C.A. Siddharth N. Surana
[C.A. Final / Direct Tax]
CHAPTER – XIX-B AUTHORITY FOR ADVANCE RULING (AAR) [SECTION 245N
TO 245T]
„Ruling‟ means „a decision having a binding effect‟ and „Advance Ruling‟ means „a decision taken in advance‟. A decision
taken by this authority shall be binding on the Income Tax Department, i.e. on A.O.
In order to provide Income Tax related clarifications to Non-Residents, an authority called „AUTHORITY FOR ADVANCE
RULING (AAR)‟ was set up by Central Government. Accordingly, a Non-Resident assessee could make an application to AAR
seeking clarifications about his tax liability and other connected aspects, arising out of any past or any future transaction
undertaken or proposed to be undertaken in India, by such Non-Resident applicant by way of Investment, Joint Venture,
Collaboration, etc.
However, now such application to AAR can be made by notified residents
Definitions:
Section 245N(a): “Advance Ruling”: means,
(i.)
a determination by the authority in relation to a transaction, which has been undertaken or is proposed to be
undertaken by a Non-Resident applicant, or
(ii.)
a determination by the authority 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 a Resident applicant with such Non-Resident,
(iia)
a determination by the authority in relation to the tax liability of a Resident applicant, arising out of a transaction
which has to be undertaken or is proposed to be undertaken by such resident applicant (For the purpose of this
clause, a resident, in relation to his tax liability arising out of one or more transactions valuing Rs. 100 crore or
more, shall become applicant)
(iii.)
a determination or decision by the authority in respect of an issue relating to Computation of Total Income, which
is pending before an Income Tax Authority or ITAT (in case of an applicant being a Public Sector Company).
Note: Notified Resident being a Public Sector Company can make an application to AAR, only if the matter is pending in its
case before an Income Tax Authority or ITAT, as on the date of making application.
Section 245N(b): “Applicant”: means any Person who:
(i.)
is a Non-Resident,
(ii.)
is a Resident having a transaction with Non-Resident
(iia)
is a Resident referred to in Section 245N(a)(iia) falling within any class or category of persons notified by the
Central Government
(iii.)
is a Resident falling within any class or category of persons notified by Central Government (i.e. a Public Sector
Company)
and who makes an application u/s 245Q(1).
Note: A question arises about the „Non-Resident Applicant‟ here, is that at what point of time should he be non-resident?
Answer: A Non-Resident applicant should be Non-Resident in the year immediately preceding the year in which he makes an
application and not necessarily in the year of making application. If he makes an application in P.Y. 19-20, then he should be
Non-Resident in India in the P.Y. 2018-19.
Section 245O: Constitution of AAR: AAR has been constituted by Central Government under the Ministry of Law and Order
and shall comprise of the following:(1.) Chairman: A person who has been a Judge of the Supreme Court or the Chief Justice of a High Court or for at least seven
years a Judge of a High Court
(2.) Vice Chairman: A person who has been a judge of High Court.
(3.) Members: shall be either:a) Revenue Member:
(i) from the Indian Revenue Service, who is, or is qualified to be, a Member of the Board; or
(ii) from the Indian Customs and Central Excise Service, who is, or is qualified to be, a Member of the Central Board
of Excise and Customs
or
b) Law Member from the Indian Legal Services(ILS), who is, or is qualified to be, an Additional Secretary to the
Government of India.
1. In the event of the occurrence of any vacancy in the office of the Chairman by reason of his death, resignation or otherwise,
the senior-most Vice-chairman shall act as the Chairman until the date on which a new Chairman, appointed in accordance with
the provisions of this Act to fill such vacancy, enters upon his office.
2. In case the Chairman is unable to discharge his functions owing to absence, illness or any other cause, the senior-most ViceChairman shall discharge the functions of the Chairman until the date on which the Chairman resumes his duties.
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[C.A. Final / Direct Tax]
The AAR shall be located in the National Capital Territory of Delhi and its benches shall be located at such other places as the
Central Government may by notification specify. A Bench shall comprise of the Chairman or Vice Chairman, One Revenue
Member and One Law Member.
Section 245P: Vacancies caused shall not invalidate the proceedings: Any vacancy caused in the AAR, shall not invalidate
the proceeding before it. Similarly, any defect in the constitution of AAR shall also not invalidate the proceeding before it.
Section 245Q: Application: An Application can be made to AAR in a prescribed form in quadruplicate, along with, a nonrefundable filing fees. Application, once filed can be withdrawn, within 30 days from the date of making such application,
unlike an application made to Income Tax Settlement Commission (ITSC), which cannot be withdrawn. However, even after 30
days the application can be withdrawn if the AAR permits. The following forms have been prescribed for the purpose of
applying to AAR:a. Form 34C - Applicable for a Non-Resident applicant;
b. Form 34D- Applicable for a notified Resident having transactions with a Non- Resident;
c. Form 34DA- Applicable for a notified Resident having transactions of Rs. 100 crore or more;
d. Form 34E- Applicable for Public Sector Company.
