Advance Ruling System in India: A Review

GLA University - B.Com | LLB | B.A.
GLA University | B.Com | LLB | B.A.

By Shatakshi Sharma, CNLU  Patna


In this era of Globalization, international boundaries are fast disappearing and distances between the various trade centers worldwide are rapidly shrinking. Gone are the days when the competition between sellers and buyers of commodities was confined to the domestic market; now we see that countries have become marketplaces and that there is competition among countries in the matter of attraction of more and more investments from the entrepreneurs of other countries.

This opening up of the boundaries and liberalization of laws has resulted in the emergence of a number of international tax problems such as application of Double Tax Avoidance Agreements (DTAAs), their use and inevitable misuse in tax planning, conflicts between DTAAs and domestic legislation, taxation of international partnerships, transfer of assets into and out of tax jurisdictions, taxation of international acquisitions, business combinations, mergers and demergers, taxation of services, pensions, royalties, technical fees and income from supply of labour, equipment; transfer pricing; thin capitalization etc.[1]

These areas require clarifications for the individuals and persons concerned so as to provide them with complete and correct information as to their status and liability under the Indian tax regime. For if India is to command its due in the global marketplace, it has to ensure that a facilitative institutionalized mechanism exists, whereby the interested foreign investor can be supplied with the requisite information.

In this regard, the certainty of the information so made available by the authorities cannot be overemphasized. For uncertainty in case of one’s transactions can have serious adverse consequences on a business enterprise.

India, after its independence in 1947, had opted for planned economic development. Initially, foreign goods, capital, services, and technology came to India in some areas only and then too under conditions of strict regulation. But thanks to the metamorphosis in world trading patterns, the rapid scientific and technological advancement of the developed nations and the emergence of competitive tendencies among the developing nations to attract foreign investments, India also chose to open up its doors to foreign investment in 1991 under the New Economic Program in almost all areas through liberalization of the governing rules and regulations.

With a view to ensuring the flow of foreign investments into India, the government has been initiating measures calculated to attract such capital and allay possible apprehensions of investors from abroad in venturing to invest in India.[2]

One of the demands made by the foreign investors was to allow for a system of advance rulings to enable them to gauge their liability under the Indian tax laws in connection with their proposed transactions. Such a system exists in several countries across the world[3] and was even advocated in India by the Wanchoo Committee way back in 1971, which recommended that a self-contained unit is created for processing requests for advance rulings.

In response to the increasing demands, a very significant measure, the first of its kind in South Asia, was announced by the then Finance Minister in his budget speech for the financial year 1992-93. Having regard to the complexities in tax laws, the Government should give advance rulings whenever a taxpayer has doubts about the tax liability in respect of his intended transactions. This practice prevails in a number of countries. There are certain practical difficulties in implementing such a suggestion.

However, in the interest of avoiding needless litigation and promoting better taxpayer relations, a scheme for giving advance rulings in respect of transactions involving non-residents is being worked out and will be put into operation soon.

PIMR Indore Admission

This was subsequently given effect by the introduction of a special facility for non-residents, Indians and foreigners alike, to obtain a ruling from an Authority for Advance Rulings (AAR) in respect of their transactions in India and know their precise liabilities in advance. This was achieved by the insertion of Chapter XIX B in the Income Tax Act, 1961 to be effective from June 1, 1993.[4]

The AAR was set up to provide guidance in the correct interpretation of the Indian tax laws which the non-residents may not otherwise be familiar with and helps them in making investment decisions under an environment of certainty thereby avoiding needless tensions and conflicts. Thus, the new system of advance rulings is in keeping with the canon of certainty and also, the canon of administrative convenience, albeit to a lesser extent.

The Concept of Advance Ruling

Disputes between the tax administration and the taxpayers are a perennial phenomenon. An advance ruling is one mechanism by which such disputes may be settled in advance so that the taxpayer knows of his tax liabilities in advance so as to enable him to assess the transaction he proposes to undertake. Thus, the Indian authorities decided to try out this new method by setting up an authority for providing advance rulings.[5]

An advance ruling may be strictly defined as an authoritative determination regarding the tax consequences of a proposed future transaction arrived at through an interpretation of the provisions of the tax laws and other laws relevant to such transaction. Such determinations are issued in many countries by their tax authorities in response to requests by taxpayers who wish to be certain of the tax consequences of a proposed transaction prior to entering into the transaction.

