Advance ruling on pending issues

EXIM MATTERS

The Income -tax law in India is complicated like in most other countries. This creates more practical difficulties to foreign enterprises doing business in India.

Therefore, with a view to minimising uncertainty in taxation of income, the government has introduced a system of "advance ruling" to enable any non-resident to obtain binding rulings on its income-tax liability even before the income is earned.

The system of advance rulings is primarily meant for non-residents so that the complexity of the Indian tax legislation or the delay and cost of litigation in tax matters may not act as a disincentive for their investment proposals in India.

Advance rulings in India are rendered by an authority constituted under the Income Tax Act, which is known as the Authority for Advance Rulings.

Advance rulings can be sought by a non-resident as well as by a resident. But a resident can apply for the ruling 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 the resident applicant with such non-resident.

It is to be noted that the advance ruling has to relate to the tax liability of the non-resident only (See 267 ITR 685).

A non-resident can also directly seek advance ruling not only in respect of transactions, which have already been undertaken, but also in respect of transactions, which are proposed to be under taken.

But no advance ruling can be sought where the question raised is already pending in the applicant's case before any income-tax authority, the income-tax appellate tribunal or any court.

The issues which are pending before the tax authorities cannot be taken up for Advance Ruling. The words "pending" should be interpreted to mean as pending on the date of the application.

Thus, after making an application to the authority, the applicant may also file its return of income and agitate the same issue in the return of income, which was earlier raised by him before the authority.

The term "pending" has not been defined in the Act. The authority has, however, dealt with this problem in several cases, which are discussed below:-

Pendency of the case should be in the applicant's own case only (236 ITR 640 (AAR))

Pendency of the case should be on the date of application (218ITR 413 (AAR))

No legal bar in putting up the claim before the income-tax authorities by filing return of income or otherwise after applying to the Authority for Advance Ruling (213 ITR 512 (AAR)).

In the above context, a recent case of Rotem Company (2005), 145 Taxman 488, also needs to be mentioned. In the said case, the non-resident assessee applied for a ruling from the authority after filing its return of income.

The department raised objections on the maintainability of the application on the ground that the question raised by the applicant was pending before the income tax authority and, therefore, could not be referred for the advance ruling.

The authority held that mere filing of return by the applicant can not de-bar reference to the authority.

Where, however, the income tax department issues a notice to the assessee under Section 143 (2), the situation may warrant an enquiry whether the question can be considered to be pending before tax authorities, but if an application is made for advance ruling before issuance of any notice under Section 143 (2), the issue can not be taken as "pending" before tax authorities.

agar@bol.net.in