The fees payable along with the application for advance ruling as follows:
 For transaction value upto Rs. 100 crore – 2 Lakhs
For applications in (a), (b), (c)
 For transaction value between Rs. 100 crore and 300 crore – 5 Lakhs
 For transaction value exceeding Rs. 300 crore – 10 Lakhs
For applications in (d) (i.e. Public Sector
Company)
Rs. 10,000
Section 245R: Procedure: The following procedure will be followed, after the receipt of the application by AAR:(1.) Upon receipt of application from assessee, one copy thereof will be forwarded by AAR to the concerned CIT having
jurisdiction over the case,
(2.) If found necessary, CIT will be asked to furnish the relevant records, which shall be returned back as soon as possible,
(3.) After scrutinizing the application of the assessee and verifying the records received from CIT, AAR will either allow or
reject the application of the assessee by way of passing an order in writing,
(4.) No such application shall be rejected by AAR, unless an opportunity of being heard was given
(5.) However, in the following 4 cases, the application of the assessee will straight away be rejected: If the matter raised before AAR by a Non-Resident applicant (or a Resident having a transaction with NonResident) is already pending before an Income Tax Authority or Income Tax Appellate Tribunal (ITAT), or
 If the matter raised before AAR by any applicant (whether Resident or a Non-Resident) is pending
before any court,
If pending before:
High Court
For a notified Resident
Applicant
then Application will
straight away be rejected
Supreme Court
by AAR
__________________________________________________________________________
If pending before:
An I. Tax Authority
then Application will
For a Non-Resident
Applicant
ITAT
straight away be rejected
High Court
by AAR
Supreme Court
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C.A. Siddharth N. Surana
[C.A. Final / Direct Tax]
 If the matter raised before AAR, involves computation of Fair Market Value (F.M.V.) of any property including
Fair Market Rate of Interest,
 If the application involves a transaction, which is prima facie designed for avoidance of tax.
(6.) However, if the application of the assessee has been allowed to be proceeded further with by AAR, then AAR shall
pronounce its ruling within a period of 6 months from the date of receipt of application from the assessee.
Section 245RR: Income Tax Authorities not to proceed further in certain circumstances: If a notified Resident Applicant
(i.e. A Public Sector Company) has made an application to AAR, then no Income Tax Authority or ITAT, shall proceed further
in the matter to decide the case.
Section 245S: Binding Nature of Ruling pronounced by AAR: Unless there are changes in the facts or circumstances or law,
based on which the ruling was pronounced, the ruling pronounced by AAR, shall be binding on:(a.) The „Applicant‟, who had sought the ruling, (‘justice-in-persona’)
(b.) The „transaction‟, in respect of which the ruling has been pronounced and
(c.) The concerned „Commissioner of Income Tax (CIT)‟ and all the Income Tax Authorities subordinate to him in relation
to the said Applicant and the said Transaction.
Section 245T: Ruling to be Void: After pronouncing its ruling, if it subsequently comes to the knowledge of AAR, that the
ruling pronounced by it was obtained by applicant by fraud or misrepresentation of facts, then AAR may by an order in
writing, declare its earlier ruling to be void-ab-initio.
Section 245U: Powers of AAR: The Authority shall have all the powers of the Civil Court in respect of discovery and
inspection, enforcing the attendance of any person, including any officer of a banking company and examining on oath, issuing
commissions and compelling the production of books of accounts and other documents. The Authority shall be deemed to be a
Civil Court for the purposes of section 195 of the Code of Criminal Procedure, 1973 and every proceeding before the Authority
shall be deemed to be a judicial proceeding under the Indian Penal Code.
Section 245V: Procedure of AAR: The Authority shall, subject to the provisions of this Chapter, have power to regulate its
own procedure in all matters arising out of the exercise of its powers under the Act.
QUESTIONS
Q..1 The Authority for Advance Rulings has the powers of compelling the production of books of account– Examine the
correctness or otherwise of this statement.
Ans.: The statement is correct.
Under section 245U, the Authority for Advance Rulings shall 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 for Advance Rulings 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 (1) discovery and inspection;
(2) enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
(3) compelling the production of books of account and other documents; and
(4) issuing commissions.
Therefore, the Authority for Advance Ruling has the powers of compelling the production of books of account.
Q..2 Designated Authority can determine any issue under the Income Tax Act, 1961 by giving „Advance Ruling‟. Elaborate the
meaning assigned to „Advance Ruling‟ under the aforesaid Act. (November, 2008; November, 2002)
Ans.: Refer to Section 245N(a).
Q..3 Mr. Wasim Akram is a non-resident. The appeal pertaining to the Assessment Year 2019-20 is pending before the
Appellate Tribunal, the issue involved being computation of income from house property. The same issue persists for the
Assessment Year 2020-21 also. Mr. Waqar Younis friend Mr. Wasim Akram has obtained an advance ruling under Chapter –
XIX-B of the Income Tax Act, 1961 from the Authority for Advance Ruling on an identical point. Mr. Wasim Akram proposes
to use the said ruling for his assessment pertaining to the Assessment Year 2020-21. Advise Mr. Wasim Akram suitably. (May,
1997)
Ans.: In this case, Mr. Wasim Akram‟s case for A.Y. 2019-20 is already pending before the Appellate Authority, therefore,
according to section 245R he cannot make an application to Authority for Advance Ruling for A.Y. 2020-21. According to
section 245S, the ruling pronounced by the Authority for Advance Ruling will be binding only on the applicant who had sought
the ruling, therefore, ruling pronounced for his friend Mr. Waqar Younis can neither be used by Mr. Wasim Akram for A.Y.