The Indian definition as provided for in the Income Tax Act in S. 245N(a) reads as follows:

“advance ruling” means the determination, by the Authority, ‘in relation to a transaction which has been undertaken, or is proposed to be undertaken, by the applicant a determination by the authority in relation to “the tax liability of a non-resident arising out of”[6] a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with “such”[7] non-resident.

The Indian definition is, however, wider in that it covers not only a proposed transaction but also includes in its ambit a transaction which has already been undertaken by the applicant. This safeguards the interests of the taxpayer in two ways:

After tentatively drawing up the broad outlines of a transaction which he proposes to enter into, an applicant may seek the ruling of the Authority before he actually goes through with the transaction, perhaps even modifying the transaction in light of the points raised at the hearing. Thus, if the ruling is in his favor, he can go ahead with the transaction; but if the ruling is adverse, he can reformulate his strategies and reframe his transaction thereby protecting himself against the adverse tax consequences of the transaction originally proposed.

Alternatively, if the applicant has already undertaken the transaction he can, instead of waiting to be assessed in the normal course, seek an authoritative decision from the Authority regarding his tax obligations once and for all thus avoiding costly and prolonged litigation by way of assessment, appeals and further proceedings that may go right up to the Supreme Court. Thus, an advance ruling by the AAR imparts an element of certainty in respect of the applicant’s tax obligations and saves avoidable delay and expense in their finalization. Advance rulings can be given only in relation to “transactions”.

The definition of this term has also been a bone of contention before the Authority. The AAR has strived to give a liberal interpretation to the term so as to facilitate the purpose for which it was set up. In Petition No. 2 of 1994, In Re[8], the question before the AAR was pertaining to interest under Sections 234B and C in respect of tax on capital gains on the sale of shares and whether the same could be considered to be a “transaction”. It was held by the Authority that there was a direct nexus between the transaction of the sale of shares and consequent charging of interest under the Act and therefore the application was admissible.

This liberal approach of the AAR can be further seen in the ruling given in Petition No. 9 of 1995, In Re[9], in which though the dispute related to the taxation of an investment in India by a foreign bank, the AAR went on to look into events not strictly a part of the transaction like the revision of the Indo-UK DTAA and formation of subsidiary companies by foreign investors. Though there has been criticism from some quarters for such an approach, the AAR’s construction is fully justified if one looks towards the specific mandate with which the Authority was created.

Constitution of the AAR

The AAR is headed by a former Judge of the Supreme Court, who is entitled to such allowances and other benefits as are admissible to a sitting judge of the Court. It also includes two more members, one from the Indian Revenue Service, who is qualified to be a member of the Central Board for Direct Taxes and another, an officer of the Indian Legal Service, who is of the rank of an Additional Secretary to the Government of India.[10]

The Authority thus constituted is not a part of the revenue administration but is an independent, quasi-judicial tribunal. Its constitution is specially structured to give it a high status to combine in itself judicial, revenue and legal expertise, to function in a manner totally independent of the tax administration[11] and thus to command the confidence of the taxpayers. The AAR at present has jurisdiction only in matters relating to income tax [12] and can be approached for ruling only by non-residents.

Restrictions on Jurisdiction

The facility for advance rulings from the AAR has only been granted to non-residents.[13] The expression “non-resident” means a person[14] who is not a resident as defined in S. 6 of the Income Tax Act. Under this section, an individual would be a resident in any financial year if he has been in India during that year for 182 days or more; or 60 days or more if he has also been in India for 365 days or more within the preceding four years.

If the individual is a citizen of India or a person of Indian origin who has come to visit India in that year or is an Indian citizen who has left India in that year for employment outside India or as a member of the crew of an Indian ship, the period of 60 days aforementioned would be increased to 182 days.

An Indian company is always resident in India but any other company is only treated as resident only if the control and management of its affairs are wholly situated in India. A firm, HUF, an association of persons and every other person will always be considered resident except where the management and control of its affairs during that year is situated wholly outside India.

