civil Court for the purposes of section 195, but not for the purposes of Chapter XXVI, of the Code of Criminal Procedure, 1973 (2 of 1974) and every proceeding before the Authority shall be 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 (45 of 1860).

The honorable Supreme Court of India in the case of Columbia Sportswear Company v/s Director of I.T Bangalore on 30 July, 2012 held that:

"When an advance ruling of the Authority is challenged before the High Court under Articles 226 and/or 227 of the Constitution, the same should be heard directly by a Division Bench of the High Court and decided as expeditiously as possible."