As one of the measures to reduce tax litigation, the present Government in its maiden budget in July 2014 (Budget) had announced that the opportunity to seek advance rulings from the Authority for Advance Rulings (AAR) would also be available to the notified categories of resident taxpayers.

Initially, resident taxpayers could approach the AAR only to determine the tax liability of non-resident taxpayer/s with respect to a transaction which they entered into or proposed to enter into with such non-resident taxpayer/s. However, post this announcement, Indian resident taxpayers can approach the AAR to get a ruling determining their own tax liability with respect to a transaction that they undertake or propose to undertake.

It is in pursuance to this announcement that the Central Board of Direct Taxes has issued a notification to the effect that resident taxpayers who have undertaken or proposed to undertake one or more transactions valuing INR 100 crore or more in total, are eligible to approach the AAR for determination of their tax liabilities under such transaction/s.

However, the ability of such residents to make the application for advance ruling continues to be subject to the following limitations:

  • The question being sought to be raised before the AAR should not already be pending before any tax authority or Appellate Tribunal;
  • The application should not involve a question relating to determination of the fair market value of any property; etc.

Khaitan Comments

This is a welcome move by the Government and a positive step towards achieving a nonadversarial tax regime as promised by the new Government. It is expected to bring about clarity at the time the transactions or projects are on the drawing board, making the tax outcome more certain and minimising the possibility of a tax dispute arising at a later stage thereby saving resources in terms of time, cost and efforts in defending / litigating a dispute.

One would now look forward to hearing from the Government regarding the additional benches of the AAR in other metro cities in the country that would be set up as announced in the Budget, which will strengthen the infrastructure of the AAR and would result in speedy disposal of applications for advance rulings.

The AAR forum will soon become functional as the Government has now appointed new Chairman (Hon’ble Justice (Retd.) Mr V.S. Sirpurkar) to take charge of AAR. Accordingly, hearings of pending cases and the new applications for advance rulings is expected to commence soon.