It has also been clarified by the AAR that the residential status, for the purposes of deciding the admissibility of the application has to be determined with reference to the financial year immediately preceding the financial year in which the application is made.[15]

This sets at rest the vagueness left by the framing of the provisions of Chapter XIX B which could be read to mean that the applicant is non-resident at the time of making the application, or then at the time of hearing of the petition or at the time of the ruling by the Authority.

Recently, however, the Central Board for Direct Taxes has amended Rule 44E that provides as to who can make an application to the AAR.[16]

The modified position is that an application for an advance ruling under S. 245Q(1) can be made in the following instances:

1. by a non-resident applicant through Form 34C;

2. by Form 34D in respect of persons seeking an 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 a non-resident;

3. by Form 34E in respect of persons falling within any such category or class of persons as notified by the Central Government in the exercise of powers conferred by sub-clause (ii) of clause(b) of S. 245N.

The AAR’s sole function is to pronounce “advance rulings” which means “the determination of a question of law or fact, specified in the application made to it by a non-resident, in relation to a transaction which has been undertaken or is proposed to be undertaken by it.”[17]

It will be noticed that the statute does not place any limitations on the nature of questions that can be referred to the Authority for its determination.

But, having regard to its context, it can be taken that the questions posed should pertain to the income tax liability of the applicant qua a past or proposed transaction and should not be a bare question of statutory interpretation, unrelated to a past/proposed transaction. The questions posed should not relate to purely hypothetical or vaguely contemplated transactions or be in the nature of a prayer for an affirmation of self-evident propositions or be one that is of real interest to the third party and not the applicant. The questions so raised by the applicant before the AAR may be one of law or even of fact.

The number of questions raised may be one or many, depending on the nature of transactions proposed and the nature of doubts, ambiguities, and difficulties encountered in a proper appraisal of the tax obligations. The statute, however, excludes three types of questions from the purview of the AAR’s jurisdiction.[18] These are situations where :

The question is already pending in the applicant’s case before any income tax authority, the Appellate Tribunal or any court:

The question of when exactly the proceedings are “already pending” is ambiguous on a plain reading of the provision. The date on which the AAR admits the application, hears the same and the date on which it finally disposes of the application are all different dates.

It appears more practical to construe the restriction for only such cases where, while the issue is already pending before the income tax authorities or another competent body, the applicant also seeks recourse to the facility for an advance ruling under S. 245Q. The aim of the legislature has been that, after having already availed of the remedies available under the Act, an applicant should not be allowed to merely exacerbate the process by filing another application before the AAR.

Another condition with respect to this prohibition is that the pendency must be “in case of the applicant”. In Ericcson Telephone Corporation India v. CIT[19], the applicant had entered into agreements with Indian companies for the installation of a mobile telephone system.

It applied for an advance ruling on the rate for withholding tax for receipts from Indian companies while one of the Indian company’s affairs were being looked into by the Deputy Commissioner regarding the rate at which tax was deductible from payment to the applicant. The AAR negatived the income tax authorities’ contention that there were pending proceedings and held the application maintainable as there was no question pending in the applicant’s case.

On the point of whether the filing of a return by the applicant bars the AAR from accepting the application, the Authority has answered in the negative. While clearly holding that the act of filing a return does not render the application infructuous as this would be clearly against the legislative intent, the Authority went on to make a very important observation, ruling that the applicant by taking recourse to the provision for advance ruling is not immune from his responsibility of filing a return of income for if he fails to do so before the due date, he would be liable to face prosecution. [20]

The question involves the determination of the fair market value of the property; The question relates to a transaction that is designed prima facie for the avoidance of income tax. This expression has been interpreted by the AAR in two of its rulings, both of which are contradictory in nature. In Petition No. 9 of 1995, In Re[21], the Authority has taken the view that as the holding company in the UK made its investments via subsidiaries incorporated in Mauritius, investment in such manner was done with the purpose of avoidance of Income Tax.

On the other hand, in another ruling[22], the AAR has observed as follows:

“On account of restrictions under the Indian law, it may be considered more expedient to channelize all foreign investments into India through a single entity rather than various non-residents making investments individually. This was an important factor that would show that the transaction of investment in India through a company in Mauritius was not designed prima facie for the avoidance of Indian income tax.

