Advance Rulings – CA Final DT Question Bank is designed strictly as per the latest syllabus and exam pattern.
Advance Rulings – CA Final DT Question Bank
Mr. Balram is a non-resident. The appeal pertaining to the A.Y. 2020-21 is pending before the Income-tax Appellate Tribunal; the issue involved being computation of export profit and tax thereon. The same issue persists for the A.Y. 2021-22 as well. Mr. Balram’s brother Mr. Krishna has obtained an advance ruling from the Authority for Advance Ruling on an identical issue. Mr. Balram proposes to use the said ruling for his assessment pertaining to the A.Y. 2021-22. Can he do so? [CA Final May 2011] [3 Marks]
Section 245S provides that an advance ruling shall be binding only on the applicant who has sought it and only in respect of the transaction in relation to which it has been sought.
In view of the above provision the Advance Ruling obtained by Mr. Krishna cannot be applied by Mr. Balram in his case since it can be applied only to the applicant who sought it.
State the powers of the Authority for Advance Ruling under the Income-tax Act, 1961. [CA Final May 2012] [4 Marks]
As per Sec. 245U, the Authority of Advance Ruling’ will 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 of Advance Ruling 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:
- discovery and inspection;
- enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
- compelling the production of books of account and other documents; and
- issuing commissions.
The application once made for obtaining the advance ruling cannot be withdrawn. Examine the correctness or otherwise of the statement in the context of the Income-tax Act, 1961. [CA Final Nov. 2013] [3 Marks]
The statement is incorrect.
As per sec. 245Q(3), an applicant may withdraw an application within 30 days from the date of application.
What are the circumstances under which the advance ruling becomes void. [CA Final Nov. 2016] [2 Marks]
As per Sec. 245T, where the AAR finds on a representation made to it by Principal CIT or CIT or otherwise that an advance ruling has been obtained by the applicant by fraud or misrepresentation of facts; it may, by an order declare such advance ruling to be void ab initio.
Once such an order is passed, all the provisions of the Act shall apply to the applicant as if no advance ruling had been made.
ECO & CO. filed an application for advance ruling for A.Ys. 2013-14, 2014-15 and 2015-16 with the Authority for Advance Ruling (AAR). For the assessment year 2013-14, 2014-15 notices under section 143(2) were issued to the assessee and subsequently, before the date of filing application with AAR, notice under section 142(1) along with questionnaire was issued. For the assessment year 2015-16, notice u/s 143(2) was issued before the date of filing of application with the AAR and notice u/s 142( 1) along with questionnaire was served on the assessee after the date of filing of application with the AAR.
Can the AAR reject the application on the ground that proceedings are already pending? [CA Final May 2017] [4 Marks]
Issue involved: The issue under consideration in this case is whether the application for advance ruling can be rejected by AAR on the ground that proceedings are already pending before an income tax authority, where a notice u/s 143(2) in a pre-printed format has been served but questionnaire u/s 142(1) is served after making application to AAR.
Provisions Applicable: As per proviso to section 245R(2), the AAR shall not allow the application where the question raised is already pending before any income tax authority or appellate tribunal or court.
Analysis: The facts of this case are similar to the facts in the case of Hyosung Corporation v. AAR (2016) (Del) in which the High Court noted that mere issue of notice under section 143(2) in pre-printed format will not amount to ‘already pending’ proceedings for the purpose of applying proviso to section 245R(2). However, issue of notice under section 142(1), accompanied by a questionnaire, before filing of the application to AAR by the assessee would amount to proceedings being pending before an income tax authority.
Conclusion: Thus, applying the rationale of the above judgment the application for the assessment year 2015-16 cannot be rejected by the AAR since notice u/s 142(1) has been issued after the assessee filed application to AAR and hence the proceedings cannot be said to be pending before the income tax authority at the time of filing application.
However, for the assessment years 2013-14 and 2014-15, the rejection of the application by AAR is valid, since notice under section 142(1) along with detailed questionnaire was issued before the date of filing of application to AAR.