2019-20 nor for A.Y. 2020-21.
Though Mr. Wasim Akram‟s case for A.Y. 2020-21 is not pending at any level, then also he cannot approach the Authority for
Advance Ruling for A.Y. 2020-21, because the question on which he seeks ruling is already pending at Appellate Tribunal level
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C.A. Siddharth N. Surana
[C.A. Final / Direct Tax]
for A.Y. 2019-20. The language used in section 245R says that in case of a non-resident applicant, the application will straight
away be rejected, if the „issue‟ involved in the application is pending before any Income Tax Authority or ITAT or before any
court, whether for the same assessment year or for any other assessment year. Therefore, in case of Mr. Wasim Akram, even if
his case for A.Y. 2020-21 is not pending at any level, then also, just because the issue on which he seeks ruling, is pending
before ITAT, though pending for another assessment year, his application for A.Y. 2020-21 on the same issue cannot be
entertained.
Q..4 Q, a non-resident, made an application to the Authority for Advance Rulings on 02-01-2021 in relation to a transaction
proposed to be undertaken by him. On 31-3-2020, he decides to withdraw the said application. Can he withdraw the application
on 31-03-2021? (November, 2006)
Ans.: According to section 245Q, once an application is being made to the Authority for Advance Ruling in a prescribed form,
it can be withdrawn by the applicant, but only within 30 days from the date of making application. In the given case, Q had
made an application on 02-01-2021 and he intends to withdraw the same on 31-03-2021, which is beyond 30 days from the date
of making application to the authority, therefore, Q will not be allowed to withdraw his application. However, even after 30
days the application can be withdrawn if the AAR permits.
Q..5 Can a person resident in India seek advance ruling from the Authority for Advance Ruling?
(May, 2005)
Ans.: Initially, Chapter – XIX-B provisions were applicable only for a person who is non-resident in India, during the given
previous year. However, with effect from 01-10-1998, the scope of the provisions of this chapter was widened, allowing certain
notified residents to approach the Authority for Advance Ruling and seek advance ruling. Accordingly, the following notified
residents can also now approach the Authority for Advance Ruling:(a.)A Public Sector Company(provided such issue raised in the application was pending before an Income Tax Authority or
Appellate Tribunal as on the date of making application to AAR).; and
(b.) Any other resident making application to seek clarification about the tax liability of a non-resident arising from a
transaction which has been undertaken or which is proposed to be undertaken in India by such non-resident with such resident
applicant.
(c.) Further a Resident referred to in Section 245N(a)(iia) falling within any class or category of persons notified by the Central
Government i.e. for Transactions valuing Rs. 100 crore or more is also eligible to make an application to AAR.
Q..6 A Foreign Company entered into contracts with several Indian Companies for installation of mobile telephone system and
made an application to the Authority for Advance Ruling on the rate of withholding tax on receipts from Indian Companies.
One of the Indian Companies made an application to its Assessing Officer for determination of the rate of tax at which tax is
deductible on payment to the said Foreign Company. The Authority for Advance Ruling rejected the application on the ground
that the question raised in the application is already pending before an Income Tax Authority. Is the rejection of the application
of the Foreign Company to Authority for Advance Ruling justified in law? (May, 2015)
Ans.: Refer to section 245R and the case law of „Ericsson Telephone Corporation India AB v/s CIT (1997)(AAR). According to
section 245R, in the case of a non-resident applicant, an application to AAR will be entertained, only if the question raised in
the application is not pending before an Income Tax Authority or ITAT as on the date of making application. However, it needs
to be understood here that what should not be pending, is the question raised by the non-resident applicant in his own case. If
the question raised by non-resident applicant is pending before an Income Tax Authority, but not in the case of non-resident
applicant himself, but in somebody else‟s case, then it cannot be considered as pending in case of non-resident applicant and
therefore, the application shall certainly be maintainable.
Accordingly, in the given case, the question raised by non-resident applicant is pending before Assessing Officer, but it is
not pending in the case of non-resident applicant himself, but it is pending in case of Indian Company which has some dealings
with non-resident applicant. Since, the question raised in the application is not pending in the case of non-resident himself,
rejection of application is not justified.
Q..7 Discuss the proposition “An advance ruling can become void”. (May, 2001)
Ans.: According to section 245T of the Income Tax Act, 1961, after pronouncing its ruling, if it comes to the knowledge of
Authority for Advance Ruling that the ruling was obtained by the applicant by way of Fraud or Misrepresentation of facts, then
the Authority can by way of passing an order in writing declare its earlier ruling to be void-ab-initio. However, it needs mention
here that an opportunity of being heard must be given to the concerned applicant by the Authority for Advance Ruling before
doing so.
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