The existence of concessions under the DTAA may only be one of several factors considered by the investor while planning the modality of his investments in India. The same may not be the only object or the dominant object of the transaction. Even though there may be certain suspicious features of such transaction, a ruling cannot be declined on the ground that the transaction was designed for the avoidance of Indian income tax.”

It is submitted that the interpretation adopted by the AAR in the second ruling is based on practical considerations and everyday realities of the commercial world and is, therefore, preferable. The objects of these exclusions are clear.

The first is to deter taxpayers from having two strings to their bows and simultaneously trying two different remedies that are alternative in nature. The second seeks to prevent the AAR from getting entangled in intricate problems of valuation that are generally the field of experts and are owing to their very nature, imprecise and time-consuming. The last one is to eschew the possibility of an official sanction being affixed to a transaction that may be a tax avoidance device.

Applications to the Authority

To help in the precise drafting of the issues posed to the Authority, the statute requires the application to be filed in quadruplicate in the provided proforma.[23] A nominal fee has to accompany the application.[24] The application so submitted should:

(a) set out fully and truly all relevant details of the transaction in relation to which questions are raised;

(b) enunciate the questions on which the advance rulings are sought; and

(c) also set out the applicant’s own view as to the nature of ruling expected, supported by reference to the facts and relevant judicial decisions, if any, bearing on the issue.

The application is required to be verified in a manner prescribed in Rule 44E(2) of the Income Tax Rules.[25] The application also requires the applicant to nominate an authorized representative as defined in S.288 of the Income Tax Act[26] to represent him in the proceedings and also furnish an authorization for such person to act and plead on his behalf.[27] The applicant is at full liberty to withdraw the application for an advance ruling within 30 days of making the application.[28]

The Procedure

When an application is received in the office of the AAR, the concerned Commissioner of income tax is requested to send the records of the applicant, if any, and also his views on the questions raised in the application and the answers suggested by the applicant. The Commissioner if he wishes to be heard, can nominate a person to represent him during the course of the hearings before the Authority. [29]

If the Authority, on perusing the application or after considering it in the light of the Commissioner’s report, is satisfied that the application has to be rejected, it may do so after giving the applicant or his authorized representative an opportunity of being heard. The Authority in rejecting the application must also set out the reasons for its rejection.[30]

If, on the other hand, the Authority is of the opinion that the application should be dealt with on merit, it may do so straight-away or after conducting an oral hearing at which both parties are represented. The Authority has also the powers of a civil court to obtain such further information as it may consider necessary. It will then pronounce its rulings on the questions raised.[31]

The statute requires that the ruling should be in writing but does not, unlike in the case of an order for rejection, require it to be reasoned one, apparently because the ruling is final and no appeal is provided for therefrom.

However, in view of the fact that the scheme has been introduced recently and with a view to setting healthy precedents, the orders of the Authority are by and large both elaborate and comprehensive at present.[32] They set out the full facts of the case on the basis of which the ruling is given, the arguments of both parties, the legal position in the light of earlier decisions and other details that are not really necessary for making a decision.

One key aspect of the system for obtaining advance rulings from the AAR is that the Authority has to give the ruling within six months from the date of the application.[33] This provides for speedy disposals of the applications made to the AAR.

Binding Nature of the Ruling

The ruling made by the Authority for Advance Rulings is binding only: on the applicant who had sought the ruling; in respect of the transaction in relation to which it had been sought; and

on the Commissioner and the Income Tax authorities subordinate to him in respect of the applicant and the said transaction. There was some apprehension in the minds of the legislators that the setting up of an independent adjudicatory authority outside the control of the tax authorities might give rise to a difference in interpretation between the two.

Thus, they sought to ensure that the AAR was not given powers of a wide-ranging nature so that the view of the tax authorities remained the final word on the point. Also, in light of this apprehension, the earlier reluctance on the part of the authorities to allow the AAR’s rulings to be published can be better appreciated.