“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”. Discuss the correctness or otherwise of this statement, as per the income tax law? [CA Final May 2018 (New Syllabus)] [3 Marks]
Incorrect: The term ‘Advance Ruling’ includes within its scope, a determination by the Authority for Advance Rulings not only in respect of a transaction undertaken by a non-resident applicant but any question of law or fact in relation to all of the following:
- transaction undertaken or proposed to be undertaken by a non-resident applicant; or
- tax liability of a non-resident arising out of a transaction undertaken or proposed to be undertaken by a resident applicant with a non-resident; or
- tax liability of a resident applicant, arising out of a transaction under-taken or proposed to be undertaken by such applicant; or
- in case of notified residents being public sector companies, on issues relating to the computation of total income which is pending before any income-tax authority or the Appellate Tribunal; or
- in case of resident or non-resident, whether an arrangement which is proposed to be undertaken is an impermissible avoidance agreement as referred to in Chapter X-A or not.
Balmart Inc. of USA entered into the contract with three Indian startup companies operating in e-commerce segment, namely Flipkart Ltd., Mozon Ltd., and Run Run Ltd. for supplying know-how to develop an electronic retailer network.
Ballwin. Inc. made an application to the Authority for Advance Rulings (AAR) on the rate of withholding tax on receipts applicable to it Flipkart Ltd. also made an application to the Assessing Officer for determination of the rate at which tax is deductible on the payments made to the said non-resident company. The Authority for Advance Rulings (AAR) rejected the application of Balmart Inc. on the ground that the question raised in the application is already pending before an Income-tax authority.
Examine whether the rejection of application by the AAR is justified in law. [CA Final May 2019 (New Syllabus), May 2015] [4 Marks]
The first proviso to section 245R(2) provides that the Authority shall not allow the application where the question raised in the application is already pending before any income-tax authority or Appellate Tribunal or any court.
In the above case, no. application had been filed by the applicant (foreign company) Balmart Inc. before any income-tax authority, Appellate Tribunal or court, raising the question raised in the application filed with AAR. However, one of the Indian companies Flipkart Ltd. had raised the question before the A.O. to safeguard its own interest as k had a statutory duty to deduct the proper amount of tax from payments made to the foreign company.
The application was therefore not on behalf of the foreign company or for the benefit of foreign company. Although the question raised pertains to one of the payments made or to be made to the non-resident applicant, it was not one pending determination before any income-tax authority in the applicant’s case.
AAR in case of Ericsson Telephone Corporation India AB v. CIT (1997) has held that the application filed by the Indian company before the A.O. cannot be treated to have been filed by the non-resident.
Hence, the rejection of the application of Balmart Inc. by the AAR on the ground that the question raised in the application is already pending before an income-tax authority is not justified.
Briefly explain the binding nature and applicability on various persons of advance ruling under the Income Tax Act, 1961. Can an application made for obtaining “Advance Ruling” be withdrawn. [CA Final Nov 2019 (Old Syllabus)] [6 Marks]
As per section 245S, an Advance Ruling shall be binding only on the following:
(a) the applicant who sought it;
(b) in respect of the transaction in relation to which it has been sought; and
(c) on the Principal CIT or CIT and other income tax authorities subordinate to him, in respect of the applicant and the said transaction.
However, such advance ruling shall not be binding as stated above if there is a change in law or facts on the basis of which the advance ruling has been pronounced.
Further section 245N(b) defines the meaning of “Applicant” and Advanced Ruling might be apply on all applicant.
“Applicant” means any of the following persons, who make an application u/s 245Q:
- a non-resident, in relation to transaction undertaken or proposed to be undertaken by him; or
- a resident seeking advance ruling in relation to the tax liability of a non-resident arising out of transaction undertaken or proposed to be undertaken by him with the non-resident; or
- notified category of residents in relation to sub-clause (iia) in 245N(a) above.
The C. G. has notified a resident who has undertaken or proposes to undertake one or more transactions valuing ₹ 100 crore or more in total to be an applicant for this clause, in relation to his tax liability arising out of such transactions.
- notified category of residents in relation to sub-clause (iii) in 245N(a) above (Public sector companies have been notified); or
- a resident or a non-resident, referred to in sub-clause (iv) in 245N(a) above.
As per Section 245Q(3) an applicant may withdraw the application for Advanced Ruling within 30 days of application.