A ruling, having been given on the basis of certain facts relating to a particular taxpayer, is, understandably, no precedent for other cases. However, it can be stated with some assurance that, where the question on which the ruling has been given decides a general question of law or a principle, it will, as a matter of convention and judicial propriety be followed in other cases as well, provided of course that the material facts are similar.[34]

Another consequence of the ruling being based on a set of stated facts and the interpretation of a statute as it stands at a particular time is that it will cease to be binding even on the parties if there is a change in law or if the actual facts of the transaction, as conveyed, are materially different from those on the basis of which the ruling has been obtained.

This is, indeed, the position in all the countries where this system prevails. However, even otherwise, in most countries, the validity or binding nature of the ruling is limited to a specified period.[35] But this additional limitation does not prevail in India where the ruling will be given effect without any limitation of time so long as the material facts of the transaction and law continue to be the same.

It also follows from the ruling being based on the facts placed before it by the applicant without deep scrutiny or detailed investigation that the ruling is treated as void and non-est if it is found that the ruling has been obtained by misstatement of facts or fraud.

In such an event, the Revenue authorities cam move the AAR and the Authority, after providing a reasonable opportunity to the applicant of being heard, may by order, declare the ruling to be void ab initio.[36] The result of such a move would be the same as if no such advance ruling had ever been made.

Unique Features of the Indian System

The system of advance rulings is well established in some of the developed countries like the United States, France, Germany, Australia, the Netherlands etc., but the system adopted by India is unique in many aspects. It is binding both on the Revenue authorities and the applicant in respect of the transaction with reference to which it is issued, unlike other countries where the taxpayer and/ or the Revenue officials could ignore it.

Secondly, in many of the countries, the advance ruling is issued by the officers of the Revenue branch whereas, in India, a high-level autonomous and quasi-judicial body has been set up to pronounce such rulings.

To avoid indefinite litigation, no provision for further appeal has been provided for, whereas in most other countries, since the rulings are issued by the Revenue officials themselves, if a ruling is considered to be adverse, an appeal can be filed which means that the problems of vexatious litigation and concomitant delay and uncertainty still persist.

The Indian system of advance rulings is very helpful in more respect, that is, that all the matters under the income tax law, except for the valuation of property, are covered under the jurisdiction of the Authority; therefore, an applicant does not have to look to any other authority in matters relating to the taxation of his income.

In other countries, contrastingly, there are only select areas in which advance rulings can be given. In countries like the United States, the rulings are classified as private and published rulings. Private rulings do not apply to any other case, whereas published rulings are intended to be a supplement to the existing case law and their principal goal is nation-wide uniformity among the taxpayers and also the officers of the Inland Revenue Service.

There is no such differentiation of the rulings in India for indeed, there is no need for the same. For in the case of India the presence of a single, autonomous entity like the AAR for administering advance rulings make the need for such classification redundant as the goals of consistency and uniformity are already existent. Many of the questions coming up before the AAR are interesting ones on which, generally speaking, decisions of the High Courts or the Supreme Court are not available.

As a consequence, the rules of the Authority provide that such rulings be published in the public interest.[37] Where an applicant has any objection to the publication on account of the confidentiality of his transactions, the Authority allows publication only after editing the ruling and taking out such part of the confidential portions as are not relevant to the decision making.

Publications of rulings was decided upon because although the ruling is binding only in the case of an applicant, coming from a high powered authority, the ruling has a persuasive value and its application in any other case on the same or similar facts and the position of law by the same or any other authority or tribunal cannot be denied. This not only ensures the due process of law but also provides for equality before the law.

Owing to these very reasons, the setting up of the Authority for Advance Rulings in India has evoked a very favorable response from nearly all sections. Now there is a demand to provide for a similar facility for residents as well.

Changes in Advance Rulings: Boon for Domestic Companies under the New Budget

One of the prerequisites of a sound tax regime is predictability and certainty in taxation. The India tax regime is often criticized as being opaque, uncertain and litigious. The other criticism has been shifting of the ground rules without a firm end objective. In this background, with no Goods & Service Tax (GST) in sight, even well-intentioned changes such as the creation of negative list (for service tax) as a step towards GST have created more issues for the taxpayer rather than resolving the problems.

The current budget has maintained the status quo with respect to such major issues but takes a small step towards more predictability and certainty in the India tax regime as well as reduces litigation.

The forum of Advance Ruling has gained considerable importance in the recent past considering the aggressive approach adopted by the revenue authorities. An overwhelming increase in the popularity and its significance of advance ruling can also be sensed from the fact that the scope of advance rulings has been progressively expanded to increase the eligibility of applicants.

Historically, the scope was restricted to a few applicants, such as Joint Ventures or a limited number of Indian companies. The present Union Budget has proposed to expand the horizon of advance ruling to even public limited companies irrespective of their listing on stock exchange. The proposed change provides a level playing field between foreign and domestic businesses.

Also, prior to Union Budget 2013-14, under the indirect tax regime, an application for an advance ruling could only be made in respect of a proposed activity of production or manufacture under central excise law, import/export in case of customs and liability to pay service tax in case of service tax. The terms ‘activity or service proposed to be undertaken’ has been interpreted varyingly and has been a constant hurdle in obtaining an advance ruling.

The entities are always faced with the issue of whether the ruling could be obtained for a new activity in an existing line of business, a similar line of business or a different line of business. Prior to the Union Budget, in a recent ruling for an IT MNC, the question before the Authority for Advance Ruling was when an entity is already in the business of import or export, can such an entity obtain advance ruling for proposed imports of a different product.

In the said case, the applicant was already in the business of import of software and decided to venture into the hardware business. The applicant approached the authority for clarification on the aspect of valuation of hardware proposed to be imported from the related party.

The question before the authority was whether the sale of hardware and the service thereof is a new business activity that is contemplated or proposed to be undertaken and thus, eligible for an advance ruling. The authority canvassed narrow construction of the phrase “activity proposed to be undertaken” to mean that ruling cannot be sought by an entity that has already commenced or set up the business of import or export in India, merely because it intends to expand its business or to diversify. The said decision came as a real blow to the very object of creating the machinery for an advance ruling, which was to reduce litigation.

The budget proposal to expand the meaning of the term ‘activity’ has given fresh hope to businesses. It has been proposed that the term activity would now include any new line of business of import, export, production or manufacture for existing importers, exporters, manufacturers or producers. The issue to watch out for is whether the proposed definition of the term activity will be considered while deciding the fate of the existing application filed before the authority.

With the introduction of the negative list of service tax, the issue relating to eligibility for proposed service becomes even more interesting in light of the new definition of service and taxable event. It will be interesting to see whether the authority will entertain an application from public limited companies in the context of an on-going activity which was earlier not covered within the scope of specified taxable services.

The proposed changes in eligibility for advance rulings have provided an efficient opening to many multi-nationals/domestic business to seek redressal of a question of law or a peculiar characteristic of their business plan long before they decide to invest money into that operation.

Moreover, the fact that the facility is now proposed to be extended to the private company which is deemed to be a public company by virtue of Section 43A of the Companies Act has strengthened the advance ruling as an institution. It is now left for businesses to use this tool to its optimum level before making investment plans or actual funding of a new line of business.


Broadly speaking, the concept of advance rulings implies a written confirmation from a tax authority, in advance, regarding the tax implications of a proposed transaction. This concept, based on the canon of certainty, is intended to overcome the obvious disadvantage of an uncertain tax position so that the taxpayer is forewarned in advance about the tax ramifications of the action he proposes to undertake.

Thus, the primary object of the advance rulings is to enable a taxpayer to know his tax liability in advance so that he can make a sound decision whether or not to go ahead with the transaction he has planned to undertake. In this respect, the Indian system for advance rulings under the autonomous, quasi-judicial Authority for Advance Rulings has proved to be a success.

However, there exist certain defects in the present system which need to be remedied/looked into at the earliest. One such issue is the definition of ‘advance ruling’ to include transactions that have already been undertaken by the applicant before applying for the advance ruling. There is also a statutory requirement for the disposal of the application within six months from the date of filing of the application[39].

Though laudable, it has been observed that this mandate may give rise to certain problems in practice. It is submitted, that for this condition to be meaningful, the hearings should commence at an early date so as to provide the Authority with sufficient time to apply its mind and make a judicious decision. Another suggestion is with respect to the time allowed for the applicant to withdraw his application.[41]

It is submitted that the present period of 30 days from the date when the application is made is too short to serve any useful purpose, particularly when no proceedings commence within this period. Therefore, withdrawal should be provided for till any time before the actual ruling by the Authority, or alternatively, the time granted should be suitably extended.

The last and the most important criticism is with respect to the binding nature of the advance ruling given by the AAR. As per the existing statute, the ruling of the Authority would be binding only on the Commissioner and the income tax authorities subordinate to him.[42]

Such a position is indeed depressing. For where would an applicant stand if, after taking the elaborate pains to present an application for an advance ruling, he finds that the ruling has no certainty in Indian law because an authority higher than the Commissioner can overturn the ruling. It is advocated that there should be complete and absolute finality about the tax liability of the applicant, as ruled upon by the AAR and to this end, appropriate changes are made in the statute at the earliest.

Critics have voiced the view that such problems with the system of advance rulings are on account of inevitable difficulties in transplanting such a novel idea to the British practice on which the Income Tax Policy and Administration has been built for over a century in India.

Formatted on February 17th, 2019.


[1] N. Aiyar, Indian Tax Laws, Vol. 1, Company Law Institute of India Pvt. Ltd., Chennai, 2002. p. 793.

[2] Ranganathan, Justice S., The Indian System of Advance Rulings, Journal of the IFA, vol 51, p. 510.

[3] V. K. Bhargava, Income Tax Act, Taxman Publications Pvt. Ltd., New Delhi, 1998. p. 157

[4] Supplemented by the Income Tax Rules 44E & F and the AAR (Procedure Rules).

[5] CBDT Circular No. 657, dated 30.08.1993.

[6] Inserted by Finance Act 2003.

[7] Ibid.

[8] (1996) 87 Taxman 59 (AAR).

[9] [1996] 220 ITR 377 (AAR).

[10] Sanjeeva Narayan, Advance Rulings Under The Income Tax Act, 1961 – Some Issues, 1994 Taxman Vol. 76, p. 54.

[11] Amit Baargava (Processed), Taxman’s Income Tax Act, Taxman Publications Pvt. Ltd., New Delhi, 2003. p. 1.786.

[12] Ibid.

[13] S. 245N(a).

[14] Supra Note 11

[15] Monte Harris v. CIT, (1996) 82 Taxman 365 (AAR).

[16] CBDT Circular No. 153/85/98-TPL dated 28.05.1999.

[17] S. 245N(a), (b) and (c).

[18] As enumerated in S. 245R(2).

[19] (1997) 90 Taxman 144 (AAR).

[20] Amiz Zai Sangni, In Re [1999] 238 ITR 189 (AAR).

[21] Supra n. 7.

[22] Petition No. 10 of 1996, In Re, (1996) 89 Taxman 125 (AAR).

[23] Rule 44E alongwith the provided form, Form 34C. The application should then be sent by post or fax to the AAR office in New Delhi.

[24] Per S. 245Q(2), Rupees 2,500 in the form of a crossed draft has to be made out in the favour of AAR.

[25] The verification is in the nature of a solemn affirmation by the applicant of the truth of the contents of the application.

[26] S. 288 of the Act prescribes the qualifications of the person representing a taxpayer before the income tax authorities. A regular employee, a lawyer, a chartered accountant and certain other persons are included in the definition.

[27] S. 245R(1) read with Rule 13 of the Procedure Rules.

[28] S. 245Q(3).

[29] Advance Ruling, visited on 11/03/2003, cited from,  <http://www.namasthenri. com/advance/main.htm>.

[30] S. 245R(2), the second and third provisos.

[31] R. N. Prasad, Dr., Assistance To Taxpayers Through Advance Rulings, 1996 Taxman Vol. 87, p.124.

[32] Scheme of Advance Rulings for Non-Residents, visited on 11/03/2003, cited from, <>.

[33] S.245R(6).

[34] Amiz Zai Sangni, In Re [1999] 238 ITR 189 (AAR)

[35] Ibid.

[36] S. 245T read with Rule 23 of the Procedure Rules.

[37] Rule 25 of the Procedure Rules.

[38] Supra Note 11

[38] Supra n. 7.

[39] Per S. 245R (6).

[40] [1996] 220 ITR 377 (AAR).

[41] As per S. 245Q (3).

[42] Per S. 245S.

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